"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, noncontrolling interest, 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, 2009.

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, 2009.

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 sixnine months ended JuneSeptember 30, 2010 and 2009 include the accounts of the Company and Essex Portfolio, L.P. (the "Operating Partnership", which holds the operating assets of the Company).  The Company is the sole general partner in the Operating Partnership, with a 93.1%93.2% general partnership interest as of JuneSeptember 30, 2010.  Total Operating Partnership units outstanding were 2,202,9072,200,907 and 2,398,479 as of JuneSeptember 30, 2010 and December 31, 2009, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled $214.9$240.9 million and $200.6 million, as of JuneSeptember 30, 2010 and December 31, 2009, respectively.

As of JuneSeptember 30, 2010, the Company owned or had ownership interests in 134139 apartment communities, (aggregating 27,40528,702 units) (collectively, the “Communities”, and individually, a “Community”), five office and commercial buildings and fivefour active development projects (collectively, the “Portfolio”).  The Communities are located in Southern California (Los Angeles, Orange, Riverside, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan area.

Essex Apartment Value Fund II, L.P. (“Fund II”) is an investment fund formed by the Company to add value through rental growth and asset appreciation, utilizing the Company’s development, redevelopment and asset management capabilities.  Fund II has eight institutional investors, and the Company, with combined partner equity contributions of $265.9 million.  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 JuneSeptember 30, 2010, owned 14 apartment communities.  The Company records revenue fo rreven ue 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.

As of JuneSeptember 30, 2010, marketable securities consisted primarily of investment-grade unsecured bonds, a mortgage backed security and investment funds that invest in U.S. treasury or agency securities.  As of JuneSeptember 30, 2010, the Company classified its investment in the mortgage backed security, which matures November 2019, as held to maturity, which matures November 2019, and accordingly, this security is stated at its amortized cost of $17.7$18.2 million.  The estimated fair vale of the mortgage backed security (a level 2 security) is approximately equal to the carrying value.  As of JuneSeptember 30, 2010 the Company classified the following marketable securities as available for sale (dollars in thousands):

The Company uses the specific identification method to determine the cost basis of a security sold and to reclassify amounts from accumulated other comprehensive income for securities sold.  For the three and sixnine months ended JuneSeptember 30, 2010 and 2009, the proceeds from sales of available for sale securities totaled $22.5$64.7 million and $64.7$12.7 million, respectively.  These sales all resulted in gains, which totaled $4.0$9.0 million and $9.0 million$1.0 for the three and sixnine months ended JuneSeptember 30, 2010 and 2009, respectively.

Contractual maturities of the marketable securities classified as available for sale as of JuneSeptember 30, 2010 were as follows:

The Company consolidates 19 DownREIT limited partnerships (comprising twelve communities), an office building that is subject to loans made by the Company (the Company obtained the deed to the property in satisfaction of the outstanding loans during the third quarter 2010), and 55 low income housing units since the Company is the primary beneficiary of these variable interest entities (“VIEs”).  Total DownREIT units outstanding were 1,124,9801,100,899 and 1,129,205 as of JuneSeptember 30, 2010 and December 31, 2009 respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled $109.7$120.5 million and $94.5 million, as of JuneSeptember 30, 2010 and December 31, 2009, respectively.  The consolidated total assets and liabilities related to these VIEs, net of intercompany eliminations, were approximately $230.5$215.9 million and $157.8$165.9 million, respectively, as of JuneSeptember 30, 2010 and $237.9 million and $164 .4$164.4 million, respectively, as of December 31, 2009.  Interest holders in VIEs consolidated by the Company are allocated net income equal to the cash payments made to those interest holders or distributions from cash flow.  The remaining results of operations are generally allocated to the Company.  As of JuneSeptember 30, 2010 and December 31, 2009, the Company did not have any VIE’s of which it was not deemed to be the primary beneficiary.

The Company accounts for share based compensation using the fair value method of accounting.  The estimated fair value of stock options granted by the Company is being amortized over the vesting period of the stock options.  The estimated grant date fair values of the long term incentive plan units (discussed in Note 13, “Stock Based Compensation Plans,” in the Company’s Form 10-K for the year ended December 31, 2009) are being amortized over the expected service periods.

Stock-based compensation expense for options and restricted stock totaled $0.3 million and $0.2 million for the three months ended JuneSeptember 30, 2010 and 2009, respectively, and $0.5$0.7 million for the sixnine months ended JuneSeptember 30, 2010 and 2009, respectively.  The intrinsic value of the stock options exercised during the three months ended JuneSeptember 30, 2010 and 2009 totaled $0.5$0.4 million and $0.0, and $1.5$0.1 million, and $0.4$1.9 million and $0.5 million for the sixnine months ended JuneSeptember 30, 2010 and 2009, respectively.  As of JuneSeptember 30, 2010, the intrinsic value of the stock options outstanding and fully vested totaled $5.6$7.7 million.  As of JuneSeptember 30, 2010, total unrecognized compensation cost related to unvested share-based compensation granted under the stock option and restricted stock plans totaled $3.6$3.4 million.& #160; The cost is expected to be re cognizedrecognized over a weighted-average period of 1 to 3 years for the stock option plans and is expected to be recognized straight-line over 7 years for the restricted stock awards.

During June 2010, the Operating Partnership issued 108,000 Series Z-1 Incentive Units (the “2010 Z-1 Units”) of limited partner interest to twenty executives of the Company in exchange for cash from seven executive officers of the Company, and a capital commitment from the remaining thirteen executives of $1.00 per 2010 Z-1 Unit.  The 2010 Z-1 Units are convertible one-for-one into common units of the Operating Partnership (which, in turn, are convertible into common stock of the Company) upon the earlier to occur of 100 percent vesting of the units or the year 2025.  The conversion ratchet (accounted for as vesting) of the 2010 Z-1 Units into common units, will increase to 20 percent effective January 1, 2011 if the Company achieves the FFO target of $4.75 per diluted share in 2010.  Each year th ereafter, vesting of the 2010 Z-1 Units will be consistent with the Company’s annual FFO growth, but is not to be less than zero or greater than 14 percent.  The 2010 Z-1 Unit holders are entitled to receive 10 percent of dividends distributed to common stockholders in 2010, and if the Company achieves the FFO target of $4.75 per diluted share in 2010, the 2010 Z-1 Unit holders will be entitled to 25 percent of annual dividends paid in 2011.  Each year thereafter, the percent of distributions received by the 2010 Z-1 Unit holders will increase by the same percentage amounts that the 2010 Z-1 Units vesting increases, provided that once the 2010 Z-1 Units holders receive distributions of 30 percent, such distribution percentage will not increase further until the 2010 Z-1 Unit vesting is at the 30 percent level.  Once such vesting percentage is at the 30 percent level, subsequent distributiondistributions for the 2010 Z-1 Unit holders will be equal to the vesting percentage with the 2010201 0 Z-1 units.

Stock-based compensation capitalized for stock options, restricted stock awards, and the Z Units totaled $0.2 million and $0.1 million for the three months ended JuneSeptember 30, 2010 and 2009, respectively, and $0.4$0.6 million and $0.2$0.3 million for the sixnine months ended JuneSeptember 30, 2010 and 2009, respectively.  As of JuneSeptember 30, 2010, the intrinsic value of the Z Units subject to future vesting totaled $15.0$16.7 million.  As of JuneSeptember 30, 2010, total unrecognized compensation cost related to Z Units subject to future vesting totaled $9.9$7.8 million.  The unamortized cost is expected to be recognized over the next year to fifteen years subject to the achievement of the stated performance criteria.

Management believes that the carrying amounts of its amounts outstanding under lines of credit, notes receivable and other receivables from related parties, and notes and other receivables approximate fair value as of JuneSeptember 30, 2010 and December 31, 2009, because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available for similar instruments.  Management has estimated that the fair value of the Company’s $1.38$1.45 billion of fixed rate debt at JuneSeptember 30, 2010 is approximately $1.44$1.54 billion and the fair value of the Company’s $264.5$265.0 million of variable rate debt, excluding borrowings under the lines of credit, at JuneSeptember 30, 2010 is $242.0$242.6 million based on the terms of existing mortgage notes payable and variable rate demand notes compared to thosetho se available in the marketplace.  Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, other liabilities and dividends payable approximate fair value as of JuneSeptember 30, 2010 due to the short-term maturity of these instruments.  Marketable securities, and cash flow hedge liabilities, and the swap related to multifamily refunding bond for the 101 San Fernando apartment community, are carried at fair value as of JuneSeptember 30, 2010, as discussed further above and in Note 8.

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 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 re sults may vary from those estimates and those estimates could be different under different assumptions or conditions.

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

In late June, the Company acquired Eagle Rim, a 156-unit community located in Redmond, Washington for $18.6 million, and in July, the Company acquired 101 San Fernando, a 323-unit community with 9,200 square feet of retail located in downtown San Jose, California for $64.1 million, and The Commons, a 264-unit garden-style community located in Campbell, California for $42.5 million.

In July, 2010, the Company paid-off two maturing loans that were cross collateralized by five communities totaling $129.5 million, including a $73.6 million loan at a fixed rate of 8.2% and a $55.9 million loan at a fixed rate of 7.7%.  The Company obtained fixed rate mortgage loans totaling $130.1 million for two of the communities that were part of the cross collateralized loan pool paid-off in July, secured by Hillcrest Park and Bel Air for $72.2 million and $57.9 million, respectively, which mature in July 2020, at a fixed rate of 4.6%.  These two communities were part of the cross collateralized loans paid-off in July, and the remaining three communities are now unencumbered.  The Company also settled $100$100.0 million of forward starting swapsin forward-starting swap contracts in July for $16.7 million in payments to the counterparties, whichcounterparties.  The settlement of the forward-starting swaps increased the effective interest rate on these twothe Hillcrest Park and Bel Air mortgage loans to 6.0%., and d uring the quarter, the Company incurred $1.6 million in expense related to the ineffectiveness of certain forward-starting swap hedges.

In July 2010,conjunction with acquisition of Bella Villagio, the Company assumed a $35.6 million mortgage loan at a fixed rate of 6.1% which matures in October 2016.  The interest rate was unfavorable compared to currently available market rates for mortgage loans, and thus the Company recorded a $4.0 million loan premium to reflect the debt at fair value along with a corresponding increase to the carrying value of the property.  This results in an effective interest rate for this loan of 3.8%.

The joint venture that owns Essex Skyline at MacArthur Place obtained an $80.0 million secured loan in July, for a four year term plus a one year extension, at an interest rate of LIBOR +plus 285 basis points.

The Company has joint venture investments in co-investments, which are accounted for under the equity method.  The joint ventures own, operate and develop apartment communities. In August 2010, the Company invested $12.0 million as a preferred equity interest investment in a related party entity that owns a 768-unit apartment community in Anaheim, California.  The following table details the Company's co-investments (dollars in thousands):

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

Notes receivable secured by real estate, and other receivables consist of the following as of JuneSeptember 30, 2010 and December 31, 2009 (dollars in thousands):

In May, 2010, the Company purchased a loan secured by the community known as “Santee Court” located in Los Angeles, California. This $25.8$25.7 million loan was purchased at a discount for $21.0 million.  The loan isbears interest only at 4.95%, and matures on October 31, 2010.

Management and other fees from affiliates include management, development and redevelopment fees from Fund II of $1.0 million and $1.2 million for the three months ended JuneSeptember 30, 2010 and 2009, respectively, and $2.0$3.0 million and $2.4$3.4 million for the sixnine months ended JuneSeptember 30, 2010 and 2009 respectively and property acquisition fee of $0.5 million from the limited liability company that owns Skyline at MacArthur Place for the sixnine months ended JuneSeptember 30, 2010.  All of these fees are net of intercompany amounts eliminated by the Company.

An Executive Vice President of the Company invested $4.0 million for a 6% limited partnership interest in a partnership with the Company that acquired a 50% interest in a limited liability company that acquired Essex Skyline at MacArthur Place.  The Executive Vice President’s investment is equal to a pro-rata share of the contributions, and distributions resulting from distributable cash generated by Essex Skyline at MacArthur Place will be calculated in the same manner as the calculation of distributions to the third party investor.  The Executive Vice President does not participate in any promote interest or fees paid to the Company by the Essex Skyline at MacArthur Place joint venture.

In May 2010,During the quarter, the Company invested $12.0 million as a preferred equity interest investment in a related party entity that owns a 768-unit apartment community in Anaheim, California.  The entity that owns the property is an affiliate of The Marcus & Millichap Company (“TMMC”), and TMCC’s Chairman is the Chairman of the Company.  The Company’s independent directors or its Board of DirectorsDirector approved the partial redemptioninvestment in this entity.  The preferred return for cash bythis investment during the Operating Partnership, of limited Operating Partnership units that were held byfirst five years is 13% per annum and the Company's Chairman and founder, Mr. George M. Marcus at $106.76 per unit representing a 2% discount from the closing price of the Company’s common stock on May 17, 2010.  The Operating Partnership purchased 187,334 units from Mr. Marcus. Under the Operating Partnership’s partnership agreement, limited partnership units are exchangeable on a one-for-one basis into shares of the Company’s common stock, or at the Company’s option, for cash.  This transaction reduced Mr. Marcus’ ownership from 1,063,056 limited partnership units in the Operating Partnershippreferred return increases to 875,722 units and following the transaction Mr. Marcus beneficially o wned 1,587,041 shares or share equivalents of the Company’s stock. The redemption was requested by the Chairman to achieve his estate planning objectives.15% thereafter.

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 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 segm ents are summarized as follows for the three months ended JuneSeptember 30, 2010 and 2009 (dollars in thousands):

The revenues, net operating income, and assets of the reportable operating segments are summarized as follows or the sixnine months ended JuneSeptember 30, 2010 and 2009 (dollars in thousands):