UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

____________________________

xT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2008~~March 31, 2009

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.

(Exact name of Registrant as Specified in its Charter)

Maryland		77-0369576
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

925 East Meadow Drive

Palo Alto, California 94303

(Address of Principal Executive Offices including Zip Code)

(650) 494-3700

(Registrant's Telephone Number, Including Area Code)

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 reports), and (2) has been subject to such filing requirements for the past 90 days.

YES xT NO o

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

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

Large accelerated filer xT	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

Yes o No xT

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:

~~26,795,274~~27,454,266 shares of Common Stock as of ~~October 30, 2008~~May 5, 2009.

~~ESSEX~~ESSEX PROPERTY TRUST, INC.

FORM 10-Q

INDEX

		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements (Unaudited):	3

	Condensed Consolidated Balance Sheets as of ~~September 30, 2008~~March 31, 2009 and December 31, ~~2007~~2008	4

	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~	5

	Condensed Consolidated Statements of ~~Stockholders'~~ Equity and Comprehensive Income for the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009	6

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17 16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25 23

Item 4.	Controls and Procedures	26 24

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 6	Exhibits	26

~~Item 1A.~~Signatures		~~Risk Factors~~27	27

~~Item 6~~	~~Exhibits~~	28

~~Signatures~~		28

Index

Part I -- Financial Information

Item 1: Condensed Financial Statements (Unaudited)

"Essex" or the "Company" means Essex Property Trust, Inc., a real estate investment trust incorporated in the State of Maryland, or where the context otherwise requires, Essex Portfolio, L.P., a limited partnership (the "Operating Partnership") in which Essex Property Trust, Inc. is the sole general partner.

The information furnished in the accompanying unaudited condensed consolidated balance sheets, statements of operations, stockholders' equity and comprehensive income and cash flows of the Company reflects 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, ~~2007.~~2008.

Index

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share amounts)

	September 30,			December 31,
	2008			2007
Assets							March 31, 2009			December 31, 2008
Real estate:
Rental properties:
Land and land improvements	$	669,322		$	670,494		$	681,947		$	683,876
Buildings and improvements		2,485,788			2,447,265			2,594,339			2,595,912

		3,155,110			3,117,759			3,276,286			3,279,788
Less accumulated depreciation		(612,249	)		(541,987	)		(666,552	)		(640,026	)

		2,542,861			2,575,772			2,609,734			2,639,762
Real estate - held for sale, net		15,983			-
Real estate under development		347,979			233,445			292,607			272,273
Co-investments		66,363			64,191			70,603			76,346

		2,973,186			2,873,408			2,972,944			2,988,381
Cash and cash equivalents-unrestricted		33,404			9,956			65,212			41,909
Cash and cash equivalents-restricted		12,552			12,527			13,608			12,810
Marketable securities		58,614			2,017			30,143			23,886
Receivables from related parties		967			904
Funds held by 1031 exchange facilitator								-			21,424
Notes and other receivables		45,782			49,632			46,141			47,637
Prepaid expenses and other assets		23,474			20,286			18,416			17,430
Deferred charges, net		11,347			11,593			15,451			11,346

Total assets	$	3,159,326		$	2,980,323		$	3,161,915		$	3,164,823

Liabilities and Stockholders' Equity
Liabilities and Equity
Mortgage notes payable	$	1,341,327		$	1,262,873		$	1,529,571		$	1,468,931
Mortgage notes payable - held for sale		10,799			-
Exchangeable bonds		225,000			225,000			97,245			165,457
Lines of credit		153,000			169,818			185,000			120,000
Accounts payable and accrued liabilities		64,759			52,783			48,824			38,223
Construction payable		20,089			5,365			15,072			18,605
Dividends payable		32,037			28,521			31,618			32,124
Other liabilities		16,672			17,773			16,429			16,444

Cash flow hedge liabilities								54,825			73,129
Total liabilities		1,863,683			1,762,133			1,978,584			1,932,913
Commitments and contingencies
Minority interests		279,930			281,960
Cumulative convertible preferred stock; $.0001 par value:4.875% Series G - 5,980,000 issued and outstanding		145,912			145,912
Stockholders' equity:
Common stock, $.0001 par value, 649,702,178 shares authorized 24,943,675 and 24,876,737 shares issued and outstanding		2			2
Cumulative redeemable preferred stock; $.0001 par value:7.8125% Series F - 1,000,000 shares authorized, issued and outstanding, liquidation value		25,000			25,000
Excess stock, $.0001 par value, 330,000,000 shares authorized and no shares issued and outstanding		-			-
Cumulative convertible preferred stock; $.0001 par value:
4.875% Series G - 5,980,000 issued and 3,595,716 and 5,980,000 outstanding								87,735			145,912
Stockholders' equity and noncontrolling interest:
Common stock, $.0001 par value, 649,702,178 shares authorized 26,059,739 and 26,395,807 shares issued and outstanding								2			2
Cumulative redeemable preferred stock; $.0001 par value:
7.8125% Series F - 1,000,000 shares authorized, issued and outstanding, liquidation value								25,000			25,000
Additional paid-in capital		982,754			857,109			1,045,603			1,043,985
Distributions in excess of accumulated earnings		(122,044	)		(82,805	)		(151,615	)		(141,336	)
Accumulated other comprehensive income (loss)		(15,911	)		(8,988	)

Accumulated other comprehensive (loss) income								(58,942	)		(75,424	)
Total stockholders' equity		869,801			790,318			860,048			852,227

Total liabilities and stockholders' equity	$	3,159,326		$	2,980,323
Noncontrolling interest								235,548			233,771
Total stockholders' equity and noncontrolling interest								1,095,596			1,085,998
Total liabilities and equity							$	3,161,915		$	3,164,823

See accompanying notes to the unaudited condensed consolidated financial statements.

Index

~~ESSEX~~ ESSEX PROPERTY TRUST, INC. AND SUBSIDIARES

Condensed Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Three Months Ended March 31,
	2008			2007			2008			2007			2009			2008
Revenues:
Rental and other property	$	102,907		$	95,012		$	302,898		$	275,747		$	104,682		$	98,730
Management and other fees from affiliates		1,311			1,268			3,965			3,662			1,197			1,227
		104,218			96,280			306,863			279,409			105,879			99,957
Expenses:
Property operating, excluding real estate taxes		25,719			22,949			74,625			66,707			24,265			23,654
Real estate taxes		8,630			8,185			24,904			23,298			9,113			8,096
Depreciation and amortization		27,952			24,169			82,564			69,036			29,175			26,766
Interest		19,399			19,459			57,835			57,688			20,203			21,139
Amortization of deferred financing costs		686			701			2,109			2,054
General and administrative		6,524			6,415			19,600			18,519			6,233			6,625
Write-off of investment in development joint venture														5,752			-
		88,910			81,878			261,637			237,302			94,741			86,280

Earnings from operations		15,308			14,402			45,226			42,107			11,138			13,677

Gain on sale of real estate		2,446			-			2,446			-
Gain on early retirement of debt														6,124			-
Interest and other income		2,847			2,407			8,048			7,454			3,287			2,768
Equity income in co-investments		335			322			7,325			2,767			539			6,630
Minority interests		(5,666	)		(5,088	)		(16,929	)		(15,459	)
Income before discontinued operations		15,270			12,043			46,116			36,869			21,088			23,075
Income (loss) from discontinued operations (net of minority interests)		(584	)		265			(1,417	)		25,172
Income (loss) from discontinued operations														2,250			(226	)
Net income		14,686			12,308			44,699			62,041			23,338			22,849
Net income attributable to noncontrolling interest														(4,942	)		(5,759	)
Net income attributable to controlling interest														18,396			17,090
Dividends to preferred stockholders		(2,310	)		(2,311	)		(6,931	)		(6,864	)		(1,826	)		(2,310	)
Excess of the carrying amount of preferred stock redeemed over the cash paid to redeem preferred stock														25,695			-
Net income available to common stockholders	$	12,376		$	9,997		$	37,768		$	55,177		$	42,265		$	14,780

Per common share data:
Basic:
Income before discontinued operations available to common stockholders	$	0.52		$	0.39		$	1.58		$	1.23		$	1.53		$	0.61
Income (loss) from discontinued operations		(0.02	)		0.01			(0.06	)		1.03			0.08			(0.01	)
Net income available to common stockholders	$	0.50		$	0.40		$	1.52		$	2.26		$	1.61		$	0.60
Weighted average number of common shares outstanding during the period		25,110,710			25,165,276			24,876,611			24,370,184			26,224,946			24,747,925

Diluted:
Income before discontinued operations available to common stockholders	$	0.51		$	0.38		$	1.56		$	1.20		$	1.45		$	0.60
Income (loss) from discontinued operations		(0.02	)		0.01			(0.06	)		1.01			0.08			(0.01	)
Net income available to common stockholders	$	0.49		$	0.39		$	1.50		$	2.21		$	1.53		$	0.59
Weighted average number of common shares outstanding during the period		25,474,924			25,555,928			25,182,107			24,983,765			28,692,959			24,877,626

Dividend per common share	$	1.02		$	0.93		$	3.06		$	2.79		$	1.03		$	1.02

See accompanying notes to the unaudited condensed consolidated financial statements.

Index

~~ESSEX~~ ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity, Noncontrolling Interest, and

Comprehensive Income for the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009

(Unaudited)

(Dollars and shares in thousands)

													Distributions									Series F Preferred stock		Common stock					Additional paid-in			Distributions in excess of accumulated			Accumulated other comprehensive			Noncontrolling
	Series F									Additional			in excess of			Accumulated other						Amount		Shares			Amount		capital			earnings			income (loss)			Interest			Total
	Preferred stock				Common stock					paid-in			accumulated			comprehensive
	Shares		Amount		Shares			Amount		capital			earnings			income (loss)			Total
Balances at December 31, 2007		1,000	$	25,000		24,877		$	2	$	857,109		$	(82,805	)	$	(8,988	)	$	790,318
Balances at December 31, 2008 (as reported)																						$	25,000		26,396		$	2		1,026,037		$	(130,697	)		(75,424	)		-			844,918
Adoption of new accounting prouncements																							-		-			-		17,948			(10,639	)		-			233,771			241,080
Balances at December 31, 2008 (restated)																							25,000		26,396			2		1,043,985			(141,336	)		(75,424	)		233,771			1,085,998
Comprehensive income:
Net income		-		-		-			-		-			44,699			-			44,699			-		-			-		-			18,396			-			4,942			23,338
Change in fair value of cash flow hedges and amortization of swap settlements		-		-		-			-		-			-			(6,923	)		(6,923	)
Change in fair value of cash flow hedges and amortization of settlements of swaps																							-		-			-		-			-			16,482			1,551			18,033
Comprehensive income																				37,776																						41,371
Issuance of common stock under:
Stock-based compensation plans		-		-		79			-		5,714			-			-			5,714
Issuance of common stock		-		-		1,131			-		133,654			-			-			133,654
Stock option plans																							-		14			-		443			-			-			-			443
Equity based compensation costs																							-		-			-		212			-			-			704			916
Retirement of Series G preferred stock																							-		-			-		25,695			-			-			-			25,695
Retirement of common stock		-		-		(143	)		-		(13,723	)		-			-			(13,723	)		-		(350	)		-		(20,271	)		-			-			-			(20,271	)
Retirement of exchangeable bonds																							-		-			-		(4,461	)		-			-			-			(4,461	)
Distributions to noncontrolling interest																							-		-			-		-			-			-			(5,420	)		(5,420	)
Dividends declared		-		-		-			-		-			(83,938	)		-			(83,938	)		-		-			-		-			(28,675	)		-			-			(28,675	)
Balances at September 30, 2008		1,000	$	25,000		25,944		$	2	$	982,754		$	(122,044	)	$	(15,911	)	$	869,801
Balances at March 31, 2009																						$	25,000		26,060		$	2	$	1,045,603		$	(151,615	)	$	(58,942	)	$	235,548		$	1,095,596

See accompanying notes to the unaudited condensed consolidated financial statements.

Index

~~ESSEX~~ ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	Nine Months Ended
	September 30,						Three Months Ended March 31,
	2008			2007			2009			2008
Net cash provided by operating activities	$	143,048		$	158,148		$	55,063		$	47,235

Cash flows used in investing activities:
Additions to real estate:
Acquisitions and improvements to recent acquisitions		(93,906	)		(333,110	)		(337	)		(1,720	)
Capital expenditures and redevelopment		(52,420	)		(52,124	)		(12,654	)		(19,333	)
Additions to real estate under development		(92,497	)		(96,236	)		(24,251	)		(10,245	)
Dispositions of real estate and investments		44,980			124,103
Dispositions of real estate								12,395			-
Changes in restricted cash and refundable deposits		(2,791	)		1,979			21,189			245
Purchases of marketable securities		(62,522	)		(5,843	)		(17,183	)		(5,818	)
Sales and maturities of marketable securities		5,925			-			12,257			3,790
Proceeds from tax credit investor								3,762			-
Advances under notes and other receivables		(1,958	)		(19,192	)		(725	)		(784	)
Collections of notes and other receivables		5,980			1,472			2,220			634
Contributions to co-investments		(4,183	)		(22,164	)		(270	)		(285	)
Distributions from co-investments		9,423			15,330			-			7,500
Net cash used in investing activities		(243,969	)		(385,785	)		(3,597	)		(26,016	)

Cash flows from financing activities:
Borrowings under mortgage and other notes payable and lines of credit		565,096			665,709			165,504			154,834
Repayment of mortgage and other notes payable and lines of credit		(450,485	)		(494,331	)		(39,875	)		(127,053	)
Additions to deferred charges		(2,105	)		(1,516	)		(343	)		(446	)
Settlement of forward-starting swaps		(1,840	)		1,311
Retirement of exchangeable bonds								(66,460	)		-
Retirement of comon stock								(20,271	)		(13,723	)
Retirement of preferred stock, Series G								(32,572	)		-
Net proceeds from stock options exercised		4,841			3,786			443			651
Net proceeds from sale of common stock		133,654			213,672
Repurchase of common stock		(13,723	)		(1,409	)
Distributions to minority interest partners		(18,128	)		(77,145	)
Redemption of minority interest limited partnership units		(12,304	)		(9,983	)
Distributions to noncontrolling interest								(5,420	)		(5,882	)
Redemption of noncontrolling interest								-			(3,728	)
Common and preferred stock dividends paid		(80,637	)		(71,880	)		(29,169	)		(25,471	)
Net cash provided by financing activities		124,369			228,214
Net cash used in financing activities								(28,163	)		(20,818	)

Net increase in cash and cash equivalents		23,448			577			23,303			401
Cash and cash equivalents at beginning of period		9,956			9,662			41,909			9,956
Cash and cash equivalents at end of period	$	33,404		$	10,239		$	65,212		$	10,357

Supplemental disclosure of cash flow information:
Cash paid for interest, net of $3.2 million and $2.4 million capitalized in 2009 and 2008, respectively							$	14,853		$	15,879
Supplemental disclosure of noncash investing and financing activities:

Cash paid for interest, net of $8.2 million and $3.6 million capitalized in 2008 and 2007, respectively	$	46,929		$	52,443

Supplemental disclosure of noncash investing and financing activities:
Mortgage note assumed by buyer in connection with sale of property	$	42,200		$	-
Mortgage note assumed in connection with land contribution	$	-		$	43,839
Mortgage note issued to buyer in connection with sale of property	$	4,070		$	-
Land contributed by a partner in a consolidated joint venture	$	10,500		$	22,200
Change in value of cash flow hedges and amortization of swap settlements	$	6,923		$	6,602
Accrual of dividends							$	31,618		$	30,880
Change in value of cash flow hedge liabilities							$	18,304		$	9,944
Change in construction payable	$	14,724		$	5,576		$	3,533		$	14,943
Issuance of DownREIT units in connection with purchase of real estate	$	-		$	7,067
Property received in satisfaction of note receivable	$	1,500		$	-

See accompanying notes to the unaudited condensed consolidated financial statements.

Index

ESSEXPROPERTY TRUST, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~

(Unaudited)

(1) Organization and Basis of Presentation

The unaudited condensed consolidated financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles 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, except as otherwise noted. 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, ~~2007.~~2008.

All significant intercompany balances and transactions have been eliminated in the condensed consolidated financial statements.

The unaudited condensed consolidated financial statements for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~ include the accounts of the Company and Essex Portfolio, L.P. (the "Operating Partnership", which holds the operating assets of the Company). See below for a description of entities consolidated by the Operating Partnership. The Company is the sole general partner in the Operating Partnership, with a 91.4% general partnership interest as of ~~September 30, 2008.~~March 31, 2009. Total Operating Partnership units outstanding were 2,450,002 and 2,413,078 as of March 31, 2009 and December 31, 2008, respectively, and the redemption value of the units based on the closing price of the Company’s common stock totaled $140.5 million and $185.2 million, as of March 31, 2009 and December 31, 2008, respectively.

As of ~~September 30, 2008,~~March 31, 2009, the Company owned or had ownership interests in ~~133~~132 apartment communities, (aggregating ~~26,790~~26,862 units) (collectively, the “Communities”, ~~six~~and individually, a “Community”), five office and commercial buildings and ~~one manufactured housing community (containing 157 sites)~~six active development projects (collectively, the ~~“Properties”~~“Portfolio”). The ~~Properties~~Communities are located in Southern California (Los Angeles, Orange, Riverside, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area), and the Seattle metropolitan area.

Fund Activities

Essex Apartment Value Fund II, L.P. (“Fund II”) is an investment fund formed by the Company to add value through rental growth and asset appreciation, utilizing the ~~Company's~~Company’s development, redevelopment and asset management capabilities.

Fund II has eight institutional investors, and the Company, with combined partner equity commitments of $265.9 ~~million.~~million which were fully contributed as of 2008. The Company ~~has committed~~contributed $75.0 million to Fund II, which represents a 28.2% interest as general partner and limited partner. Fund II utilized leverage equal to approximately 55% upon the initial acquisition of the underlying real estate. Fund II invested in apartment communities in the Company’s targeted West Coast markets and, as of ~~September 30, 2008,~~March 31, 2009, owned ~~eleven~~12 apartment communities and ~~three~~two development projects. ~~Essex~~The Company records revenue for its asset management, property management, development and redevelopment services when earned, and promote income when realized if Fund II exceeds certain financial return benchmarks.

Marketable Securities

Marketable securities consist primarily of U.S. treasury or agency securities and ~~tax-exempt variable rate demand notes with original maturities of more than three months when purchased.~~REIT unsecured bonds. The Company has classified U.S. treasury and agency securities as held-to-maturity securities, and the Company reports these securities at amortized cost. The Company has classified the ~~tax-exempt variable rate demand notes~~REIT bonds as available for sale and the Company reports these securities at fair value, based on quoted market prices (Level 1 as defined by FAS 157 as discussed in Note 8), and any unrealized gain or loss is recorded as other comprehensive income (loss). Realized gains and losses and interest income are included in interest and other income on the condensed consolidated statement of operations. Amortization of unearned discounts on both held to maturity and available for sale securities is included in interest income.

Variable Interest Entities

In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46 Revised (“FIN 46R”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”, the Company consolidates ~~a joint venture development project,~~ 19 DownREIT limited partnerships (comprising twelve ~~properties)~~communities), a development project, an office building that is subject to loans made by the Company, and ~~prior to~~55 low income housing units. Total DownREIT units outstanding were 1,148,510 as of March 31, 2009 and December 31, 2008, and the ~~sale~~redemption value of the ~~property during 2007,~~units based on the ~~buildings~~closing price of the Company’s common stock totaled $65.9 million and ~~improvements that were owned by a third-party subject to a ground lease on land that was owned by the Company.~~$88.1 million, as of March 31, 2009 and December 31, 2008, respectively. The Company consolidates these entities because it is deemed the primary beneficiary under FIN 46R. The consolidated total assets and liabilities related to these variable interest entities (“VIEs”), net of intercompany eliminations, were approximately ~~$247.7~~$275.9 million and ~~$168.4~~$178.1 million, respectively, as of ~~September 30, 2008~~March 31, 2009 and ~~$222.7~~$256.0 million and ~~$163.9~~$169.1 million , respectively, as of December 31, ~~2007.~~2008. Interest holders in VIEs consolidated by the Company are allocated net income equal to the cash payments made to those interest holders for services rendered or distributions from cash flow. The remaining results of operations are generally allocated to the Company. As of March 31, 2009 and December 31, 2007, the Company had two VIE’s of which it was not deemed to be the primary beneficiary. Total assets and liabilities of these entities were $71.7 million and $58.3 million, as of December 31, 2007. As of September 30, 2008, the Company did not have any VIE’s of which it was not deemed to be the primary beneficiary.

Index

Stock-Based Compensation

The Company accounts for share based compensation using the fair value method of accounting. The estimated fair value of stock options granted by the Company is being amortized over the vesting period of the stock options. The estimated grant date fair values of the long term incentive plan units (discussed in Note ~~14, “Stock-Based~~13, “Stock Based Compensation Plans,” in the Company’s ~~Annual Report on~~ Form 10-K for the year ended December 31, ~~2007)~~2008) are being amortized over the expected service periods.

Stock-based compensation expense for options and restricted stock totaled ~~$0.4~~$0.2 million for the three months ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007, respectively, and $0.9 million and $1.0 million for the nine months ended September 30, 2008 and 2007,~~ respectively. The intrinsic value of the stock options exercised during the three months ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~ totaled ~~$1.4~~$0.3 million and ~~$2.2~~$0.6 million, ~~respectively, and $4.1 million and $4.9 for the nine months ended September 30, 2008 and 2007.~~respectively. As of ~~September 30, 2008,~~March 31, 2009, the intrinsic value of the stock options outstanding and fully vested totaled ~~$15.1~~$0.8 million. As of ~~September 30, 2008,~~March 31, 2009, total unrecognized compensation cost related to unvested share-based compensation granted under the stock option and restricted stock plans totaled ~~$4.7~~$3.1 million. The cost is expected to be recognized over a weighted-average period of 32 to 54 years for the stock option plans and is expected to be recognized straight-line over 7 years for the restricted stock awards.

The Company has adopted an incentive program involving the issuance of Series Z and Series Z-1 Incentive Units (collectively referred to as “Z Units”) of limited partnership interest in the Operating Partnership. Stock-based compensation expense for Z Units totaled $0.4 million for the three months ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007, and $1.1 million for the nine months ended September 30, 2008 and 2007,~~ respectively.

Stock-based compensation capitalized for stock options, restricted stock awards, and the Z Units totaled $0.2 million ~~and $0.6 million~~ for the three ~~and nine~~ months ended ~~September 30, 2008~~March 31, 2009 and ~~2007, respectively.~~2008. As of ~~September 30, 2008~~March 31, 2009 the intrinsic value of the Z Units subject to conversion totaled ~~$18.6~~$16.2 million. As of ~~September 30, 2008,~~March 31, 2009, total unrecognized compensation cost related to Z Units subject to conversion in the future granted under the Z Units totaled ~~$6.6~~$6.2 million. The unamortized cost is expected to be recognized over the next 32 to 1110 years subject to the achievement of the stated performance criteria.

Stock-based compensation expense for the Outperformance Plan, (the “OPP”) adopted in December 2007 totaled approximately $0.3 million ~~and $0.9 million~~ for three ~~and nine~~ months ended ~~September 30,~~March 31, 2009 and 2008, respectively. Total unrecognized compensation cost less an estimate for forfeitures related to the OPP totaled ~~$4.4~~$3.8 million and $4.1 million as of ~~September 30, 2008.~~March 31, 2009 and December 31, 2008, respectively. The unamortized cost is ~~expected to be~~ recognized over the expected service period of five years for senior officers and three years for non-employee directors.

The Company’s stock-based compensation assumptions have not changed materially from information reported in Note 2(l), “Stock-Based Compensation,” and Note 14, “Stock-Based Compensation Plans,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Accounting Estimates and Reclassifications

The preparation of condensed consolidated financial statements, in accordance with U.S. generally accepted accounting principles, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. 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 properties, its investments in and advances to joint ventures and affiliates, its notes ~~receivable~~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.

Reclassifications for discontinued operations and noncontrolling interest have been made to prior year statements of operations balances in order to conform to current year presentation. Such reclassifications have no impact on reported earnings, cash flows, total assets or total liabilities.

New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 provides guidance for using fair value to measure assets and liabilities. FAS 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the ~~lowest priority to unobservable data. This statement is effective in fiscal years beginning after November 15, 2007. The adoption~~Resulting Restatements of ~~this standard on January 1, 2008 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.~~Previously Reported Amounts

~~Index~~

~~In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities~~” (“FAS No. 159”). FAS 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement is effective for fiscal years beginning after November 15, 2007. Through September 30, 2008, The Company has not elected to measure any eligible financial assets and liabilities at fair value.

In December 2007, the FASB issued ~~revised FAS No. 141, “Business Combinations” (“FAS 141(R)”)~~. FAS141(R) establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management is currently evaluating the impact FAS 141(R) will have on the Company’s accounting for future business combinations.

~~In December 2007, the FASB issued FAS~~SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”). FAS 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated ~~balance sheet~~statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently; when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value; and entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. FAS 160 is effective for fiscal years beginning on or after December 15, 2008. ~~Management is currently evaluating~~As summarized in the ~~impact FAS 160 will have on~~table below, the ~~Company’s~~accompanying condensed consolidated financial ~~statements.~~statements have been restated to record the impact of adoption of FAS 160.

Index

In May 2008, the FASB issued FASB staff position APB 14-1, “~~Accounting~~“Accounting for Convertible Debt Instruments That May be Settled in cash upon Conversion (Including Partial Cash Settlement)” (“APB 14-1”). APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) upon conversion separately account for the liability (debt) and equity (conversion option) components of the instruments in a manner that reflects the issuer’s nonconvertible debt borrowing rate. APB 14-1 requires the initial debt proceeds from the sale of a company’s convertible debt instrument to be allocated between the liability component and the equity component. The resulting debt discount will be amortized over the period during which the debt is expected to be outstanding (i.e., through the first optional redemption dates) as additional non-cash interest expense. APB 14-1 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. ~~Earlier adoption is prohibited and retroactive application is required~~Accounting for ~~all periods presented. The interest expense from~~ the Company’s $225.0 million exchangeable ~~senior notes~~bonds (the ~~“Notes”~~“Bonds”) with a coupon rate of 3.625% due November 2025, which were issued in the fourth quarter of 2005, ~~will be~~was impacted by APB 14-1. Based on the Company's understanding of the application of APB 14-1, this will result in an additional non-cash interest expense of additional interest of approximately $4.0 million for 2008 and 2009, respectively. The Company will adopt APB 14-1 as of January 1, 2009, and the Company will present prior period comparative results reflecting the impact of APB 14-1.

~~(2) Significant Transactions~~

~~(a) Acquisitions~~

In July 2008, the Company acquired Chestnut Street Apartments, a 96-unit apartment community located in Santa Cruz, California, for $22.1 million. The property was built in 2002 and includes approximately 9,000 square feet of commercial and retail space. Also, during July the Company received seven condominium units with an estimated fair value of $1.5 million in full satisfaction of its participating loan made in 2005 to the buyer of Eastridge Apartments and, as a result, recognized $1.5 million of the previously deferred $2.2 million gain on sale of Eastridge Apartments.

~~In August 2008, the Company acquired The Highlands at Wynhaven, a 333-unit apartment community located in Issaquah, Washington for $66.3 million.~~

~~(b) Dispositions~~

During the ~~third~~fourth quarter of 2008, the Company ~~sold Cardiff~~repurchased $53.3 million of the Bonds, and during the first quarter of 2009 the Company repurchased an additional $71.3 million of the Bonds.

On January 1, 2009, the Company retrospectively adopted APB 14-1 for the Bonds. The Company estimated that the market interest rate for the debt only portion of the Bonds as of the date of issuance was 5.75%, compared to the coupon rate of 3.625%. The Company computed the estimated fair value of the debt portion of the Bonds as the present value of the expected cash flows discounted at 5.75%. The difference between the fair value of the debt portion of the Bonds and the carrying value as previously reported was added to additional paid in capital as of the date of issuance. The discount on the debt is amortized over the period from issuance to the date of the first call option by the ~~Sea Apartments, located~~holders of the Bonds which occurs in ~~Cardiff, California for $71.0~~November 2010 resulting in non-cash interest expense in addition to the interest expense calculated based on the coupon rate. This resulted in a non-cash interest charge of $0.6 million and ~~St. Cloud Apartments, located~~$1.0 million for the first quarter of 2009 and 2008, respectively. APB 14-1 requires that the fair value of the debt portion of any bonds that are retired early be estimated to calculate the gain on retirement. The difference between the estimated fair value of the debt portion of the Bonds and the APB 14-1 carrying value of the debt portion of the Bonds is recorded as gain on early retirement of debt and additional paid in ~~Houston, Texas~~capital is reduced to reflect the remaining portion of the total amount paid to retire the Bonds. This resulted in increasing the gains previously reported for ~~$8.8 million resulting~~the year ended December 31, 2008 related to early retirements of Bonds by $0.5 million. This adjustment along with the non-cash interest charges for the period from issuance of the Bonds through December 31, 2008 resulted in a ~~combined gain~~net reduction of ~~$46,000.~~ equity, including the portion allocated to noncontrolling interests, as summarized in the table below.

The ~~Company also sold~~following is a summary of the ~~Circle recreational vehicle park~~impact to the December 31, 2008 balance sheet and first quarter of 2008 statement of operations from amounts previously reported to amounts included in the accompanying condensed consolidated financial statements as a result of the retrospective adoption of FAS 160 and APB 14-1:

	As Reported December 31,			Adoption of			Adoption of			Restated December 31,
	2008			FAS 160			APB 14-1			2008
Selected balance sheet data:
Exchangeable bonds	$	171,716		$	-		$	(6,259	)	$	165,457
Minority interest		234,821			(233,771	)		(1,050	)		-
Additional paid-in capital		1,026,037			-			17,948			1,043,985
Distributions in excess of accumulated earnings		(130,697	)		-			(10,639	)		(141,336	)
Noncontrolling interest		-			233,771			-			233,771

	As Reported (1)			Adoption of			Adoption of			Restated
Selected income statement data:	Q1 2008			FAS 160			APB 14-1			Q1 2008
Interest expense	$	20,130		$	-		$	1,009		$	21,139
Noncontrolling interest		5,843			-			(84	)		5,759
Earnings per diluted share		0.63			-			(0.04	)		0.59

(1) As reported balances are adjusted for ~~$5.4 million resulting~~discontinued operations.

In December 2007, the FASB issued revised SFAS No. 141, “Business Combinations” (“FAS 141(R)”). FAS141(R) establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of ~~$0.9 million,~~the financial statements to evaluate the nature and financial effects of the business combination. FAS 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this standard on January 1, 2009 did not have any impact on the Company’s consolidated financial position, results of operations or cash flows as it relates only to business combinations for the Company ~~sold the Vacationer recreational vehicle park for $4.6 million. The gain~~that take place on ~~sale of $0.8 million resulting from the sale of Vacationer was deferred due to the fact the Company loaned $4.1 million to the buyer at a fixed rate of 6.5% due in August 2011.~~or after January 1, 2009.

Index

(2) Significant Transactions

~~(c) Equity Transactions~~(a) Dispositions

During the ~~third~~first quarter, ~~of 2008,~~ the Company ~~issued 1,130,750 shares~~sold Carlton Heights Villas, a 70-unit community located in Santee, California for $6.9 million and recognized a gain of ~~common stock and during October 2008,~~approximately $1.6 million. Also in the first quarter, the Company ~~issued 78,300 shares at an average share price~~sold Grand Regency, a 60-unit property in Escondido, California for $5.0 million and recognized a gain of $120.17. Since July 2008, the Company issued 1,209,050 shares of common stock for $142.8 million, net of fees and commissions. The Company will use the net proceeds to pay down debt, to fund the development pipeline and for future investments.approximately $0.9 million.

~~(d)~~(b) Debt and Financing Activities

During ~~July 2008,~~ the ~~Company paid-off an $89.0 million cross-collateralized mortgage loan at a fixed rate of 6.62%.~~

During August 2008, the Company obtained a mortgage loan in the amount of $53.0 million secured by Mill Creek, with a fixed rate of 5.77% which matures in August 2018. In conjunction with the sale of Cardiff by the Sea, the buyer assumed the mortgage loan totaling $42.2 million at a fixed rate of 5.71%.

During September 2008, the Company obtained mortgage loans in the amount of $23.0 million at a fixed rate of 5.79% and $22.5 million at a fixed rate of 5.81%, secured by the Palisades and Bridgeport communities, respectively. Both mortgage loans mature in September 2018.

~~During October 2008,~~first quarter, the Company repurchased ~~and retired $29.7~~$71.3 million of ~~the Company’s $225 million~~3.625% exchangeable ~~senior notes (“Notes”). The Company repurchased these Notes~~bonds at a discount to par value and ~~expects to report~~recognized a gain of ~~approximately $1.1~~$6.1 million.

During the first quarter, the Company obtained fixed rate mortgage loans totaling $81.9 million, ~~from~~including the ~~extinguishment~~following:

$48.9 million loan secured by Avondale, at a rate of 6.11%, which matures in March 2019.

$23.0 million loan secured by Stevenson Place, at a rate of 6.35%, which matures in March 2019.

$10.0 million 2nd deed of trust loan secured by Esplanade, at a rate of 6.25%, which matures in August 2015.

Additionally, during the first quarter, the Company paid-off $17.0 million in maturing loans including:

Two mortgage loans secured by Monterra del Rey with fixed rates of 7.0% and 5.2%, respectively, maturing in May 2009 for an aggregate amount of $10.0 million.

One mortgage loan secured by Mariner’s Place with a fixed rate of 7.3% maturing in April 2009 for $3.8 million.

A Belmont Station construction bridge loan maturing in June 2009 for $3.2 million.

In February 2009, the Company, under its stock repurchase program, repurchased 350,000 shares of ~~debt in~~common stock for $20.3 million at an average price of $57.89.

During the ~~fourth~~first quarter, the Company repurchased $58.2 million of ~~2008.~~

~~The Company has signed~~its Series G Cumulative Convertible Preferred Stock at a ~~letter of commitment~~46.6% discount to enter into a new five-year secured line of credit facility with Freddie Mac to replace the existing secured line of credit facility that matures in January 2009. The new secured facility will expand the existing secured facility from $100 million to $150 million,its carrying value, and the ~~new facility will be expandable to $250 million. The Company anticipates that the closing date for the new secured facility will occur by the end~~excess of the ~~fourth quarter of 2008.~~carrying value over the cash paid to redeem the Series G Preferred Stock totaled $25.7 million.

(3) Co-investments

The Company has joint venture investments ~~(“co-investments”),~~in a number of co-investments, which are accounted for under the equity method. The ~~co-investments~~joint ventures own ~~development projects~~ and ~~operating~~operate apartment communities. The following table details the Company's co-investments (dollars in thousands):

	September 30,		December 31,
	2008		2007		March 31, 2009		December 31, 2008

Investments in joint ventures accounted for under the equity method of accounting:

Limited partnership interest of 27.2% and general partner interest of 1% in Essex Apartment Value Fund II, L.P ("Fund II")	$	60,866	$	58,419	$	70,103	$	70,469
Preferred limited partnership interest in Mountain Vista Apartments, LLC (A)		-		1,182
Development joint venture		4,997		4,090		-		5,377
		65,863		63,691		70,103		75,846
Investments accounted for under the cost method of accounting:
Series A Preferred Stock interest in Multifamily Technology Solutions, Inc		500		500		500		500
Total co-investments	$	66,363	$	64,191	$	70,603	$	76,346

~~(A)~~

~~The investment was held in an entity that included an affiliate of The Marcus & Millichap Company (“TMMC”), and is the general partner. TMMC’s Chairman is also the Chairman of the Company.~~

During 2006, the Company made a contribution to a development with a joint venture partner totaling $3.4 million, and over the past three years the Company made additional contributions and capitalized costs to this joint venture totaling $2.4 million for a total investment of $5.8 million. This joint venture was to obtain entitlements and make option payments towards the purchase of land parcels in Marina del Rey, California for a proposed development project. During the first quarter of 2009, the Company wrote-off its investment in the joint venture development project for $5.8 million, and the write-off of these costs is included in the accompanying consolidated condensed statements of operations.

Index

The combined summarized balance sheet for co-investments, which are accounted for under the equity method, is as follows (dollars in thousands).

	September 30,		December 31,
	2008		2007		March 31, 2009		December 31, 2008
Balance sheets:
Real estate and real estate under development	$	519,921	$	614,266
Rental properties and real estate under development					$	502,775	$	526,906
Other assets		7,672		16,184		44,547		40,877

Total assets	$	527,593	$	630,450	$	547,322	$	567,783

Mortgage notes payable	$	298,442	$	322,615
Mortgage notes and construction payable					$	315,530	$	308,853
Other liabilities		12,733		24,014		11,249		8,481
Partners' equity		216,418		283,821		220,543		250,449

Total liabilities and partners' equity	$	527,593	$	630,450	$	547,322	$	567,783

Company's share of equity	$	65,863	$	63,691	$	70,103	$	75,846

The combined summarized statement of operations for co-investments, which are accounted for under the equity method, is as follows (dollars in thousands).

	Three Months Ended March 31,
	2009			2008
Statements of operations:
Property revenues	$	12,003		$	10,997
Property operating expenses		(4,330	)		(4,187	)
Net property operating income		7,673			6,810
Interest expense		(2,192	)		(2,706	)
Depreciation and amortization		(3,612	)		(3,025	)

Total net income	$	1,869		$	1,079

Company's share of operating net income		539			312
Company's preferred interest/gain - Mt. Vista		-			6,318
Company's share of net income	$	539		$	6,630

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Statements of operations:
Property revenues $ 11,906 $ 11,761 $ 34,232 $ 34,596
Operating expenses (4,565 ) (4,335 ) (13,180 ) (13,805 )
Interest expense (2,876 ) (3,369 ) (8,205 ) (10,623 )
Depreciation and amortization (3,308 ) (3,485 ) (9,979 ) (10,431 )

Total net income (loss) $ 1,157 $ 572 $ 2,868 $ (263 )

Company's share of operating net income 335 322 1,007 421
Company's preferred interest/gain - Mt. Vista - - 6,318 2,346
Company's share of net income $ 335 $ 322 $ 7,325 $ 2,767

Through September 30, 2008, the Company has made contributions to a joint venture totaling $5.0 million related to a development project located in Southern California, which was still in the predevelopment stage as of September 30, 2008.

In January 2008, the Company received $7.5 million and recognized $6.3 million of preferred ~~income~~interest in the joint venture which is included in equity income in co-investments from the repayment of its investment in Mountain Vista Apartments, LLC.

Index

(4) Notes and Other Receivables

Notes receivables secured by real estate, and other receivables consist of the following as of ~~September 30, 2008~~March 31, 2009 and December 31, ~~2007~~2008 (dollars in thousands):

	September 30,		December 31,		March 31, 2009		December 31, 2008
	2008		2007

Note receivable, secured, bearing interest at LIBOR + 4.65%, due July 2008	$	-	$	5,448
Note receivable, secured, bearing interest at LIBOR + 3.38%, due February 2009		12,863		10,999
Note receivable, secured, bearing interest at LIBOR + 2.95%, due April 2009		14,000		14,010
Note receivable, secured, bearing interest at LIBOR + 3.69%, due June 2009		7,328		7,346		7,317		7,325
Note receivable, secured, bearing interest at LIBOR + 2.95%, due December 2010						12,500		14,043
Note receivable, secured, bearing interest at 8.0%, due November 2010						971		965
Note receivable, secured, bearing interest at LIBOR + 4.75%, due March 2011		7,260		7,128		7,326		7,294
Note receivable, secured, bearing interest at 6.5%, due August 2011						4,070		4,070
Non-performing - note receivable, secured						12,748		12,748
Other receivables		4,331		4,701		1,209		1,192
	$	45,782	$	49,632	$	46,141	$	47,637

In September 2007, the Company originated a loan to the owners of an apartment community under development in Vancouver, Washington, with a maturity date of February 2009. The proceeds from the loan refinanced the property and are providing funding for the completion of the 146-unit apartment community. In July 2008, the Company ceased recording interest income and issued a notice of monetary default to the borrower, and the borrower filed for bankruptcy. During the fourth quarter of 2008, the Company recorded a loan loss reserve in the amount of $0.7 million on this non-performing note receivable. The Company expects the note will be settled through the foreclosure or sale of the ~~property for full~~property.

In the first quarter of 2009, the borrower on the bridge loan secured by 301 Ocean Avenue a 47-unit apartment community located in Santa Monica, California made a principal payment of $1.6 million to pay down the ~~note.~~

~~Index~~

loan to $12.5 million and the Company extended the maturity of the loan until December 2010.

(5) Related Party Transactions

Other related party receivables consist primarily of accrued payroll costs and management fees due from Fund II totaling $1.0 million and $0.9 million as of September 30, 2008 and December 31, 2007, respectively. Management and other fees from affiliates ~~include property~~includes management, ~~asset management,~~promote, development and redevelopment fees from related parties of ~~$1.3~~$1.2 million for the quarters ended ~~September 30, 2008~~March 31, 2009 and 2007, and $4.0 million and $3.7 million for the nine months ended September 30, 2008 and 2007, respectively. The Company’s Chairman, George Marcus, is also the Chairman of TMMC, which is a real estate brokerage firm. The Company paid $0.2 million and $0 brokerage commissions on the sale of real estate during the three months ended September 30, 2008 and 2007, respectively, and $0.2 million and $1.3 million during the nine months ended September 30, 2008 and 2007, respectively.

2008. As discussed in Note 3, in January 2008, the Company received $7.5 million from an investment held in an affiliate of TMMC and recognized $6.3 million of preferred income which is included in equity income from co-investments.

Index

(6) Segment Information

The Company defines its reportable operating segments as the three geographical regions in which its apartment communities are located: Southern California, Northern California and Seattle Metro. Excluded from segment revenues are properties classified in discontinued operations, management and other fees from affiliates, and interest and other income. Non-segment revenues and net operating income included in the following schedule also consist of revenue generated from commercial properties ~~recreational vehicle parks, and manufactured housing communities.~~which are primarily office buildings. Other non-segment assets include co-investments, real estate under development, cash and cash equivalents, marketable securities, notes receivable, other assets and deferred charges. The revenues, net operating income, and assets for each of the reportable operating segments are summarized as follows for the three months ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~ (dollars in thousands):

Three Months Ended
September 30,
2008 2007
Revenues:
Southern California $ 53,442 $ 52,429
Northern California 30,516 25,608
Seattle Metro 18,269 16,355
Other real estate assets 680 620
Total property revenues $ 102,907 $ 95,012

Net operating income:
Southern California $ 36,282 $ 35,979
Northern California 19,877 16,919
Seattle Metro 12,037 10,680
Other real estate assets 362 300
Total net operating income 68,558 63,878

Depreciation and amortization (27,952 ) (24,169 )
Interest expense (19,399 ) (19,459 )
Amortization of deferred financing costs (686 ) (701 )
General and administrative (6,524 ) (6,415 )
Management and other fees from affiliates 1,311 1,268
Gain on sale or real estate 2,446 -
Interest and other income 2,847 2,407
Equity income in co-investments 335 322
Minority interests (5,666 ) (5,088 )
Income before discontinued operations $ 15,270 $ 12,043

~~Index~~

~~The revenues, net operating income, and assets for each of the reportable operating segments are summarized as follows for the nine months ended September 30, 2008 and 2007 (dollars in thousands):~~

	Three Months Ended March 31,
	2009			2008
Revenues:
Southern California	$	53,531		$	52,493
Northern California		30,861			28,629
Seattle Metro		19,118			16,929
Other real estate assets		1,172			679
Total property revenues	$	104,682		$	98,730

Net operating income:
Southern California	$	36,527		$	36,033
Northern California		21,397			19,047
Seattle Metro		12,686			11,374
Other real estate assets		694			526
Total net operating income		71,304			66,980

Depreciation and amortization		(29,175	)		(26,766	)
Interest expense		(20,203	)		(21,139	)
General and administrative		(6,233	)		(6,625	)
Write-off of development joint venture		(5,752	)		-
Management and other fees from affiliates		1,197			1,227
Gain on early retirement of debt		6,124			-
Interest and other income		3,287			2,768
Equity income from co-investments		539			6,630
Income before discontinued operations	$	21,088		$	23,075

Nine Months Ended
September 30,
2008 2007
Revenues:
Southern California $ 159,725 $ 155,632
Northern California 88,782 71,122
Seattle Metro 52,355 47,144
Other real estate assets 2,036 1,849
Total property revenues $ 302,898 $ 275,747

Net operating income:
Southern California $ 109,582 $ 107,608
Northern California 58,002 47,081
Seattle Metro 34,925 31,035
Other real estate assets 860 18
Total net operating income 203,369 185,742

Depreciation and amortization (82,564 ) (69,036 )
Interest expense (57,835 ) (57,688 )
Amortization of deferred financing costs (2,109 ) (2,054 )
General and administrative (19,600 ) (18,519 )
Management and other fees from affiliates 3,965 3,662
Gain on sale of real estate 2,446 -
Interest and other income 8,048 7,454
Equity income in co-investments 7,325 2,767
Minority interests (16,929 ) (15,459 )
Income before discontinued operations $ 46,116 $ 36,869

	September 30,		December 31,
	2008		2007		March 31, 2009		December 31, 2008
Assets:
Southern California	$	1,218,392	$	1,354,818	$	1,267,671	$	1,291,850
Northern California		852,061		829,879		847,196		850,170
Seattle Metro		420,411		353,737		429,177		431,041
Other real estate assets		51,997		37,338		65,690		66,701
Net rental properties		2,542,861		2,575,772

Real estate - held for sale, net		15,983		-
Net reportable operating segments - real estate assets						2,609,734		2,639,762
Real estate under development		347,979		233,445		292,607		272,273
Co-investments		66,363		64,191
Cash and cash equivalents		45,956		22,483		78,820		54,719
Marketable securities		58,614		2,017		30,143		23,886
Funds held by 1031 exchange facilitator						-		21,424
Notes and other receivables		46,749		50,536		46,141		47,637
Other non-segment assets		34,821		31,879		104,470		105,122
Total assets	$	3,159,326	$	2,980,323	$	3,161,915	$	3,164,823

Index

~~(7)~~

(7) Net Income Per Common Share

(Amounts in thousands, except per share and unit data)

	Three Months Ended								Three Months Ended
	September 30, 2008								September 30, 2007
				Weighted-		Per					Weighted-		Per
				average		Common					average		Common
				Common		Share					Common		Share		Three Months Ended March 31, 2009						Three Months Ended March 31, 2008
	Income			Shares		Amount			Income		Shares		Amount		Income		Weighted- average Common Shares		Per Common Share Amount		Income			Weighted- average Common Shares		Per Common Share Amount
Basic:
Income from continuing operations available to common stockholders	$	12,960			25,111	$	0.52		$	9,732		25,165	$	0.39	$	40,184		26,225	$	1.53	$	14,956			24,748	$	0.61
Income (loss) from discontinued operations		(584	)		25,111		(0.02	)		265		25,165		0.01
Income (loss) from discontinued operations available to common stockholders																2,081		26,225		0.08		(176	)		24,748		(0.01	)
																42,265			$	1.61		14,780				$	0.60
		12,376				$	0.50			9,997			$	0.40

Effect of Dilutive Securities (1)		-			364					-		391				-		2,468				-			130

Diluted:
Income from continuing operations available to common stockholders		12,960			25,475	$	0.51			9,732		25,556	$	0.38
Income (loss) from discontinued operations		(584	)		25,475		(0.02	)		265		25,556		0.01
Income from continuing operations available to common stockholders (1)																41,814		28,693	$	1.45		14,956			24,878	$	0.60
Income (loss) from discontinued operations available to common stockholders																2,250		28,693		0.08		(176	)		24,878		(0.01	)
	$	12,376				$	0.49		$	9,997			$	0.39	$	44,064			$	1.53	$	14,780				$	0.59


	Nine Months Ended								Nine Months Ended
	September 30, 2008								September 30, 2007
				Weighted		Per					Weighted		Per
				Average		Common					Average		Common
				Common		Share					Common		Share
	Income			Shares		Amount			Income		Shares		Amount
Basic:
Income before discontinued operations available to common stockholders	$	39,185			24,877	$	1.58		$	30,005		24,370	$	1.23
Income (loss) from discontinued operations		(1,417	)		24,877		(0.06	)		25,172		24,370		1.03
		37,768				$	1.52			55,177			$	2.26

Effect of Dilutive Securities (1)		-			305					-		614

Diluted:
Income before discontinued operations available to common stockholders		39,185			25,182	$	1.56			30,005		24,984	$	1.20
Income (loss) from discontinued operations		(1,417	)		25,182		(0.06	)		25,172		24,984		1.01
	$	37,768				$	1.50		$	55,177			$	2.21

(1)

Weighted convertible limited partnership units of ~~2,184,446~~2,161,964 and ~~2,273,992~~vested Series Z incentive units of 282,783 for the three months ended ~~September 30, 2008~~March 31, 2009 were included in the determination of diluted EPS, and ~~2007, respectively,~~convertible limited partnership units of 2,271,295 and ~~2,224,828 and 2,285,541 for the nine months ended September 30, 2008 and 2007, respectively, and~~vested Series Z incentive units of ~~250,927 and 213,205~~249,684 for the three months ended ~~September 30,~~March 31, 2008, ~~and 2007, respectively, and 250,514 and 213,045 for the nine months ended September 30, 2008 and 2007, respectively,~~ were not included in the determination of diluted EPS because they were anti-dilutive. The Company has the ability and intent to redeem DownREIT ~~Limited Partnership~~limited partnership units for cash and does not consider them to be common stock equivalents.

On or after November 1, 2020, the holders of the ~~$225 million~~ exchangeable notes may exchange, at the then applicable exchange rate, the notes for cash and, at ~~Essex’s~~the Company’s option, a portion of the notes may be exchanged for Essex common stock; the ~~original~~current exchange rate ~~was~~is $103.25 per share of Essex common stock. The exchangeable notes will also be exchangeable prior to November 1, 2020, but only upon the occurrence of certain specified events. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2009 and 2008 the weighted average common stock price ~~exceeded~~did not exceed the ~~current~~$103.25 strike price and therefore common stock issuable upon exchange of the exchangeable notes was not included in the diluted share ~~count.~~count as the effect was anti-dilutive. The treasury method was used to determine the shares to be added to the denominator for the calculation of earnings per diluted share.

Stock options of ~~28,250~~102,290 and ~~45,004~~160,252 for the three months ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007, respectively, and 75,111 and 19,753 for the nine months ended September 30, 2008 and 2007,~~ respectively, were not included in the diluted earnings per share calculation because the exercise price of the options were greater than the average market price of the common shares for the three ~~and nine~~ months ended and, therefore, were anti-dilutive.

~~The~~3,595,716 and 5,980,000 shares of ~~Series G~~ cumulative convertible preferred stock Series G have been excluded from diluted earnings per share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007~~respectively, as the effect was anti-dilutive.

~~Index~~

(8) Derivative Instruments and Hedging Activities

~~As discussed in Note 1, the~~The Company adopted FAS 157, “Fair Value Measurements” as of January 1, ~~2008.~~2008, which provides guidance on using fair value to measure assets and liabilities. The Company values forward-starting interest rate swaps and interest rate caps at fair value, and based on the fair value hierarchy of valuation techniques described in FAS 157, the Company has elected to use fair values determined by Level 2. Level 2 valuation methodology is determined based on inputs other than quoted prices in active markets for identical assets or liabilities the Company has the ability to access as included in Level 1 valuation methodology that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. ~~As of September 30, 2008, forward-starting interest rates swaps are the only assets and liabilities that the Company measured at fair value based on the FAS 157 fair valuation methodology.~~

As of ~~September 30, 2008~~March 31, 2009 the Company had ~~eight~~seven forward-starting interest rate ~~swaps~~swap contracts totaling a notional amount of ~~$400~~$375.0 million with interest rates ranging from 5.1% to 5.9% and settlements dates ranging from ~~December 2008~~November 2010 to October 2011. These derivatives qualify for hedge accounting as they are expected to economically hedge the cash flows associated with ~~the refinancing~~future financing of debt ~~that matures December 2008 through October~~between 2010 and 2011. The Company had twelve interest rate cap contracts totaling a notional amount of $183.4 million that qualify for hedge accounting as they effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for the Company’s $233.1 million of tax exempt variable rate debt. The aggregate carrying value of the forward-starting interest rate swap contracts was a net liability of $55.0 million and the aggregate carrying value of the interest rate cap contracts was an asset of $0.1 million. The overall fair value of the derivatives ~~decreased $5.1~~increased $18.3 million during the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 to a net liability ~~value~~ of ~~$15.4~~$54.8 million as of ~~September 30, 2008,~~March 31, 2009, and the derivative liability was recorded in ~~other~~cash flow hedge liabilities in the Company’s condensed consolidated financial statements. The changes in the fair values of the derivatives are reflected in ~~accumulated other~~ comprehensive (loss) income in the Company’s condensed consolidated financial statements. No hedge ineffectiveness on cash flow hedges was recognized during the quarter ended ~~September 30, 2008~~March 31, 2009 and ~~2007.~~2008.

During the second quarter 2008, the Company settled one forward-starting interest rate swaps for a total of $1.8 million in payments to counterparties. The $1.8 million loss on settlement will be amortized over the life of the 10-year secured mortgage loans.

Index

(9) Discontinued Operations

In the normal course of business, the Company will receive offers for sale of its ~~properties,~~communities, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. Essex classifies real estate as "held for sale" when all criteria under ~~FAS~~SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (“~~FAS~~SFAS 144”) have been met.

~~During February 2007, City~~In the first quarter of 2009, the Company sold Carlton Heights ~~Apartments,~~Villas, a ~~687-unit community~~70-unit property located in ~~Los Angeles was sold to a third-party~~Santee, California for ~~$120 million. The Company’s share of the proceeds from the sale totaled $33.9~~$6.9 million resulting in a ~~$13.7~~$1.6 million gain ~~on sale to the Company,~~ and ~~an additional $10.3~~Grand Regency, a 60-unit property in Escondido, California, for $5.0 million ~~for fees from the City Heights joint venture partner are included~~resulting in ~~discontinued operations in the accompanying condensed consolidated statements of operations.~~a $0.9 million gain.

In ~~December 2007,~~the fourth quarter of 2008, the Company sold ~~four communities (875-units)~~Coral Gardens, a 200-unit property located in ~~the Portland metropolitan area~~El Cajon, California for $19.8 million, and ~~as a result, has classified the results of operations for these communities as discontinued operations for the three and nine months ended September 30, 2007.~~

In July 2007, the Company sold the final 2 condominium units at the Peregrine Point property for a gain of $0.1 million net of taxes and expenses. For the nine months ended September 30, 2007, the Company sold 21 condominium units at the Peregrine Point property and recorded a gain of $1.0 million net of taxes and expenses. The Company has recorded the gain on sale of condominiums and operations for Peregrine Point apartments as part of discontinued operations in ~~the accompanying consolidated statements of operations.~~

~~During~~ the third quarter of 2008, the Company sold Cardiff by the Sea ~~a 300-unit community~~Apartments, located in Cardiff, California for $71.0 million and St. Cloud Apartments, ~~a 302-unit community~~ located in Houston, Texas for $8.8 ~~million resulting in a combined gain of $46,000.~~million. The ~~Company has recorded the gain on sale~~ operations for these ~~two apartment~~sold communities ~~as part of~~are included in discontinued operations infor the ~~accompanying consolidated statements of operations.~~

The Company is in contract to sell Coral Gardens, a 200-unit apartment community located in El Cajon, California in the fourth quarter of 2008 for $19.8 million. This community is classified as held for sale as of September 30, 2008, and as a result, has classified the results of operations for Coral Gardens as discontinued operations.

~~Index~~

three months ended March 31, 2008.

The components of discontinued operations are outlined below and include the results of operations for the respective periods that the Company owned such assets, as described ~~above.~~above (dollars in thousands).

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007

Rental revenues $ 1,677 $ 4,594 $ 6,528 $ 13,416
Interest and other income - - - 290
Revenues 1,677 4,594 6,528 13,706
Property operating expenses (1,183 ) (2,142 ) (3,594 ) (5,899 )
Interest expense (545 ) (783 ) (2,087 ) (1,729 )
Depreciation and amortization (629 ) (1,443 ) (2,434 ) (3,460 )
Minority interests 54 (20 ) 128 (226 )
Expenses (2,303 ) (4,388 ) (7,987 ) (11,314 )
Gain on sale of real estate 46 64 46 79,275
Subordination fees - - - 10,290
Minority interests - OP units (4 ) (5 ) (4 ) (2,156 )
Minority interests - City Heights - - - (64,629 )
Net gain on sale of real estate 42 59 42 22,780
-
Income from discontinued operations $ (584 ) $ 265 $ (1,417 ) $ 25,172

	Three Months Ended March 31,
	2009			2008

Rental revenues	$	157		$	2,746
Property operating expenses		(103	)		(1,229	)
Interest expense		-			(775	)
Depreciation and amortization		(29	)		(968	)
Income (loss) from real estate sold		25			(226	)
Gain on sale		2,472			-
Internal disposition costs (1)		(247	)		-
Income (loss) from discontinued operations	$	2,250		$	(226	)

(1) Internal disposition costs relate to a disposition incentive program established to pay incremental bonuses for the sale of certain of the Company's communities that are part of the program.

(10) Commitments and Contingencies

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

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

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with our ~~2007~~2008 Annual Report on Form 10-K for the year ended December 31, ~~2007~~2008 and our Current Report on Form 10-Q for the quarter ended ~~September 30, 2008.~~March 31, 2009.

The Company is a fully integrated ~~real estate investment trust~~Real Estate Investment Trust (“REIT”), and its property revenues are generated primarily from apartment community operations. Our investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth. Our strong financial condition supports our investment strategy by enhancing our ability to quickly shift our acquisition, development, and disposition activities to markets that will optimize the performance of the portfolio.

Index

As of ~~September 30, 2008,~~March 31, 2009, we had ownership interests in ~~133~~132 apartment communities, comprising ~~26,790~~26,862 apartment units. Our apartment communities are located in the following major West Coast regions:

Southern California ~~(Ventura, Los~~(Los Angeles, Orange, Riverside, Santa Barbara, ~~Orange, Riverside and~~ San Diego and Ventura counties)

Northern California (the San Francisco Bay Area)

Seattle Metro (Seattle metropolitan area)

As of ~~September 30, 2008, the Company~~March 31, 2009, we also had ownership interests in ~~nine~~five office and commercial buildings ~~and one manufactured housing community (containing 157 sites)~~(with approximately 215,840 square feet).

As of ~~September 30, 2008, the Company’s~~March 31, 2009, our consolidated development pipeline, excluding development projects owned by Fund II, was comprised of ~~five~~four development projects, three predevelopment projects and ~~five~~four land parcels held for future development aggregating ~~2,715~~2,200 units, with total incurred costs of ~~$348.0 million, and~~$292.6 million. The estimated remaining project costs of ~~approximately $483.6~~active development projects were $112.8 million for total estimated project costs of ~~$831.6~~$279.6 million.

~~Index~~

The Company’s consolidated apartment communities are as follows:

	As of September 30, 2008					As of September 30, 2007					As of March 31, 2009					As of March 31, 2008
	Apartment Homes		%			Apartment Homes		%			Apartment Units		%			Apartment Units		%
Southern California		12,225		51	%		12,225		52	%		12,370		51	%		12,725		53	%
Northern California		6,457		27	%		6,361		27	%		6,457		27	%		6,361		26	%
Seattle Metro		5,338		22	%		5,005		21	%		5,338		22	%		5,005		21	%
Total		24,020		100	%		23,591		100	%		24,165		100	%		24,091		100	%

Co-investments including Fund II ~~properties~~communities and ~~properties~~communities included in discontinued operations are not included in the table ~~presented~~ above for both ~~periods presented.~~years presented above.

Comparison of the Three Months Ended ~~September 30, 2008~~March 31, 2009 to the Three Months Ended ~~September 30, 2007~~March 31, 2008

Our average financial occupancies for the Company’s stabilized apartment communities or “Quarterly ~~Same-Properties”~~Same-Property” (stabilized properties consolidated by the Company for the quarters ended ~~September 30, 2008~~March 31, 2009 and ~~2007)~~2008) increased 40110 basis points to ~~96.3%~~97.0% as of ~~September 30, 2008~~March 31, 2009 from 95.9% as of ~~September 30, 2007.~~March 31, 2008. Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total possible rental revenue. Actual rental revenue represents contractual rental revenue pursuant to leases without considering delinquency and concessions. Total possible rental revenue represents the value of all apartment units, with occupied units valued at contractual rental rates pursuant to leases and vacant units valued at estimated market rents. We believe that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates as disclosed by other REITs may not be comparable to our calculation of financial occupancy.

The regional breakdown of the Company’s Quarterly Same-Property portfolio for financial occupancy for the quarter ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~ is as follows:

Three months ended
September 30,
2008 2007
Southern California 95.4 % 95.5 %
Northern California 97.8 % 96.8 %
Seattle Metro 96.8 % 95.9 %

~~The table below illustrates a breakdown of revenues, including revenues attributable to the Quarterly Same-Properties.~~

Three Months Ended
Number of September 30, Dollar Percentage
Properties 2008 2007 Change Change
Property Revenues (dollars in thousands)

Same-Properties:
Southern California 57 $ 48,237 $ 47,701 $ 536 1.1 %
Northern California 18 20,080 18,527 1,553 8.4
Seattle Metro 24 16,493 15,349 1,144 7.5
Total Same-Property revenues 99 84,810 81,577 3,233 4.0
Non-Same Property Revenues (1) 18,097 13,435 4,662 34.7
Total property revenues $ 102,907 $ 95,012 $ 7,895 8.3 %

(~~1) Includes properties acquired since January 1, 2007, eight redevelopment communities, three office buildings and two development communities.~~

~~Quarterly Same-Property Revenues~~ increased by $3.2 million or 4.0% to $84.8 million in the third quarter of 2008 from $81.6 million in the third quarter of 2007. The increase in the third quarter of 2008 was primarily attributable to the increase in scheduled rents from the Quarterly Same-Properties which increased $2.7 million or 3.4% compared to the third quarter of 2007. Average rental rates for Quarterly Same-Property communities were $1,404 per unit in the third quarter of 2008 compared to $1,359 per unit in the third quarter of 2007. Occupancy increased quarter over quarter by 40 basis points or $0.2 million, and delinquency and rent concessions decreased slightly by a combined $0.2 million, and other income was consistent between quarters.

	Three months ended March 31,
	2009			2008
Southern California		96.5	%		95.1	%
Northern California		97.6	%		96.7	%
Seattle Metro		97.3	%		96.8	%

1817

Index

The following table provides a breakdown of revenue amounts, including revenues attributable to the Quarterly Same-Property portfolio:

	Number of		Three Months Ended March 31,				Dollar			Percentage
	Properties		2009		2008		Change			Change
Property Revenues (dollars in thousands)
Same-Property:
Southern California		58	$	47,945	$	48,054	$	(109	)		(0.2	) %
Northern California		26		27,010		25,725		1,285			5.0
Seattle Metro		24		15,654		15,053		601			4.0
Total Same-Property revenues		108		90,609		88,832		1,777			2.0
Non-Same Property Revenues (1)				14,073		9,898		4,175			42.2
Total property revenues			$	104,682	$	98,730	$	5,952			6.0	%

(1) Includes two communities acquired after January 1, 2008, eight redevelopment communities, two development communities, and three commercial buildings.

Quarterly Same-Property Revenues increased by $1.8 million or 2.0% to $90.6 million in the first quarter of 2009 from $88.8 million in the first quarter of 2008. The increase in the first quarter of 2009 was primarily attributable to increased occupancy of 110 basis points or $0.9 million, from 95.9% for the first quarter of 2008 to 97.0% for the first quarter of 2009. Although scheduled rents increased 2.8% in Northern California and 2.3% in the Seattle Metro area, these increases in scheduled rent were offset by a 2.2% decrease in scheduled rents for Southern California and the overall scheduled rents for the aggregate Quarterly Same-Property portfolio were flat at an average rental rate of $1,402 per unit for the two quarters. Ratio utility billing system (“RUBS”) income and other income increased $0.6 million, rent concessions decreased $0.2 million and bad debt expense was consistent between quarters. The Company expects that total Same-Property revenues will decrease in the second quarter of 2009 from the same period in 2008, due to an expected decrease in scheduled rents compared to the same period in 2008.

Quarterly Non-Same Property Revenues increased by ~~$4.7~~$4.2 million or ~~34.7%~~42.2% to ~~$18.1~~$14.1 million in the ~~third~~first quarter of ~~2008~~2009 from ~~$13.4~~$9.9 million in the ~~third~~first quarter of ~~2007.~~2008. The increase was ~~attributable~~primarily due to ~~ten apartment~~two new communities acquired since January 1, ~~2007 totaling a $3.5 million increase~~2008, two development communities in ~~revenue compared to third quarter of 2007,~~lease-up and eight communities that ~~were~~are in redevelopment ~~totaling a $1.1 million increase~~and classified in ~~revenue compared to the third quarter of 2007, and two development properties totaling a $0.1 million increase in revenue compared to the third quarter of 2007.~~non-same property results.

~~Total Expenses~~Real estate taxes increased ~~$7.0~~$1.0 million or ~~8.6% to $88.9 million in the third quarter of 2008 from $82.1 million in the third quarter of 2007. Property operating expenses including real estate taxes increased by $3.2 million or 10.3%~~12.5% for the quarter ~~which is~~over 2008, primarily due to the acquisition of ~~ten operating~~two new properties, ~~leasing at~~the lease-up of two development properties ~~since January 1, 2007,~~ and ~~annual increases~~an estimated 14% increase in ~~salaries and~~ real estate ~~taxes.~~ taxes in the Seattle Metro area.

Depreciation expense increased by ~~$3.8~~$2.4 million or ~~15.7%~~9.0% for the ~~third~~first quarter ~~2008~~of 2009 compared to the ~~third~~first quarter of ~~2007,~~2008, primarily due to the acquisition of ~~ten operating~~two new communities, the lease-up of two development properties, ~~since January 1, 2007.~~and the capitalization of approximately $88.0 million of additions to rental properties, including $55.5 million spent on redevelopment and revenue generating capital expenditures during 2008.

Write-off of investment in development joint venture of $5.8 million for the first quarter of 2009 related to the write-off the full amount of the Company’s investment in a predevelopment joint venture project in Southern California.

Gain on ~~sale~~early retirement of ~~real estate~~debt was $6.1 million for the ~~third~~first quarter of 2009 compared to $0 in the first quarter of 2008, ~~totaling $2.4 million relates~~due to the ~~sale~~repurchase of $71.3 million of 3.625% exchangeable bonds at a discount to par value.

Equity income in co-investments decreased by $6.1 million to $0.5 million from $6.6 million in 2008, due to the fact that in the first quarter of 2008, the Company recognized $6.3 million of preferred income from the retirement of the Circle RV park for $5.4 million resulting in a gain of $0.9 million, and $1.5 million of the gain that was previously deferred on the 2005 sale of Eastridge Apartments. The $1.5 million gain recognized is equal to the estimated fair value of seven condominium units received in satisfaction of the note receivable issued in connection with the sale of Eastridge Apartments. There were no gains or losses recorded from the sale of other real estateCompany’s investment in the ~~third quarter of 2007.~~Mountain Vista, LLC joint venture.

Income from discontinued operations for the ~~third~~first quarter of 2009 includes operating results of Carlton Heights and Grand Regency which were sold during the quarter for a combined gain of $2.5 million. Discontinued operations for the first quarter of 2008 includes the operating results ~~of Coral Gardens which was classified~~for those two properties as ~~held for sale~~well as ~~of September 30, 2008, and the operating results of~~ Cardiff by the Sea, ~~and~~ St. Cloud ~~along with their combined gain on sale $46,000. For the third quarter of 2007, operating results includes the four Portland metropolitan region communities,~~and Coral Gardens, which were sold in the third and fourth ~~quarter~~quarters of ~~2007, and the gain on sale of condominiums for $0.1 million.~~

~~Comparison of the Nine Months Ended September 30, 2008 to the Nine Months Ended September 30, 2007~~

Our average financial occupancies for the Company’s stabilized apartment communities or “2008/2007 Same-Properties” (stabilized properties consolidated by the Company for the nine months ended September 30, 2008 and 2007) increased 50 basis points to 96.2% as of September 30, 2008 from 95.7% as of September 30, 2007.

~~The regional breakdown of the Company’s 2008/2007 Same-Property portfolio for financial occupancy for the nine months ended September 30, 2008 and 2007 is as follows:~~

Nine Months Ended
September 30,
2008 2007
Southern California 95.5 % 95.5 %
Northern California 97.5 % 96.2 %
Seattle Metro 96.8 % 96.0 %

~~The table below illustrates a breakdown of revenues, including revenues attributable to 2008/2007 Same-Properties.~~

Nine Months Ended
Number of September 30, Dollar Percentage
Properties 2008 2007 Change Change
Property Revenues (dollars in thousands)

Same-Properties:
Southern California 56 $ 140,566 $ 137,921 $ 2,645 1.9 %
Northern California 18 59,021 53,655 5,366 10.0
Seattle Metro 23 46,344 42,830 3,514 8.2
Total Same-Property revenues 97 245,931 234,406 11,525 4.9
Non-Same Property Revenues (1) 56,967 41,341 15,626 37.8
Total property revenues $ 302,898 $ 275,747 $ 27,151 9.8 %

~~(1) Includes properties acquired since January 1, 2007, ten redevelopment communities, three office buildings, and two development communities.~~

~~2008/2007 Same-Property Revenues~~ increased by $11.5 million or 4.9% to $245.9 million for the nine months ended September 30, 2008 compared to $234.4 million for the nine months ended September 30, 2007. The increase for the nine months ended September 30, 2008 was primarily attributable to an increase in the scheduled rents from the 2008/2007 Same-Property portfolio which increased $10.5 million or 4.5%. Average rental rates for 2008/2007 Same-Property communities were $1,399 per unit for the nine months ended September 30, 2008 compared to $1,339 per unit for the nine months ended September 30, 2007. Occupancy increased for the nine months ended September 30, 2008 by 50 basis points or $0.6 million, other income increased by $0.5 million and delinquency and rent concessions, were consistent between periods.2008.

~~Index~~

~~2008/2007 Non-Same Property Revenues~~ increased by $15.6 million or 37.8% to $57.0 million for the nine months ended September 30, 2008 from $41.3 million for the nine months ended September 30, 2007. The increase was attributable to ten apartment communities acquired since January 1, 2007 totaling a $12.4 million increase in revenue compared to the nine months ended September 30, 2007, ten communities that were in redevelopment totaling a $3.0 million increase in revenue compared to the nine months ended September 30, 2007, and two development properties totaling a $0.2 million increase in revenue compared to the nine months ended September 30, 2007.

~~Total Expenses~~ increased $24.3 million or 10.3% to $261.6 million for the nine months ended September 30, 2008 compared to $237.3 million for the nine months ended September 30, 2007. Property operating expenses including real estate taxes increased by $9.5 million or 10.6% for the nine months ended September 30, 2008, which is primarily due to the acquisition of ten operating properties and the lease-up of two development properties since January 1, 2007, and annual increases in salaries and real estate taxes. Depreciation expense increased by $13.5 million or 19.6% for nine months ended September 30, 2008 compared to the nine months ended September 30, 2007, primarily due to the acquisition of ten operating properties since January 1, 2007.

~~Gain on sale of real estate~~ for the third quarter of 2008 totaling $2.4 million relates to the sale of the Circle RV park for $5.4 million resulting in a gain of $0.9 million, and $1.5 million of the gain that was previously deferred on the 2005 sale of Eastridge Apartments. The $1.5 million gain recognized is equal to the estimated fair value of seven condominium units received in satisfaction of the note receivable issued in connection with the sale of Eastridge Apartments. There were no gains or losses recorded from the sale of other real estate in the third quarter of 2007.

~~Equity income in co-investments~~ increased by $4.6 million due primarily to the repayment of the Company’s remaining investment in the Mountain Vista, LLC joint venture for the nine months ended September 30, 2008. The Company recognized $6.3 million of income resulting from the final repayment of the investment for the nine months ended September 30, 2008, compared to $2.0 million recognized as income related to the partial repayment of the investment for the nine months ended September 30, 2007.

~~Income from discontinued operations~~ for the nine months ended September 30, 2008 includes the operating results of Coral Gardens which was classified as held for sale as of September 30, 2008, and the operating results of Cardiff by the Sea and St. Cloud and the combined gain of sale $46,000 for those two communities. The nine months ended September 30, 2007 income from discontinued operations includes the sale of the City Heights joint venture property for a gain of $13.7 million, net of minority interest, and $10.3 million in fees from the City Heights joint venture partner, and the gain on sale of condominiums for $1.0 million. Also included in the 2007 income from discontinued operations are the operations from the sale of the four Portland metropolitan region communities which occurred in the fourth quarter of 2007.

Liquidity and Capital Resources

In June 2008, Standard and Poor's (“S&P”) reaffirmed its corporate credit rating of BBB/Stable for Essex Property Trust, Inc. and Essex Portfolio L.P.

Index

At ~~September 30, 2008,~~March 31, 2009, the Company had ~~$33.4~~$65.2 million of unrestricted cash and cash ~~equivalents.~~equivalents and $30.1 million in marketable securities. We believe that cash flows generated by our operations, existing cash balances, ~~available for sale marketable securities,~~ availability under existing lines of credit, access to capital markets and the ability to generate cash gains from the disposition of real estate and marketable securities held available for sale are sufficient to meet all of our reasonably anticipated cash needs ~~through~~during 2009. The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect our plans for acquisitions, dispositions, development and redevelopment activities.

The Company has a $200.0 million unsecured line of credit ~~bank facility with six commercial banks~~ and, as of ~~September 30, 2008,~~March 31, 2009, there was ~~$53.0~~$45.0 million outstanding balance on the line at an average interest rate of ~~3.3%~~2.7%. This facility matures in March ~~2009, with an option for a one-year extension.~~2010. The underlying interest rate on this line is based on a tiered rate structure tied to an S&P rating on the credit facility (currently BBB-) at LIBOR plus 0.8%.

~~Index~~

~~The Company~~ We also ~~has~~have a ~~$100~~$150.0 million credit facility from Freddie Mac, ~~that~~which is ~~secured by eight apartment communities~~expandable to $250.0 million at any time during the first two years and which matures in ~~January 2009.~~December 2013. This line is secured by ten apartment communities. As of ~~September 30, 2008,~~March 31, 2009, we had ~~$100~~$140.0 million outstanding under this line of credit at an average interest rate of ~~3.1%~~2.0%. The underlying interest rate on this line is between 5599 and 59150 basis points over the Freddie Mac Reference Rate. The Company has signed a letter of commitment to enter into a new five-year secured line of credit facility to replace the existing secured line of credit facility that matures in January 2009. The new secured facility will expand the existing secured facility from $100 million to $150 million,Rate and the ~~new facility~~interest rate is ~~expandable~~subject to ~~$250 million. The Company anticipates that the closing date for the new secured facility will occur~~change by the ~~end of the fourth quarter of 2008.~~lender in November 2011. In March ~~2007,~~2009, the Company ~~entered into an~~did not renew upon maturity a $10.0 million unsecured revolving line of credit for $10.0 million with a commercial bank with a current extended maturity date of March 2009. Borrowing under this revolving line of credit is at the bank’s Prime Rate less 2.0%. As of September 30, 2008 there was a zero balance on the revolving line of credit. ~~The line is used to fund short-term working capital needs.~~ The Company’s line of credit agreements contain debt covenants related to limitations on indebtedness and liabilities, maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization and maintenance of minimum tangible net worth. The Company was in compliance with the line of credit covenants as of ~~September 30, 2008~~March 31, 2009 and December 31, ~~2007.~~2008.

During the first quarter of 2007, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number or amount of certain equity and debt securities as defined in the prospectus.

The Company may from time to time sell shares of common stock into the existing trading market at current market prices as well as through negotiated transactions under its Controlled Equity Offering (“CEO”) program with Cantor Fitzgerald & Co. ~~Pursuant to~~(“Cantor”). During the ~~Controlled Equity Offering Program, during~~first quarters of 2009 and 2008, no shares were sold under CEO program. In May 2009, the ~~third quarter~~Company’s Board of ~~2008,~~Directors approved the ~~Company issued 1,130,750~~sale of an additional 7.5 million shares of common stock ~~and during October 2008,~~under the CEO program. Pursuant to this approval, the Company ~~issued 78,300~~entered in a sales agreement with Cantor on May 6, 2009, for the sale of such 7.5 million shares ~~at an average share price~~pursuant to the CEO program. A copy of ~~$120.17. Since July 2008,~~ the ~~Company issued 1,209,050 shares of common stock for $142.8 million, net of fees and commissions. The Company will use the net proceeds~~sales agreement has been filed as Exhibit 10.2 to ~~pay down debt, to fund the development pipeline and for future investments.~~this Form 10-Q.

In August 2007, the Company’s Board of Directors authorized a stock repurchase plan to allow the Company to acquire shares in an aggregate of up to ~~$200~~$200.0 million. The program supersedes the common stock repurchase plan that Essex announced on May 16, 2001. ~~During January 2008,~~In February 2009 the Company ~~under its stock repurchase program~~ repurchased ~~and retired 143,400~~350,000 shares of ~~its~~ common stock for ~~approximately $13.7~~$20.3 million at an average ~~stock~~ price of ~~$95.64~~$57.89 per share. ~~The~~Since the inception of the stock repurchase plan, the Company has repurchased and retired 816,659 shares for $66.6 million at an average price of $81.56 per share, including commissions, as of March 31, 2009. After the Series G Preferred Stock repurchases described below, the Company has authorization to repurchase an additional ~~$154~~$101.0 million under the stock repurchase plan.

In 2006, the Company sold 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock (the "Series G Preferred Stock") for net proceeds of $145.9 million. Holders may convert Series G Preferred Stock into shares of the Company’s common stock subject to certain conditions. The conversion rate was initially 0.1830 shares of common stock per the $25 share liquidation preference, which is equivalent to an initial conversion price of approximately $136.62 per share of common stock (the conversion rate will be subject to adjustment upon the occurrence of specified events). On or after July 31, 2011, the Company may, under certain circumstances, cause some or all of the Series G Preferred Stock to be converted into shares of common stock at the then prevailing conversion rate.

During the first quarter of 2009, the Company repurchased $58.2 million of its Series G Preferred Stock at a discount to carrying value, and the excess of the carrying value over the cash paid to redeem the Series G Preferred Stock totaling $25.7 million. As of March 31, 2009, the carrying value of the Series G Preferred Stock outstanding totaled $87.7 million. The Company may continue to repurchase Series G Preferred Stock.

In 2005 the Company, through its Operating Partnership, ~~has~~issued $225.0 million of outstanding exchangeable senior notes (the ~~“Notes”~~“Bonds”) with a coupon of 3.625% due 2025. The ~~Notes~~Bonds are senior unsecured obligations of the Operating Partnership, and are fully and unconditionally guaranteed by the Company. On or after November 1, 2020, the ~~Notes~~Bonds will be exchangeable at the option of the holder into cash ~~plus additional interest~~and, in certain circumstances at Essex’s option, shares of the Company’s common stock ~~if the current share price exceeds the~~at an initial exchange price of $103.25 per share subject to certain adjustments. The ~~Notes~~Bonds will also be exchangeable prior to November 1, 2020, but only upon the occurrence of certain specified events. On or after November 4, 2010, the Operating Partnership may redeem all or a portion of the Notes at a redemption price equal to the principal amount plus accrued and unpaid interest (including additional interest, if any). ~~Note~~Bond holders may require the Operating Partnership to repurchase all or a portion of the ~~Notes~~Bonds at a purchase price equal to the principal amount plus accrued and unpaid interest (including additional interest, if any) on the ~~Notes~~Bonds on November 1, 2010, November 1, 2015 and November 1, 2020.

Index

During ~~October~~the fourth quarter of 2008 the Company repurchased ~~and retired $29.7~~$53.3 million of ~~the Notes. The Company repurchased~~ these ~~bonds~~Bonds at a discount to par value, and ~~expects to report approximately a $1.1 million gain from~~during the ~~extinguishment of debt in the fourth~~first quarter of ~~2008.~~2009, the Company repurchased an additional $71.3 million of these Bonds at a discount to par value and recognized a gain of $6.1 million on cash paid of $66.5 million. As of March 31, 2009, the carrying value of the Bonds outstanding totaled $97.2 million. The Company may continue to repurchase Bonds.

As of ~~September 30, 2008, our~~March 31, 2009, the Company’s mortgage notes payable totaled ~~$1.4~~$1.5 billion which consisted of ~~$1.1~~$1.3 billion in fixed rate debt with interest rates varying from 4.86% to 8.18% and maturity dates ranging from ~~2009~~2010 to ~~2018~~2020 and ~~$246.4~~$233.1 million of ~~variable rate debt that consists of $228.6 million of tax exempt~~tax-exempt variable rate demand bonds with a ~~total~~ weighted average interest rate of ~~3.6%~~2.5%. The tax-exempt variable rate demand bonds have maturity dates ranging from ~~2009~~2020 to 2039, and $183.4 million are subject to interest rate caps.

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

~~Index~~

The Company’s current financing activities have been impacted by the instability and tightening in the credit markets aswhich has led to an increase in spreads onand pricing of secured ~~financing have increased to over 220 basis points over the relevant U.S. treasury securities.~~and unsecured debt. Our strong balance sheet, the established relationships with our unsecured line of credit bank group, the secured line of credit with Freddie Mac and access to Fannie Mae and Freddie Mac secured debt financing have ~~mitigated the impact~~provided some insulation to us offrom the turmoil being experienced by many other real estate companies. The Company has benefited from borrowing from Fannie Mae and Freddie Mac, and there are no assurances that these entities will lend to the Company in the future. The Company has experienced more restrictive loan to value and debt service coverage ratio limits and an expansion in credit spreads. Continued turmoil in the capital markets could negatively impact the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates.

Derivative Activity

As of ~~September 30, 2008~~March 31, 2009 the Company had ~~eight~~seven forward-starting interest rate ~~swaps~~swap contracts totaling a notional amount of ~~$400~~$375.0 million with interest rates ranging from 5.1% to 5.9% and settlements dates ranging from ~~December 2008~~November 2010 to October 2011. These derivatives qualify for hedge accounting as they are expected to economically hedge the cash flows associated with ~~the refinancing~~future financing of debt ~~that matures~~ between ~~December 2008~~2010 and ~~October 2011 and they~~2011. The Company had twelve interest rate cap contracts totaling a notional amount of $183.4 million that qualify for hedge accounting ~~under FASB Statement No. 133, "Accounting~~as they effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for ~~Derivative Instruments~~the Company’s $233.1 million of tax exempt variable rate debt. The aggregate carrying value of the forward-starting interest rate swap contracts was a net liability of $55.0 million. The aggregate carrying value of the interest rate cap contracts was an asset of $0.1 million and ~~Hedging Activities." The~~the overall fair value of the derivatives ~~decreased $5.1~~increased $18.3 million during the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 to a net liability ~~value~~ of ~~$15.4~~$54.8 million as of ~~September 30, 2008,~~March 31, 2009, and the derivative liability was recorded in ~~other~~cash flow hedge liabilities in the Company’s condensed consolidated financial statements. The changes in the fair values of the derivatives are reflected in ~~accumulated other~~ comprehensive (loss) income in the Company’s condensed consolidated financial statements. No hedge ineffectiveness on cash flow hedges was recognized during the quarter ended ~~September 30, 2008~~March 31, 2009 and ~~2007.~~2008.

Development and Predevelopment Pipeline

The Company defines development activities as new properties that are being constructed, or are newly constructed and, in the case of development communities, are in a phase of lease-up and have not yet reached stabilized operations. As of ~~September 30, 2008,~~March 31, 2009, excluding development projects owned by Fund II, the Company had ~~five~~four development projects comprised of ~~1,263~~704 units for an estimated cost of ~~$487.7~~$279.6 million, of which ~~$260.0~~$112.8 million remains to be expended. The Company has approximately $59.5 million undrawn on a construction loan to fund the joint venture Joule Broadway development project with approximately ~~$76.5~~$63.6 million in estimated costs to complete the project.

The Company defines the predevelopment pipeline as new properties in negotiation or in the entitlement process with a high likelihood of becoming development activities. As of ~~September 30, 2008,~~March 31, 2009, the Company had three development communities ~~totaling an estimated 1,018~~aggregating 1,104 units that were classified as predevelopment projects. The estimated total cost of the predevelopment pipeline at ~~September 30, 2008~~March 31, 2009 was ~~$316.9~~$372.8 million, of which ~~$223.6~~$271.1 million remains to be expended. The Company may also acquire land for future development purposes. The Company owned ~~five~~four land parcels held for future development aggregating ~~an estimated 434~~392 units as of ~~September 30, 2008.~~March 31, 2009. The Company had incurred ~~$27.0~~$24.1 million in costs related to these ~~five~~four land parcels as of ~~September 30, 2008.~~March 31, 2009.

Index

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

Redevelopment

The Company defines redevelopment activities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. The Company’s redevelopment strategy strives to improve the financial and physical aspects of the Company’s redevelopment apartment communities and to target at least a 107 to 9 percent return on the incremental renovation investment. Many of the Company’s properties are older and in excellent neighborhoods, providing lower density with large floor plans that represent attractive redevelopment opportunities. During redevelopment, apartment units may not be available for rent and, as a result, may have less than stabilized operations. As of ~~September 30, 2008,~~March 31, 2009, the Company had ~~eleven~~nine redevelopment communities aggregating ~~3,344~~2,631 apartment units with estimated redevelopment costs of ~~$123.7~~$128.0 million, of which approximately ~~$54.9~~$52.9 million remains to be expended. ~~These amounts exclude two redevelopment projects owned by Fund II.~~

Alternative Capital Sources

Fund II has eight institutional investors, and the Company, with combined partner equity commitments of $265.9 ~~million. Essex has committed~~million that were fully contributed as of 2008. The Company contributed $75.0 million to Fund II, which represents a 28.2% interest as general partner and limited partner. Fund II utilized leverage equal to approximately 55% upon the initial acquisition of the underlying real estate. Fund II invested in apartment communities in the Company’s targeted West Coast markets and, as of ~~September 30, 2008,~~March 31, 2009, owned ~~eleven~~twelve apartment communities and ~~three~~two development projects. ~~Essex~~The Company records revenue for its asset management, property management, development and redevelopment services when earned, and promote income when realized if Fund II exceeds certain financial return benchmarks.

~~Index~~

Contractual Obligations and Commercial Commitments

The following table summarizes the maturation or due dates of our contractual obligations and other commitments at ~~September 30, 2008,~~March 31, 2009, and the effect these obligations could have on our liquidity and cash flow in future periods:

			2009 and		2011 and
(In thousands)	2008		2010		2012		Thereafter		Total		2009		2010 and 2011		2012 and 2013		Thereafter		Total
Mortgage notes payable	$	-	$	193,563	$	183,786	$	974,777	$	1,352,126	$	14,548	$	302,412	$	223,459	$	989,152	$	1,529,571
Exchangeable bonds		-		-		-		225,000		225,000		-		97,245		-		-		97,245
Lines of credit		-		153,000		-		-		153,000		-		45,000		140,000		-		185,000
Interest on indebtedness		21,630		115,826		70,479		208,924		416,859		69,448		151,824		111,443		247,506		580,221
Development commitments		34,400		270,900		88,800		89,500		483,600		60,100		52,700		-		-		112,800
Redevelopment commitments		11,000		43,900		-		-		54,900		30,000		22,938		-		-		52,938
Fund II capital commitment		9,858		-		-		-		9,858
	$	76,888	$	777,189	$	343,065	$	1,498,201	$	2,695,343	$	174,096	$	672,119	$	474,902	$	1,236,658	$	2,557,775

Critical Accounting Policies and Estimates

The preparation of ~~condensed~~ consolidated financial statements, in accordance with U.S. generally accepted accounting principles requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and ~~expenses~~\expenses and related disclosures of contingent assets and liabilities. We define critical accounting policies as those accounting policies that require our management to exercise their most difficult, subjective and complex judgments. Our critical accounting policies relate principally to the following key areas: (i) consolidation under applicable accounting standards for entities that are not wholly owned; (ii) assessing the carrying values of our real estate properties and investments in and advances to joint ventures and affiliates; (iii) internal cost capitalization; and (iv) qualification as a REIT. The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management.

The Company’s critical accounting policies and estimates have not changed materially from information reported in ~~"Critical~~Note 2, “Summary of Critical and Significant Accounting Policies, ~~and Estimates" included in Management's Discussion and Analysis of Financial Condition and Results of Operations~~” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2007.~~2008.

Index

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, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the Company's expectations, hopes, intentions, beliefs and strategies regarding the future. Forward looking statements include statements regarding the Company’s expectations as to the total projected costs of predevelopment, development and redevelopment projects, beliefs as to our ability to meet our cash needs during ~~2008~~2009 and to provide for dividend payments in accordance with REIT requirements, as to the ~~Company’s and Fund II’s development and redevelopment pipeline,~~Quarterly Same-Property revenues in the second quarter of 2009, expectations as to the sources for funding the Company’s development pipeline and statements regarding ~~the anticipated closing date of the Company’s new line of credit facility, and~~ the Company's financing activities.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, that the Company will fail to achieve its business objectives, that the total projected costs of current predevelopment, development and redevelopment projects ~~will~~ exceed expectations, that such development and redevelopment projects will not be completed, that development and redevelopment projects and acquisitions will fail to meet expectations, that estimates of future income from an acquired property may prove to be inaccurate, that future cash flows will be inadequate to meet operating requirements and/or will be insufficient to provide for dividend payments in accordance with REIT requirements, that there may be a downturn in the markets in which the Company's properties are located, that the terms of any refinancing may not be as favorable as the terms of existing indebtedness, as well as those risks, special considerations, and other factors discussed ~~under~~in Item 1A, “Risk Factors,” in Part II “Other Information” in this current report on Form 10-Q for the ~~caption "Potential Factors Affecting Future Operating Results" below~~quarter ended March 31, 2009 and those discussed in Item 1A, “Risk Factors,” of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2007,~~2008, and those risk factors and special considerations set forth in the Company's other filings with the Securities and Exchange Commission (the “SEC”) which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. All forward-looking statements are made as of the date hereof, and the Company assumes no obligation to update this information.

~~Index~~

Funds from Operations (“FFO”)

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

FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor does ~~the Company~~ intend it to present, a complete picture of its financial condition and operating performance. The Company believes that net earnings computed under GAAP remain the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings. Further, the Company believes that its consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of its financial condition and its operating performance.

In calculating FFO, the Company follows the definition for this measure published by the National Association of REITs (“NAREIT”), which is a REIT trade association. The Company believes that, under the NAREIT FFO definition, the two most significant adjustments made to net income are (i) the exclusion of historical cost depreciation and (ii) the exclusion of gains and losses from the sale of previously depreciated properties. 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 GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.

(b) REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate. The exclusion, in NAREIT’s definition of FFO, of gains 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.

Index

Management believes that is 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 sets forth the Company’s calculation of FFO for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~ (in thousands except for per share data):

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007

Net income available to common stockholders $ 12,376 $ 9,997 $ 37,768 $ 55,177
Adjustments:
Depreciation and amortization 28,581 25,612 84,998 72,496
Gains not included in FFO (2,492 ) (64 ) (2,492 ) (14,565 )
Minority interests and co-investments (1) 2,217 1,777 6,534 6,114
Funds from operations $ 40,682 $ 37,322 $ 126,808 $ 119,222

Funds from operations per share - diluted $ 1.46 $ 1.33 $ 4.58 $ 4.34

Weighted average number shares outstanding diluted (2) 27,910,297 28,043,125 27,657,449 27,482,406

~~Index~~

	Three Months Ended March 31,
	2009			2008

Net income available to common stockholders	$	42,265		$	14,780
Adjustments:
Depreciation and amortization		29,204			27,734
Gains not included in FFO, net of disposition costs (1)		(2,225	)		-
Noncontrolling interest and co-investments (2)		2,563			2,312
Funds from operations	$	71,807		$	44,826
Funds from operations per share - diluted	$	2.50		$	1.64

Weighted average number shares outstanding diluted (3)		28,692,959			27,398,605

(1)	Internal disposition costs relate to a disposition incentive program established to pay incremental bonuses totaling $247,000 as of March 31, 2009, for the sale of certain of the Company's communities that are part of the program.

(2)

Amount includes the following: (i) ~~minority~~noncontrolling interest related to Operating Partnership units, and (ii) ~~net~~add back of depreciation ~~add back~~expense from unconsolidated co-investments ~~net of~~and less depreciation attributable to third-party ownership of consolidated co-investments.

~~(2)~~(3)

Assumes conversion of all dilutive outstanding operating partnership interests in the Operating ~~Partnership~~.

Partnership.

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 primarily uses interest rate swaps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. As of ~~September 30, 2008,~~March 31, 2009, we had entered into ~~eight~~seven forward-starting swap contracts to mitigate the risk of changes in the interest-related cash outflows on forecasted issuance of long-term debt. The forward-starting swaps are cash flow hedges of the variability in ten years of forecasted interest payments associated with the ~~refinancing~~future financings of debt between 2010 and 2011. The Company had twelve interest rate cap contracts totaling a notional amount of $183.4 million that qualify for hedge accounting as they effectively limit the Company’s ~~long-term debt between 2008 and 2011. As of September 30, 2008, the Company also had $246.4 million of variable rate indebtedness, of which $129.1 million is subject~~exposure to interest rate ~~cap protection.~~risk by providing a ceiling on the underlying variable interest rate for the Company’s $233.1 million of tax exempt variable rate debt. All derivative instruments are designated as cash flow hedges, and the Company does not have any fair value hedges as of ~~September 30, 2008.~~March 31, 2009.

The following table summarizes the notional amount, carrying value, and estimated fair value of our derivative instruments used to hedge interest rates as of ~~September 30, 2008.~~March 31, 2009. The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rates or market risks. The table also includes a sensitivity analysis to demonstrate the impact on our derivative instruments from an increase or decrease in 10-year Treasury bill interest rates by 50 basis points, as of ~~September 30, 2008.~~March 31, 2009.

(Dollars in thousands)	Notional Amount		Maturity Date Range		Carrying and Estimate Fair Value			+ 50 Basis Points			- 50 Basis Points
Cash flow hedges:
Interest rate forward-starting swaps	$	375,000		2010-2011	$	(54,959	)	$	(37,384	)	$	(73,681	)
Interest rate caps		183,359		2009-2013		134			293			42
Total cash flow hedges	$	558,359		2009-2013	$	(54,825	)	$	(37,091	)	$	(73,639	)

Index

Carrying and
Notional Maturity Estimate Fair + 50
- 50

(Dollars in thousands) Amount Date Range Value Basis Points Basis Points
Cash flow hedges:
Interest rate forward-starting swaps $ 400,000 2008-2011 $ (15,809 ) $ (1,859 ) $ (32,778 )
Interest rate caps 129,149 2008-2011 370 586 217
Total cash flow hedges $ 529,149 2007-2011 $ (15,439 ) $ (1,273 ) $ (32,561 )

Interest Rate Sensitive Liabilities

The Company is exposed to interest rate changes primarily as a result of its ~~line~~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.~~tax exempt variable rate debt. The Company’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.

The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows. Management believes that the carrying amounts of its LIBOR debt approximates fair value as of September 30, 2008 because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available to the Company for similar instruments. Management has estimated that the fair value of the Company’s ~~$1.33~~$1.38 billion of fixed ~~rate mortgage notes payable and exchangeable bonds~~debt at ~~September 30, 2008~~March 31, 2009 is approximately ~~$1.38~~$1.36 billion and the fair value of the Company’s $248.1 million of variable rate debt at March 31, 2009 is $272.7 million based on the terms of existing mortgage notes payable and variable rate demand notes compared to those available in the marketplace.

For the Years Ended 2008
2009(1)

2010(2)

2011(3)
2012 Thereafter Total Fair value

(In thousands)
Fixed rate debt $ - 23,256 153,007 151,400 31,870 971,162 $ 1,330,695 $ 1,381,140
Average interest rate 6.3 % 8.1 % 6.4 % 5.4 % 5.0 %
Variable rate debt $ - 170,300 - 516 - 228,615 (4) $ 399,431 $ 399,431
Average interest 3.4 % 4.0 % 3.6 %

~~Index~~


For the Years Ended	2009			2010(1)			2011(2)			2012			2013			Thereafter			Total		Fair value

(In thousands)
Fixed rate debt	$	-			249,049			150,084			31,642			191,817			756,044		$	1,378,636	$	1,364,987
Average interest rate		-			7.3	%		6.4	%		5.4	%		5.8	%		5.6	%
Variable rate debt	$	14,548			-			524			-			-			233,108	(3)	$	248,180	$	272,680
Average interest		2.2	%		-			4.0	%		-			-			2.5	%

(1) ~~$25 million covered by a forward-starting swap at a fixed rate of 5.082%, with a settlement date on or before January 1, 2009.~~

~~(2)~~ $150 million covered by three forward-starting swaps with fixed rates ranging from 5.099% to 5.824%, with a settlement date on or before January 1, 2011.

~~(3)~~(2) $125 million covered by forward-starting swaps with fixed rates ranging from 5.655% to 5.8795%, with a settlement date on or before February 1, 2011. $50 million covered by a forward-starting swap with a fixed rate of 5.535%, with a settlement date on or before July, 1 2011. $50 million covered by a forward-starting swap with a fixed rate of 5.343%., with a settlement date on or before October 1, 2011. The Company intends to encumber certain unencumbered assets during 2011 in conjunction with the settlement of these forward-starting swaps.

~~(4) $129.1~~(3) $183.4 million subject to interest rate caps.

The table incorporates only those exposures that exist as of ~~September 30, 2008;~~March 31, 2009; it does not consider those exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies, would depend on the exposures that arise during the ~~period, our hedging strategies at the time, and interest rates.~~period.

Item 44:: Controls and Procedures

As of ~~September 30, 2008,~~March 31, 2009, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting management to material information relating to the Company that is required to be included in our periodic filings with the Securities and Exchange Commission. There were no changes in the Company’s internal control over financial reporting, that occurred during the quarter ended ~~September 30, 2008,~~March 31, 2009, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II -- Other Information

Item 1:1: Legal Proceedings

Recently there has been an increasing number of lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in residential real estate. Some of these lawsuits have resulted in substantial monetary judgments or settlements. The Company has been sued for mold related matters and has settled some, but not all, of such matters. Insurance carriers have reacted to mold related liability awards by excluding mold related claims from standard policies and pricing mold endorsements at prohibitively high rates. The Company has, however, purchased pollution liability insurance, which includes some coverage for mold. The Company has adopted policies for promptly addressing and resolving reports of mold when it is detected, and to minimize any impact mold might have on residents of the property. The Company believes its mold policies and proactive response to address any known existence, reduces its risk of loss from these cases. There can be no assurances that the Company has identified and responded to all mold occurrences, but the Company promptly addresses all known reports of mold. Liabilities resulting from such mold related matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. As of ~~September 30, 2008,~~March 31, 2009, no potential liabilities for mold and other environmental liabilities are quantifiable and an estimate of possible loss cannot be made.

Index

The Company carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the ~~Properties.~~Company’s communities. Insured risks for comprehensive liability covers claims in excess of $25,000 per incident, and property insurance covers losses in excess of a $5.0 million deductible per incident. There are, however, certain types of extraordinary losses, such as, for example, losses ~~from~~for terrorism and earthquake, for which the Company does not have insurance. Substantially all of the Properties are located in areas that are subject to ~~earthquake activity.~~earthquakes.

The Company is subject to various other lawsuits in the normal course of its business operations. Such lawsuits could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

~~Index~~

Item IA: Risk Factors

In evaluating all forward-looking statements, you should specifically consider various factors that may cause actual results to vary from those contained in the forward-looking statements. Many factors affect the Company’s actual financial performance and may cause the Company’s future results to be different from past performance or trends. These factors include those set forth under the caption “Risk Factors” in Item 1AIA of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2007~~2008 as filed with the SEC and available at www.sec.gov, and the following, which supplements the risk factors listed under the caption ~~“Potential Factors Affecting Future Operating Results,” and~~“Risk Factors” in the ~~following:~~Company’s Annual Report on Form 10-K:

Development and Redevelopment Activities

The Company pursues development and redevelopment projects of apartment communities from time to time. These investments generally require various government and other approvals, the receipt of which cannot be assured. The Company's development and redevelopment activities generally entail certain risks, including the following:

funds may be expended and management's time devoted to projects that may not be completed;

construction costs of a project may exceed original estimates possibly making the project economically unfeasible;

projects may be delayed due to, among other things, adverse weather conditions;

occupancy rates and rents at a completed project may be less than anticipated; and

expenses at a completed development project may be higher than anticipated.

These risks may reduce the funds available for distribution to the Company's stockholders. Further, the development and redevelopment of properties is also subject to the general risks associated with real estate investments.

Interest Rate Fluctuations

The Company monitors changes in interest rates and believes that it is well positioned from both a liquidity and interest rate risk perspective. The immediate effect of significant and rapid interest rate increases would result in higher interest expense on the Company's variable interest rate debt. The effect of prolonged interest rate increases could negatively impact the Company's ability to make acquisitions and develop properties and the Company's ability to refinance existing borrowings at acceptable rates and negatively impact the current dividend rate.

Credit Markets

The current instability and tightening in the credit markets has led to an increase in spreads and pricing of secured and unsecured debt, and the effect of prolonged tightening in the credit markets could negatively impact the ~~Company's~~Company’s ability to make acquisitions, develop properties and refinance existing borrowings at acceptable rates.

2725

Index

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

Purchases of Equity Securities

Period	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Total Amount that May Yet be Purchased Under the Plans or Programs
2/11/09 to 2/17/09		350,000	(1)	$	57.89		350,000	$	133,396,647
1/15/09 to 3/11/09		2,384,284	(2)	$	13.62		2,384,284	$	100,979,242

(1) The Company repurchased 350,000 shares of the Company's common stock.

(2) The Company repurchased 2,384,284 shares of the Company's Series G Cumulative Convertible Preferred Stock.

In August 2007, the Company’s Board of Directors authorized a stock repurchase plan to allow the Company to acquire shares in an aggregate of up to $200 million. The program supersedes the common stock repurchase plan that the Company announced on May 16, 2001. In February 2009 the Company repurchased 350,000 shares of common stock for $20.3 million at an average price of $57.89. During the first quarter of 2009, under the authorization of the stock repurchase plan the Company repurchased $58.2 million in liquidation value ($25 per share liquidation value) of 4.875% Series G Cumulative Convertible Preferred Stock at a discount to par value for cash and commissions paid of $32.6 million.

Item 6: ~~Exhibits~~Exhibits

Exhibits

~~3.1~~10.2

~~Second~~Sixteenth Amendment to the First Amended and Restated ~~Bylaws~~Agreement of Limited Partnership of Essex ~~Property Trust, Inc.~~Portfolio, L.P., ~~attached~~filed as Exhibit ~~3.1~~10.2 to ~~the Company’s~~ Form 8-K, filed ~~September 22, 2008,~~on April 7, 2009, and incorporated herein by reference.

10.3

Controlled Equity Offering Sales Agreement by and between Essex Property Trust, Inc. and Cantor Fitzgerald & Co., dated May 6, 2009.

12.1

Ratio of Earnings to Fixed Charges

31.1

Certification of Keith R. Guericke, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Michael T. Dance, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Keith R. Guericke, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Michael T. Dance, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

__________

~~__________~~

Index

~~SIGNATURE~~SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ESSEX PROPERTY TRUST, INC.
	(Registrant)


	Date: ~~October 31, 2008~~May 6, 2009


	By: /S/ MICHAEL T. DANCE

	Michael T. Dance
	Executive Vice President, Chief Financial Officer
	(Authorized Officer, Principal Financial Officer)


		By: /S/ BRYAN G. HUNT

	Bryan G. Hunt
	Vice President, Chief Accounting Officer

2827

					Carrying and
	Notional		Maturity		Estimate Fair			+ 50			- 50
(Dollars in thousands)	Amount		Date Range		Value			Basis Points			Basis Points
Cash flow hedges:
Interest rate forward-starting swaps	$	400,000		2008-2011	$	(15,809	)	$	(1,859	)	$	(32,778	)
Interest rate caps		129,149		2008-2011		370			586			217
Total cash flow hedges	$	529,149		2007-2011	$	(15,439	)	$	(1,273	)	$	(32,561	)


For the Years Ended	2008		2009(1)			2010(2)			2011(3)			2012			Thereafter			Total		Fair value

(In thousands)
Fixed rate debt	$	-		23,256			153,007			151,400			31,870			971,162		$	1,330,695	$	1,381,140
Average interest rate				6.3	%		8.1	%		6.4	%		5.4	%		5.0	%
Variable rate debt	$	-		170,300			-			516			-			228,615	(4)	$	399,431	$	399,431
Average interest				3.4	%					4.0	%					3.6	%