UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 20192020


OR


o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ________to _________


Commission file number 001-13106 (Essex Property Trust, Inc.)
Commission file number 333-44467-01 (Essex Portfolio, L.P.)

(Commission File Number)

ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
(Exact name of Registrant as Specified in its Charter)
Maryland (Essex
77-0369576
(Essex Property Trust, Inc.)
(Essex Property Trust, Inc.)
California77-0369575
 (Essex Portfolio, L.P.) 
77-0369576 (Essex Property Trust, Inc.)
77-0369575 (Essex(Essex Portfolio, L.P.)
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
1100 Park Place, Suite 200
San Mateo, California94403
(Address of Principal Executive Offices, Including Zip Code)


(650) (650) 655-7800
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: 
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, $.0001 par value (Essex Property Trust, Inc.)ESSNew York Stock Exchange

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



i

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


i


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


Essex Property Trust, Inc.:
Large accelerated filerx
☒

Accelerated filero
☐
Non-accelerated filero
☐
Smaller reporting companyo☐
   
Emerging growth companyo


☐


Essex Portfolio, L.P.:
Large accelerated filero
☐Accelerated filer☐Non-accelerated filer
☒

Accelerated filer o
Non-accelerated filer x
Smaller reporting companyo
☐
   
Emerging growth companyo

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

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


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Essex Property Trust, Inc.    Yes o   No x
Yes
☐No☒Essex Portfolio, L.P.Yeso☐Nox☒
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 65,716,55065,417,355 shares of Common Stock ($0.0001.0001 par value) of Essex Property Trust, Inc. were outstanding as of April 23, 2019.May 5, 2020.
 


ii


EXPLANATORY NOTE


This report combines the reports on Form 10-Q for the three month period ended March 31, 20192020 of Essex Property Trust, Inc., a Maryland corporation, and Essex Portfolio, L.P., a Delaware limited partnership of which Essex Property Trust, Inc. is the sole general partner.


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


Essex operates as a self-administered and self-managed real estate investment trust ("REIT"), and is the sole general partner of the Operating Partnership. As the sole general partner of the Operating Partnership, Essex has exclusive control of the Operating Partnership's day-to-day management.


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


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


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


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


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


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


iii


presented in the Operating Partnership’s condensed consolidated financial statements and (ii) OP Unit holders.Unitholders. The differences between stockholders' equity and partners' capital result from differences in the equity issued at Essex and Operating Partnership levels.
 
To help investors understand the significant differences between Essex and the Operating Partnership, this report on Form 10-Q provides separate consolidated financial statements for Essex and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of stockholders' equity or partners' capital, and earnings per share/unit, as applicable; and a combined Management's Discussion and Analysis of Financial Condition and Results of Operations.


This report on Form 10-Q also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of Essex and the Operating Partnership in order to establish that the requisite certifications have been made and that Essex and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. §1350.


In order to highlight the differences between Essex and the Operating Partnership, the separate sections in this report on Form 10-Q for Essex and the Operating Partnership specifically refer to Essex and the Operating Partnership. In the sections that combine disclosure of Essex and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and co-investments and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership. The separate discussions of Essex and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.


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


The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the notes to such unaudited condensed consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations herein. Additionally, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2018.2019.


iv


ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
FORM 10-Q
INDEXTABLE OF CONTENTS


PART I. FINANCIAL INFORMATIONPage No.
   
Item 1.Condensed Consolidated Financial Statements of Essex Property Trust, Inc. (Unaudited) 
   
 
Condensed Consolidated Balance Sheets as of March 31, 20192020 and December 31, 20182019
2
   
 
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 20192020 and 20182019
3
   
 
Condensed Consolidated StatementStatements of Equity for the three months ended March 31, 20192020 and 20182019
4
   
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20192020 and 20182019
6
   
 Condensed Consolidated Financial Statements of Essex Portfolio, L.P. (Unaudited) 
   
 
Condensed Consolidated Balance Sheets as of March 31, 20192020 and December 31, 20182019
8
   
 
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 20192020 and 20182019
9
   
 
Condensed Consolidated StatementStatements of Capital for the three months ended March 31, 20192020 and 20182019
10
   
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20192020 and 20182019
12
   
 
Notes to Condensed Consolidated Financial Statements
14
   
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
3331
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risks
4140
   
Item 4.
Controls and Procedures
4241
   
PART II. OTHER INFORMATION 
   
Item 1.
Legal Proceedings
4342
   
Item 1A.
Risk Factors
4342
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
43
   
Item 3.
Defaults Upon Senior Securities
44
   
Item 4.
Mine Safety Disclosures
44
   
Item 5.
Other Information
44
   
Item 6.
Exhibits
45
   
Signatures
46

Part I – Financial Information


Item 1. Condensed Consolidated Financial Statements


ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except parenthetical and share amounts)
ASSETSMarch 31, 2020 December 31, 2019
Real estate:   
Rental properties:   
Land and land improvements$2,983,314
 $2,773,805
Buildings and improvements12,263,293
 11,264,337
 15,246,607
 14,038,142
Less: accumulated depreciation(3,818,489) (3,689,482)
 11,428,118
 10,348,660
Real estate under development435,865
 546,075
Co-investments997,137
 1,335,339
 12,861,120
 12,230,074
Cash and cash equivalents-unrestricted271,877
 70,087
Cash and cash equivalents-restricted10,470
 11,007
Marketable securities, net of allowance for credit losses of $13.6 million and zero as of March 31, 2020 and December 31, 2019, respectively148,139
 144,193
Notes and other receivables, net of allowance for credit losses of $0.1 million and zero as of March 31, 2020 and December 31, 2019, respectively (includes related party receivables of $7.7 million and $90.2 million as of March 31, 2020 and December 31, 2019, respectively)34,867
 134,365
Operating lease right-of-use assets74,428
 74,744
Prepaid expenses and other assets49,940
 40,935
Total assets$13,450,841
 $12,705,405
    
LIABILITIES AND EQUITY 
  
Unsecured debt, net$5,258,263
 $4,763,206
Mortgage notes payable, net887,389
 990,667
Lines of credit350,000
 55,000
Accounts payable and accrued liabilities193,564
 158,017
Construction payable50,538
 48,912
Dividends payable142,800
 135,384
Operating lease liabilities76,405
 76,740
Other liabilities41,290
 36,565
Total liabilities7,000,249
 6,264,491
Commitments and contingencies


 


Redeemable noncontrolling interest32,643
 37,410
Equity: 
  
Common stock; $.0001 par value, 670,000,000 shares authorized; 65,412,355 and 66,091,954 shares issued and outstanding, respectively7
 7
Additional paid-in capital6,959,523
 7,121,927
Distributions in excess of accumulated earnings(708,697) (887,619)
Accumulated other comprehensive loss, net(22,668) (13,888)
Total stockholders' equity6,228,165
 6,220,427
Noncontrolling interest189,784
 183,077
Total equity6,417,949
 6,403,504
Total liabilities and equity$13,450,841
 $12,705,405

ASSETSMarch 31, 2019 December 31, 2018
Real estate:   
Rental properties:   
Land and land improvements$2,727,878
 $2,701,356
Buildings and improvements10,844,322
 10,664,745
 13,572,200
 13,366,101
Less: accumulated depreciation(3,329,743) (3,209,548)
 10,242,457
 10,156,553
Real estate under development497,794
 454,629
Co-investments1,307,561
 1,300,140
 12,047,812
 11,911,322
Cash and cash equivalents-unrestricted107,034
 134,465
Cash and cash equivalents-restricted17,092
 16,930
Marketable securities211,030
 209,545
Notes and other receivables (includes related party receivables of $10.5 million and $11.1 million as of March 31, 2019 and December 31, 2018, respectively)71,154
 71,895
Operating lease right-of-use assets76,996
 —
Prepaid expenses and other assets46,883
 39,439
Total assets$12,578,001
 $12,383,596
    
LIABILITIES AND EQUITY 
  
Unsecured debt, net$4,293,973
 $3,799,316
Mortgage notes payable, net1,441,828
 1,806,626
Lines of credit—
 —
Accounts payable and accrued liabilities180,571
 127,086
Construction payable60,087
 59,345
Dividends payable134,339
 128,529
Operating lease liabilities79,010
 —
Other liabilities33,829
 33,375
Total liabilities6,223,637
 5,954,277
Commitments and contingencies

 

Redeemable noncontrolling interest37,169
 35,475
Equity: 
  
Common stock; $0.0001 par value, 670,000,000 shares authorized; 65,715,783 and 65,890,322 shares issued and outstanding, respectively7
 7
Additional paid-in capital7,028,154
 7,093,079
Distributions in excess of accumulated earnings(822,087) (812,796)
Accumulated other comprehensive loss, net(14,817) (13,217)
Total stockholders' equity6,191,257
 6,267,073
Noncontrolling interest125,938
 126,771
Total equity6,317,195
 6,393,844
Total liabilities and equity$12,578,001
 $12,383,596


See accompanying notes to the unaudited condensed consolidated financial statements.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
(In thousands, except share and per share amounts)
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Revenues:      
Rental and other property$353,888
 $344,947
$389,750
 $353,888
Management and other fees from affiliates2,335
 2,308
2,617
 2,335
356,223
 347,255
392,367
 356,223
Expenses: 
  
 
  
Property operating, excluding real estate taxes58,898
 57,250
64,131
 58,622
Real estate taxes39,418
 37,713
43,012
 39,418
Corporate-level property management expenses8,153
 7,770
8,759
 8,429
Depreciation and amortization120,568
 119,105
131,559
 120,568
General and administrative13,459
 14,813
13,982
 13,459
Expensed acquisition and investment related costs32
 57
87
 32
240,528
 236,708
261,530
 240,528
Earnings from operations115,695
 110,547
130,837
 115,695
Interest expense(53,643) (54,861)(55,147) (53,643)
Total return swap income2,045
 2,270
1,984
 2,045
Interest and other income12,261
 5,909
Interest and other income (loss)(5,221) 12,261
Equity income from co-investments16,276
 32,774
21,297
 16,276
Gain on early retirement of debt, net1,336
 —
321
 1,336
Gain on remeasurement of co-investment31,535
 —
234,694
 31,535
Net income125,505
 96,639
328,765
 125,505
Net income attributable to noncontrolling interest(6,647) (5,721)(13,759) (6,647)
Net income available to common stockholders$118,858
 $90,918
$315,006
 $118,858
Comprehensive income$123,668
 $102,815
$319,678
 $123,668
Comprehensive income attributable to noncontrolling interest(6,585) (5,926)(13,452) (6,585)
Comprehensive income attributable to controlling interest$117,083
 $96,889
$306,226
 $117,083
Per share data: 
  
 
  
Basic: 
  
 
  
Net income available to common stockholders$1.81
 $1.38
$4.77
 $1.81
Weighted average number of shares outstanding during the period65,702,788
 66,044,022
66,043,831
 65,702,788
Diluted: 
  
 
  
Net income available to common stockholders$1.81
 $1.38
$4.76
 $1.81
Weighted average number of shares outstanding during the period65,783,869
 66,082,517
66,195,415
 65,783,869


See accompanying notes to the unaudited condensed consolidated financial statements.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated StatementStatements of Equity for the three months ended March 31, 20192020 and 20182019
(Unaudited)
(In thousands)
 Common stock Additional paid-in capital 
Distributions
in excess of accumulated earnings
 
Accumulated
other
comprehensive loss, net
 Noncontrolling Interest   Common stock Additional paid-in capital 
Distributions
in excess of accumulated earnings
 
Accumulated
other
comprehensive loss
 Noncontrolling interest Total
 Shares Amount Total
Balances at December 31, 2018 65,890
 $7
 $7,093,079
 $(812,796) $(13,217) $126,771
 $6,393,844
Three Months Ended March 31, 2020 Shares Amount Additional paid-in capital 
Distributions
in excess of accumulated earnings
 
Accumulated
other
comprehensive loss
 Noncontrolling interest Total
Balances at December 31, 2019 66,092
 $7
 
Net income —
 —
 —
 118,858
 —
 6,647
 125,505
 —
 —
 —
 315,006
 —
 13,759
 328,765
Reversal of unrealized losses upon the sale of marketable debt securities —
 —
 —
 —
 32
 1
 33
Change in fair value of derivatives and amortization of swap settlements —
 —
 —
 —
 (1,926) (67) (1,993) —
 —
 —
 —
 (8,486) (296) (8,782)
Change in fair value of marketable debt securities, net —
 —
 —
 —
 119
 4
 123
 —
 —
 —
 —
 (294) (11) (305)
Issuance of common stock under:  
  
  
  
  
  
  
  
  
  
  
  
  
  
Stock option and restricted stock plans, net 51
 —
 3,204
 —
 —
 —
 3,204
 89
 —
 8,665
 —
 —
 —
 8,665
Sale of common stock, net —
 —
 (20) —
 —
 —
 (20) —
 —
 (70) —
 —
 —
 (70)
Equity based compensation costs —
 —
 2,301
 —
 —
 299
 2,600
 —
 —
 1,619
 —
 —
 79
 1,698
Retirement of common stock, net (234) —
 (56,989) —
 —
 —
 (56,989) (776) —
 (176,311) —
 —
 —
 (176,311)
Cumulative effect upon adoption of ASU No. 2017-12 —
 —
 —
 —
 175
 6
 181
Cumulative effect upon adoption of ASU No. 2016-13 —
 —
 —
 (190) —
 —
 (190)
Changes in the redemption value of redeemable noncontrolling interest —
 —
 (3,027) —
 —
 1,260
 (1,767) —
 —
 4,741
 —
 —
 26
 4,767
Changes in noncontrolling interest from acquisition —
 —
 —
 —
 —
 1,349
 1,349
Distributions to noncontrolling interest —
 —
 —
 —
 —
 (7,164) (7,164) —
 —
 —
 —
 —
 (7,879) (7,879)
Redemptions of noncontrolling interest 9
 —
 (10,394) —
 —
 (1,819) (12,213) 7
 —
 (1,048) —
 —
 (320) (1,368)
Common stock dividends ($1.95 per share) —
 —
 —
 (128,149) —
 —
 (128,149)
Balances at March 31, 2019 65,716
 $7
 $7,028,154
 $(822,087) $(14,817) $125,938
 $6,317,195
Common stock dividends ($2.0775 per share) —
 —
 —
 (135,894) —
 —
 (135,894)
Balances at March 31, 2020 65,412
 $7
 $6,959,523
 $(708,697) $(22,668) $189,784
 $6,417,949



 Common stock Additional paid-in capital 
Distributions
in excess of accumulated earnings
 
Accumulated
other
comprehensive loss, net
 Noncontrolling Interest   Common stock Additional paid-in capital 
Distributions
in excess of accumulated earnings
 
Accumulated
other
comprehensive loss, net
 Noncontrolling Interest Total
 Shares Amount Total
Balances at December 31, 2017 66,054
 $7
 $7,129,571
 $(833,726) $(18,446) $119,419
 $6,396,825
Three Months Ended March 31, 2019 Shares Amount Additional paid-in capital 
Distributions
in excess of accumulated earnings
 
Accumulated
other
comprehensive loss, net
 Noncontrolling Interest Total
Balances at December 31, 2018 65,890
 $7
 
Net income —
 —
 —
 90,918
 —
 5,721
 96,639
 —
 —
 —
 118,858
 —
 6,647
 125,505
Reversal of unrealized gains upon the sale of marketable debt securities —
 —
 —
 —
 (1) —
 (1)
Reversal of unrealized losses upon the sale of marketable debt securities —
 —
 —
 —
 32
 1
 33
Change in fair value of derivatives and amortization of swap settlements —
 —
 —
 —
 6,046
 208
 6,254
 —
 —
 —
 —
 (1,926) (67) (1,993)
Change in fair value of marketable debt securities, net —
 —
 —
 —
 (74) (3) (77) —
 —
 —
 —
 119
 4
 123
Issuance of common stock under:  
  
  
  
  
  
  
  
  
  
  
  
  
  
Stock option and restricted stock plans, net 7
 —
 1,222
 —
 —
 —
 1,222
 51
 —
 3,204
 —
 —
 —
 3,204
Sale of common stock, net —
 —
 (67) —
 —
 —
 (67) —
 —
 (20) —
 —
 —
 (20)
Equity based compensation costs —
 —
 2,253
 —
 —
 277
 2,530
 —
 —
 2,301
 —
 —
 299
 2,600
Retirement of common stock, net (17) —
 (3,774) —
 —
 —
 (3,774) (234) —
 (56,989) —
 —
 —
 (56,989)
Cumulative effect upon adoption of ASU No. 2016-01 —
 —
 —
 2,234
 (2,234) —
 —
Cumulative effect upon adoption of ASU No. 2017-05 —
 —
 —
 119,651
 —
 4,057
 123,708
Cumulative effect upon adoption of ASU No. 2017-12 —
 —
 —
 —
 175
 6
 181
Changes in the redemption value of redeemable noncontrolling interest —
 —
 (1,957) —
 —
 4
 (1,953) —
 —
 (3,027) —
 —
 1,260
 (1,767)
Distributions to noncontrolling interest —
 —
 —
 —
 —
 (6,297) (6,297) —
 —
 —
 —
 —
 (7,164) (7,164)
Common stock dividends ($1.86 per share) —
 —
 —
 (122,850) —
 —
 (122,850)
Balances at March 31, 2018 66,044
 $7
 $7,127,248
 $(743,773) $(14,709) $123,386
 $6,492,159
Redemptions of noncontrolling interest 9
 —
 (10,394) —
 —
 (1,819) (12,213)
Common stock dividends ($1.95 per share) —
 —
 —
 (128,149) —
 —
 (128,149)
Balances at March 31, 2019 65,716
 $7
 $7,028,154
 $(822,087) $(14,817) $125,938
 $6,317,195




See accompanying notes to the unaudited condensed consolidated financial statements.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands, except parenthetical amounts) 
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Cash flows from operating activities:      
Net income$125,505
 $96,639
$328,765
 $125,505
Adjustments to reconcile net income to net cash provided by operating activities: 
  
 
  
Depreciation and amortization120,568
 119,105
131,559
 120,568
Amortization of discount on marketable securities(5,311) (4,157)(2,394) (5,311)
Amortization of discount (premium) and debt financing costs, net529
 (664)
Loss (gain) on sale of marketable securities58
 (680)
Amortization of discount and debt financing costs, net2,297
 529
Loss on sale of marketable securities13
 58
Provision for credit losses(50) —
Unrealized (gain) loss on equity securities recognized through income(4,510) 876
8,696
 (4,510)
Earnings from co-investments(16,276) (32,774)(21,297) (16,276)
Operating distributions from co-investments17,804
 40,437
19,388
 17,804
Accrued interest from notes and other receivables(1,424) (1,294)(355) (1,424)
Equity-based compensation2,068
 2,090
1,405
 2,068
Gain on early retirement of debt, net(1,336) —
(321) (1,336)
Gain on remeasurement of co-investment(31,535) —
(234,694) (31,535)
Changes in operating assets and liabilities:      
Prepaid expenses, receivables, operating lease right-of-use assets, and other assets(4,730) (3,716)(172) (4,730)
Accounts payable, accrued liabilities, and operating lease liabilities53,895
 52,151
32,808
 53,895
Other liabilities454
 345
1,278
 454
Net cash provided by operating activities255,759
 268,358
266,926
 255,759
Cash flows from investing activities: 
  
 
  
Additions to real estate: 
  
 
  
Acquisitions of real estate and acquisition related capital expenditures(44,984) (2,873)
Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired(458,302) (44,984)
Redevelopment(14,157) (15,893)(18,296) (14,157)
Development acquisitions of and additions to real estate under development(39,306) (38,203)(25,681) (39,306)
Capital expenditures on rental properties(17,075) (14,947)(17,151) (17,075)
Collections of notes and other receivables2,500
 29,500
98,711
 2,500
Proceeds from insurance for property losses1,583
 565
457
 1,583
Contributions to co-investments(126,248) (56,020)(21,905) (126,248)
Changes in refundable deposits5
 410
96
 5
Purchases of marketable securities(8,413) (13,437)(10,731) (8,413)
Sales and maturities of marketable securities16,847
 9,579
165
 16,847
Non-operating distributions from co-investments10,000
 2,330
7,000
 10,000
Net cash used in investing activities(219,248) (98,989)(445,637) (219,248)
Cash flows from financing activities: 
  
 
  
Proceeds from unsecured debt and mortgage notes498,234
 298,773
498,140
 498,234
Payments on unsecured debt and mortgage notes(360,975) (83,748)(102,563) (360,975)
Proceeds from lines of credit567,029
 256,832
1,038,426
 567,029
Repayments of lines of credit(567,029) (435,832)(743,426) (567,029)
Retirement of common stock(56,989) (3,774)(176,311) (56,989)
Additions to deferred charges(5,445) (3,283)(5,172) (5,445)
Net proceeds from issuance of common stock(20) (67)(70) (20)
Net proceeds from stock options exercised6,699
 1,222
14,329
 6,699
Payments related to tax withholding for share-based compensation(3,495) (11)(5,664) (3,495)
Distributions to noncontrolling interest(6,978) (5,926)(7,478) (6,978)
Redemption of noncontrolling interest(12,213) —
(1,368) (12,213)
Redemption of redeemable noncontrolling interest(73) —
Common and preferred stock dividends paid(122,525) (115,603)

Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Net cash used in financing activities(63,780) (91,417)
Redemption of redeemable noncontrolling interest—
 (73)
Common stock dividends paid(128,879) (122,525)
Net cash provided by (used in) financing activities379,964
 (63,780)
Net increase (decrease) in unrestricted and restricted cash and cash equivalents(27,269) 77,952
201,253
 (27,269)
Unrestricted and restricted cash and cash equivalents at beginning of period151,395
 61,126
81,094
 151,395
Unrestricted and restricted cash and cash equivalents at end of period$124,126
 $139,078
$282,347
 $124,126
      
Supplemental disclosure of cash flow information:      
Cash paid for interest (net of $5.9 million and $4.2 million capitalized in 2019 and 2018, respectively)$41,914
 $40,306
Cash paid for interest (net of $4.8 million and $5.9 million capitalized in 2020 and 2019, respectively)$52,487
 $41,914
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows from operating leases$1,694
 $—
$1,715
 $1,694
Supplemental disclosure of noncash investing and financing activities: 
  
 
  
Transfers between real estate under development to rental properties, net$—
 $1
Transfers between real estate under development and rental properties, net$131,841
 $—
Transfer from real estate under development to co-investments$313
 $365
$824
 $313
Reclassifications to redeemable noncontrolling interest from additional paid in capital and noncontrolling interest$1,767
 $1,953
Reclassifications (from) to redeemable noncontrolling interest to/from additional paid in capital and noncontrolling interest$(4,767) $1,767
Initial recognition of operating lease right-of-use assets$77,645
 $—
$—
 $77,645
Initial recognition of operating lease liabilities$79,693
 $—
$—
 $79,693


See accompanying notes to the unaudited condensed consolidated financial statements.



ESSEX PORTFOLIO, L.P.  AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except parenthetical and unit amounts)
ASSETSMarch 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
Real estate:      
Rental properties:      
Land and land improvements$2,727,878
 $2,701,356
$2,983,314
 $2,773,805
Buildings and improvements10,844,322
 10,664,745
12,263,293
 11,264,337
13,572,200
 13,366,101
15,246,607
 14,038,142
Less: accumulated depreciation(3,329,743) (3,209,548)(3,818,489) (3,689,482)
10,242,457
 10,156,553
11,428,118
 10,348,660
Real estate under development497,794
 454,629
435,865
 546,075
Co-investments1,307,561
 1,300,140
997,137
 1,335,339
12,047,812
 11,911,322
12,861,120
 12,230,074
Cash and cash equivalents-unrestricted107,034
 134,465
271,877
 70,087
Cash and cash equivalents-restricted17,092
 16,930
10,470
 11,007
Marketable securities211,030
 209,545
Notes and other receivables (includes related party receivables of $10.5 million and $11.1 million as of March 31, 2019 and December 31, 2018, respectively)71,154
 71,895
Marketable securities, net of allowance for credit losses of $13.6 million and zero as of March 31, 2020 and December 31, 2019, respectively148,139
 144,193
Notes and other receivables, net of allowance for credit losses of $0.1 million and zero as of March 31, 2020 and December 31, 2019, respectively (includes related party receivables of $7.7 million and $90.2 million as of March 31, 2020 and December 31, 2019, respectively)34,867
 134,365
Operating lease right-of-use assets76,996
 —
74,428
 74,744
Prepaid expenses and other assets46,883
 39,439
49,940
 40,935
Total assets$12,578,001

$12,383,596
$13,450,841

$12,705,405
      
LIABILITIES AND CAPITAL 
  
 
  
Unsecured debt, net$4,293,973
 $3,799,316
$5,258,263
 $4,763,206
Mortgage notes payable, net1,441,828
 1,806,626
887,389
 990,667
Lines of credit—
 —
350,000
 55,000
Accounts payable and accrued liabilities180,571
 127,086
193,564
 158,017
Construction payable60,087
 59,345
50,538
 48,912
Distributions payable134,339
 128,529
142,800
 135,384
Operating lease liabilities79,010
 —
76,405
 76,740
Other liabilities33,829
 33,375
41,290
 36,565
Total liabilities6,223,637

5,954,277
7,000,249

6,264,491
Commitments and contingencies

 



 


Redeemable noncontrolling interest37,169
 35,475
32,643
 37,410
Capital: 
  
 
  
General Partner:      
Common equity (65,715,783 and 65,890,322 units issued and outstanding, respectively)6,206,074
 6,280,290
Common equity (65,412,355 and 66,091,954 units issued and outstanding, respectively)6,250,833
 6,234,315
6,206,074

6,280,290
6,250,833

6,234,315
Limited Partners:      
Common equity (2,299,379 and 2,305,389 units issued and outstanding, respectively)58,667
 59,061
Common equity (2,296,043 and 2,301,653 units issued and outstanding, respectively)63,550
 57,359
Accumulated other comprehensive loss(11,394) (9,738)(19,519) (10,432)
Total partners' capital6,253,347

6,329,613
6,294,864

6,281,242
Noncontrolling interest63,848
 64,231
123,085
 122,262
Total capital6,317,195

6,393,844
6,417,949

6,403,504
Total liabilities and capital$12,578,001

$12,383,596
$13,450,841

$12,705,405


See accompanying notes to the unaudited condensed consolidated financial statements.

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
(In thousands, except unit and per unit amounts)
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Revenues:      
Rental and other property$353,888
 $344,947
$389,750
 $353,888
Management and other fees from affiliates2,335
 2,308
2,617
 2,335
356,223
 347,255
392,367
 356,223
Expenses: 
  
 
  
Property operating, excluding real estate taxes58,898
 57,250
64,131
 58,622
Real estate taxes39,418
 37,713
43,012
 39,418
Corporate-level property management expenses8,153
 7,770
8,759
 8,429
Depreciation and amortization120,568
 119,105
131,559
 120,568
General and administrative13,459
 14,813
13,982
 13,459
Expensed acquisition and investment related costs32
 57
87
 32
240,528
 236,708
261,530
 240,528
Earnings from operations115,695
 110,547
130,837
 115,695
Interest expense(53,643) (54,861)(55,147) (53,643)
Total return swap income2,045
 2,270
1,984
 2,045
Interest and other income12,261
 5,909
Interest and other income (loss)(5,221) 12,261
Equity income from co-investments16,276
 32,774
21,297
 16,276
Gain on early retirement of debt, net1,336
 —
321
 1,336
Gain on remeasurement of co-investment31,535
 —
234,694
 31,535
Net income125,505
 96,639
328,765
 125,505
Net income attributable to noncontrolling interest(2,476) (2,589)(2,773) (2,476)
Net income available to common unitholders$123,029
 $94,050
$325,992
 $123,029
Comprehensive income$123,668
 $102,815
$319,678
 $123,668
Comprehensive income attributable to noncontrolling interest(2,476) (2,589)(2,773) (2,476)
Comprehensive income attributable to controlling interest$121,192
 $100,226
$316,905
 $121,192
Per unit data: 
  
 
  
Basic: 
  
 
  
Net income available to common unitholders$1.81
 $1.38
$4.77
 $1.81
Weighted average number of common units outstanding during the period68,007,852
 68,317,435
68,344,012
 68,007,852
Diluted:      
Net income available to common unitholders$1.81
 $1.38
$4.76
 $1.81
Weighted average number of common units outstanding during the period68,088,933
 68,355,930
68,495,596
 68,088,933


See accompanying notes to the unaudited condensed consolidated financial statements.

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated StatementStatements of Capital for the three months ended March 31, 20192020 and 20182019
(Unaudited)
(In thousands)
General Partner Limited Partners Accumulated other comprehensive loss    General Partner Limited Partners Accumulated other comprehensive loss Noncontrolling interest Total
Common Equity Common Equity Noncontrolling Interest  Common Equity Common Equity 
Units Amount Units Amount Total
Balances at December 31, 201865,890
 $6,280,290
 2,305
 $59,061
 $(9,738) $64,231
 $6,393,844
Three months ended March 31, 2020Units Amount Units Amount Accumulated other comprehensive loss Noncontrolling interest Total
Balances at December 31, 201966,092
 $6,234,315
 2,302
 $57,359
 
Net income—
 118,858
 —
 4,171
 —
 2,476
 125,505
—
 315,006
 —
 10,986
 
Reversal of unrealized losses upon the sale of marketable debt securities—
 —
 —
 —
 33
 —
 33
Change in fair value of derivatives and amortization of swap settlements—
 —
 —
 —
 (1,993) —
 (1,993)—
 —
 —
 —
 (8,782) —
 (8,782)
Change in fair value of marketable debt securities, net—
 —
 —
 —
 123
 —
 123
—
 —
 —
 —
 (305) —
 (305)
Issuance of common units under: 
  
  
  
  
  
  
 
  
  
  
  
  
  
General partner's stock based compensation, net51
 3,204
 —
 —
 —
 —
 3,204
89
 8,665
 —
 —
 —
 —
 8,665
Sale of common stock by general partner, net—
 (20) —
 —
 —
 —
 (20)—
 (70) —
 —
 —
 —
 (70)
Equity based compensation costs—
 2,301
 3
 299
 —
 —
 2,600
—
 1,619
 2
 79
 —
 —
 1,698
Retirement of common units, net(234) (56,989) —
 —
 —
 —
 (56,989)(776) (176,311) —
 —
 —
 —
 (176,311)
Cumulative effect upon adoption of ASU No. 2017-12—
 —
 —
 —
 181
 —
 181
Changes in redemption value of redeemable noncontrolling interest—
 (3,027) —
 (2) —
 1,262
 (1,767)
Cumulative effect upon adoption of ASU No. 2016-13—
 (190) —
 —
 —
 —
 (190)
Changes in the redemption value of redeemable noncontrolling interest—
 4,741
 —
 (18) —
 44
 4,767
Changes in noncontrolling interest from acquisition—
 —
 —
 —
 —
 1,349
 1,349
Distributions to noncontrolling interest—
 —
 —
 —
 —
 (2,667) (2,667)—
 —
 —
 —
 —
 (3,107) (3,107)
Redemptions9
 (10,394) (9) (365) —
 (1,454) (12,213)7
 (1,048) (8) (84) 

 (236) (1,368)
Distributions declared ($1.95 per unit)—
 (128,149) —
 (4,497) —
 —
 (132,646)
Balances at March 31, 201965,716
 $6,206,074
 2,299
 $58,667
 $(11,394) $63,848
 $6,317,195
Distributions declared ($2.0775 per unit)—
 (135,894) —
 (4,772) —
 —
 (140,666)
Balances at March 31, 202065,412
 $6,250,833
 2,296
 $63,550
 $(19,519) $123,085
 $6,417,949




General Partner Limited Partners Accumulated other comprehensive loss    General Partner Limited Partners Accumulated other comprehensive loss Noncontrolling interest Total
Common Equity Common Equity Noncontrolling Interest  Common Equity Common Equity 
Units Amount Units Amount Total
Balances at December 31, 201766,054
 $6,295,852
 2,268
 $49,792
 $(15,229) $66,410
 $6,396,825
Three months ended March 31, 2019Units Amount Units Amount Accumulated other comprehensive loss Noncontrolling interest Total
Balances at December 31, 201865,890
 $6,280,290
 2,305
 $59,061
 
Net income—
 90,918
 —
 3,132
 —
 2,589
 96,639
—
 118,858
 —
 4,171
 
Reversal of unrealized gains upon the sale of marketable debt securities—
 —
 —
 —
 (1) —
 (1)
Reversal of unrealized losses upon the sale of marketable debt securities—
 —
 —
 —
 33
 —
 33
Change in fair value of derivatives and amortization of swap settlements—
 —
 —
 —
 6,254
 —
 6,254
—
 —
 —
 —
 (1,993) —
 (1,993)
Change in fair value of marketable debt securities, net—
 —
 —
 —
 (77) —
 (77)—
 —
 —
 —
 123
 —
 123
Issuance of common units under: 
  
  
  
  
  
  
 
  
  
  
  
  
  
General partner's stock based compensation, net7
 1,222
 —
 —
 —
 —
 1,222
51
 3,204
 —
 —
 —
 —
 3,204
Sale of common stock by general partner, net—
 (67) —
 —
 —
 —
 (67)—
 (20) —
 —
 —
 —
 (20)
Equity based compensation costs—
 2,253
 5
 277
 —
 —
 2,530
—
 2,301
 3
 299
 —
 —
 2,600
Retirement of common units, net(17) (3,774) —
 —
 —
 —
 (3,774)(234) (56,989) —
 —
 —
 —
 (56,989)
Cumulative effect upon adoption of ASU No. 2016-01—
 2,234
 —
 (6) (2,228) —
 —
Cumulative effect upon adoption of ASU No. 2017-05—
 119,651
 —
 4,057
 —
 —
 123,708
Cumulative effect upon adoption of ASU No. 2017-12—
 —
 —
 —
 181
 —
 181
Changes in redemption value of redeemable noncontrolling interest—
 (1,957) —
 4
 —
 —
 (1,953)—
 (3,027) —
 (2) —
 1,262
 (1,767)
Distributions to noncontrolling interest—
 —
 —
 —
 —
 (2,044) (2,044)—
 —
 —
 —
 —
 (2,667) (2,667)
Distributions declared ($1.86 per unit)—
 (122,850) —
 (4,253) —
 —
 (127,103)
Balances at March 31, 201866,044
 $6,383,482
 2,273
 $53,003
 $(11,281) $66,955
 $6,492,159
Redemptions9
 (10,394) (9) (365) —
 (1,454) (12,213)
Distributions declared ($1.95 per unit)—
 (128,149) —
 (4,497) —
 —
 (132,646)
Balances at March 31, 201965,716
 $6,206,074
 2,299
 $58,667
 $(11,394) $63,848
 $6,317,195




See accompanying notes to the unaudited condensed consolidated financial statements.

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands, except parenthetical amounts)
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Cash flows from operating activities:      
Net income$125,505
 $96,639
$328,765
 $125,505
Adjustments to reconcile net income to net cash provided by operating activities: 
  
 
  
Depreciation and amortization120,568
 119,105
131,559
 120,568
Amortization of discount on marketable securities(5,311) (4,157)(2,394) (5,311)
Amortization of discount (premium) and debt financing costs, net529
 (664)
Loss (gain) on sale of marketable securities58
 (680)
Amortization of discount and debt financing costs, net2,297
 529
Loss on sale of marketable securities13
 58
Provision for credit losses(50) —
Unrealized (gain) loss on equity securities recognized through income(4,510) 876
8,696
 (4,510)
Earnings from co-investments(16,276) (32,774)(21,297) (16,276)
Operating distributions from co-investments17,804
 40,437
19,388
 17,804
Accrued interest from notes and other receivables(1,424) (1,294)(355) (1,424)
Equity-based compensation2,068
 2,090
1,405
 2,068
(Gain) Loss on early retirement of debt(1,336) —
Gain on early retirement of debt, net(321) (1,336)
Gain on remeasurement of co-investment(31,535) —
(234,694) (31,535)
Changes in operating assets and liabilities: 
  
 
  
Prepaid expenses, receivables, operating lease right-of-use assets, and other assets
(4,730) (3,716)(172) (4,730)
Accounts payable, accrued liabilities, and operating lease liabilities53,895
 52,151
32,808
 53,895
Other liabilities454
 345
1,278
 454
Net cash provided by operating activities255,759
 268,358
266,926
 255,759
Cash flows from investing activities: 
  
 
  
Additions to real estate: 
  
 
  
Acquisitions of real estate and acquisition related capital expenditures(44,984) (2,873)
Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired(458,302) (44,984)
Redevelopment(14,157) (15,893)(18,296) (14,157)
Development acquisitions of and additions to real estate under development(39,306) (38,203)(25,681) (39,306)
Capital expenditures on rental properties(17,075) (14,947)(17,151) (17,075)
Collections of notes receivable2,500
 29,500
Collections of notes and other receivables98,711
 2,500
Proceeds from insurance for property losses1,583
 565
457
 1,583
Contributions to co-investments(126,248) (56,020)(21,905) (126,248)
Changes in refundable deposits5
 410
96
 5
Purchases of marketable securities(8,413) (13,437)(10,731) (8,413)
Sales and maturities of marketable securities16,847
 9,579
165
 16,847
Non-operating distributions from co-investments10,000
 2,330
7,000
 10,000
Net cash used in investing activities(219,248) (98,989)(445,637) (219,248)
Cash flows from financing activities: 
  
 
  
Proceeds from unsecured debt and mortgage notes498,234
 298,773
498,140
 498,234
Payments on unsecured debt and mortgage notes(360,975) (83,748)(102,563) (360,975)
Proceeds from lines of credit567,029
 256,832
1,038,426
 567,029
Repayments of lines of credit(567,029) (435,832)(743,426) (567,029)
Retirement of common units(56,989) (3,774)(176,311) (56,989)
Additions to deferred charges(5,445) (3,283)(5,172) (5,445)
Net proceeds from issuance of common units(20) (67)(70) (20)
Net proceeds from stock options exercised6,699
 1,222
14,329
 6,699
Payments related to tax withholding for share-based compensation(3,495) (11)(5,664) (3,495)
Distributions to noncontrolling interest(1,959) (2,267)(2,016) (1,959)
Redemption of noncontrolling interests(12,213) —
(1,368) (12,213)
Redemption of redeemable noncontrolling interests(73) —
Common and preferred units and preferred interest distributions paid(127,544) (119,262)

Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Net cash used in financing activities(63,780) (91,417)
Redemption of redeemable noncontrolling interests—
 (73)
Common units distributions paid(134,341) (127,544)
Net cash provided by (used in) financing activities379,964
 (63,780)
Net increase (decrease) in unrestricted and restricted cash and cash equivalents(27,269) 77,952
201,253
 (27,269)
Unrestricted and restricted cash and cash equivalents at beginning of period151,395
 61,126
81,094
 151,395
Unrestricted and restricted cash and cash equivalents at end of period$124,126
 $139,078
$282,347
 $124,126
      
Supplemental disclosure of cash flow information:      
Cash paid for interest (net of $5.9 million and $4.2 million capitalized in 2019 and 2018, respectively)$41,914
 $40,306
Cash paid for interest (net of $4.8 million and $5.9 million capitalized in 2020 and 2019, respectively)$52,487
 $41,914
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows from operating leases$1,694
 $—
$1,715
 $1,694
Supplemental disclosure of noncash investing and financing activities: 
  
 
  
Transfers between real estate under development to rental properties, net$—
 $1
Transfers between real estate under development and rental properties, net$131,841
 $—
Transfer from real estate under development to co-investments$313
 $365
$824
 $313
Reclassifications to redeemable noncontrolling interest from general and limited partner capital and noncontrolling interest$1,767
 $1,953
Reclassifications (from) to redeemable noncontrolling interest to/from general and limited partner capital and noncontrolling interest$(4,767) $1,767
Initial recognition of operating lease right-of-use assets$77,645
 $—
$—
 $77,645
Initial recognition of operating lease liabilities$79,693
 $—
$—
 $79,693


See accompanying notes to the unaudited condensed consolidated financial statements.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)


(1) Organization and Basis of Presentation


The accompanying unaudited condensed consolidated financial statements present the accounts of Essex Property Trust, Inc. ("Essex" or the "Company"), which include the accounts of the Company and Essex Portfolio, L.P. and its subsidiaries (the "Operating Partnership," which holds the operating assets of the Company), prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and in accordance with the instructions to Form 10-Q. In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented have been included and are normal and recurring in nature. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2018.2019.


All significant intercompany accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements. Certain reclassifications have been made to conform to the current year’s presentation.


The unaudited condensed consolidated financial statements for the three months ended March 31, 20192020 and 20182019 include the accounts of the Company and the Operating Partnership. Essex is the sole general partner of the Operating Partnership, with a 96.6% general partnership interest as of both March 31, 20192020 and December 31, 2018.2019. Total Operating Partnership limited partnership units ("OP Units," and the holders of such OP Units, "Unitholders") outstanding were 2,299,3792,296,043 and 2,305,3892,301,653 as of March 31, 20192020 and December 31, 2018,2019, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $665.1$505.7 million and $565.3$692.5 million as of March 31, 20192020 and December 31, 2018,2019, respectively.


As of March 31, 2019,2020, the Company owned or had ownership interests in 245250 operating apartment communities, aggregating 59,66260,770 apartment homes, excluding the Company’s ownership interest in preferred interest co-investments, loan investments, one1 operating commercial building, and six active developments.a development pipeline comprised of 4 consolidated projects and 2 unconsolidated joint venture projects. The operating apartment communities are located in Southern California (Los(primarily Los Angeles, Orange, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan areas.


Accounting Pronouncements Adopted in the Current Year


In FebruaryJune 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02 (Topic 842) "Leases," which requires an entity that is a lessee to classify leases as either finance or operating and to recognize a lease liability and a right-of-use asset for all leases that have a duration of greater than 12 months. Leases of 12 months or less are to be accounted for similar to prior leasing guidance (Topic 840) for operating leases. For lessors, accounting for leases under the new standard is substantially the same as prior leasing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of initial direct costs. In July 2018, the FASB issued ASU No. 2018-11 "Leases (Topic 842): Targeted Improvements," which includes a practical expedient that allows lessors to not separate nonlease components from the associated lease component. This provides the Company with the option of not bifurcating certain common area maintenance recoveries as a non-lease component, if certain requirements are met. The Company adopted ASU No. 2016-02 and ASU No. 2018-11 as of January 1, 2019 using the modified retrospective approach and elected a package of practical expedients. There was no adjustment to the opening balance of retained earnings as a result of the adoption. See Note 11, Lease Agreements - Company as Lessor, and Note 12, Lease Agreements - Company as Lessee, for further details.

In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities," which, among other things, requires entities to present the earnings effect of hedging instruments in the same income statement line item in which the earnings effect of the hedged item is reported. The new standard also adds new disclosure requirements. The Company adopted ASU No. 2017-12 as of January 1, 2019, using the modified retrospective method by applying a cumulative effect adjustment to accumulated other comprehensive loss, net of $0.2 million, representing accumulated net hedge ineffectiveness. Furthermore, as a result of the adoption of this standard, the Company will recognize qualifying hedge ineffectiveness through accumulated other comprehensive income as opposed to current earnings.



ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2019 and 2018
(Unaudited)

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13 "Measurement of Credit Losses on Financial Instruments," which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Currently,Previously, U.S. GAAP requiresrequired entities to write down credit losses only when losses arewere probable and loss reversals arewere not permitted. The new standard will be effective forFASB additionally issued various updates to clarify and amend the guidance provided in ASU No. 2016-13. In May 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which, with respect to credit losses, among other things, clarifies and addresses issues related to accrued interest, transfers between classifications of loans or debt securities, recoveries, and variable interest rates. Additionally, in May 2019, the FASB issued ASU No. 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief," which allows entities to irrevocably elect the fair value option on certain financial instruments. The Company beginningadopted ASU No. 2016-13, ASU No. 2019-04, and ASU No. 2019-05 as of January 1, 2020, and early adoption is permitted. The Company is currently evaluatingusing the impactmodified retrospective approach by applying a cumulative effect adjustment of this amendment on its consolidated results$0.2 million representing estimated accumulated credit losses to the opening balance of operations and financial position.retained earnings.


In August 2018, the FASB issued ASU No. 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which eliminates certain disclosure requirements affecting all levels of measurements, and modifies and adds new disclosure requirements for Level 3 measurements. The new standard will be effective for the Company beginningadopted ASU No. 2018-13 as of January 1, 2020 and early2020. This adoption is permitted. The Company expects to apply the new standard on January 1, 2020 and doesdid not expect the adoption to have a material impact on the Company's consolidated results of operations ofor financial position.



14

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2020 and 2019
(Unaudited)

In March 2020, the FASB issued ASU No. 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU No. 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Marketable Securities


The Company reports its equity securities and available for sale debt securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds, Level 2 for the unsecured bonds and Level 3 for investments in mortgage backed securities, as defined by the FASB standard for fair value measurements). As of March 31, 20192020 and December 31, 2018, $6.82019, $3.2 million and $6.7$3.6 million, respectively, of equity securities presented within common stock and stock funds in the tables below, represent investments measured at fair value, using net asset value as a practical expedient, and are not categorized in the fair value hierarchy.


Any unrealized gain or loss in debt securities classified as available for sale is recorded as other comprehensive income. Unrealized gains and losses in equity securities, realized gains and losses in debt securities, interest income, and amortization of purchase discounts are included in interest and other income (loss) on the condensed consolidated statements of income and comprehensive income.


As of March 31, 20192020 and December 31, 2018,2019, equity securities and available for sale debt securities consisted primarily of investment-grade unsecured bonds, U.S. treasury securities, common stock and stock funds, and investments in mortgage backed securities.funds. As of March 31, 20192020 and December 31, 2018,2019, the Company classified its investments in mortgage backed securities,security investment, which maturematures in November 2019 and September 2020, as held to maturity, and accordingly, these securities arethis security is stated at theirits amortized cost. The discount on the mortgage backed securitiessecurity is being amortized to interest income based on an estimated yield and the maturity date of the securities.security.


















As of March 31, 2020 and December 31, 2019, marketable securities consist of the following ($ in thousands):

 March 31, 2020
 
Amortized
Cost/Cost
 
Gross
Unrealized
Gain (Loss)
 Carrying Value Allowance for Credit Losses
Equity securities:       
Investment funds - debt securities$29,685
 $(676) $29,009
  
Common stock and stock funds45,395
 (4,549) 40,846
  
        
Debt securities:       
Available for sale       
U.S. treasury securities2,421
 16
 2,437
 —
Investment-grade unsecured debt1,050
 (248) 802
 —
Held to maturity   
  
  
Mortgage backed securities75,045
 —
 75,045
 13,644
Total - Marketable securities$153,596
 $(5,457) $148,139
 $13,644


15

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)

As of March 31, 2019 and December 31, 2018, marketable securities consist of the following ($ in thousands):
March 31, 2019December 31, 2019
Amortized
Cost/Cost
 
Gross
Unrealized
Gain (Loss)
 Carrying Value
Amortized
Cost/Cost
 
Gross
Unrealized
Gain (Loss)
 Carrying Value
Equity securities:          
Investment funds - debt securities$21,083
 $45
 $21,128
$29,588
 $544
 $30,132
Common stock and stock funds41,997
 2,226
 44,223
34,941
 2,927
 37,868
         

Debt securities:          
Available for sale          
U.S. treasury securities9,022
 (25) 8,997
2,421
 13
 2,434
Investment-grade unsecured bonds4,152
 5
 4,157
1,048
 60
 1,108
Held to maturity   
  
 
  
  
Mortgage backed securities132,525
 —
 132,525
72,651
 —
 72,651
Total - Marketable securities$208,779
 $2,251
 $211,030
$140,649
 $3,544
 $144,193

 December 31, 2018
 
Amortized
Cost/Cost
 
Gross
Unrealized
Gain (Loss)
 Carrying Value
Equity securities:     
Investment funds - debt securities$31,934
 $(568) $31,366
Common stock and stock funds39,731
 (1,671) 38,060
     

Debt securities:     
Available for sale     
U.S. treasury securities8,983
 (31) 8,952
Investment-grade unsecured bonds4,125
 (145) 3,980
Held to maturity 
  
  
Mortgage backed securities127,187
 —
 127,187
Total - Marketable securities$211,960
 $(2,415) $209,545


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


For the three months ended March 31, 20192020 and 2018,2019, the proceeds from sales and maturities of marketable securities totaled $16.8$0.2 million and $9.6$16.8 million, respectively, which resulted in $13 thousand and $0.1 million in realized losses, and $0.7 million in realized gains, respectively.respectively, for such periods.


For the three months ended March 31, 2020 and 2019, the portion of equity security unrealized losses or gains that waswere recognized in income totaled $8.7 million in losses and $4.5 million in gains, respectively, and waswere included in interest and other income (loss) on the Company's condensed consolidated statements of income and comprehensive income.



Unrealized losses on Investment-grade unsecured bonds as of March 31, 2020 have not been recognized into income because the debts of the issuers are of high credit quality, management does not intend to sell the securities, it is likely that the Company will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to other market conditions.



The Company monitors the credit quality of its held to maturity mortgage backed security through the review of remittance reports and individual loan watchlists, which are prepared quarterly and provide most recent debt service coverage ratios for each loan within the security, when available. The Company monitors such reports to determine the likelihood that a particular loan within the mortgage backed security may be foreclosed upon.

The Company measures the expected credit loss on its held to maturity mortgage backed security based on the present value of expected future cash flows, which takes into account current market conditions and available credit information obtained from the individual loans held within the mortgage backed security. The following table presents the allowance for credit losses rollforward for the mortgage backed security ($ in thousands):


Balance at December 31, 2019$—
Impact of adoption ASC 326 (1)
13,644
Provision for credit losses—
Balance at March 31, 2020$13,644


16

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)


(1) As part of the adoption of ASC 326, effective January 1, 2020, the Company recorded a gross up of the mortgage backed security and related allowance for credit losses of $13.6 million. This gross up had no effect on the Company's consolidated results of operations or financial position.

Variable Interest Entities


In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidatesconsolidated the Operating Partnership, 16 limited partnerships17 DownREIT entities (comprising eight9 communities), and eight6 co-investments as of both March 31, 2020 and December 31, 2019. The Company consolidates these entities because it is deemed the primary beneficiary. Essex has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to the eightabove consolidated co-investments and 16 DownREIT limited partnerships,entities, net of intercompany eliminations, were approximately $876.2 million$1.1 billion and $268.5$348.9 million, respectively, as of March 31, 20192020 and $849.8 million$1.0 billion and $261.7$364.3 million, respectively, as of December 31, 2018.2019. Noncontrolling interests in these entities were $64.1$122.3 million and $64.5$122.5 million as of March 31, 20192020 and December 31, 2018,2019, respectively. The Company's financial risk in each VIE is limited to its equity investment in the VIE. As of March 31, 20192020 and December 31, 2018,2019, the Company did not have any VIEs of which it was not deemed to be the primary beneficiary.


Equity-based Compensation


The cost of share- and unit-based compensation awards is measured at the grant date based on the estimated fair value of the awards. The estimated fair value of stock options and restricted stock granted by the Company are being amortized over the vesting period. The estimated grant date fair values of the long term incentive plan units (discussed in Note 13,14, "Equity Based Compensation Plans," in the Company’s annual report on Form 10-K for the year ended December 31, 2018)2019) are being amortized over the expected service periods.


Fair Value of Financial Instruments


Management believes that the carrying amounts of the outstanding balances under its lines of credit, and notes and other receivables approximate fair value as of March 31, 20192020 and December 31, 2018,2019, because interest rates, yields, and other terms for these instruments are consistent with interest rates, yields, and other terms currently available for similar instruments. Management has estimated that the fair value of the Company’s fixed rate debt with a carrying value of $5.1$5.5 billion and $5.0$5.2 billion at March 31, 20192020 and December 31, 2018,2019, respectively, was approximately $5.2$5.6 billion and $5.0$5.4 billion, respectively. Management has estimated that the fair value of the Company’s $619.5$955.3 million and $619.6$660.4 million of variable rate debt at March 31, 20192020 and December 31, 2018,2019, respectively, was approximately $615.0$949.2 million and $615.2$655.8 million, respectively, based on the terms of existing mortgage notes payable, unsecured debt, and variable rate demand notes compared to those available in the marketplace. Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payables, other liabilities, and dividends payable approximate fair value as of March 31, 20192020 and December 31, 20182019 due to the short-term maturity of these instruments. Marketable securities, except mortgage backed securities, are carried at fair value as of March 31, 20192020 and December 31, 2018.2019.


At March 31, 2019,2020, the Company’s investmentsinvestment in its mortgage backed securitiessecurity had a carrying value of $132.5$75.0 million and the Company estimated the fair value to be approximately $135.6$75.1 million. At December 31, 2018,2019, the Company’s investmentsinvestment in its mortgage backed securitiessecurity had a carrying value of $127.2$72.7 million and the Company estimated the fair value to be approximately $129.5$72.7 million. The Company determines the fair value of the mortgage backed securitiessecurity based on unobservable inputs (level 3 of the fair value hierarchy) considering the assumptions that market participants would make in valuing these securities.this security. Assumptions such as estimated default rates and discount rates are used to determine the expected, discounted cash flows to estimate fair value.
 
Capitalization of Costs


The Company’s capitalized internal costs related to development and redevelopment projects were comprised primarily of interest and employee compensation and totaled $4.8$9.9 million and $5.0$10.7 million during the three months ended March 31, 20192020 and 2018,2019, respectively. The Company capitalizes leasing commissions associated with the lease-up of development

17

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2020 and 2019
(Unaudited)

communities and amortizes the costs over the life of the leases. The amounts capitalized for leasing commissions are immaterial for all periods presented.


Co-investments


The Company owns investments in joint ventures in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with U.S. GAAP. Therefore, the Company accounts for co-investments using the

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2019 and 2018
(Unaudited)

equity method of accounting. Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company's equity in earnings less distributions received and the Company's share of losses. The significant accounting policies of the Company’s co-investment entities are consistent with those of the Company in all material respects.


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

The Company reports investments in co-investments where accumulated distributions have exceeded the Company’s investment as distributions in excess of investments in co-investments in the accompanying condensed consolidated balance sheets. 


Changes in Accumulated Other Comprehensive Loss, Net by Component


Essex Property Trust, Inc.
($ in thousands):
 
Change in fair
value and amortization
of swap settlements
 
Unrealized
gains/(losses) on
available for sale securities
 Total
Balance at December 31, 2018$(13,077) $(140) $(13,217)
Cumulative effect upon adoption of ASU No. 2017-12175
 —
 175
Other comprehensive income (loss) before reclassification(27) 119
 92
Amounts reclassified from accumulated other comprehensive loss(1,899) 32
 (1,867)
Other comprehensive income(1,751) 151
 (1,600)
Balance at March 31, 2019$(14,828) $11
 $(14,817)
 
Change in fair
value and amortization
of swap settlements
 
Unrealized
gain/(loss) on
available for sale securities
 Total
Balance at December 31, 2019$(13,989) $101
 $(13,888)
Other comprehensive loss before reclassification(7,178) (294) (7,472)
Amounts reclassified from accumulated other comprehensive loss(1,308) —
 (1,308)
Other comprehensive loss(8,486) (294) (8,780)
Balance at March 31, 2020$(22,475) $(193) $(22,668)


Changes in Accumulated Other Comprehensive Loss, by Component


Essex Portfolio, L.P.
($ in thousands):
 
Change in fair
value and amortization
of swap settlements
 
Unrealized
gain/(loss) on
available for sale securities
 Total
Balance at December 31, 2019$(10,536) $104
 $(10,432)
Other comprehensive loss before reclassification(7,429) (305) (7,734)
Amounts reclassified from accumulated other comprehensive loss(1,353) —
 (1,353)
Other comprehensive loss(8,782) (305) (9,087)
Balance at March 31, 2020$(19,318) $(201) $(19,519)

 
Change in fair
value and amortization
of swap settlements
 
Unrealized
gains/(losses) on
available for sale securities
 Total
Balance at December 31, 2018$(9,593) $(145) $(9,738)
Cumulative effect upon adoption of ASU No. 2017-12181
 —
 181
Other comprehensive income (loss) before reclassification(28) 123
 95
Amounts reclassified from accumulated other comprehensive loss(1,965) 33
 (1,932)
Other comprehensive income(1,812) 156
 (1,656)
Balance at March 31, 2019$(11,405) $11
 $(11,394)


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




18

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)


Redeemable Noncontrolling Interest


The carrying value of redeemable noncontrolling interest in the accompanying condensed consolidated balance sheets was $37.2$32.6 million and $35.5$37.4 million as of March 31, 20192020 and December 31, 2018,2019, respectively. The limited partners may redeem their noncontrolling interests for cash in certain circumstances.


The changes to the redemption value of redeemable noncontrolling interests for the three months ended March 31, 20192020 is as follows ($ in thousands):
Balance at December 31, 2019$37,410
Reclassification due to change in redemption value and other(4,767)
Redemptions—
Balance at March 31, 2020$32,643

Balance at December 31, 2018$35,475
Reclassification due to change in redemption value and other1,767
Redemptions(73)
Balance at March 31, 2019$37,169


Cash, Cash Equivalents and Restricted Cash


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


The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows ($ in thousands):
 March 31, 2020 December 31, 2019 March 31, 2019 December 31, 2018
Cash and cash equivalents - unrestricted$271,877
 $70,087
 $107,034
 $134,465
Cash and cash equivalents - restricted10,470
 11,007
 17,092
 16,930
Total unrestricted and restricted cash and cash equivalents shown in the condensed consolidated statement of cash flows$282,347
 $81,094
 $124,126
 $151,395

 March 31, 2019 December 31, 2018 March 31, 2018 December 31, 2017
Cash and cash equivalents - unrestricted$107,034
 $134,465
 $121,954
 $44,620
Cash and cash equivalents - restricted17,092
 16,930
 17,124
 16,506
Total unrestricted and restricted cash and cash equivalents shown in the condensed consolidated statement of cash flows$124,126
 $151,395
 $139,078
 $61,126


Accounting Estimates


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


(2)  Significant Transactions During The Three Months Ended March 31, 20192020 and Subsequent Events


Significant Transactions


Acquisitions


In March 2019,January 2020, the Company acquired its joint venture partner’spurchased Canada Pension Plan Investment Board's ("CPPIB") 45.0% membership interest in One South Market,each of a multifamily community located in San Jose, CA, for total consideration of $80.6 million. Concurrent with the closing of the acquisition, $86.0 million in mortgage debt was repaid.land parcel and 6 communities totaling 2,020 apartment homes, valued at $1.0 billion on a gross basis. As a result of this acquisition, the Company realized a gain on remeasurement of co-investment of $31.5 million upon consolidation.$234.7 million. Furthermore, the Company recognized $0.8 million in


19

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)


recognized $6.5 million in promote income as a result of the transaction, which is included in equity income from co-investments on the condensed consolidated statements of income and comprehensive income.


Co-Investments


Preferred Equity Investments


In the first quarter of 2020, the Company originated two preferred equity investments totaling $91.4 million in two multifamily communities located in California. The investments have a weighted average initial return of 11.3% with most of the proceeds expected to fund in late 2020 and early 2021.

In March 2019,2020, the Company madereceived cash of $11.3 million, including an early redemption fee of $0.2 million, for the partial redemption of a commitment to fund a $36.0 million preferred equity commitment in a multifamily development community located in Irvine, CA. The investment has an initial preferred return of 10.15% and is scheduled to mature in July 2022. As of March 31, 2019, the Company had not funded any of this commitment.

In February 2019, the Company funded a $24.5 million related party preferred equity investment in a multifamily development communityjoint venture that holds property located in Mountain View,Los Angeles, CA. The investment has an initial preferred return

Notes Receivable

In January 2020, the Company received cash of 11.0% and is scheduled$16.9 million for the full redemption of a mezzanine loan in a property located in Anaheim, CA.

In January 2020, the Company received $85.8 million for the payoff of a related party bridge loan to mature in February 2024.Wesco V, LLC ("Wesco V"). See Note 6, Related Party Transactions, for additional details.


In February 2019,March 2020, the Company received cashcommitted to fund an investment in mezzanine loans totaling $15.0 million as part of $10.9 million, including an early redemption fee of $0.1 million, for the full redemptiondevelopment of a related party preferred equitymultifamily community located in Los Angeles, CA. The investment in a joint venture that holds property in San Jose, CA. See Note 6, Related Party Transactions,has an initial 10.5% interest rate and maturity date of February 2023, with options to extend for additional details.up to two years. As of March 31, 2020, the Company had not funded this commitment.


Common Stock


In January 2019,During the three months ended March 31, 2020, the Company repurchased and retired 234,061776,261 shares totaling $57.0$176.3 million, including commissions. In February 2019, the boardAs of directors approved the replenishment of the stock repurchase plan such that, as of such date,March 31, 2020, the Company had $250.0$73.7 million of purchase authority remaining under the replenished plan. As a result of the replenishment, as of March 31, 2019, the Company hadits $250.0 million of purchase authority remaining under the stock repurchase plan.


Senior Unsecured Debt


In February 2019,2020, the Operating Partnership issued $350.0$500.0 million of senior unsecured notes due on March 1, 2029,15, 2032 with a coupon rate of 4.000%2.650% per annum (the "2029"2032 Notes"), which are payable on March 115 and September 115 of each year, beginning on September 1, 2019.15, 2020. The 20292032 Notes were offered to investors at a price of 99.188%99.628% of the principal amount thereof.par value. The 20292032 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are unconditionally guaranteed by the Company. In March 2019, the Operating Partnership issued an additional $150.0 million of the 2029 Notes at a price of 100.717% of the principal amount thereof. These additional notes have substantially identical terms as the 2029 Notes issued in February 2019.Essex. The Company used the net proceeds of these offeringsthis offering to repay indebtedness under its unsecured lines of credit, and for other general corporate and working capital purposes.which had been used to fund the buyout of CPPIB's 45.0% joint venture interests discussed above, as well as repay $100.3 million of secured debt during the quarter.


Mortgage Notes PayableSubsequent Events


In January 2019,April 2020, the Company repaid $290.0obtained a $200.0 million in secured mortgage notes payableunsecured term loan with a couponone-year maturity and 2 12-month extension options, exercisable at the Company’s option. The unsecured term loan bears a variable interest rate of 5.57%LIBOR plus 1.20% and the proceeds will be used to repay all remaining consolidated debt maturing in 2020, of which $169.6 million was prepaid in April 2020.

During and subsequent to the first quarter of 2020, the world is experiencing an unprecedented health pandemic related to a stated maturity date of May 2019.novel coronavirus, COVID-19, creating unprecedented and extraordinary global economic distress, uncertainty and volatility. The Company realized a gainextent to which COVID-19 impacts the Company's business, operations and financial results cannot be predicted and will depend on early extinguishment of debt of $1.4 million.

Subsequent Event

In April 2019,numerous current and evolving factors that the Company received cash of $16.3 millionfor the full redemption of a preferred equity investment in a joint venture that holds property in Santa Ana, CA.is not able to predict or anticipate at this time.








20

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)



(3)  Revenues


Disaggregated Revenue


The following table presents the Company’s revenues disaggregated by revenue source ($ in thousands):
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Rental income (1)
$347,805
 $339,015
$383,498
 $347,805
Other property (1)
6,083
 5,932
6,252
 6,083
Management and other fees from affiliates2,335
 2,308
2,617
 2,335
Total revenues$356,223
 $347,255
$392,367
 $356,223

(1) On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases.” As a result of this adoption certain amounts previously classified as other property revenue have been reclassified to rental income. Prior period amounts have been adjusted to conform to the current period’s presentation.


The following table presents the Company’s rental and other property-relatedproperty revenues disaggregated by geographic operating segment ($ in thousands):
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Southern California$151,024
 $146,558
$155,642
 $151,463
Northern California136,325
 128,622
164,079
 136,745
Seattle Metro60,240
 58,713
63,844
 60,413
Other real estate assets (1)
6,299
 11,054
6,185
 5,267
Total rental and other property revenues$353,888
 $344,947
$389,750
 $353,888


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


The following table presents the Company’s rental and other property-relatedproperty revenues disaggregated by current property category status ($ in thousands):
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Same-property (1)
$337,352
 $327,267
$346,456
 $335,658
Acquisitions (2)
2,271
 —
21,924
 987
Development (3)
1,133
 19
4,075
 1,158
Redevelopment5,212
 5,024
5,401
 5,229
Non-residential/other, net (4)
7,920
 12,637
11,894
 10,856
Total rental and other property revenues$353,888
 $344,947
$389,750
 $353,888


(1) Stabilized properties Properties that have comparable stabilized results as of January 1, 2019 and are consolidated by the Company for the three months ended March 31, 20192020 and 2018.2019. A community is generally considered to have reached stabilized operations once it achieves an initial occupancy of 95%90%.
(2) Acquisitions includes properties acquired which did not have comparable stabilized results as of January 1, 2018.2019.
(3) Development includes properties developed which did not have stabilized results as of January 1, 2018.2019.
(4) Non-residential/other, net consists of revenues generated from retail space, commercial properties, held for sale properties, disposition properties, student housing, properties undergoing significant construction activities that do not meet our redevelopment criteria, and student housing.3 communities located in the California counties of Riverside, Santa Barbara, and Santa Cruz, which the Company does not consider its core markets.




21

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)



Deferred Revenues and Remaining Performance Obligations


When cash payments are received or due in advance of the Company’s performance of contracts with customers, deferred revenue is recorded. The total deferred revenue balance related to such contracts was $5.5$3.7 million and $6.2$3.9 million as of March 31, 20192020 and December 31, 2018,2019, respectively, and was included in accounts payable and accrued liabilities within the accompanying condensed consolidated balance sheets. The amount of revenue recognized for the three months ended March 31, 20192020 that was included in the December 31, 20182019 deferred revenue balance was $0.7$0.2 million, which was included in interest and other income (loss) within the condensed consolidated statements of income and comprehensive income.


A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the revenue recognition accounting standard. As of March 31, 2019,2020, the Company had $5.5$3.7 million of remaining performance obligations. The Company expects to recognize approximately 29%15% of these remaining performance obligations in 2019,2020, an additional 27%40% through 2021,2022, and the remaining balance thereafter.


(4) Co-investments


The Company has joint ventures and preferred equity investments in co-investments which are accounted for under the equity method. The co-investments, own, operate, and develop apartment communities. In addition to the Company's joint ventures withincluding BEXAEW, BEX II, BEX III, and BEX III, the Company has joint venture investments with the Canadian Pension Plan Investment Board ("CPPIB"),IV, Wesco I, LLC ("Wesco I"), Wesco III, LLC ("Wesco III"), Wesco IV, LLC ("Wesco IV"), and Wesco V, LLC ("Wesco V").own, operate, and develop apartment communities. The carrying values of the Company's co-investments as of March 31, 20192020 and December 31, 20182019 are as follows ($ in thousands, except parenthetical amounts):
 
Weighted Average Company Ownership Percentage (1)
 3/31/2020 12/31/2019
Ownership interest in:     
CPPIB (2)
—% $—
 $345,466
Wesco I, Wesco III, Wesco IV, and Wesco V51% 209,742
 216,756
BEXAEW, BEX II, BEX III, and BEX IV50% 156,869
 160,888
Other48% 21,023
 20,351
Total operating and other co-investments, net  387,634
 743,461
Total predevelopment and development co-investments50% 158,145
 146,944
Total preferred interest co-investments (includes related party investments of $75.3 million and $73.2 million as of March 31, 2020 and December 31, 2019, respectively)  451,358
 444,934
Total co-investments, net  $997,137
 $1,335,339
 
Weighted Average Company Ownership Percentage (1)
 March 31, 2019 December 31, 2018
Ownership interest in:     
CPPIB54% $478,440
 $482,507
Wesco I, Wesco III, Wesco IV, and Wesco V52% 191,205
 194,890
BEXAEW, BEX II and BEX III50% 118,982
 121,780
Other49% 13,707
 34,093
Total operating and other co-investments, net  802,334
 833,270
Total pre-development and development co-investments50% 109,696
 94,060
Total preferred interest co-investments (includes related party investments of $67.0 million and $51.8 million as of March 31, 2019 and December 31, 2018, respectively)  395,531
 372,810
Total co-investments, net  $1,307,561
 $1,300,140

 
(1) Weighted average Company ownership percentages are as of March 31, 2019.2020.

(2) In January 2020, the Company purchased CPPIB's 45.0% interest in each of a land parcel and 6 communities totaling 2,020 apartment homes.


22

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)


The combined summarized entity financial information of co-investments is as follows ($ in thousands).:
March 31, 2019 December 31, 20183/31/2020 12/31/2019
Combined balance sheets: (1)
      
Rental properties and real estate under development$4,310,726
 $4,367,987
$4,287,101
 $4,733,762
Other assets101,790
 104,119
158,145
 139,562
Total assets$4,412,516
 $4,472,106
$4,445,246
 $4,873,324
Debt$2,160,347
 $2,190,764
$2,522,407
 $2,442,213
Other liabilities114,300
 106,316
181,761
 117,160
Equity2,137,869
 2,175,026
1,741,078
 2,313,951
Total liabilities and equity$4,412,516
 $4,472,106
$4,445,246
 $4,873,324
Company's share of equity$1,307,561
 $1,300,140
$997,137
 $1,335,339


Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Combined statements of income: (1)
      
Property revenues$83,725
 $80,842
$77,369
 $83,725
Property operating expenses(28,719) (27,069)(25,715) (28,719)
Net operating income55,006
 53,773
51,654
 55,006
Interest expense(15,115) (16,735)(20,853) (15,115)
General and administrative(1,928) (1,492)(4,083) (1,928)
Depreciation and amortization(29,935) (31,162)(28,437) (29,935)
Net income$8,028
 $4,384
Net income (loss)$(1,719) $8,028
Company's share of net income (2)
$16,276
 $32,774
$21,297
 $16,276
 
(1) Includes preferred equity investments held by the Company.
(2) Includes the Company's share of equity income from joint ventures and preferred equity investments, gain on sales of co-investments, co-investment promote income and income from early redemption of preferred equity investments. Includes related party income of $1.7$2.1 million and $0.4$1.7 million for the three months ended March 31, 2020 and 2019, and 2018, respectively.


(5) Notes and Other Receivables
 
Notes and other receivables consist of the following as of March 31, 20192020 and December 31, 20182019 ($ in thousands):
 March 31, 2020 December 31, 2019
Note receivable, secured, bearing interest at 9.00%, due May 2021 (Originated May 2017) (1)
$—
 $16,828
Note receivable, secured, bearing interest at 9.90%, due November 2021 (Originated November 2018)13,168
 12,838
Related party note receivable, secured, bearing variable rate interest, due February
2020 (Originated November 2019) (2)(3)
—
 85,713
Notes and other receivables from affiliates (4)
7,700
 4,442
Other receivables14,065
 14,544
Allowance for credit losses(66) —
Total notes and other receivables$34,867
 $134,365

 March 31, 2019 December 31, 2018
Notes receivable, secured, bearing interest at 10.00%, due May 2021$15,609
 $15,226
Notes receivable, secured, bearing interest at 10.75%, due September 202033,527
 32,650
Related party note receivable, secured, bearing interest at 9.50%, due October 2019(1)
6,621
 6,618
Notes and other receivables from affiliates (2)
3,889
 4,457
Other receivables11,508
 12,944
Total notes and other receivables$71,154
 $71,895


(1) In January 2020, the Company received cash of $16.9 million from the payoff of this note receivable.
(1) (2) See Note 6, Related Party Transactions, for additional details.
(2) These amounts consist of short-term loans outstanding and due from various joint ventures as of March 31, 2019 and December 31, 2018, respectively. See Note 6, Related Party Transactions, for additional details.





23

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)


(3) In January 2020, the Company received cash of $85.8 million from the payoff of this note receivable.
(4) These amounts consist of short-term loans outstanding and due from various joint ventures as of March 31, 2020 and December 31, 2019. See Note 6, Related Party Transactions, for additional details.

In the normal course of business, the Company originates and holds two types of loans: mezzanine loans issued to entities that are pursuing apartment development and short-term bridge loans issued to joint ventures with the Company.

The Company categorizes development project mezzanine loans into risk categories based on relevant information about the ability of the borrowers to service their debt, such as: current financial information, credit documentation, public information, and previous experience with the borrower. The Company initially analyzes each mezzanine loan individually to classify the credit risk of the loan. On a periodic basis the Company evaluates and performs site visits of the development projects associated with the mezzanine loans to confirm whether they are on budget and whether there are any delays in development that could impact the Company's assessment of credit loss.

All bridge loans that the Company issues are, by their nature, short-term and meant only to provide time for the Company’s joint ventures to obtain long-term funding for newly acquired communities. As the Company is a partner in the joint ventures that are borrowing such funds and has performed a detailed review of each community as part of the acquisition process, there is little to no credit risk associated with such loans. As such, the Company does not review credit quality indicators for bridge loans on an ongoing basis.

The Company estimates the allowance for credit losses for each loan type using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made, if necessary, for differences in current loan-specific risk characteristics. For example, in the case of mezzanine loans, adjustments may be made due to differences in track record and experience of the mezzanine loan sponsor as well as the percent of equity that the sponsor has contributed to the project. The following table presents the activity in the allowance for credit losses for notes and other receivables by loan type ($ in thousands):

 Mezzanine Loans Bridge Loans Total
Balance at December 31, 2019$—
 $—
 $—
Impact of adoption ASC 326147
 43
 190
Provision for credit losses(81) (43) (124)
Balance at March 31, 2020$66
 $—
 $66


No loans were placed on nonaccrual status or charged off during the three months ended March 31, 2020 or 2019.

(6) Related Party Transactions


The Company charges certain fees relating to its co-investments for asset management, property management, development and redevelopment services. These fees from affiliates totaled $3.4$3.1 million and $3.2$3.4 million during the three months ended March 31, 20192020 and 2018,2019, respectively. All of these fees are net of intercompany amounts eliminated by the Company. The Company netted development and redevelopment fees of $1.1$0.4 million and $0.9$1.1 million against general and administrative expenses for the three months ended March 31, 20192020 and 2018,2019, respectively.

In November 2017, the Company provided a $29.5 million related party bridge loan to a property acquired by BEX III. The note receivable accrued interest at 3.5% and was paid off in January 2018.


The Company’s Chairman and founder, Mr. George M. Marcus, is the Chairman of the Marcus & Millichap Company ("MMC"), which is a parent company of a diversified group of real estate service, investment, and development firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. ("MMI"), and Mr. Marcus owns a controlling interest in MMI, a national brokerage firm listed on the New York Stock Exchange. For the three months ended March 31, 2020, the Company paid brokerage commissions totaling $0.2 million to MMC and its affiliates related to real estate transactions.


In November 2019, the Company provided an $85.5 million related party bridge loan to Wesco V in connection with the acquisition of Velo and Ray. The note receivable accrued interest at LIBOR plus 1.30% and was scheduled to mature in

24

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2020 and 2019
(Unaudited)

February 2020, but was paid off in January 2020. The bridge loan was classified within notes and other receivables in the accompanying condensed consolidated balance sheets.

In August 2019, the Company provided an $89.0 million related party bridge loan to Wesco V in connection with the acquisition of The Courtyards at 65th Street. The note receivable accrued interest at LIBOR plus 1.30% and was paid off in November 2019.

In August 2019, the Company provided a $44.4 million related party bridge loan to BEX IV in connection with the acquisition of 777 Hamilton. The note receivable accrued interest at 3.25%. In November 2019, the term of the bridge loan was extended to
February 2020, but was paid off in December 2019.

In June 2019, the Company acquired Brio, a 300 unit apartment home community located in Walnut Creek, CA. The Company issued DownREIT units to an affiliate of MMC, based on a contract price of $164.9 million. The property was encumbered by $98.7 million of mortgage debt which was assumed by the Company at the time of acquisition. As a result of this transaction, the Company consolidated the property, based on a VIE analysis performed by the Company.

In February 2019, the Company funded a $24.5 million preferred equity investment in an entity whose sponsor is an affiliate of MMC, which owns a multifamily development community located in Mountain View, CA. The investment has an initial preferred return of 11.0% and is scheduled to mature in February 2024.


In October 2018, the Company funded a $18.6 million preferred equity investment in an entity whose sponsor is an affiliate of MMC. The entity wholly owns a 268 apartment home community development located in Burlingame, CA. This investment will accrueaccrues interest based on an initial 12.00%12.0% preferred return. The investment is scheduled to mature in April 2024.


In May 2018, the Company made a commitment to fund a $26.5 million preferred equity investment in an entity whose sponsors include an affiliate of MMC. The entity wholly owns a 400 apartment home community located in Ventura, CA. This investment will accrueaccrues interest based on a 10.25% preferred return. The investment is scheduled to mature in May 2023. As of March 31, 2019,2020, the Company had funded $21.3$22.9 million of the commitment. The remaining committed amount will be funded if and when requested by the sponsors.


In March 2017,November 2016, the Company converted its existing $15.3provided a $6.6 million preferred equity investmentmezzanine loan to a limited liability company in Sage at Cupertino,which MMC holds a 230 apartment home community located in San Jose, CA, into a 40.5% common equitysignificant ownership interest through subsidiaries. The mezzanine loan was classified within notes and other receivables in the property. The Company issued DownREIT units to the other members, including an MMC affiliate, based on an estimated property valuation of $90.0 million. At the time of the conversion, the propertyaccompanying condensed consolidated balance sheets and was encumbered by $52.0 million of mortgage debt. As a result of this transaction, the Company consolidates the property, based on a VIE analysis performed by the Company.paid off in October 2019.


In 2015, the Company made preferred equity investments totaling $20.0 million in three3 entities affiliated with MMC that own apartment communities in California. The Company earnsearned a 9.5% preferred return on each such investment. One $5.0 million investment, which was scheduled to mature in 2022, was fully redeemed in 2017. Another $5.0 million investment, which was scheduled to mature in 2022, was fully redeemed in 2018. The remaining investment was fully redeemed in February 2019.


As described in Note 5, Notes and Other Receivables, the Company has provided short-term loans to affiliates. As of March 31, 20192020 and December 31, 2018, $3.92019, $7.7 million and $4.5$4.4 million, respectively, of short-term loans remained outstanding due from joint venture affiliates and is classified within notes and other receivables in the accompanying condensed consolidated balance sheets. In November 2016, the Company provided a $6.6 million mezzanine loan to a limited liability company in which MMC holds a significant ownership interest through subsidiaries. The mezzanine loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets and had an outstanding balance of $6.6 million as of both March 31, 2019 and December 31, 2018, respectively.


(7) Debt
 
The CompanyEssex does not have indebtedness as debt is incurred by the Operating Partnership. The CompanyEssex guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities for the full term of the facilities.





25

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)





Debt consists of the following ($ in thousands):
March 31, 2019 December 31, 2018 
Weighted Average
Maturity
In Years as of March 31, 2019
March 31, 2020 December 31, 2019 
Weighted Average
Maturity
In Years as of March 31, 2020
Unsecured bonds private placement - fixed rate$274,673
 $274,624
 1.8$199,852
 $199,820
 1.2
Term loan - variable rate348,895
 348,813
 2.9349,287
 349,189
 1.9
Bonds public offering - fixed rate3,670,405
 3,175,879
 7.84,709,124
 4,214,197
 7.7
Unsecured debt, net (1)
4,293,973
 3,799,316
  5,258,263
 4,763,206
  
Lines of credit (2)
—
 —
 
350,000
 55,000
 
Mortgage notes payable, net (3)
1,441,828
 1,806,626
 5.5887,389
 990,667
 7.9
Total debt, net$5,735,801
 $5,605,942
  $6,495,652
 $5,808,873
  
Weighted average interest rate on fixed rate unsecured bonds private placement and bonds public offering3.9% 3.9%  3.7% 3.8%  
Weighted average interest rate on variable rate term loan3.0% 3.0%  2.7% 2.7%  
Weighted average interest rate on lines of credit3.2% 3.2% 2.4% 2.5% 
Weighted average interest rate on mortgage notes payable4.4% 4.3%  4.1% 4.1%  


(1) Includes unamortized discount of $9.0$14.1 million and $7.1$12.2 million and unamortized debt issuance costs of $22.0$27.6 million and $18.5$24.5 million, as of March 31, 20192020 and December 31, 2018,2019, respectively.
(2) Lines of credit, related to the Company's two2 lines of unsecured credit aggregating $1.24 billion as of March 31, 2019,2020, excludes unamortized debt issuance costs of $4.7$4.5 million and $3.9$3.8 million as of March 31, 20192020 and December 31, 2018,2019, respectively. These debt issuance costs are included in prepaid expenses and other assets on the condensed consolidated balance sheets. As of March 31, 2019,2020, the Company’s $1.2 billion credit facility had an interest rate of LIBOR plus 0.825%, which is based on a tiered rate structure tied to the Company’s credit ratings and a scheduled maturity date of December 20222023 with one1 18-month extension, exercisable at the Company’s option. As of March 31, 2019,2020, the Company’s $35.0 million working capital unsecured line of credit had an interest rate of LIBOR plus 0.825%, which is based on a tiered rate structure tied to the Company’s credit ratings, and a scheduled maturity date of February 2021.
(3) Includes total unamortized premium of $10.6$5.0 million and $14.9$5.9 million, reduced by unamortized debt issuance costs of $3.7$2.4 million and $4.2$2.6 million, as of March 31, 20192020 and December 31, 2018,2019, respectively.


The aggregate scheduled principal payments of the Company’s outstanding debt, excluding lines of credit, as of March 31, 20192020 are as follows (excluding lines of credit) ($ in thousands):
Remaining in 2020$185,493
2021531,653
2022693,188
2023602,945
2024403,109
Thereafter3,768,383
Total$6,184,771

Remaining in 2019$229,732
2020693,723
2021543,604
2022691,178
2023600,852
Thereafter3,000,880
Total$5,759,969


(8) Segment Information


The Company's segment disclosures present the measure used by the chief operating decision makers for purposes of assessing each segment's performance. The Company's chief operating decision makers are comprised of several members of its

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2019 and 2018
(Unaudited)

executive management team who use net operating income ("NOI") to assess the performance of the business for the Company's reportable operating segments. NOI represents total property revenues less direct property operating expenses.



26

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2020 and 2019
(Unaudited)

The executive management team generally evaluates the Company's operating performance geographically. The Company defines its reportable operating segments as the three3 geographical regions in which its communities are located: Southern California, Northern California, and Seattle Metro.


Excluded from segment revenues and NOI are management and other fees from affiliates and interest and other income.income (loss). Non-segment revenues and NOI included in the following schedule also consist of revenues generated from commercial properties and properties that have been sold. Other non-segment assets include items such as real estate under development, co-investments, real estate held for sale, net, cash and cash equivalents, marketable securities, notes and other receivables, and prepaid expenses and other assets.


The revenues and NOI for each of the reportable operating segments are summarized as follows for the three months ended March 31, 20192020 and 20182019 ($ in thousands):
 Three Months Ended March 31,
 2020 2019
Revenues:   
Southern California$155,642
 $151,463
Northern California164,079
 136,745
Seattle Metro63,844
 60,413
Other real estate assets6,185
 5,267
Total property revenues$389,750
 $353,888
Net operating income:   
Southern California$111,097
 $107,996
Northern California120,981
 101,214
Seattle Metro44,993
 41,699
Other real estate assets5,536
 4,939
Total net operating income282,607
 255,848
Management and other fees from affiliates2,617
 2,335
Corporate-level property management expenses(8,759) (8,429)
Depreciation and amortization(131,559) (120,568)
General and administrative(13,982) (13,459)
Expensed acquisition and investment related costs(87) (32)
Interest expense(55,147) (53,643)
Total return swap income1,984
 2,045
Interest and other income (loss)(5,221) 12,261
Equity income from co-investments21,297
 16,276
Gain on early retirement of debt, net321
 1,336
Gain on remeasurement of co-investment234,694
 31,535
Net income$328,765
 $125,505

 Three Months Ended March 31,
 2019 2018
Revenues:   
Southern California$151,024
 $146,558
Northern California136,325
 128,622
Seattle Metro60,240
 58,713
Other real estate assets6,299
 11,054
Total property revenues$353,888
 $344,947
Net operating income:   
Southern California$107,429
 $104,363
Northern California100,705
 94,598
Seattle Metro41,467
 41,981
Other real estate assets5,971
 9,042
Total net operating income255,572
 249,984
Management and other fees from affiliates2,335
 2,308
Corporate-level property management expenses(8,153) (7,770)
Depreciation and amortization(120,568) (119,105)
General and administrative(13,459) (14,813)
Expensed acquisition and investment related costs(32) (57)
Interest expense(53,643) (54,861)
Total return swap income2,045
 2,270
Interest and other income12,261
 5,909
Equity income from co-investments16,276
 32,774
Gain on early retirement of debt, net1,336
 —
Gain on remeasurement of co-investment31,535
 —
Net income$125,505
 $96,639




27

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)


Total assets for each of the reportable operating segments are summarized as follows as of March 31, 20192020 and December 31, 20182019 ($ in thousands):
 March 31, 2020 December 31, 2019
Assets:   
Southern California$4,198,656
 $4,233,110
Northern California5,748,062
 4,622,268
Seattle Metro1,469,297
 1,481,061
Other real estate assets12,103
 12,221
Net reportable operating segment - real estate assets11,428,118
 10,348,660
Real estate under development435,865
 546,075
Co-investments997,137
 1,335,339
Cash and cash equivalents, including restricted cash282,347
 81,094
Marketable securities148,139
 144,193
Notes and other receivables34,867
 134,365
Operating lease right-of-use assets74,428
 74,744
Prepaid expenses and other assets49,940
 40,935
Total assets$13,450,841
 $12,705,405

 March 31, 2019 December 31, 2018
Assets:   
Southern California$4,309,022
 $4,350,377
Northern California4,411,355
 4,270,238
Seattle Metro1,461,068
 1,472,916
Other real estate assets61,012
 63,022
Net reportable operating segment - real estate assets10,242,457
 10,156,553
Real estate under development497,794
 454,629
Co-investments1,307,561
 1,300,140
Cash and cash equivalents, including restricted cash124,126
 151,395
Marketable securities211,030
 209,545
Notes and other receivables71,154
 71,895
Operating lease right-of-use assets76,996
 —
Prepaid expenses and other assets46,883
 39,439
Total assets$12,578,001
 $12,383,596


(9) Net Income Per Common Share and Net Income Per Common Unit
 
($ in thousands, except share and unit data):


Essex Property Trust, Inc.
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
 Income 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
 Income 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
Basic:           
Net income available to common stockholders$315,006
 66,043,831
 $4.77
 $118,858
 65,702,788
 $1.81
Effect of Dilutive Securities:           
Stock options—
 57,337
   —
 81,081
  
DownREIT units196
 94,247
   —
 —
  
Diluted: 
  
  
  
  
  
Net income available to common stockholders$315,202
 66,195,415
 $4.76
 $118,858
 65,783,869
 $1.81

 Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
 Income 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
 Income 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
Basic:           
Net income available to common stockholders$118,858
 65,702,788
 $1.81
 $90,918
 66,044,022
 $1.38
Effect of Dilutive Securities:           
Stock options—
 81,081
   —
 38,495
  
Diluted: 
  
  
  
  
  
Net income available to common stockholders$118,858
 65,783,869
 $1.81
 $90,918
 66,082,517
 $1.38



The table above excludes from the calculations of diluted earnings per share weighted average convertible OP Units of 2,305,0642,300,181 and 2,273,413,2,305,064, which include vested Series Z-1 Incentive Units, 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units for the three months ended March 31, 20192020 and 2018,2019, respectively, because they were anti-dilutive. The related income allocated to these convertible OP Units aggregated $4.2$11.0 million and $3.1$4.2 million for the three months ended March 31, 20192020 and 2018,2019, respectively. Additionally, the table excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.
 
Stock options of 106,029116,380 and 364,068106,029 for the three months ended March 31, 20192020 and 2018,2019, respectively, were excluded from the calculation of diluted earnings per share because the assumed proceeds per share of such options plus the average unearned


28

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)


compensation were greater than the average market price of the common stock for the periods ended and, therefore, were anti-dilutive.


Essex Portfolio, L.P.
Three Months Ended March 31, 2019 Three Months Ended March 31, 2018Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Income 
Weighted-
average
Common Units
 
Per
Common
Unit
Amount
 Income 
Weighted-
average
Common Units
 
Per
Common
Unit
Amount
Income 
Weighted-
average
Common Units
 
Per
Common
Unit
Amount
 Income 
Weighted-
average
Common Units
 
Per
Common
Unit
Amount
Basic:                      
Net income available to common unitholders$123,029
 68,007,852
 $1.81
 $94,050
 68,317,435
 $1.38
$325,992
 68,344,012
 $4.77
 $123,029
 68,007,852
 $1.81
Effect of Dilutive Securities:           
           
Stock options—
 81,081
   —
 38,495
  —
 57,337
   —
 81,081
  
DownREIT units196
 94,247
   —
 —
  
Diluted: 
  
  
  
  
  
 
  
  
  
  
  
Net income available to common unitholders$123,029
 68,088,933
 $1.81
 $94,050
 68,355,930
 $1.38
$326,188
 68,495,596
 $4.76
 $123,029
 68,088,933
 $1.81


Stock options of 106,029116,380 and 364,068106,029 for the three months ended March 31, 20192020 and 2018,2019, respectively, were excluded from the calculation of diluted earnings per unit because the assumed proceeds per unit of these options plus the average unearned compensation were greater than the average market price of the common unit for the periodsperiod ended and, therefore, were anti-dilutive. Additionally, the table excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.
 
(10) Derivative Instruments and Hedging Activities


As of March 31, 2019,2020, the Company had entered into interest rate swap contracts with an aggregate notional amount of $175.0 million that effectively fixed the interest rate on the $175.0 million unsecured term loan at 2.3%. These derivatives qualify for hedge accounting.


As of March 31, 2019, the Company had interest rate caps, which are not accounted for as hedges, totaling a notional amount of $9.9 million that effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the variable interest rate for $9.9 million of the Company’s tax exempt variable rate debt.

As of March 31, 20192020 and December 31, 2018,2019, the aggregate carrying value of the interest rate swap contracts was an asset of $4.1 million0 and $5.8$1.0 million, respectively, and is included in prepaid expenses and other assets on the condensed consolidated balance sheets. The aggregate carrying valuesheets, and a liability of the interest rate caps was zero$3.4 million and $0.2 million, respectively, and is included in other liabilities on the condensed consolidated balance sheets as of both March 31, 2019 and December 31, 2018.sheet.


Hedge ineffectiveness related to cash flow hedges, which is included in interest expense on the condensed consolidated statements of income and comprehensive income, was not significant for the three months ended March 31, 20192020 and 2018.2019.


Additionally, the Company has 4 total return swap contracts, with an aggregate notional amount of $255.9$255.3 million, that effectively convert $255.9$255.3 million of mortgage notes payable to a floating interest rate based on the Securities Industry and Financial Markets Association Municipal Swap Index ("SIFMA") plus a spread. The total return swaps provide fair market value protection on the mortgage notes payable to the counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call all of its total return swaps, with $255.9$255.3 million of the outstanding debt at par. These derivatives do not qualify for hedge accounting and had a carrying and fair value of zero0 at both March 31, 20192020 and December 31, 2018.2019. These total return swaps are scheduled to mature between September 2021 and November 2022. The realized gains of $2.0 million and $2.3$2.0 million for the three months ended March 31, 20192020 and 2018,2019, respectively, were reported in the condensed consolidated statements of income and comprehensive income as total return swap income.



29


ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 20192020 and 20182019
(Unaudited)


(11) Lease Agreements - Company as Lessor

As of March 31, 2019, the Company is a lessor of apartment homes at all of its consolidated operating and lease-up communities, one commercial building, and commercial portions of mixed use communities. The apartment homes are rented under short-term leases (generally, lease terms of nine to 12 months) while commercial lease terms typically range from five to 20 years. All such leases are classified as operating leases.

Although the majority of the Company’s apartment home and commercial leasing income is derived from fixed lease payments, some lease agreements also allow for variable payments. The primary driver of variable leasing income comes from utility reimbursements from apartment home leases and common area maintenance reimbursements from commercial leases. A small number of commercial leases contain provisions for lease payments based on a percentage of gross retail sales over set hurdles.

At the end of the term of apartment home leases, unless the lessee decides to renew the lease with the Company at the market rate or gives notice not to renew, the lease will be automatically renewed on a month-to-month term. Apartment home leases include an option to terminate the lease, however the lessee must pay the Company for expected or actual downtime to find a new tenant to lease the space. Most commercial leases include options to renew, with the renewal periods extending the term of the lease for no greater than the same period of time as the original lease term. The initial option to renew for commercial leases will typically be based on a fixed price while any subsequent renewal options will generally be based on the current market rate at the time of the renewal. Certain commercial leases contain lease termination options that would require the lessee to pay termination fees based on the expected amount of time it would take the Company to re-lease the space.

The Company’s apartment home and commercial lease agreements do not contain residual value guarantees. As the Company is the lessor of real estate assets which tend to either hold their value or appreciate, residual value risk is not deemed to be substantial. Furthermore, the Company carries comprehensive liability, fire, extended coverage, and rental loss insurance for each of its communities as well as limited insurance coverage for certain types of extraordinary losses, such as, for example, losses from terrorism or earthquakes.

A maturity analysis of undiscounted future minimum non-cancelable base rent to be received under the above operating leases as of March 31, 2019 is summarized as follows ($ in thousands):

 Future Minimum Rent
Remaining of 2019$612,190
202064,761
202114,599
202213,397
202312,403
Thereafter33,304
 $750,654


ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2019 and 2018
(Unaudited)

As of December 31, 2018, in accordance with previously applicable lease accounting guidance, Accounting Standards Codification ("ASC"), 840, "Leases", the future minimum non-cancelable base rent to be received under one commercial building and commercial portions of mixed use communities, for which the Company was the lessor, was as follows ($ in thousands):
 Future Minimum Rent
2019$16,386
202015,842
202114,412
202213,324
202312,181
Thereafter33,034
 $105,179

Practical Expedients

For all operating leases the Company has elected to account for lease (e.g., fixed payments including rent) and non-lease components (e.g., utility reimbursements and common-area maintenance costs) as a single combined lease component under ASC 842 as the lease components are the predominant elements of the combined components.

As part of the transition to ASC 842, the Company has elected to use the modified retrospective transition method with the new standard being applied as of the January 1, 2019 adoption date. Additionally, the Company has elected, as of the adoption date, not to reassess whether expired or existing contracts contain leases under the new definition of a lease, not to reassess the lease classification for expired or existing leases, not to reassess whether previously capitalized initial direct costs would qualify for capitalization under ASC 842, and not to reassess whether existing or expired land easements meet the definition of a lease.

(12) Lease Agreements - Company as Lessee

As of March 31, 2019, the Company is a lessee of corporate office space, ground leases and a parking lease associated with various consolidated properties, and equipment. Lease terms for the Company's office leases, in general, range between five to 10 years while ground leases and the parking lease have terms typically ranging from 20 to 85 years. The corporate office leases occasionally contain renewal options of approximately five years while certain ground leases contain lease renewal options that can extend the lease term from approximately 10 to 39 years.

A majority of the Company’s ground leases and the parking lease are subject to changes in the Consumer Price Index ("CPI"). Furthermore, certain of the Company’s ground leases include rental payments based on a percentage of gross or net income. While lease liabilities are not remeasured as a result of changes in the CPI or percentage of gross or net income, such changes are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

As of March 31, 2019 and December 31, 2018, the Company had no material finance leases.






ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2019 and 2018
(Unaudited)


Supplemental condensed consolidated balance sheet information related to leases as of March 31, 2019 is as follows ($ in thousands):
 Classification March 31, 2019
Assets   
     Operating lease right-of-use assetsOperating lease right-of-use assets $76,996
          Total leased assets  $76,996
    
Liabilities   
     Operating lease liabilitiesOperating lease liabilities 79,010
          Total lease liabilities  $79,010

The components of lease expense for the three months ended March 31, 2019 were as follows ($ in thousands):
 Three Months Ended March 31, 2019
Operating lease cost$1,686
Variable lease cost142
Short-term lease cost132
Sublease income(107)
          Total lease cost$1,853

A maturity analysis of lease liabilities as of March 31, 2019 are as follows ($ in thousands):
 Operating Leases
Remaining in 2019$5,117
20206,855
20216,877
20226,888
20236,860
Thereafter153,258
Total lease payments$185,855
Less: Imputed interest(106,845)
Present Value of lease liabilities$79,010

Lease term and discount rate information for leases for the three months ended March 31, 2019 are as follows:
March 31, 2019
Weighted-average of remaining lease terms (years)
     Operating Leases39
Weighted-average of discount rates
     Operating Leases4.98%





ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2019 and 2018
(Unaudited)

As of December 31, 2018, in accordance with previously applicable lease accounting guidance, ASC 840, the total minimum lease commitments, under operating leases was as follows ($ in thousands):

 Future Minimum Rent
2019$6,811
20206,855
20216,877
20226,888
20236,860
Thereafter153,258
 $187,549

Practical Expedients

Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes the lease expense for such leases on a straight-line basis over the lease term.

The Company has elected to account for lease (e.g., fixed payments including rent) and non-lease components (e.g., common-area maintenance costs) as a single combined lease component under ASC 842 as the lease components are the predominant elements of the combined components.

As part of the transition to ASC 842, the Company elected to use the modified retrospective transition method with the new standard being applied as of the January 1, 2019 adoption date. Additionally, the Company has elected, as of the adoption date, not to reassess whether expired or existing contracts contain leases under the new definition of a lease, not to reassess the lease classification for expired or existing leases, not to reassess whether previously capitalized initial direct costs would qualify for capitalization under ASC 842, and not to reassess whether existing or expired land easements meet the definition of a lease.

(13) Commitments and Contingencies


The Company is subject to various lawsuits in the normal course of its business operations. Such lawsuits have not had a material adverse effect on the Company's financial condition, results of operations or cash flows. While no assurances can be given, the Company does not believe there is any pending or threatened litigation against the Company that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company.


The Company is subject to various federal, state, and local environmental and other laws. Compliance by the Company with existing laws has not had a material adverse effect on the Company. However, the Company cannot predict the impact of new or changed laws or regulations on its current portfolio or on other assets that the Company may acquire in the future.future, including, without limitation, certain eviction moratoriums and other mandates that have been, or may be, taken in connection with the COVID-19 pandemic. To the extent that an environmental or other matter arises or is identified in the future that has other than a remote risk of having a material impact on the condensed consolidated financial statements, the Company will disclose the estimated range of possible outcomes associated with it, and, if an outcome is probable, accrue an appropriate liability for that matter. The Company will consider whether any such matter results in an impairment of value on the affected property and, if so, impairment will be recognized.



Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations


The following discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with the Company’s 20182019 annual report on Form 10-K for the year ended December 31, 2018.2019. Capitalized terms not defined in this section have the meaning ascribed to them elsewhere in this Quarterly Report on Form 10-Q. The Company makes statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-Q entitled "Forward-Looking Statements."
 
Essex is a self-administered and self-managed REIT that acquires, develops, redevelops, and manages apartment communities in selected residential areas located on the West Coast of the United States. Essex owns all of its interests in its real estate investments, directly or indirectly through the Operating Partnership. Essex is the sole general partner of the Operating Partnership and, as of March 31, 2019,2020, had an approximately 96.6% general partnership interest in the Operating Partnership.


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


As of March 31, 2019,2020, the Company owned or had ownership interests in 245250 operating apartment communities, comprising 59,66260,770 apartment homes, excluding the Company’s ownership interest in preferred equity co-investments, loan investments, one operating commercial building, with approximately 106,716 square feet, and six active developments. a development pipeline comprised of four consolidated projects and two unconsolidated joint venture projects. 

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


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


As of March 31, 2019,2020, the Company’s development pipeline was comprised of four consolidated projects under development, two unconsolidated joint venture projects under development, and various consolidated predevelopment projects aggregating 1,8611,761 apartment homes, with total incurred costs of $0.9 billion,$963.0 million, and estimated remaining project costs of $0.3 billion, $0.2 billionapproximately $168.0 million, $151.0 million of which represents the Company's share of estimated remaining costs, for total estimated project costs of $1.2$1.1 billion.


The Company’s consolidated apartment communities are as follows:
As of March 31, 2019 As of March 31, 2018As of March 31, 2020 As of March 31, 2019
Apartment Homes % Apartment Homes %Apartment Homes % Apartment Homes %
Southern California22,674
 46% 23,343
 47%22,675
 43% 22,674
 46%
Northern California16,449
 33% 15,970
 32%19,748
 37% 16,449
 33%
Seattle Metro10,238
 21% 10,238
 21%10,343
 20% 10,238
 21%
Total49,361
 100% 49,551
 100%52,766
 100% 49,361
 100%


Co-investments, including Wesco I, Wesco III, Wesco IV, Wesco V, CPPIB,Canada Pension Plan Investment Board ("CPPIB"), BEXAEW, BEX II, BEX III, and BEX IIIIV communities, developments under construction, and preferred equity interest co-investment communities are not included in the table presented above for both periods.

Current Material Development – the COVID-19 Pandemic

The United States and other countries around the world are experiencing an unprecedented health pandemic related to COVID-19, which has created considerable instability, disruption, and uncertainty. Governmental authorities in impacted regions are taking increasingly dramatic action in an effort to slow COVID-19’s spread. Federal, state and local jurisdictions have issued varying forms of "Shelter-in-Place" orders, halted public gatherings and restricted business functions outside of one’s home to only those that are considered "essential", resulting in extraordinary job losses and related financial impacts that will affect future operations to an unknown extent. Moreover, eviction moratoriums have been enacted in various formats at

Comparisonvarious levels of government, including regions in which Essex's communities are located, impacting Essex properties. The Company is working to comply with the stated intent of local, county, state and federal laws.  In that regard, the Company has implemented a wide range of practices to protect and support its employees and residents. Such measures include closing the Company's corporate offices and instituting “work from home” measures for corporate associates, closing leasing offices to non-Essex personnel and reducing on-site staff to essential functions so that hygiene and “social distancing” standards can be effectively managed and applied. The Company has transitioned most interactions with leasing staff to on-line and telephonic communications. In addition, common areas and community amenities, such as gyms and pools, have been temporarily closed and community sanitation and cleaning practices have increased. Response to maintenance work orders are limited mostly to emergencies only. Due to the COVID-19 pandemic, the Company's residents, their health, their employment, and, thus, their ability to pay rent, may be impacted. To support residents, as of March 23, 2020, the Company announced that it will, among other things:

halt evictions for 90 days for residents who have been financially impacted by the COVID-19 pandemic, such as job loss, reduction of work hours, business closure, furlough or layoff;
avoid rent increases for 90 days by offering lease renewals with no rent increase; and
create payment plans for residents who are unable to pay their rent as a result of the Three Months Ended March 31, 2019 to the Three Months Ended March 31, 2018outbreak and waive late fees for those residents.


The Company’simpact of the COVID-19 pandemic on the U.S. and world economies generally, and on the Company's future results in particular, could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted. This includes new information which may emerge concerning the severity of COVID-19, the success of actions taken to contain or treat COVID-19, future laws that may be enacted, the impact on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets.

As a result of the impact of the COVID-19 pandemic, the Company's average financial occupancy for the Company’s stabilized apartment communities or "Same-Property" (stabilized properties consolidated by the Company for the quarters ended March 31, 2020 and 2019) portfolio decreased from 96.7% for April 2019 to 95.4% for April 2020. Furthermore, cash delinquencies as a percentage of scheduled rental income for the Company's Same-Property portfolio increased from 0.4% for April 2019 to 5.0% for April 2020. The Company is currently in the process of creating payment plans related to such April 2020 cash delinquencies. As part of this process, the Company will assess a collectability reserve attributable to those deferred payments which is expected to partially mitigate the April 2020 delinquencies.

Comparison of the Three Months Ended March 31, 2020 to the Three Months Ended March 31, 2019

The Company’s average financial occupancy for the Company’s Same-Property portfolio was 96.8% and 2018) was 96.9% and 97.1% for the three months ended March 31, 20192020 and 2018,2019, respectively. Financial occupancy is defined as the percentage resulting from dividing actual rental income by total potentialscheduled rental income. Actual rental income represents contractual rental income pursuant to leases without considering delinquency and concessions. Total potentialscheduled rental income represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant apartment home at its estimated market rate.



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


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


The regional breakdown of the Company’s Same-Property portfolio for financial occupancy for the three months ended March 31, 20192020 and 20182019 is as follows:
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Southern California96.8% 96.9%96.6% 96.8%
Northern California97.1% 97.4%96.9% 97.1%
Seattle Metro96.9% 96.9%96.9% 96.9%


The following table provides a breakdown of revenues amounts, including revenues attributable to the Same-Properties:
 Number of Apartment Three Months Ended March 31, Dollar Percentage Number of Apartment Three Months Ended March 31, Dollar Percentage
Property Revenues ($ in thousands) Homes 2019 2018 Change Change Homes 2020 2019 Change Change
Same-Property Revenues:                    
Southern California 21,979
 $146,222
 $141,917
 $4,305
 3.0 % 21,354
 $147,521
 $143,584
 $3,937
 2.7%
Northern California 15,685
 130,890
 126,637
 4,253
 3.4 % 15,755
 135,704
 131,661
 4,043
 3.1%
Seattle Metro 10,238
 60,240
 58,713
 1,527
 2.6 % 10,238
 63,231
 60,413
 2,818
 4.7%
Total Same-Property Revenues 47,902
 337,352
 327,267
 10,085
 3.1 % 47,347
 346,456
 335,658
 10,798
 3.2%
Non-Same Property Revenues  
 16,536
 17,680
 (1,144) (6.5)%  
 43,294
 18,230
 25,064
 137.5%
Total Property Revenues  
 $353,888
 $344,947
 $8,941
 2.6 %  
 $389,750
 $353,888
 $35,862
 10.1%


Same-Property Revenues increased by $10.1$10.8 million or 3.1%3.2% to $337.4$346.5 million in the first quarter of 20192020 from $327.3$335.7 million in the first quarter of 2018.2019. The increase was primarily attributable to an increase of 3.3%3.1% in average rental rates from $2,208$2,288 per apartment home in the first quarter of 20182019 to $2,280$2,360 per apartment home in the first quarter of 2019. 2020. 


Non-Same Property Revenues decreased increased by $1.1$25.1 million or 6.5%137.5% to $16.5$43.3 million in the first quarter of 20192020 from $17.7$18.2 million in the first quarter of 2018.2019. The decreaseincrease was primarily due to the sales of Domain in the second quarter of 2018 and of 8th & Hope in the fourth quarter of 2018, offset by revenues generated from Marquis, which wasthe six communities that were consolidated as part of the Company's purchase of CPPIB's 45.0% co-investment interests in December 2018, Station Park Green - Phase I, a development community, that began producing rental income during the first quarter of 2018, and One South Market, which was consolidated in March 2019.2020.


Management and other fees from affiliates remained flat at increased by $0.3 million or 13.0% to $2.6 million in the first quarter of 2020 compared to $2.3 million in the first quarter of 2019 compared2019. The increase was primarily due to the firstaddition of The Courtyards at 65th Street, 777 Hamilton, and Velo and Ray communities to the Company's joint venture portfolio in 2019, offset slightly by the disposition of Mosso joint venture community in the fourth quarter of 2018.2019, and by the consolidation of six communities as part of the Company's purchase of CPPIB's 45.0% co-investment interests.

Property operating expenses, excluding real estate taxes increased $1.6$5.5 million or 2.8%9.4% to $58.9$64.1 million for the first quarter of 2020 compared to $58.6 million for the first quarter of 2019 compared to $57.3 million for the first quarter of 2018 primarily due to an increase of $0.9$2.2 million in utilitiesmaintenance and repairs expenses, an increase of $0.5$1.7 million in administrativeutilities expenses, and an increase of $0.2$1.6 million in maintenance and repairsadministrative expenses. Same-Property operating expenses, excluding real estate taxes, increased by $1.6$1.3 million or 2.9%2.3% to $57.2 million in the first

quarter of 2019 compared to $55.6$57.7 million in the first quarter of 2018,2020 compared to $56.4 million in the first quarter of 2019, primarily due to an increase of $1.1$0.7 million in utilitiesmaintenance and repairs expenses and an increase of $0.3 million in administrativeutilities expenses.


Real estate taxes increased $1.7$3.6 million or 4.5%9.1% to $43.0 million for the first quarter of 2020 compared to $39.4 million for the first quarter of 2019, comparedprimarily due to $37.7 million forthe additions of six communities that were consolidated in the first quarter of 2018 primarily due to2020 as part of the consolidationCompany's purchase of Marquis in December 2018, the consolidation of One South Market in March 2019, and increases in tax rates and property valuations offset by a decrease due to the sales of Domain in the second quarter of 2018 and of 8th & Hope in the fourth quarter of 2018.CPPIB's 45.0% co-investment interests. Same-Property real estate taxes increased by $2.0 million or 5.7% to $37.3remained relatively flat at $37.0 million in the first quarter of 20192020 compared to $35.3the first quarter of 2019.

Corporate-level property management expenses increased $0.4 million or 4.8% to $8.8 million in the first quarter of 2018, primarily due2020 compared to increases in tax rates and property valuations.

Corporate-level property management expenses increased $0.4 million or 5.1% to $8.2$8.4 million in the first quarter of 2019, compared to $7.8 million in the first quarter of 2018, primarily due to an increase in corporate-level property management and staffing costs supporting the communities.


Depreciation and amortization expense increased by $1.5$11.0 million or 1.3%9.1% to $131.6 million for the first quarter of 2020 compared to $120.6 million for the first quarter of 2019, comparedprimarily due to $119.1the additions of six communities that were consolidated in the first quarter of 2020 as part of the Company's purchase of CPPIB's 45.0% co-investment interests.


Interest expense increased by $1.5 million or 2.8% to $55.1 million for the first quarter of 2018, primarily due to the completion of the Station Park Green - Phase I development during the first and second quarters of 2018, consolidation of Marquis in fourth quarter of 2018, and consolidation of One South Market in the first quarter of 2019. The increase was partially offset due to the sales of Domain in the second quarter of 2018 and of 8th & Hope in the fourth quarter of 2018.

Interest expense decreased $1.3 million or 2.4%2020 compared to $53.6 million for the first quarter of 2019, comparedprimarily due to $54.9an increase in average outstanding debt primarily as a result of the issuance of $500.0 million of senior unsecured notes due March 1, 2029 in February and March 2019, $550.0 million of senior unsecured notes due January 15, 2030 in August and October 2019, and $500 million of senior unsecured notes due March 15, 2032 in February 2020, which resulted in an increase of $11.0 million interest expense for the first quarter of 2018, primarily2020. Additionally, there was a $1.1 million decrease in capitalized interest in the first quarter of 2020, due to a decrease in development activity as compared to the same period in 2019. These increases to interest expense were partially offset by debt that was paid off or matured, as well as regular principal amortization during and after the first quarter of 2018,2019, which resulted in a decrease in interest expense of $4.5$10.6 million for the first quarter of 2019. Additionally, there was a $1.7 million increase in capitalized interest in the first quarter of 2019, due to an increase in development costs as compared to the same period in 2018. These decreases to interest expense were partially offset by an increase in average outstanding debt primarily as a result of the issuance of $300.0 million senior unsecured notes due March 15, 2048 in March 2018 and of $500.0 million senior unsecured notes due March 1, 2029 in March 2019, which resulted in an increase of $4.9 million interest expense for the first quarter of 2019.


Total return swap income of $2.0 million in the first quarter of 20192020 consists of monthly settlements related to the Company's total return swap contracts that were entered into during 2015 in connection with issuing fixed rate tax-exempt mortgage notes. The

Interest and other income (loss) decreased by $17.5 million or 142.3% to $5.2 million in loss for the first quarter of 2020 compared to $12.3 million in income for the first quarter of 2019, primarily due to a decrease from unrealized gains (losses) on marketable securities of $13.2 million and a decrease of $0.3$4.1 million in marketable securities and other income.

Equity income from co-investments increased by $5.0 million or 13.0% from $2.330.7% to $21.3 million for the first quarter of 2018 was due to less favorable interest rates.

Interest and other income increased by $6.4 million or 108.5% to $12.3 million for the first quarter of 20192020 compared to $5.9 million for the first quarter of 2018, primarily due to an increase of $5.4 million in unrealized gains and losses on marketable securities recognized through income and an increase in marketable securities and other income of $1.5 million in the first quarter of 2019.

Equity income from co-investments decreased $16.5 million or 50.3% to $16.3 million for the first quarter of 2019, comparedprimarily due to $32.8an increase of $5.6 million in promote income, and an increase of $1.6 million in income from preferred equity investments. The increase was partially offset by a $1.9 million decrease in equity income from co-investments.

Gain on early retirement of debt, net of $0.3 million for the first quarter of 2018,2020 was primarily due to a decreaseearly repayment of $100.3 million secured mortgage notes payable in promote income. In the first quarter of 2019, the Company recognized $0.8 million of promote income from the acquisition of One South Market compared to $20.5 million in first quarter of 2018, from the BEXEAEW joint venture, resulting in a decrease of $19.7 million in promote income. The decrease was slightly offset by an increase of $2.1 million in income from preferred equity investments.2020.


Gain on remeasurement of co-investmentof $31.5$234.7 million in the first quarter of 20192020 resulted from the Company's purchase of the Company's joint venture partner'sCPPIB's 45.0% membership interest in the One South Market co-investment in March 2019.interests.


Liquidity and Capital Resources


The United States and other countries around the world are experiencing an unprecedented health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S. and world economies. Governmental authorities in affected regions are taking increasingly dramatic action in an effort to slow down the spread of the disease.

As of March 31, 2019,2020, the Company had $107.0$271.9 million of unrestricted cash and cash equivalents and $211.0$148.1 million in marketable securities, of which $78.5$73.1 million were equity securities or available for sale debt securities. The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of its reasonably anticipated cash needs during the next twelve months. Due to the COVID-19 pandemic and related economic disruptions, the Company anticipates that it may be required to augment decreased cash flows from operations with its cash reserves, lines of credit, or decreased investment in redevelopment activities and it expects to carefully monitor and manage its cash position in light of ongoing conditions and levels of operations. The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect the Company's plans for acquisitions, dispositions, development and redevelopment activities.



As of March 31, 2019,2020, Fitch Ratings, ("Fitch"), Moody’s Investor Service, ("Moody's"), and Standard and Poor's ("S&P") credit agencies raterated the Company and the Operating Partnership, BBB+/Positive,Stable, Baa1/Stable, and BBB+/Stable, respectively.


As of March 31, 2019,2020, the Company had two unsecured lines of credit aggregating $1.24 billion. As of March 31, 2019,2020, there was no amount$350.0 million outstanding on the Company's $1.2 billion unsecured line of credit. The underlying interest rate is based on a tiered rate structure tied to the Company's credit ratings and was LIBOR plus 0.825% as of March 31, 2019.2020. This facility is scheduled to mature in December 2022,2023, with one 18-month extension, exercisable at the Company's option. As of March 31, 2019,2020, there was no amount outstanding on the Company's $35.0 million working capital unsecured line of credit. The underlying interest rate on the $35.0 million line is based on a tiered rate structure tied to the Company's credit ratings and was LIBOR plus 0.825% as of March 31, 2019.2020. This facility is scheduled to mature in February 2021.


In February 2019,2020, the Operating PartnershipCompany issued $350.0$500.0 million of senior unsecured notes due on March 1, 2029,15, 2032, with a coupon rate of 4.000%2.650% (the "2029"2032 Notes"), which are payable on March 115 and September 115 of each year, beginning on September 1, 2019. 15, 2020.

The 20292032 Notes were offered to investors at a price of 99.188%99.628% of the principal amount thereof.par value. The 20292032 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are unconditionally guaranteed by the Company. In March 2019, the Operating Partnership issued an additional $150.0 million of the 2029 Notes at a price of 100.717% of the principal amount thereof. These additional notes have substantially identical terms as the 2029 Notes issued in February 2019.Essex. The Company used the net proceeds of these offeringsthis offering to repay indebtedness under its unsecured lines of credit, and for other general corporate and working capital purposes.which had been used to fund the buyout of CPPIB's 45.0% joint venture interests, as well as repay $100.3 million of secured debt during the quarter.

In January 2019, the Company repaid $290.0 million in secured mortgage notes payable with a coupon rate of 5.57% and a stated maturity date of May 2019.


In September 2018, the Company entered into a newan equity distribution agreement pursuant to which the Company may offer and sell shares of its common stock having an aggregate gross sales price of up to $900.0 million (the "2018 ATM Program"). In connection with the 2018 ATM Program, the Company may also enter into related forward sale agreements whereby, at the Company’s discretion, it may sell shares of its common stock under the 2018 ATM Program under forward sales agreements. The use of a forward sales agreement would allow the Company to lock in a share price on the sale of shares of its common stock at the time the agreement is executed, but defer receiving the proceeds from the sale of shares until a later date. During the three months ended March 31, 2019,2020, the Company did not sellissue any shares of its common stock through the 2018 ATM Program. As of March 31, 2019,2020, there are no outstanding forward purchase agreements, and $900.0$826.6 million of shares remainsremain available to be sold under this program.


In December 2015, the Company’s board of directors authorized a stock repurchase plan to allow the Company to
acquire shares in an aggregate of up to $250.0 million. During the three months ended March 31, 2019, the Company repurchased 234,061 shares of its common stock totaling $57.0 million, including commissions, at an average price of $243.48 per share. In February 2019, the board of directors approved the replenishment of the stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the stock repurchase plan. During the three months ended March 31, 2020, the Company repurchased and retired 776,261 shares of its common stock totaling $176.3 million, including commissions, at an average price of $227.13 per share. As of March 31, 2020, the Company had $73.7 million of purchase authority remaining under the stock repurchase plan.


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


Development and Predevelopment Pipeline


The Company defines development projects as new communities that are being constructed, or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of March 31, 2019,2020, the Company’s development pipeline was comprised of four consolidated projects under development, two unconsolidated joint venture projects under development and various consolidated predevelopment projects, aggregating 1,8611,761 apartment homes, with total incurred costs of $0.9 billion,$963.0 million, and estimated remaining project costs of approximately $0.3 billion, $0.2 billion$168.0 million, $151.0 million of which represents the Company's share of estimated remaining costs, for total estimated project costs of $1.2$1.1 billion.


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

The Company expects to fund the development and predevelopment pipeline by using a combination of some or all of the following sources: its working capital, amounts available on its lines of credit, construction loans, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of assets, if any.





Redevelopment Pipeline


The Company defines redevelopment communities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. During redevelopment, apartment homes may not be available for rent and, as a result, may have less than stabilized operations. As of March 31, 2019,2020, the Company had ownership interests in fivefour major redevelopment communities aggregating 1,7271,327 apartment homes with estimated redevelopment costs of $140.1$132.7 million, of which approximately $25.2$11.8 million remains to be expended. The Company has the ability to cease funding of the redevelopment pipeline as needed.


Derivative Activity


The Company uses interest rate swaps interest rate caps, and total return swap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps and total

return swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.


Alternative Capital Sources


The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities. As of March 31, 2019,2020, the Company had an interest in 814806 apartment homes in communities actively under development with joint ventures for total estimated costs ofof $0.6 billion. Total estimated remaining costs totalare approximately $0.2 billion,$35.0 million, of which the Company estimates that its remaining investment in these development joint ventures will be approximately $0.1 billion.$17.5 million. In addition, the Company had an interest in 10,3018,652 apartment homes of operating communities with joint ventures for a total book value of $0.8 billion$387.6 million as of March 31, 2019.2020.


Off-Balance Sheet Arrangements


The Company has various unconsolidated interests in certain joint ventures. The Company does not believe that these unconsolidated investments have a materially different impact on its liquidity, cash flows, capital resources, credit or market risk than its consolidated operations. See Note 4, Co-investments, in the Notes to Condensed Consolidated Financial Statements for carrying values and combined summarized financial information of these unconsolidated investments.
 
Critical Accounting Policies and Estimates
 
The preparation of condensed consolidated financial statements, in accordance with U.S. GAAP, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. The Company defines critical accounting policies as those accounting policies that require the Company’s management to exercise their most difficult, subjective and complex judgments. The Company’s critical accounting policies and estimates relate principally to the following key areas: (i) accounting for the acquisition of investments in real estate;estate (specifically, the allocation between land and buildings); and (ii) assessingevaluation of events and measuringchanges in circumstances indicating whether the impairment of the Company's real estateCompany’s rental properties and investments in and advances to joint ventures and affiliates.may be impaired. 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’s critical accounting policies and estimates have not changed materially from the information reported in Note 2, Summary of Critical and Significant Accounting Policies, in the Company’s annual report on Form 10-K for the year ended December 31, 2018.2019.
  
Forward-Looking Statements
 
Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this quarterly report on Form 10-Q 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 (the "Securities Act"), and Section 21E of the Exchange Act, including statements regarding the Company's expectations, estimates, assumptions, hopes, intentions, beliefs

and strategies regarding the future. Words such as "expects," "assumes," "anticipates," "may," "will," "intends," "plans," "projects," "believes," "seeks," "future," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, among other things, statements regarding the Company’s expectations related to the impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations and the impact of any measures taken to mitigate the impact of the pandemic, the Company's intent, beliefs or expectations with respect to the timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities, the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code of 1986, as amended, the real estate markets in the geographies in which the Company’s properties are located and in the United States in general, the adequacy of future cash flows to meet anticipated cash needs, its financing activities and the use of proceeds from such activities, the availability of debt and equity financing, general economic conditions including the potential impacts from thesuch economic conditions, including as a result of the COVID-19 pandemic, trends affecting the Company’s financial condition or results of operations, changes to U.S. tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and

regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.


While the Company's management believes the assumptions underlying its forward-looking statements are reasonable, such forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s control, which could 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. The Company cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect the Company’s current expectations of the approximate outcomes of the matters discussed. Factors that might cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following: the impact of the COVID-19 pandemic, which remains inherently uncertain as the situation is unprecedented and continuously evolving, and other potential future outbreaks of infectious diseases or other health concerns, and measures taken to limit their impact, could adversely affect the Company’s business and its tenants, and cause a significant downturn in general economic conditions, the real estate industry, and the markets in which the Company's communities are located; the Company may fail to achieve its business objectives; the actual completion of development and redevelopment projects may be subject to delays; the stabilization dates of such projects may be delayed; the Company may abandon or defer development or redevelopment projects for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses; the total projected costs of current development and redevelopment projects may exceed expectations; such development and redevelopment projects may not be completed; development and redevelopment projects and acquisitions may fail to meet expectations; estimates of future income from an acquired property may prove to be inaccurate; occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions; there may be increased interest rates and operating costs; the Company may be unsuccessful in the management of its relationships with its co-investment partners; future cash flows may be inadequate to meet operating requirements and/or may be insufficient to provide for dividend payments in accordance with REIT requirements; there may be a downturnchanges in general economic conditions, the real estate industry, and the markets in which the Company's communities are located;laws or regulations; the terms of any refinancing may not be as favorable as the terms of existing indebtedness; unexpected difficulties in leasing of development projects; volatility in financial and securities markets; the Company’s failure to successfully operate acquired properties; unforeseen consequences from cyber-intrusion; the Company’s inability to maintain our investment grade credit rating with the rating agencies; government approvals, actions and initiatives, including the need for compliance with environmental requirements; and those further risks, special considerations, and other factors referred to in this quarterly report on Form 10-Q, in the Company's annual report on Form 10-K for the year ended December 31, 2018,2019, 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. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that the Company has filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic. All forward-looking statements are made as of the date hereof, the Company assumes no obligation to update or supplement this information for any reason, and therefore, they may not represent the Company’s estimates and assumptions after the date of this report.


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


FFO and Core FFO are not meant to represent a comprehensive system of financial reporting and do not present, nor do they intend to present, a complete picture of the Company's financial condition and operating performance. The Company believes that net income computed under U.S. GAAP is the primary measure of performance and that FFO and Core FFO are only meaningful when they are used in conjunction with net income. 


The Company considers FFO and Core FFO to be useful financial performance measurements of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and

useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results. The Company believes that its consolidated financial statements, prepared in accordance with U.S. GAAP, provide the most meaningful picture of its financial condition and its operating performance.
 
In calculating FFO, the Company follows the definition for this measure published by the National Association of Real Estate Investment Trusts ("NAREIT"), which is the leading REIT industry association. The Company believes that, under the NAREIT FFO definition, the two most significant adjustments made to net income are (i) the exclusion of historical cost depreciation and (ii) the exclusion of gains and losses from the sale of previously depreciated properties. The Company agrees that these two NAREIT adjustments are useful to investors for the following reasons:
 
(a)historical cost accounting for real estate assets in accordance with U.S. GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations "since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves." Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by U.S. GAAP do not reflect the underlying economic realities.


(b)REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate.  The exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods.


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





























The following table is a reconciliation of net income available to common stockholders to FFO and Core FFO for the three months ended March 31, 20192020 and 20182019 (in thousands, except share and per share amounts):


Essex Property Trust, Inc.
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Net income available to common stockholders$118,858
 $90,918
$315,006
 $118,858
Adjustments: 
  
 
  
Depreciation and amortization120,568
 119,105
131,559
 120,568
Gains not included in FFO attributable to common stockholders and unitholders(31,535) —
(234,694) (31,535)
Depreciation and amortization from unconsolidated co-investments15,190
 15,859
12,544
 15,190
Noncontrolling interest related to Operating Partnership units4,171
 3,132
10,986
 4,171
Depreciation attributable to third party ownership and other(230) (232)(134) (230)
Funds from operations attributable to common stockholders and unitholders$227,022
 $228,782
$235,267
 $227,022
Funds from operations attributable to common stockholders and unitholders per share - diluted$3.34
 $3.35
$3.44
 $3.34
Non-core items: 
  
 
  
Expensed acquisition and investment related costs32
 57
87
 32
Loss (gain) on sale of marketable securities58
 (680)
Loss on sale of marketable securities13
 58
Unrealized (gains) losses on marketable securities(4,510) 876
8,696
 (4,510)
Unrealized gain on unconsolidated co-investments(314) —
Interest rate hedge ineffectiveness (1)
181
 56
Gain on early retirement of debt from unconsolidated co-investments(1,336) —
Provision for credit losses(50) —
Equity (income) loss from non-core co-investment (1)
110
 (314)
Interest rate hedge ineffectiveness (2)
—
 181
Gain on early retirement of debt, net(321) (1,336)
Co-investment promote income(809) (20,541)(6,455) (809)
Income from early redemption of preferred equity investments(100) (24)(210) (100)
General and administrative and other, net—
 2,433
820
 —
Insurance reimbursements and legal settlements, net(210) —
Insurance reimbursements, legal settlements, and other, net43
 (210)
Core Funds from Operations attributable to common stockholders and unitholders$220,014
 $210,959
$238,000
 $220,014
Core Funds from Operations attributable to common stockholders and unitholders per share-diluted$3.23
 $3.09
$3.48
 $3.23
Weighted average number shares outstanding, diluted (2)
68,048,908
 68,318,012
Weighted average number shares outstanding, diluted (3)
68,359,698
 68,048,908


(1) Interest rate swaps generally are adjusted to fair value through other comprehensive income (loss). However, because certain of Represents the Company's interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portionshare of the change in fair value of these interest rate swaps attributable to this mismatch, if any, is recorded as a non-cash interest rate hedge ineffectiveness through interest expense.co-investment income from Real Estate Technology Ventures, L.P.
(2) On January 1, 2019, the Company adopted ASU No. 2017-12 "Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities," which resulted in a cumulative effect adjustment of approximately $181,000 from interest expense to accumulated other comprehensive income. As a result of the adoption of this standard, the Company recognizes
(2)qualifying hedge ineffectiveness through accumulated other comprehensive income as opposed to current earnings.
(3) Assumes conversion of all outstanding operatingOperating Partnership limited partnership interests inunits ("OP Units") into shares of the Operating PartnershipCompany's common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.


Net Operating Income


Net operating income ("NOI") and Same-Property NOI are considered by management to be an important supplemental performance measuremeasures to earnings from operations included in the Company’s condensed consolidated statements of income and comprehensive income. The presentation of Same-Property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. In addition, because prospective buyers of real estate have different financing and overhead structures, with

varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines Same-Property NOI as Same-Property revenues less Same-Property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to NOI and Same-Property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented ($ in thousands):


Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Earnings from operations$115,695
 $110,547
$130,837
 $115,695
Adjustments: 
  
 
  
Corporate-level property management expenses8,153
 7,770
8,759
 8,429
Depreciation and amortization120,568
 119,105
131,559
 120,568
Management and other fees from affiliates(2,335) (2,308)(2,617) (2,335)
General and administrative13,459
 14,813
13,982
 13,459
Expensed acquisition and investment related costs32
 57
87
 32
NOI255,572

249,984
282,607

255,848
Less: Non-Same Property NOI(12,738) (13,662)(30,842) (13,638)
Same-Property NOI$242,834
 $236,322
$251,765
 $242,210


Item 3: Quantitative and Qualitative Disclosures About Market Risks


Interest Rate Hedging Activities


The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company uses interest rate swaps as part of its cash flow hedging strategy. As of March 31, 2019,2020, the Company has entered into five interest rate swap contracts to mitigate the risk of changes in the interest-related cash outflows on $175.0 million of the Company's unsecured term debt. As of March 31, 2019,2020, the Company also had $269.5$255.3 million of secured variable rate indebtedness, of which $9.9 million is subject to interest rate cap protection.indebtedness. All of the Company's interest rate swaps are designated as cash flow hedges as of March 31, 2019.2020. The following table summarizes the notional amount, carrying value, and estimated fair value of the Company’s cash flow hedge derivative instruments used to hedge interest rates as of March 31, 2019.2020. The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rates or market risks. The table also includes a sensitivity analysis to demonstrate the impact on the Company’s derivative instruments from an increase or decrease in 10-year Treasury bill interest rates by 50 basis points, as of March 31, 2019.

2020.
  Carrying and Estimated Carrying Value
Notional
Amount
 
Maturity
Date Range
 
Carrying and
Estimated
Fair Value
 Estimated Carrying Value
Notional Maturity Estimated 50 -50 +50 -50
($ in thousands)Amount Date Range Fair Value Basis Points Basis Points Basis Points Basis Points
Cash flow hedges:     
  
     
  
Interest rate swaps$175,000
 2022 $4,139
 $6,482
 $1,783
$175,000
 2022 $(3,449) $(1,842) $(5,095)
Interest rate caps9,924
 2019 —
 —
 —
Total cash flow hedges$184,924
 2019-2022 $4,139
 $6,482
 $1,783
$175,000
 2022 $(3,449) $(1,842) $(5,095)


Additionally, the Company has entered into total return swap contracts, with an aggregate notional amount of $255.9$255.3 million that effectively convert $255.9$255.3 million of fixed mortgage notes payable to a floating interest rate based on the SIFMA plus a

spread and have a carrying value of zero at March 31, 2019.2020. The Company is exposed to insignificant interest rate risk on these swaps as the related mortgages are callable, at par, by the Company, co-terminus with the termination of any related swap. These derivatives do not qualify for hedge accounting.






Interest Rate Sensitive Liabilities


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


The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows.
 
For the Years Ended2019 2020 2021 2022 2023 Thereafter Total Fair value2020 2021 2022 2023 2024 Thereafter Total Fair value
($ in thousands, except for interest rates)($ in thousands, except for interest rates)          ($ in thousands, except for interest rates)          
Fixed rate debt$229,280
 693,071
 542,891
 340,398
 600,000
 2,734,849
 $5,140,489
 $5,204,248
$184,999
 530,940
 342,408
 602,093
 402,177
 3,516,884
 $5,579,501
 $5,622,711
Average interest rate5.0% 5.0% 4.5% 3.8% 3.7% 3.9% 4.1%  
6.4% 4.3% 3.6% 3.7% 4.0% 3.5% 3.8%  
Variable rate debt (1)
$452

652

713
 350,780
 852
 266,031

$619,480
 $615,036
$494

713

350,780
 350,852
 932
 251,499

$955,270
 $949,218
Average interest rate2.6% 2.6% 2.6% 3.0% 2.6% 2.5% 2.8%  
2.8% 2.8% 2.7% 2.4% 2.8% 2.6% 2.6%  
 
(1) $175.0 million is subject to interest rate swapprotection agreements $9.9 million is subject to interest rate caps, and $255.9($255.3 million is subject to total return swaps.swaps).


The table incorporates only those exposures that exist as of March 31, 2019.2020. It does not consider those exposures or positions that could arise after that date. As a result, the Company's ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies would depend on the exposures that arise prior to settlement.


Item 4: Controls and Procedures


Essex Property Trust, Inc.


As of March 31, 2019,2020, Essex carried out an evaluation, under the supervision and with the participation of management, including Essex’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Essex's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, Essex’s Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2019,2020, Essex's disclosure controls and procedures were effective to ensure that the information required to be disclosed by Essex in the reports that Essex files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that Essex files or submits under the Exchange Act is accumulated and communicated to Essex’s management, including Essex’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.


In connection with adopting ASU 2016-02 (Topic 842) "Leases," effective January 1, 2019, we implemented processes and internal controls, which represent a material change to a component of ourThere were no changes in Essex's internal control over financial reporting. There were no other changesreporting, that occurred during the quarter ended March 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, Essex’s internal control over financial reporting.


Essex Portfolio, L.P.


As of March 31, 2019,2020, the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including Essex's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Operating Partnership's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2019,2020, the Operating Partnership's disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Operating Partnership in the reports that the Operating Partnership files or submits under the
Index

Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that the Operating Partnership files or submits under the Exchange Act is accumulated and communicated to the Operating Partnership’s management, including Essex's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.


In connection with adopting ASU 2016-02 (Topic 842) "Leases," effective January 1, 2019, we implemented processes and internal controls, which represent a material change to a component of ourThere were no changes in the Operating Partnership's internal control over financial reporting. There were no other changesreporting, that occurred during the quarter ended March 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
 
Part II -- Other Information


Item 1: Legal Proceedings


The Company is subject to various lawsuits in the normal course of its business operations. While the resolution of any such matter cannot be predicted with certainty, the Company is not currently a party to any legal proceedings nor is any legal proceeding currently threatened against the Company that the Company believes, individually or in the aggregate, would have a material adverse effect on the Company's financial condition, results of operations or cash flows.


Item 1A: Risk Factors


In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors discussed in "Part I. Item A. Risk Factors" in the Company's annual report on Form 10-K for the year ended December 31, 2018,2019, which could materially affect the Company's financial condition, results of operations or cash flows. ThereExcept as set forth below, there have been no material changes to the Risk Factors disclosed in Item 1A of the Company's annual report on Form 10-K for the year ended December 31, 2018,2019, as filed with the SEC and available at www.sec.gov. The risks described in the Company's annual report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known or that the Company currently deems to be immaterial may also materially adversely affect the Company's financial condition, results of operations or cash flows.
The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, could materially and adversely affect our business, financial condition and results of operations.
The outbreak of COVID-19, which has rapidly spread to a growing number of countries, including the United States and the specific regions in which our apartment communities are located, has created considerable instability and disruption in the U.S. and world economies. Considerable uncertainty still surrounds COVID-19 and its potential effects, and the extent of and effectiveness of any responses taken on a national and local level. However, measures taken to limit the impact of COVID-19, including “social distancing” and other restrictions on travel, congregation and business operations have already resulted in significant negative economic impacts. The long-term impact of COVID-19 on the U.S. and world economies remains uncertain, but is likely to result in a world-wide economic downturn, the duration and scope of which cannot currently be predicted. The extent to which the Company’s financial condition or operating results will continue to be affected by the COVID-19 pandemic will largely depend on future developments, which are highly uncertain and cannot be accurately predicted.
The Company’s operating results depend, in large part, on revenues derived from leasing space in our apartment communities to residential tenants and the ability of tenants to generate sufficient income to pay their rents in a timely manner. The market and economic challenges created by the COVID-19 pandemic, and measures implemented to prevent its spread, have, and may continue to, adversely affect our returns and profitability. As a result, our ability to make distributions to Essex’s stockholders and the Operating Partnership’s unitholders may be compromised and we could experience volatility with respect to the market value of our properties and common stock and Operating Partnership units. The spread of COVID-19 could result in further increases in unemployment, and tenants that experience deteriorating financial conditions as a result of the pandemic may be unwilling or unable to pay rent on a timely basis, or at all. In some cases, we may be legally required to or otherwise agree to

restructure tenants’ rent obligations, and may not be able to do so on terms as favorable to us as those currently in place. Numerous state, local, federal and industry-initiated efforts may also affect our ability to collect rent or enforce remedies for the failure to pay rent, including, among others, limitations or prohibitions on evicting tenants unwilling or unable to pay rent. Additionally, eviction moratoriums have passed in various formats at every level of government, with considerable differences between county and state orders, as well as between individual county orders and how cities are interpreting and enforcing them. This patchwork of conflicting standards may continue to create a great deal of confusion and challenges with compliance. While the Company intends to comply with the framework of local, county, state and federal laws, given the confusion, strict compliance might be difficult. In the event of tenant nonpayment, default or bankruptcy, we may incur costs in protecting our investment and re-leasing our property, and have limited ability to renew existing leases or sign new leases at projected rents.
Our properties may also incur significant costs or losses related to legislative mandates, including shelter-in-place orders, quarantines, infection or other related factors, which may result in a negative impact on our occupancy levels. We typically conduct aspects of our leasing activity on-site at our apartment communities. Reductions in the ability and willingness of prospective residents to visit our communities due to the COVID-19 pandemic could reduce rental revenue and ancillary operating revenue produced by our properties. Additionally, if there is an outbreak that directly impacts one or more of our apartment communities, we may experience negative publicity and/or an unwillingness of prospective residents to visit or ultimately choose to live in our communities, which could directly affect our rental revenue. In addition, we may incur costs associated with protecting our employees and residents and disinfecting our properties. To the extent our management or personnel are impacted in significant numbers by the COVID-19 pandemic and are not available or allowed to conduct work, our business and operating results may be negatively impacted.
Additionally, market fluctuations as a result of the COVID-19 pandemic may affect our ability to obtain necessary funds for our operations from current lenders or new borrowings. We may be unable to obtain financing for the acquisition of investments on satisfactory terms, or at all. In addition, moratoriums on construction and macro-economic factors may cause construction contractors to be unable to perform, which may cause the delivery date of certain development projects or investments in third-party development projects to be extended. Market fluctuations and construction delays experienced by the Company’s third-party mezzanine loan borrowers and preferred equity investment sponsors may also negatively impact their ability to repay the Company. Further, while the Company carries general liability, pollution, and property insurance along with other insurance policies that may provide some coverage for any losses or costs incurred in connection with the COVID-19 pandemic, given the novelty of the issue and the scale of losses incurred throughout the world, there is no guarantee that we will be able to recover all or any portion of our losses and costs under these policies. The occurrence of any of the foregoing events or any other related matters could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
The global impact of the COVID-19 pandemic continues to evolve rapidly, and the extent of its effect on our operational and financial performance will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic effects of the pandemic and related containment measures, among others. However, the COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial condition and results of operations. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. In addition, if in the future there is an outbreak of another highly infectious or contagious disease or other health concern, the Company and our properties may be subject to similar risks as posed by COVID-19.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds


Unregistered Sales of Equity Securities; Essex Portfolio, L.P.


During the three months ended March 31, 2019,2020, the Operating Partnership issued OP Units in private placements in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, in the amounts and for the consideration set forth below:


During the three months ended March 31, 2019,2020, Essex issued an aggregate of 59,52296,662 shares of its common stock upon the exercise of stock options, the vesting of restricted stock awards, and the exchange of OP Units and DownREIT units by limited partnership units.partners or members into shares of common stock. Essex contributed the net proceeds of $6.9$14.3 million from the option exercises during the three months ended March 31, 20192020 to the Operating Partnership in exchange for an aggregate of 37,50165,802 OP Units, as required by the Operating Partnership’s partnership agreement. Furthermore, for each share of common stock issued by Essex in connection with vesting of restricted stock awards and the exchange of OP Units and DownREIT limited partnership units, the

Operating Partnership issued OP Units to Essex, as required by the partnership agreement. During the three months ended March 31, 2019, 22,0212020, 30,860 OP Units were issued to Essex pursuant to this mechanism.












Index




Stock Repurchases


The following table summarizes the Company's purchases of its common stock during the three months ended March 31, 2019.

  
Total Number of
Shares Purchased
 
Average Price
Paid Per Share
 
Total Number of Shares
Purchased as Part of a
Publicly Announced
Program(1)
 
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands)(1)
January 1, 2019 - January 31, 2019 234,061
 $243.48
 234,061
 $140.7
Total 234,061
 $243.48
 234,061
 $250.0

(1) In December 2015, the Company’s board of directors authorized a stock repurchase plan to allow the Company to acquire shares in an aggregate of up to $250.0 million. In February 2019, the board of directors approved the replenishment of the Company's stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the replenished plan. As a resultDuring the three months ended March 31, 2020 the Company repurchased and retired 776,261 shares of the replenishment, asits common stock totaling $176.3 million, including commissions, at an average price of $227.13 per share. As of March 31, 2019,2020, the Company had $250.0$73.7 million of purchase authority remaining under the stock repurchase plan.


Item 3: Defaults Upon Senior Securities


None.


Item 4: Mine Safety Disclosures


Not applicable.


Item 5: Other Information


None.

Item 6: Exhibits
A. Exhibits 
4.1
Indenture, dated February 11, 2019,2020, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 4.000%2.650% Senior Notes due 20292032 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed February 11, 2019,2020, and incorporated herein by reference.
  
10.1*
First Amendment to Second Amended and Restated Revolving Credit Agreement, dated as of January 11, 2019, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto, attached as Exhibit 10.21 to the Company’s Annual Report on Form 10-K, filed February 21, 2019, and incorporated herein by reference.Deferred Compensation Plan for Non-Employee Directors.†
  
31.1*
Certification of Michael J. Schall, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.2*
Certification of Angela L. Kleiman, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.3*
Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.4*
Certification of Angela L. Kleiman, Principal Financial Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
32.1*
Certification of Michael J. Schall, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
  
32.2*
Certification of Angela L. Kleiman, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
  
32.3*
Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
  
32.4*
Certification of Angela L. Kleiman, Principal Financial Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
  
101.INSXBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
  
101.SCHXBRL Taxonomy Extension Schema Document
  
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
  
101.LABXBRL Taxonomy Extension Label Linkbase Document
  
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).


† Management contract or compensatory plan or arrangement.

* Filed or furnished herewith.


** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
 ESSEX PROPERTY TRUST, INC.
 (Registrant)
  
 Date: April 26, 2019May 7, 2020
  
 
By: /s/ ANGELA L. KLEIMAN
  
 Angela L. Kleiman
 
Executive Vice President, and Chief Financial Officer
(Authorized Officer, Principal Financial Officer)


 Date: April 26, 2019May 7, 2020
  
 
By: /s/ JOHN FARIAS
  
 John Farias
 Senior Vice President, and Chief Accounting Officer


 
ESSEX PORTFOLIO, L.P.
By Essex Property Trust, Inc., its general partner
 (Registrant)
  
 Date: April 26, 2019May 7, 2020
  
 
By: /s/ ANGELA L. KLEIMAN
  
 Angela L. Kleiman
 
Executive Vice President, and Chief Financial Officer
(Authorized Officer, Principal Financial Officer)


 Date: April 26, 2019May 7, 2020
  
 
By: /s/ JOHN FARIAS
  
 John Farias
 Senior Vice President, and Chief Accounting Officer




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