10-K 1 ess-123116x10k.htm 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)

x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016
OR

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

FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission file number: 1-13106 (Essex Property Trust, Inc.)
Commission file number: 333-44467-01 (Essex Portfolio, L.P.)
ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
(Exact name of Registrant as Specified in its Charter)

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

1100 Park Place, Suite 200
San Mateo, California 94403
(Address of Principal Executive Offices including Zip Code)
(650) 655-7800
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Name of each exchange on which registered
Common Stock, $.0001 par value (Essex Property Trust, Inc.) |  | New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

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

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

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

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

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

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

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

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

Essex Property Trust, Inc. x | Essex Portfolio, L.P. x

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

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

Essex Portfolio, L.P.:

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

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

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

As of June 30, 2016, the aggregate market value of the voting stock held by non-affiliates of Essex Property Trust, Inc. was $14,824,768,853. The aggregate market value was computed with reference to the closing price on the New York Stock Exchange on such date. Shares of common stock held by executive officers, directors and holders of more than ten percent of the outstanding common stock have been excluded from this calculation because such persons may be deemed to be affiliates. This exclusion does not reflect a determination that such persons are affiliates for any other purposes. There is no public trading market for the common units of Essex Portfolio, L.P. As a result, the aggregate market value of the common units held by non-affiliates of Essex Portfolio, L.P., cannot be determined.
As of February 21, 2017, 65,549,470 shares of common stock ($.0001 par value) of Essex Property Trust, Inc. were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The following document is incorporated by reference in Part III of the Annual Report on Form 10-K: Proxy statement for the annual meeting of stockholders of Essex Property Trust, Inc. to be filed within 120 days of December 31, 2016.

EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2016 of Essex Property Trust, Inc. and Essex Portfolio, L.P. Unless stated otherwise or the context otherwise requires, references to “ESS” mean Essex Property Trust, Inc., a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT”), and references to “EPLP” mean Essex Portfolio, L.P. (the “Operating Partnership”). Unless stated otherwise or the context otherwise requires, references to the “Company,” “Essex,” “we,” “us” or “our” mean collectively ESS, EPLP and those entities/subsidiaries owned or controlled by ESS and/or EPLP. References to the “Operating Partnership” mean collectively EPLP and those entities/subsidiaries owned or controlled by EPLP.
ESS is the general partner of, and as of December 31, 2016 owned an approximate 96.7% ownership interest in EPLP. The remaining 3.3% interest is owned by limited partners. As the sole general partner of EPLP, ESS has exclusive control of EPLP's day-to-day management.
The Company is structured as an umbrella partnership REIT (“UPREIT”) and ESS contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, ESS receives a number of OP Units (see definition below) in the Operating Partnership equal to the number of shares of common stock it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership, which is one of the reasons why the Company is structured in the manner outlined above. Based on the terms of EPLP's partnership agreement, OP Units can be exchanged into ESS common stock on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to ESS and shares of common stock.
The Company believes that combining the reports on Form 10-K of ESS and EPLP into this single report provides the following benefits:

• | enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

• | eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and

• | creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates the Company and the Operating Partnership as one business. The management of ESS consists of the same members as the management of EPLP.
All of the Company's property ownership, development and related business operations are conducted through the Operating Partnership and ESS has no material assets, other than its investment in EPLP. ESS's primary function is acting as the general partner of EPLP. As general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. ESS also issues equity from time to time and guarantees certain debt of EPLP, as disclosed in this report. The Operating Partnership holds substantially all of the assets of the Company, including the Company's ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by the Company, which are contributed to the capital of the Operating Partnership in exchange for additional limited partnership interests in the Operating Partnership (“OP Units”) (on a one-for-one share of common stock per OP Unit basis), the Operating Partnership generates all remaining capital required by the Company's business. These sources include the Operating Partnership's working capital, net cash provided by operating activities, borrowings under its revolving credit facilities, the issuance of secured and unsecured debt and equity securities and proceeds received from disposition of certain properties and joint ventures.
The Company believes it is important to understand the few differences between ESS and EPLP in the context of how ESS and EPLP operate as a consolidated company. Shareholders' equity, partners' capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners' capital in the Operating Partnership's consolidated financial statements and as noncontrolling interests in the Company's consolidated financial statements. The noncontrolling interests in the Operating Partnership's consolidated financial statements include the interests of unaffiliated partners in various consolidated partnerships and joint venture partners. The noncontrolling interests in the Company's consolidated financial statements include (i) the same noncontrolling interests as presented in the Operating Partnership’s consolidated financial statements and (ii) limited partner OP unitholders of the Operating Partnership. The differences between stockholders' equity and partners' capital result from differences in the equity issued at the Company and Operating Partnership levels.
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To help investors understand the significant differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of shareholders' equity or partners' capital, earnings per share/unit, as applicable; and a combined Management's Discussion and Analysis of Financial Condition and Results of Operations.
This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
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ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
2016 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

Part I. |  | Page
Item 1. | Business | 1
Item 1A. | Risk Factors | 6
Item 1B. | Unresolved Staff Comments | 22
Item 2. | Properties | 22
Item 3. | Legal Proceedings | 30
Item 4. | Mine Safety Disclosures | 30
Part II. |  |
Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 30
Item 6. | Selected Financial Data | 33
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 37
Item 7A. | Quantitative and Qualitative Disclosures About Market Risks | 49
Item 8. | Financial Statements and Supplementary Data | 50
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 50
Item 9A. | Controls and Procedures | 50
Item 9B. | Other Information | 51
Part III. |  |
Item 10. | Directors, Executive Officers and Corporate Governance | 51
Item 11. | Executive Compensation | 51
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 51
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 51
Item 14. | Principal Accounting Fees and Services | 52
Part IV. |  |
Item 15. | Exhibits and Financial Statement Schedules | 53
Signatures |  | S-0

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PART I
Forward Looking Statements
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the section, “Forward Looking Statements.” Actual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in Item 1A, Risk Factors of this Form 10-K.
Item 1. Business
OVERVIEW
Essex Property Trust, Inc. (“Essex”, "ESS", or the “Company”) a Maryland corporation, is an S&P 500 company that operates as a self-administered and self-managed real estate investment trust (“REIT”). The Company owns all of its interest in its real estate and other investments directly or indirectly through Essex Portfolio, L.P. (the “Operating Partnership” or “EPLP”). The Company is the sole general partner of the Operating Partnership and as of December 31, 2016 owns a 96.7% general partnership interest. In this report, the terms “Essex” or the “Company” also refer to Essex Property Trust, Inc., its Operating Partnership and those entities owned or controlled by the Operating Partnership.
The Company has elected to be treated as a REIT for federal income tax purposes, commencing with the year ended December 31, 1994 as the Company completed an initial public offering on June 13, 1994. In order to maintain compliance with REIT tax rules, the Company utilizes taxable REIT subsidiaries for various revenue generating or investment activities. All taxable REIT subsidiaries are consolidated by the Company.
The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of predominantly apartment communities, located along the West Coast. As of December 31, 2016, the Company owned or held an interest in 245 communities, aggregating 59,645 apartment homes, excluding the Company's ownership in preferred equity investments, as well as two operating commercial buildings (totaling approximately 140,564 square feet), and six active development projects with 2,223 apartment homes in various stages of development (collectively, the “Portfolio”).
The Company’s website address is http://www.essex.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its Annual Meeting of Stockholders are available, free of charge, on its website as soon as practicable after the Company files the reports with the U.S. Securities and Exchange Commission (“SEC”).
BUSINESS STRATEGIES
The following is a discussion of the Company’s business strategies in regards to real estate investment and management.
Business Strategies
Research Driven Approach to Investments – The Company believes that successful real estate investment decisions and portfolio growth begin with extensive regional economic research and local market knowledge. The Company continually assesses markets where the Company operates, as well as markets where the Company considers future investment opportunities by evaluating the following:

• | Focus on markets in major metropolitan areas that have regional population in excess of one million;

• | Constraints on new supply driven by: (i) low availability of developable land sites where competing housing could be economically built; (ii) political growth barriers, such as protected land, urban growth boundaries, and potential lengthy and expensive development permit processes; and (iii) natural limitations to development, such as mountains or waterways;

• | Rental demand is enhanced by affordability of rents relative to costs of for-sale housing; and

• | Housing demand that is based on job growth, proximity to jobs, high median incomes and the quality of life including related commuting factors.

Recognizing that all real estate markets are cyclical, the Company regularly evaluates the results of its regional economic, and local market research, and adjusts the geographic focus of its portfolio accordingly. The Company seeks to increase its portfolio allocation in markets projected to have the strongest local economies and to decrease such allocations in markets projected to
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have declining economic conditions. Likewise, the Company also seeks to increase its portfolio allocation in markets that have attractive property valuations and to decrease such allocations in markets that have inflated valuations and low relative yields.
Property Operations – The Company manages its communities by focusing on activities that may generate above-average rental growth, tenant retention/satisfaction and long-term asset appreciation. The Company intends to achieve this by utilizing the strategies set forth below:

• | Property Management – Oversee delivery of and quality of the housing provided to our residents and manage the properties financial performance.

• | Capital Preservation –Asset Management is responsible for the planning, budgeting and completion of major capital improvement projects at the Company’s communities.

• | Business Planning and Control – Comprehensive business plans are implemented in conjunction with significant investment decisions. These plans include benchmarks for future financial performance, based on collaborative discussions between on-site managers and senior management.

• | Development and Redevelopment – The Company focuses on acquiring and developing apartment communities in supply constrained markets, and redeveloping its existing communities to improve the financial and physical aspects of the Company’s communities.

CURRENT BUSINESS ACTIVITIES
Acquisitions of Real Estate
Acquisitions are an important component of the Company’s business plan, and during 2016, the Company acquired ownership interests in four communities comprised of 753 apartment homes for $333.7 million.
The following is a summary of 2016 acquisitions ($ in millions):

Property Name |  | Location |  | Apartment Homes |  | Essex Ownership Percentage |  | Ownership |  | Quarter in 2016 |  | Purchase Price
Mio |  | San Jose, CA |  | 103 |  |  | 100 | % |  | EPLP |  | Q1 |  | $ | 51.3 |
Form 15 |  | San Diego, CA |  | 242 |  |  | 100 | % |  | EPLP |  | Q1 |  | 97.4 |
Emerson Valley Village |  | Los Angeles, CA |  | 144 |  |  | 100 | % |  | EPLP |  | Q4 |  | 67.0 |
Ashton Sherman Village |  | Los Angeles, CA |  | 264 |  |  | 100 | % |  | EPLP |  | Q4 |  | 118.0 |
Total 2016 |  | 753 |  |  |  |  |  |  |  |  |  | $ | 333.7 |

Dispositions of Real Estate
As part of its strategic plan to own quality real estate in supply-constrained markets, the Company continually evaluates all the communities and sells those which no longer meet its strategic criteria. The Company may use the capital generated from the dispositions to invest in higher-return communities or other real estate investments, or repay debts. The Company believes that the sale of these communities will not have a material impact on its future results of operations or cash flows nor will their sale materially affect its ongoing operations. Generally, the Company seeks to have any impact of earnings dilution resulting from these dispositions offset by the positive impact of its acquisitions, development and redevelopment activities.
In January 2016, the Company sold its former headquarters office building, located in Palo Alto, CA, for gross proceeds of $18.0 million, resulting in total gains of $9.6 million.
During 2016, the Company sold three apartment communities, Harvest Park, Tuscana, and Candlewood North, for a total of $80.8 million, resulting in total gains of $14.0 million, net of $4.4 million deferred tax gain on sale of real estate.
During 2016, the Company sold two joint venture apartment communities, The Heights and Canyon Creek, for total proceeds of $147.3 million. The Company's share of the gain on the sales was $13.0 million.
In November 2016, the Company contributed four apartment communities, Bridgeport, The Carlyle, Hillsborough Park, and Meadowood to a new entity, BEX II, then a wholly-owned subsidiary of EPLP and in December 2016 sold a 49.9%
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membership interest in BEX II for a total of $153.2 million, resulting in total gains of $126.6 million. Subsequent to this sale, the Company accounts for BEX II under the equity method.
Development Pipeline
The Company defines development projects as new communities that are being constructed or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of December 31, 2016, the Company had two consolidated development projects and four joint venture development projects comprised of 2,223 apartment homes for an estimated cost of $1.3 billion, of which $0.7 billion remains to be expended, and $0.5 billion is the Company's share.
The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects. As of December 31, 2016, the Company had various consolidated predevelopment projects. The Company may also acquire land for future development purposes or sale.
The following table sets forth information regarding the Company’s development pipeline ($ in millions):

|  |  |  |  |  |  |  | As of
|  |  |  |  |  |  |  | 12/31/2016
|  |  |  | Essex |  |  |  | Incurred |  | Estimated
Development Pipeline |  | Location |  | Ownership% |  | Apartment Homes |  | Project Cost (1) |  | Project Cost(1)
Development Projects - Consolidated |  |  |  |  |  |  |  |  |  |
Station Park Green |  | San Mateo, CA |  | 100 | % |  | 320 |  |  | $ | 78 |  |  | $ | 239 |
Gateway Village |  | Santa Clara, CA |  | 100 | % |  | 476 |  |  | 37 |  |  | 226 |
Total - Consolidated Development Projects |  |  |  |  |  |  | 796 |  |  | 115 |  |  | 465 |
Development Projects - Joint Venture |  |  |  |  |  |  |  |  |  |  |  |  |  |
The Galloway (at Owens) |  | Pleasanton, CA |  | 55 | % |  | 255 |  |  | 87 |  |  | 89 |
The Galloway (at Hacienda) |  | Pleasanton, CA |  | 55 | % |  | 251 |  |  | 71 |  |  | 86 |
Century Towers |  | San Jose, CA |  | 50 | % |  | 376 |  |  | 143 |  |  | 172 |
500 Folsom (2) |  | San Francisco, CA |  | 50 | % |  | 545 |  |  | 107 |  |  | 415 |
Total - Joint Venture Development Projects |  |  |  |  |  |  | 1,427 |  |  | 408 |  |  | 762 |
Predevelopment Projects - Consolidated |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other Projects |  | Various |  | 100 | % |  | — |  |  | 80 |  |  | 80 |
Total - Predevelopment Projects |  |  |  |  |  |  | — |  |  | 80 |  |  | 80 |
Grand Total - Development and Predevelopment Pipeline |  |  |  |  |  |  | 2,223 |  |  | $ | 603 |  |  | $ | 1,307 |

(1) | Includes costs related to the entire project, including both the Company's and joint venture partners' costs. Includes incurred costs and estimated costs to complete these development projects. For predevelopment projects, only incurred costs are included in estimated costs.

(2) | Estimated project cost for this development is net of a projected value for low-income housing tax credit proceeds and savings from tax exempt bonds.

Redevelopment Pipeline
The Company defines the redevelopment pipeline as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. During redevelopment, apartment homes may not be available for rent and, as a result, may have less than stabilized operations. As of December 31, 2016, the Company had ownership interests in six major redevelopment communities aggregating 1,869 apartment homes with estimated redevelopment costs of $170.2 million, of which approximately $65.5 million remains to be expended.
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Long Term Debt
During 2016, the Company made regularly scheduled principal payments and loan payoffs of $177.0 million of its secured mortgage notes payable at an average interest rate of 5.0%.
In April 2016, the Company issued $450 million of 3.375% senior unsecured notes that mature in April 2026. The interest is payable semi-annually in arrears on April 15 th and October 15 th of each year, commencing October 15, 2016, until the maturity date in April 2026. The Company used the net proceeds of this offering to repay indebtedness under its unecured lines of credit and for other general corporate purposes.
Bank Debt
As of December 31, 2016, Fitch Ratings ("Fitch"), Moody’s Investor Service, and Standard and Poor's (“S&P”) credit agencies rated Essex Property Trust, Inc. and Essex Portfolio, L.P. BBB+/Stable, Baa1/Stable, and BBB+/Stable, respectively.
At December 31, 2016, the Company had two lines of unsecured credit aggregating $1.03 billion. The Company's $1.0 billion credit facility had an interest rate of LIBOR plus 0.90%, which is based on a tiered rate structure tied to the Company's credit ratings. In January 2017, the Company's $1.0 billion credit facility's maturity date was extended to December 2020 with one 18-month extension, exercisable at the Company's option. The Company's $25.0 million working capital unsecured line of credit had an interest rate of LIBOR plus 0.90%, which is based on a tiered rate structure tied to the Company's credit ratings. The $25.0 million credit facility matures in January 2018.
Equity Transactions
During 2016, ESS did not issue any shares of common stock under its equity distribution program. Furthermore, during the first quarter of 2017 through February 21, 2017, ESS has not issued any shares under its equity distribution program.
Co-investments
The Company has entered into, and may continue in the future to enter into, joint ventures or partnerships (including limited liability companies) through which we own an indirect economic interest in less than 100% of the community or land owned directly by the joint venture or partnership. For each joint venture the Company holds a 50% to 55% non-controlling interest in the venture and will earn customary management fees and may earn development, asset property management fees and may also earn a promote interest.
The Company has also made, and may continue in the future to make, preferred equity investments in various multi-family development projects. The Company earns a preferred rate of return on these investments.
OFFICES AND EMPLOYEES
The Company is headquartered in San Mateo, California, and has regional offices in Woodland Hills, California; San Jose, California; Irvine, California; San Diego, California and Bellevue, Washington. As of December 31, 2016, the Company had 1,799 employees.
INSURANCE
The Company purchases general liability and property insurance coverage, including loss of rent, for each of its communities. The Company also purchases limited earthquake, terrorism, environmental and flood insurance. There are certain types of losses which may not be covered or could exceed coverage limits. The insurance programs are subject to deductibles and self-insured retentions in varying amounts. The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI") to self-insure certain earthquake and property losses. As of December 31, 2016, PWI has cash and marketable securities of approximately $69.9 million, and is consolidated in the Company's financial statements.
All of the Company's communities are located in areas that are subject to earthquake activity. The Company evaluates its financial loss exposure to seismic events by using actuarial loss models developed by the insurance industry and property vulnerability based on structural evaluations of seismic consultants. The Company manages this exposure, where considered appropriate, desirable, and cost-effective, by upgrading properties to increase their resistance to forces caused by seismic events, by considering available funds and coverages provided by PWI and/or by purchasing seismic insurance. The Company also purchases limited earthquake insurance for certain properties owned by the Company's co-investments.
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In addition, the Company carries other types of insurance coverage related to a variety of risks and exposures.
Based on market conditions, the Company may change or potentially eliminate insurance coverages, or increase levels of self-insurance. Further, the Company may incur losses, which could be material, due to uninsured risks, deductibles and self-insured retentions, and/or losses in excess of coverage limits.
COMPETITION
There are numerous housing alternatives that compete with the Company’s communities in attracting residents. These include other apartment communities, condominiums and single-family homes. If the demand for the Company’s communities is reduced or if competitors develop and/or acquire competing housing, rental rates and occupancy may drop which may have a material adverse effect on the Company’s financial condition and results of operations.
The Company faces competition from other real estate investment trusts, businesses and other entities in the acquisition, development and operation of apartment communities. Some competitors are larger and have greater financial resources than the Company. This competition may result in increased costs of apartment communities the Company acquires and or develops.
WORKING CAPITAL
The Company believes that cash flows generated by its operations, existing cash and marketable securities balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of its reasonably anticipated cash needs during 2017.
The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates, stock price, and other fluctuations in the capital markets environment, which can affect the Company’s plans for acquisitions, dispositions, development and redevelopment activities.
ENVIRONMENTAL CONSIDERATIONS
See the discussion under the caption, “Risks Related to Real Estate Investments and Our Operations - The Company’s Portfolio may have environmental liabilities” in Item 1A, Risk Factors, for information concerning the potential effect of environmental regulations on its operations, which discussion under the caption “The Company’s Portfolio may have environmental liabilities” is incorporated by reference into this Item 1.
OTHER MATTERS
Certain Policies of the Company
The Company intends to continue to operate in a manner that will not subject it to regulation under the Investment Company Act of 1940. The Company may in the future (i) issue securities senior to its common stock, (ii) fund acquisition activities with borrowings under its line of credit and (iii) offer shares of common stock and/or units of limited partnership interest in the Operating Partnership or affiliated partnerships as partial consideration for property acquisitions. The Company from time to time acquires partnership interests in partnerships and joint ventures, either directly or indirectly through subsidiaries of the Company, when such entities’ underlying assets are real estate.
The Company invests primarily in apartment communities that are located in predominantly coastal markets within Southern California, the San Francisco Bay Area, and the Seattle metropolitan area. The Company currently intends to continue to invest in apartment communities in such regions. However, these practices may be reviewed and modified periodically by management.
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ITEM 1A: RISK FACTORS
For purposes of this section, the term “stockholders” means the holders of shares of Essex Property Trust, Inc.’s common stock and preferred stock. Set forth below are the risks that we believe are material to Essex Property Trust, Inc.’s stockholders and Essex Portfolio, L.P.’s unit holders. You should carefully consider the following factors in evaluating our Company, our properties and our business.
Our business, operating results, cash flows and financial condition are subject to various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual operating results to vary materially from recent results or from our anticipated future results.
Risks Related to Our Real Estate Investments and Operations
General real estate investment risks may adversely affect property income and values. Real estate investments are subject to a variety of risks. If the communities and other real estate investments do not generate sufficient income to meet operating expenses, including debt service and capital expenditures, cash flow and the ability to make distributions to stockholders will be adversely affected. Income from the communities may be further adversely affected by, among other things, the following factors:

• | the general economic climate;

• | local economic conditions in which the communities are located, such as oversupply of housing or a reduction in demand for rental housing;

• | the attractiveness of the communities to tenants;

• | competition from other available housing alternatives;

• | changes in rent control or stabilization laws or other laws regulating housing;

• | the Company’s ability to provide for adequate maintenance and insurance;

• | declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants;

• | rising crime rates in our markets; and

• | changes in interest rates and availability of financing.

As leases at the communities expire, tenants may enter into new leases on terms that are less favorable to the Company. Income and real estate values also may be adversely affected by such factors as applicable laws (e.g., the Americans with Disabilities Act of 1990 and tax laws). Real estate investments are relatively illiquid and, therefore, the Company’s ability to vary its portfolio promptly in response to changes in economic or other conditions may be quite limited.
Real estate in our markets can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions, which could have a material adverse effect on our financial condition and results of operations. In addition, if we are found to have held, acquired or developed a community primarily with the intent to resell the community, federal tax laws may limit our ability to sell the community without incurring a 100% tax on the gain on the sale of the community and potentially adversely impacting our status as a real estate investment trust (“REIT”) unless we own the community through one of our taxable REIT subsidiaries (“TRSs”).
Short-term leases expose us to the effects of declining market rents, and the Company may be unable to renew leases or relet units as leases expire. Substantially all of our apartment leases are for a term of one year or less. If the Company is unable to promptly renew the leases or relet the units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then the Company’s results of operations and financial condition will be adversely affected. With these short term leases, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.
National and regional economic environments can negatively impact the Company’s operating results. The Company's forecast for the national economy assumes growth of the gross domestic product of the national economy and the economies of the west coast states. In the event of a recession, the Company could incur reductions in rental rates, occupancy levels, property valuations and increases in operating costs such as advertising and turnover expenses.
Inflation/Deflation may affect rental rates and operating expenses. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and/or property operating expenses.
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Acquisitions of communities involve various risks and uncertainties and may fail to meet expectations. The Company intends to continue to acquire apartment communities. However, there are risks that acquisitions will fail to meet the Company’s expectations. The Company’s estimates of future income, expenses and the costs of improvements or redevelopment that are necessary to allow the Company to market an acquired apartment community as originally intended may prove to be inaccurate. Also, in connection with such acquisitions, we may assume unknown liabilities, which could ultimately lead to material costs for us. The Company expects to finance future acquisitions, in whole or in part, under various forms of secured or unsecured financing or through the issuance of partnership units by the Operating Partnership or related partnerships or additional equity by the Company. The use of equity financing, rather than debt, for future developments or acquisitions could dilute the interest of the Company’s existing stockholders. If the Company finances new acquisitions under existing lines of credit, there is a risk that, unless the Company obtains substitute financing, the Company may not be able to undertake additional borrowing for further acquisitions or developments or such borrowing may be not available on advantageous terms.
Development and redevelopment activities may be delayed, not completed, and/or not achieve expected results. The Company pursues development and redevelopment projects and these projects generally require various governmental and other approvals, which have no assurance of being received. The Company’s development and redevelopment activities generally entail certain risks, including, among others, the following:

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

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

• | projects may be delayed due to, without limitation, adverse weather conditions, labor or material shortage, or environmental remediation;

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

• | expenses at completed development projects may be higher than anticipated, including, without limitation, due to costs of environmental remediation;

• | we may be unable to obtain, or experience a delay in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or delay or abandonment of opportunities;

• | we may be unable to obtain financing with favorable terms, or at all, for the proposed development of community, which may cause us to delay or abandon an opportunity; and

• | we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties (such as the construction of shared infrastructure or other improvements.)

These risks may reduce the funds available for distribution to the Company’s stockholders. Further, the development and redevelopment of communities is also subject to the general risks associated with real estate investments. For further information regarding these risks, please see the risk factor above titled “General real estate investment risks may adversely affect property income and values.”
Investments in mortgages and other real estate and other marketable securities could adversely affect the Company’s cash flow from operations. The Company may invest in equity, preferred equity or debt securities related to real estate and/or other investment securities and/or cash investments, which could adversely affect the Company’s ability to make distributions to stockholders, including, without limitation, due to a decline in the value of such investments. The Company may also purchase or otherwise invest in securities issued by entities which own real estate and/or invest in mortgages or unsecured debt obligations. Such mortgages may be first, second or third mortgages, and these mortgages and/or other investments may not be insured or otherwise guaranteed. The Company may acquire mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity or entities that owns the interest in the entity owning the property. In general, investments in mortgages include the following risks:

• | that the value of mortgaged property may be less than the amounts owed, causing realized or unrealized losses;

• | the borrower may not pay indebtedness under the mortgage when due, requiring the Company to foreclose, and the amount recovered in connection with the foreclosure may be less than the amount owed;

• | that interest rates payable on the mortgages may be lower than the Company’s cost of funds;

• | in the case of junior mortgages, that foreclosure of a senior mortgage could eliminate the junior mortgage; and

• | delays in the collection of principal and interest if a borrower claims bankruptcy.

If any of the above were to occur, it could adversely affect the Company’s cash flows from operations.
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Our apartment communities may be subject to unknown or contingent liabilities which could cause us to incur substantial costs. The properties that the Company owns or may acquire are or may be subject to unknown or contingent liabilities for which the Company may have no recourse, or only limited recourse, against the sellers. In general, the representations and warranties provided under the transaction agreements related to the sales of the properties may not survive the closing of the transactions. While the Company will seek to require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification may be limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that may be incurred with respect to liabilities associated with apartment communities may exceed our expectations, and we may experience other unanticipated adverse effects, all of which may adversely affect our business, financial condition and results of operations.
The geographic concentration of the Company’s communities and fluctuations in local markets may adversely impact the Company’s financial condition and operating results. The Company generated significant amounts of rental revenues for the year ended December 31, 2016, from the Company’s communities concentrated in Southern California (Los Angeles, Orange, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area), and the Seattle metropolitan area. For the year ended December 31, 2016, 83% of the Company’s rental revenues were generated from communities located in California. This geographic concentration could present risks if local property market performance falls below expectations. In general, factors that may adversely affect local market and economic conditions include, among others, the following:

• | the economic climate, which may be adversely impacted by a reduction in jobs or income levels, industry slowdowns and other factors;

• | local conditions, such as oversupply of, or reduced demand for, apartment homes;

• | declines in household formation;

• | rent control or stabilization laws, or other laws regulating rental housing, which could prevent the Company from raising rents to offset increases in operating costs;

• | competition from other available apartments and other housing alternatives and changes in market rental rates; and

• | regional specific acts of nature (e.g., earthquakes).

The Company may experience various increased costs, including increased property taxes, to own and maintain its properties. Real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rates change. Thus, our real estate taxes in the State of Washington could increase as a result of property value reassessments or increased property tax rates in that state. A current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value. However, under Proposition 13, property tax reassessment generally occurs as a result of a “change in ownership” of a property, as specially defined for purposes of those rules. Because the property taxing authorities may not determine whether there has been a “change in ownership” or the actual reassessed value of a property for a period of time after a transaction has occurred, we may not know the impact of a potential reassessment for a considerable amount of time following a particular transaction. Therefore, the amount of property taxes we are required to pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactive basis. In addition, from time to time voters and lawmakers have announced initiatives to repeal or amend Proposition 13 to eliminate its application to commercial and industrial property and/or introduce split tax roll legislation. Such initiatives, if successful, could increase the assessed value and/or tax rates applicable to commercial property in California, including our apartment communities.
The Company may experience increased costs associated with capital improvements and routine property maintenance, such as repairs to the foundation, exterior walls, and rooftops of its properties, as its properties advance through their life-cycles. Increases in the Company’s expenses to own and maintain its properties could adversely impact the Company’s financial condition and results of operations.
Competition in the apartment community market and other housing alternatives may adversely affect operations and the rental demand for the Company’s communities. There are numerous housing alternatives that compete with the Company’s communities in attracting residents. These include other apartment communities, condominiums and single-family homes that are available for rent or for sale in the markets in which the communities are located. Competitive housing in a particular area and the increasing affordability of owner occupied single and multi-family homes caused by lower housing prices, mortgage interest rates and government programs to promote home ownership or create additional rental and/or other types of housing, could adversely affect the Company’s ability to retain its residents, lease apartment homes and increase or maintain rents. If the demand for the Company’s communities is reduced or if competitors develop and/or acquire competing apartment communities, rental rates may drop, which may have a material adverse effect on the Company’s financial condition and results of operations. The Company also faces competition from other real estate investment trusts, businesses and other entities in the
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acquisition, development and operation of apartment communities. This competition may result in an increase in prices and costs of apartment communities that the Company acquires and/or develops.
The Company’s joint ventures and joint ownership of communities, its ownership of properties with shared facilities with a home owners' association or other entity, its ownership of properties subject to a ground lease and its preferred equity investments and its other partial interests in corporations and limited partnerships that own communities could limit the Company’s ability to control such communities and may restrict our ability to finance, sell or otherwise transfer our interests in these properties and expose us to loss of the properties if such agreements are breached by us or terminated.
The Company defines development projects as new communities that are being constructed or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of December 31, 2016, the Company had two consolidated development projects and four joint venture development projects comprised of 2,223 apartment homes for an estimated cost of $1.3 billion, of which $0.7 billion remains to be expended, and $0.5 billion is the Company's share. In addition, as of December 31, 2016, the Company had an interest in 11,274 apartment homes in operating communities with joint ventures for a total book value of $0.8 billion.
Joint venture partners often have shared control over the development and operation of the joint venture assets. Therefore, it is possible that a joint venture partner in an investment might become bankrupt, or have economic or business interests or goals that are inconsistent with the Company’s business interests or goals, or be in a position to take action contrary to the Company’s instructions or requests, or its policies or objectives. Consequently, a joint venture partners’ actions might subject property owned by the joint venture to additional risk. Although the Company seeks to maintain sufficient influence over any joint venture to achieve its objectives, the Company may be unable to take action without its joint venture partners’ approval. A joint venture partner might fail to approve decisions that are in the Company’s best interest. Should a joint venture partner become bankrupt, the Company could become liable for such partner’s share of joint venture liabilities. In some instances, the Company and the joint venture partner may each have the right to trigger a buy-sell arrangement, which could cause the Company to sell its interest, or acquire a partner’s interest, at a time when the Company otherwise would have not have initiated such a transaction.
From time to time, the Company, through the Operating Partnership, invests in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of acquiring, developing, financing, or managing real property. For example, the Company has made preferred equity investments in third party entities that own real estate. With preferred equity investments and certain other investments, the Operating Partnership’s interest in a particular entity is typically less than a majority of the outstanding voting interests of that entity. Therefore, the Operating Partnership’s ability to control the daily operations of such an entity may be limited. Furthermore, the Operating Partnership may not have the power to remove a majority of the board of directors (in the case of a corporation) or the general partner or partners (in the case of a limited partnership) of such an entity in the event that its operations conflict with the Operating Partnership’s objectives. The Operating Partnership may not be able to dispose of its interests in such an entity. In the event that such an entity becomes insolvent, the Operating Partnership may lose up to its entire investment in and any advances to the entity. The Company may also incur losses if any guarantees or indemnifications were made by the Company. The Company also owns properties indirectly under "downREIT" structures. The Company has, and in the future may, enter into transactions that could require the Company to pay the tax liabilities of partners, which contribute assets into downREITs, joint ventures or the Operating Partnership, in the event that certain taxable events, which are within the Company’s control, occur. Although the Company plans to hold the contributed assets or defer recognition of gain on sale pursuant to the like-kind exchange rules under Section 1031 of the Code, the Company can provide no assurance that the Company will be able to do so and if such tax liabilities were incurred they could have a material impact on its financial position.
Also, from time to time, the Company invests in properties which may be subject to certain shared facilities agreements with homeowners' associations and other entities and/or invests in properties subject to ground leases where a subtenant may have certain similar rights to that of a party under such a shared facilities agreement. For such properties, the Company's ability to control the expenditure of capital improvements and its allocation with such other parties may adversely affect the Company's business, financial condition and results of operations.
We may pursue acquisitions of other REITs and real estate companies, which could adversely affect our results of operations. We may make acquisitions of and investments in other REITs and real estate companies that offer properties and communities to augment our market coverage, or enhance our property offerings. We may also enter into strategic alliances or joint ventures to achieve these goals. There can be no assurance that we will be able to identify suitable acquisition, investment, alliance, or joint venture opportunities, that we will be able to consummate any such transactions or relationships on terms and conditions acceptable to us, or that such transactions or relationships will be successful. In addition, our original estimates and
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assumptions used in assessing any acquisition may be inaccurate, and we may not realize the expected financial or strategic benefits of any such acquisition.
These transactions or any other acquisitions involve risks and uncertainties. For example, as a consequence of such transactions, we may assume unknown liabilities, which could ultimately lead to material costs for us. In addition, the integration of acquired businesses or other acquisitions may not be successful and could result in disruption to other parts of our business. To integrate acquired businesses or other acquisitions, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. There can be no assurance that all pre-acquisition property due diligence will have identified all material issues that might arise with respect to such acquired business and its properties or as to any such other acquisitions. Any future acquisitions we make may also require significant additional debt or equity financing, which, in the case of debt financing, would increase our leverage and potentially affect our credit ratings and, in the case of equity or equity-linked financing, could be dilutive to our existing stockholders. These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our business, financial condition and results of operations.
Compliance with laws benefiting disabled persons may require the Company to make significant unanticipated expenditures or impact the Company’s investment strategy. A number of federal, state and local laws (including the Americans with Disabilities Act) and regulations exist that may require modifications to existing buildings or restrict certain renovations by requiring improved access to such buildings by disabled persons and may require other structural features which add to the cost of buildings under construction. Legislation or regulations adopted in the future may impose further burdens or restrictions on the Company with respect to improved access by disabled persons. The costs of compliance with these laws and regulations may be substantial. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any noncomplying feature, which could result in substantial capital expenditures.
The Company may not be able to lease its retail/commercial space consistent with its projections or at market rates. The Company has retail/commercial space in its portfolio. The retail/commercial space at our properties, among other things, serve as additional amenity for our residents. The long term nature of our retail/commercial leases, and characteristics of many of our tenants (small, local businesses) may subject us to certain risks. We may not be able to lease new space for rents that are consistent with our projections or at market rates. Also, when leases for our existing retail/commercial space expire, the space may not be relet or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable that the current lease terms. Our properties compete with other properties with retail/commercial space. The presence of competitive alternatives may affect our ability to lease space and the level of rents we can obtain. If our retail/commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations, which could adversely impact our results of operations and financial condition. The revenue from our retail/commercial space represents approximately 2% of our total rental revenue.
The Company’s portfolio may have environmental liabilities. Under various federal, state and local environmental and public health laws, regulations and ordinances we have been from time to time, and may be required in the future, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases naturally occurring substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for response costs, property damage, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the impacts resulting from such releases. While the Company is unaware of any such response action required or damage claims associated with its existing properties which individually or in aggregate would have a materially adverse effect on our business, assets, financial condition or results of operations, potential future costs and damage claims may be substantial and could exceed any insurance coverage we may have for such events or such coverage may not exist. Further, the presence of such substances, or the failure to properly remediate any such impacts, may adversely affect our ability to borrow against, develop, sell or rent the affected property. In addition, some environmental laws create or allow a government agency to impose a lien on the impacted property in favor of the government for damages and costs it incurs as a result of responding to hazardous or toxic substance or petroleum product releases.
Investments in real property create a potential for environmental liabilities on the part of the owner of such real property. The Company carries certain limited insurance coverage for this type of environmental risk as to its properties; however, such coverage is not fully available for all properties and, as to those properties for which limited coverage is fully available it may not apply to certain claims arising from known conditions present on those properties. In general, in connection with the ownership (direct or indirect), operation, financing, management and development of its communities, the Company could be considered as the owner or operator of such properties or as having arranged for disposal or treatment of hazardous substances
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present there and therefore may be potentially liable for removal or clean-up costs, as well as certain other costs and environmental liabilities. The Company may also be subject to governmental fines and costs related to injuries to third persons and damage to their property.
Properties which we intend to acquire undergo a pre-acquisition Phase I environmental site assessment, which is intended to afford the Company protection against so-called “owner liability” under the primary federal environmental law, as well as further environmental assessment, which may involve invasive techniques such as soil or ground water sampling where conditions warranting such further assessment are identified and seller’s consent is obtained. While such assessments are conducted in accordance with applicable “all appropriate inquiry" standards, no assurance can be given that all environmental conditions present on or beneath or emanating from a given property will be discovered or that the full nature and extent of those conditions which are discovered will be adequately ascertained and quantified.
In connection with our ownership, operation and development of communities, from time to time we undertake remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. The Company does so pursuant to appropriate environmental regulatory requirements with the objective of obtaining regulatory closure or a no further action determination that will allow for future use, development and sale of any impacted community.
Certain environmental laws impose liability for release of asbestos-containing materials ("ACMs") into the air or exposure to lead-based paint ("LBP"), and third parties may seek recovery from owners or operators of apartment communities for personal injury associated with ACMs or LBP.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed in a timely manner. Although the occurrence of mold at multi-family and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. 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 mold existence reduce its risk of loss from these cases; however, no assurance can be provided that the Company has identified and responded to all mold occurrences.
California has enacted legislation, commonly referred to as "Proposition 65," requiring that "clear and reasonable" warnings be given to persons who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity, including tobacco smoke. Although the Company has sought to comply with Proposition 65 requirements, the Company cannot assure you that the Company will not be adversely affected by litigation relating to Proposition 65.
Methane gas is a naturally-occurring gas that is commonly found below the surface in several areas, particularly in the Southern California coastal areas. Methane is a non-toxic gas, but is flammable and can be explosive at sufficient concentrations when in confined spaces and exposed to an ignition source. Naturally-occurring, methane gas is regulated at the state and federal level as a greenhouse gas but is not otherwise regulated as a hazardous substance; however some local governments, such as Los Angeles County, require that new buildings constructed in areas designated methane gas zones install detection and/or venting systems. Methane gas is also associated with certain industrial activities, such as former municipal waste landfills. Radon is also a naturally-occurring gas that is found below the surface and can pose a threat to human health requiring abatement action if present in sufficient concentration within occupied areas. The Company cannot assure you that it will not be adversely affected by costs related to its compliance with methane or radon gas related requirements or litigation costs related to methane or radon gas.
We cannot assure you that costs or liabilities incurred as a result of environmental matters will not affect our ability to make distributions to stockholders, or that such costs or liabilities will not have a material adverse effect on our financial condition and results of operations; provided, however, the Company is unaware of any pending or threatened alleged claim resulting from such matters which would have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
The Company may incur general uninsured losses. The Company purchases general liability and property, including loss of rent, insurance coverage for each of its communities. The Company also purchases limited earthquake, terrorism, environmental and flood insurance. There are certain types of losses which may not be covered or could exceed coverage limits. The insurance programs are subject to deductibles and self-insured retentions in varying amounts. The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI") to self-insure certain earthquake and property
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losses. As of December 31, 2016, PWI has cash and marketable securities of approximately $69.9 million, and is consolidated in the Company's financial statements.
All the communities are located in areas that are subject to earthquake activity. The Company evaluates its financial loss exposure to seismic events by using actuarial loss models developed by the insurance industry and property vulnerability based on structural evaluations of seismic consultants. The Company manages this exposure, where considered appropriate, desirable, and cost-effective, by upgrading properties to increase their resistance to forces caused by seismic events, by considering available funds and coverages provided by PWI and/or by purchasing seismic insurance. Purchasing seismic insurance coverage can be costly and such seismic insurance is in limited supply. As a result, the Company may experience a shortage in desired coverage levels if market conditions are such that insurance is not available, or the cost of the insurance makes it, in managements view, not economically practical. The Company purchases limited earthquake insurance for certain high-density properties and assets owned by the Company's co-investments.
The Company carries other types of insurance coverage related to a variety of risks and exposures. Based on market conditions, the Company may change or potentially eliminate insurance coverages, or increase levels of self-insurance. Further, we cannot assure you that the Company will not incur losses, which could be material, due to uninsured risks, deductibles and self-insured retentions, and/or losses in excess of coverage limits.
We have significant investments in large metropolitan markets, such as the metropolitan markets in Southern California, the San Francisco Bay Area and Seattle. These markets may in the future be the target of actual or threatened terrorist attacks. Future terrorist attacks in these markets could directly or indirectly damage our communities, both physically and financially, or cause losses that exceed our insurance coverage.
Although the Company may carry insurance for potential losses associated with its communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, copayments or losses in excess of applicable insurance coverage and those losses may be material. In the event of a substantial loss, insurance coverage may not be able to cover the full replacement cost of the Company’s lost investment, or the insurance carrier may become insolvent and not be able to cover the full amount of the insured losses. Changes in building codes and ordinances, environmental considerations and other factors might also affect the Company’s ability to replace or renovate an apartment community after it has been damaged or destroyed.
Accidental death or severe injuries due to fire, natural disasters or other hazards could adversely affect our business and results of operations. The accidental death or severe injuries of persons living in our communities due to fire, natural disasters or other hazards could have a material adverse effect on our business and results of operations. Our insurance coverage may not cover all losses associated with such events, and we may experience difficulty marketing communities where any such events have occurred, which could have a material adverse effect on our business and results of operations.
Adverse changes in laws may adversely affect the Company's liabilities and/or operating costs relating to its properties and its operations. Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to residents or users in the form of higher rents, and may adversely affect the Company's cash available for distribution and its ability to make distributions to its stockholders and pay amounts due on its debt. Similarly, changes in laws increasing the potential liability of the Company and/or its operating costs on a range of issues, including those regarding potential liability for other environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction and safety requirements, may result in significant unanticipated expenditures, including without limitation, those related to structural or seismic retrofit or more costly operational safety systems and programs, which could have a material adverse effect on the Company. For example, (1) the California statute, the "Sustainable Communities and Climate Protection Act of 2009, also known as "SB375"", provides that, in order to reduce greenhouse emissions, there should be regional planning to coordinate housing needs with regional transportation and such planning could lead to restrictions on, or increases in, property development that adversely affect the Company and (2) the Environmental Protection Agency has implemented a program for long-term phase out of HCFC-22 coolant (freon) by 2030, which could lead to increased capital and/or operating costs. In addition, in Richmond and Mountain View, California, both of which are in the San Francisco Bay Area, rent control initiatives were recently passed by the voters. These initiatives and any other future enactments of rent control or rent stabilization laws or other laws regulating multi-family housing, as well as any lawsuits against the Company arising from such rent control or other laws, may reduce rental revenues or increase operating costs.
The soundness of financial institutions could adversely affect us. We maintain cash and cash equivalent balances, including significant cash amounts of our wholly owned insurance subsidiary, Pacific Western Insurance LLC, as well as 401(k) plan assets in a limited number of financial institutions. Our cash balances are generally in excess of federally insured limits. The
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failure or collapse of one or more of these financial institutions may materially adversely affect our ability to recover our cash balances or the 401(k) assets. Certain financial institutions are lenders under our credit facilities, and, from time to time, we execute transactions with counterparties in the financial services industry. In the event that the volatility of the financial markets adversely affects these financial institutions or counterparties, we or other parties to the transactions with us may be unable to complete transactions as intended, which could adversely affect our business and results of operations.
Failure to succeed in new markets may limit the Company’s growth. The Company may make acquisitions or commence development activity outside of its existing market areas if appropriate opportunities arise. The Company’s historical experience in its existing markets does not ensure that it will be able to operate successfully in new markets. The Company may be exposed to a variety of risks if it chooses to enter new markets. These risks include, among others:

• | an inability to evaluate accurately local apartment market conditions and local economies;

• | an inability to identify appropriate acquisition opportunities or to obtain land for development;

• | an inability to hire and retain key personnel; and

• | lack of familiarity with local governmental and permitting procedures.

The Company’s real estate assets may be subject to impairment charges. The Company continually evaluates the recoverability of the carrying value of its real estate assets under U.S. generally accepted accounting principles ("U.S. GAAP"). Factors considered in evaluating impairment of the Company’s existing multi-family real estate assets held for investment include significant declines in property operating profits, recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Generally, a multi-family real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of the asset over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. Assumptions used to estimate annual and residual cash flow and the estimated holding period of such assets require the judgment of management. There can be no assurance that the Company will not take charges in the future related to the impairment of the Company’s assets. Any future impairment charges could have a material adverse effect on the Company’s results of operations.
We face risks associated with land holdings and related activities. We hold land for future development and may in the future acquire additional land holdings. The risks inherent in purchasing, owning and developing land increase as demand for apartments, or rental rates, decrease. Real estate markets are highly uncertain and, as a result, the value of undeveloped land may fluctuate significantly. In addition, carrying costs can be significant and can result in losses or reduced profitability. As a result, we hold certain land, and may, in the future acquire additional land, in our development pipeline at a cost we may not be able to fully recover or at a cost which may preclude our developing a profitable multi-family community. If there are subsequent changes in the fair value of our land holdings which we determine is less that the carrying basis of our land holdings reflected in our financial statements plus estimated costs to sell, we may be required to take future impairment changes which could have a material adverse effect on our results of operations.
Risks Related to Our Indebtedness and Financings
Capital and credit market conditions may affect the Company’s access to sources of capital and/or the cost of capital, which could negatively affect the Company’s business, results of operations, cash flows and financial condition. In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital available to the Company may be adversely affected. Our current balance sheet, the debt capacity available on the unsecured line of credit with a diversified bank group, access to the public and private placement debt markets and secured debt financing providers such as Fannie Mae and Freddie Mac provides some insulation from volatile capital markets. We primarily use external financing, including sales of equity securities, to fund acquisitions, developments, and redevelopments and to refinance indebtedness as it matures. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our acquisition, development and redevelopment activity and/or take other actions to fund our business activities and repayment of debt, such as selling assets, reducing our cash dividend or paying out less than 100% of our taxable income. In general, to the extent that the Company’s access to capital and credit is at a higher cost than the Company has experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing without a corresponding change to investment cap rates) the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates could be adversely affected, which would impact the Company's financial standing and related credit rating. In addition, if our ability to obtain financing is adversely affected, we may be unable to satisfy scheduled maturities on existing financing through other sources of our liquidity, which, in the case of secured financings, could result in lender foreclosure on the apartment communities securing such debt.
The Company could be negatively impacted by the condition of Fannie Mae or Freddie Mac and by changes in government support for multi-family housing. Historically, the Company has utilized borrowing from Fannie Mae and Freddie Mac. There
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are no assurances that these entities will lend to the Company in the future. Beginning in 2011, the Company has primarily utilized unsecured debt and has repaid secured debt at or near their respective maturity and has placed less reliance on agency mortgage debt financing. Potential options have been proposed for the future of agency mortgage finance in the U.S. that could involve the phase out of Fannie Mae and Freddie Mac. While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded or reorganized by the government or if there is reduced government support for multi-family housing more generally, it may adversely affect interest rates, capital availability, development of multi-family communities and the value of multi-family residential real estate and, as a result, may adversely affect the Company and its growth and operations.
Debt financing has inherent risks. At December 31, 2016, the Company had approximately $5.6 billion of indebtedness (including $506.7 million of variable rate indebtedness, of which $25.0 million is subject to an interest rate swap effectively fixing the interest rate on $25.0 million in debt. The Company has also entered into interest rate swaps with a notional amount of $150.0 million, with settlement payments starting in March 2017. $20.7 million is subject to interest rate cap protection). The Company is subject to the risks normally associated with debt financing, including, among others, the following:

• | cash flow may not be sufficient to meet required payments of principal and interest;

• | inability to refinance maturing indebtedness on encumbered apartment communities;

• | inability to comply with debt covenants could cause defaults and an acceleration of maturity dates; and

• | paying debt before the scheduled maturity date could result in prepayment penalties.

The Company may not be able to renew, repay or refinance its indebtedness when due or may be required to refinance its indebtedness at higher interest rates or on terms that may not be as favorable as the terms of existing indebtedness. If the Company is unable to refinance its indebtedness on acceptable terms, or not at all, the Company might be forced to dispose of one or more of its properties on disadvantageous terms, which might result in losses. Such losses could have an adverse effect on the Company and its ability to make distributions to its stockholders and pay amounts due on its debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and the Company is unable to meet mortgage payments, the mortgagee could foreclose on the property, appoint a receiver and exercise rights under an assignment of rents and leases, or pursue other remedies, all with a consequential loss of revenues and asset value. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet REIT distribution requirements.
Debt financing of communities may result in insufficient cash flow to service debt and fund distributions. Where appropriate, the Company intends to continue to use leverage to increase the rate of return on the Company’s investments and to provide for additional investments that the Company could not otherwise make. There is a risk that the cash flow from the communities will be insufficient to meet both debt payment obligations and the distribution requirements of the real estate investment trust provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Our ability to make payments on and to refinance our indebtedness and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future. To a certain extent, our cash flow is subject to general economic, industry, regional, financial, competitive, operating, legislative, regulatory, taxation and other factors, many of which are beyond our control.
As of December 31, 2016, the Company had 61 consolidated communities encumbered by debt. With respect to the 61 communities encumbered by debt, all of them are secured by deeds of trust relating solely to those communities. The holders of this indebtedness will have rights with respect to these communities and, if debt payment obligations are not met, lenders may seek foreclosure of communities which would reduce the Company’s income and net asset value, and its ability to service other debt.
Compliance requirements of tax-exempt financing and below market rent requirements may limit income from certain communities. At December 31, 2016, the Company had approximately $281.7 million of variable rate tax-exempt financing. This tax-exempt financing provides for certain deed restrictions and restrictive covenants. The Company expects to engage in tax-exempt financings in the future. If the compliance requirements of the tax-exempt financing restrict our ability to increase our rental rates to low or moderate income residents, or eligible/qualified residents, then our income from these properties may be limited. While we generally believe that the interest rate benefit attendant to properties with tax-exempt bonds more than outweigh any loss of income due to restrictive covenants or deed restrictions, this may not always be the case. Some of these requirements are complex and our failure to comply with them may subject us to material fines or liabilities. Certain state and local authorities may impose additional rental restrictions. These restrictions may limit income from the tax-exempt financed communities if the Company is required to lower rental rates to attract residents who satisfy the median income test. If the Company does not reserve the required number of apartment homes for residents satisfying these income requirements, the tax-exempt status of the bonds may be terminated, the obligations under the bond documents may be accelerated and the Company may be subject to additional contractual liability. Besides the limitations due to tax-exempt financing requirements, the income
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from certain communities may be limited due to below market rent ("BMR") requirements imposed by local authorities in connection with the original development of the community.
The indentures governing our notes and other financing arrangements contain restrictive covenants that limit our operating flexibility. The indentures that govern our publicly registered notes contain financial and operating covenants that, among other things, restrict our ability to take specific actions, even if we believe them to be in our best interest, including restrictions on our ability to:

• | consummate a merger, consolidation or sale of all or substantially all of our assets; and

• | incur additional secured and unsecured indebtedness.

The instruments governing our other unsecured indebtedness require us to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amounts of total indebtedness and secured indebtedness, leverage and certain investment limitations. These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these provisions and those contained in the indentures governing the notes, may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting us. The breach of any of these covenants, including those contained in our indentures, could result in a default under our indebtedness, which could cause those and other obligations to become due and payable. If any of our indebtedness is accelerated, we may not be able to repay it.
Rising interest rates may affect the Company’s costs of capital and financing activities and results of operation. Interest rates could increase, which could result in higher interest expense on the Company’s variable rate indebtedness or increase interest rates when refinancing maturing fixed rate debt. Prolonged interest rate increases could negatively impact the Company’s ability to make acquisitions and develop apartment communities with positive economic returns on investment and the Company’s ability to refinance existing borrowings.
Interest rate hedging arrangements may result in losses. The Company from time to time uses interest rate swaps and interest rate caps contracts to manage certain interest rate risks. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to the Company if interest rates decline. If a hedging arrangement is not indexed to the same rate as the indebtedness that is hedged, the Company may be exposed to losses to the extent that the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other. Finally, nonperformance by the other party to the hedging arrangement may subject the Company to increased credit risks. In order to minimize counterparty credit risk, the Company enters into hedging arrangements only with investment grade financial institutions.
A downgrade in the Company's investment grade credit rating could materially and adversely affect its business and financial condition. The Company plans to manage its operations to maintain its investment grade credit rating with a capital structure consistent with its current profile, but there can be no assurance that it will be able to maintain its current credit ratings. Any downgrades in terms of ratings or outlook by any of the rating agencies could have a material adverse impact on the Company’s cost and availability of capital, which could in turn have a material adverse impact on its financial condition, results of operations and liquidity.
Changes in the Company’s financing policy may lead to higher levels of indebtedness. The Company’s organizational documents do not limit the amount or percentage of indebtedness that may be incurred. The Company has adopted a policy of maintaining a limit on debt financing consistent with the existing covenants required to maintain the Company’s unsecured line of credit bank facility, unsecured debt and senior unsecured bonds. Although pursuant to this policy the Company manages its debt to be in compliance with the debt covenants, the Company may increase the amount of outstanding debt at any time without a concurrent improvement in the Company’s ability to service the additional debt. Accordingly, the Company could become more leveraged, resulting in an increased risk of default of its debt covenants or on its debt obligations and in an increase in debt service requirements. Any covenant breach or significant increase in the Company’s leverage could materially adversely affect the Company’s financial condition and ability to access debt and equity capital markets in the future.
If the Company or its subsidiaries defaults on an obligation to repay outstanding indebtedness when due, the default could trigger a cross-default or cross-acceleration under other indebtedness. If the Company or one of its subsidiaries defaults on its obligations to repay outstanding indebtedness, the default could cause a cross-default or cross-acceleration under other indebtedness. A default under the agreements governing the Company’s or its subsidiaries’ indebtedness, including a default under mortgage indebtedness, lines of credit, bank term loan, or the indenture for the Company’s outstanding senior notes, that is not waived by the required lenders or holders of outstanding notes, could trigger cross-default or cross-acceleration provisions under one or more agreements governing the Company’s indebtedness, which could cause an immediate default or allow the lenders to declare all funds borrowed thereunder to be due and payable.
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Risks Related to the Company in General and the Ownership of Essex’s Stock
The Company depends on its key personnel, whose continued service is not guaranteed. The Company’s success depends on its ability to attract and retain executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the loss of any of the Company’s key personnel could have an adverse effect on the Company.
The price per share of the Company’s stock may fluctuate significantly. The market price per share of the Company’s common stock may fluctuate significantly in response to many factors, including without limitation:

• | regional, national and global economic conditions;

• | actual or anticipated variations in the Company’s quarterly operating results or dividends;

• | changes in the Company’s funds from operations or earnings estimates;

• | issuances of common stock, preferred stock or convertible debt securities, or the perception that such issuances might occur;

• | publication of research reports about the Company or the real estate industry;

• | the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate based companies);

• | general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of the Company’s stock to demand a higher annual yield from dividends;

• | availability to capital markets and cost of capital;

• | a change in analyst ratings or the Company’s credit ratings;

• | terrorist activity may adversely affect the markets in which the Company’s securities trade, possibly increasing market volatility and causing erosion of business and consumer confidence and spending;

• | natural disasters such as earthquakes; and

• | changes in public policy and tax law.

Many of the factors listed above are beyond the Company’s control. These factors may cause the market price of shares of the Company’s common stock to decline, regardless of the Company’s financial condition, results of operations, or business prospects.
The Company’s future issuances of common stock, preferred stock or convertible debt securities could be dilutive to current stockholders and adversely affect the market price of the Company’s common stock. In order to finance the Company’s acquisition and development activities, the Company has issued and sold common stock, preferred stock and convertible debt securities. For example, during the years ended December 31, 2016 and 2015, the Company issued zero and 1.5 million shares of common stock for zero and $332.3 million, net of fees and commissions, respectively. The Company may in the future sell further shares of common stock, including pursuant to its equity distribution programs with Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., Capital One Securities, Inc., Citigroup Global Markets Inc., Jefferies LLC, J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA), Inc., and UBS Securities LLC.
In 2016, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number of equity and debt securities as defined in the prospectus. Future sales of common stock, preferred stock or convertible debt securities may dilute stockholder ownership in the Company and could adversely affect the market price of the common stock.
The Company’s Chairman is involved in other real estate activities and investments, which may lead to conflicts of interest. The Company’s Chairman, George M. Marcus, is not an employee of the Company, and is involved in other real estate activities and investments, which may lead to conflicts of interest. Mr. Marcus owns interests in various other real estate-related businesses and investments. He is the Chairman of the Marcus & Millichap Company (“MMC”), which is a parent company of a diversified group of real estate service, investment and development firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in MMI. MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013.
Mr. Marcus has agreed not to divulge any confidential or proprietary information that may be received by him in his capacity as Chairman of the Company to any of his affiliated companies and that he will absent himself from any and all discussions by the Company's Board of Directors regarding any proposed acquisition and/or development of an apartment community where it appears that there may be a conflict of interest with any of his affiliated companies. Notwithstanding this agreement, Mr.
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Marcus and his affiliated entities may potentially compete with the Company in acquiring and/or developing apartment communities, which competition may be detrimental to the Company. In addition, due to such potential competition for real estate investments, Mr. Marcus and his affiliated entities may have a conflict of interest with the Company, which may be detrimental to the interests of the Company’s stockholders.
The influence of executive officers, directors and significant stockholders may be detrimental to holders of common stock. As of December 31, 2016, George M. Marcus, the Chairman of the Company’s Board of Directors, wholly or partially owned approximately 1.6 million shares of common stock (including shares issuable upon exchange of limited partnership interests in the Operating Partnership and certain other partnerships, indirectly held shares of common stock and assuming exercise of all vested options). Mr. Marcus currently does not have majority control over the Company. However, he currently has, and likely will continue to have, significant influence with respect to the election of directors and approval or disapproval of significant corporate actions. Consequently, his influence could result in decisions that do not reflect the interests of all the Company’s stockholders.
Under the partnership agreement of the Operating Partnership, the consent of the holders of limited partnership interests is generally required for certain amendments of the agreement and for certain extraordinary actions. Through their ownership of limited partnership interests and their positions with the Company, the Company’s directors and executive officers, including Mr. Marcus, have substantial influence on the Company. Consequently, their influence could result in decisions that do not reflect the interests of all stockholders.
Our related party guidelines may not adequately address all of the issues that may arise with respect to related party transactions. The Company has adopted "Related Party Transaction Approval Process Guidelines" that provide generally that any transaction in which a director or executive officer has an interest must have the prior approval of the Audit Committee of the Company's Board of Directors. The review and approval procedures in these guidelines are intended to determine whether a particular related party transaction is fair, reasonable and serves the interests of the Company's stockholders. Pursuant to these guidelines, related party transactions have been approved from time to time. There is no assurance that this policy will be adequate for determining whether a particular related party transaction is suitable and fair for the Company. Also, the policy's procedures may not identify and address all the potential issues and conflicts of interests with a related party transaction.
Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to stockholders. A decrease in rental revenue, or liquidity needs such as the repayment of indebtedness or funding of our acquisition and development activities, could have an adverse effect on our ability to pay distributions to our stockholders. Significant expenditures associated with each community such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a community.
The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations. The form, timing and/or amount of dividend distributions will be declared at the discretion of the Board of Directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and other factors as the Board of Directors may consider relevant. The Board of Directors may modify our dividend policy from time to time.
We may choose to pay dividends in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive. We may distribute taxable dividends that are payable in part in our stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, the trading price of our stock would experience downward pressure if a significant number of our stockholders sell shares of our stock in order to pay taxes owed on dividends.
The Maryland Business Combination Act may delay, defer or prevent a transaction or change in control of the Company that might involve a premium price for the Company's stock or otherwise be in the best interest of our stockholders. Under the Maryland General Corporation Law, certain “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as any person (and certain affiliates of such person) who beneficially owns ten percent or more
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of the voting power of the then-outstanding voting stock of the corporation. The law also requires a two supermajority stockholder votes for such transactions. This means that the transaction must be approved by at least:

• | 80% of the votes entitled to be cast by holders of outstanding voting shares; and

• | Two-thirds of the votes entitled to be cast by holders of outstanding voting shares other than shares held by the interested stockholder with whom the business combination is to be effected.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. These voting provisions do not apply if the stockholders receive a minimum price, as defined under the Maryland General Corporation Law. As permitted by the statute, the Board of Directors of the Company irrevocably has elected to exempt any business combination among the Company, George M. Marcus, who is the chairman of the Company, and MMC or any entity owned or controlled by Mr. Marcus and MMC. Consequently, the five-year prohibition and supermajority vote requirements described above will not apply to any business combination between the Company, Mr. Marcus, or MMC. As a result, the Company may in the future enter into business combinations with Mr. Marcus and MMC, without compliance with the supermajority vote requirements and other provisions of the Maryland Business Combination Act.
Certain provisions contained in the Operating Partnership agreement, Charter and Bylaws, and certain provisions of the Maryland General Corporation Law could delay, defer or prevent a change in control. While the Company is the sole general partner of the Operating Partnership, and generally has full and exclusive responsibility and discretion in the management and control of the Operating Partnership, certain provisions of the Operating Partnership agreement place limitations on the Company’s power to act with respect to the Operating Partnership. Such limitations could delay, defer or prevent a transaction or a change in control that might involve a premium price for the Company’s stock or otherwise be in the best interests of its stockholders or that could otherwise adversely affect their interests. The partnership agreement provides that if the limited partners own at least 5% of the outstanding units of partnership interest in the Operating Partnership, the Company may not, without first obtaining the consent of a majority in interest of the limited partners in the Operating Partnership, transfer all or any portion of the Company’s general partner interest in the Operating Partnership to another entity. Such limitations on the Company’s power to act may result in the Company’s being precluded from taking action that the Board of Directors otherwise believes is in the best interests of the Company or its stockholders.
The Company’s Charter authorizes the issuance of additional shares of common stock or preferred stock and the setting of the preferences, rights and other terms of such stock without the approval of the holders of the common stock. The Company may establish one or more classes or series of stock that could delay, defer or prevent a transaction or a change in control. Such a transaction might involve a premium price for the Company’s stock or otherwise be in the best interests of the holders of common stock. Also, such a class or series of stock could have dividend, voting or other rights that could adversely affect the interests of holders of common stock.
The Company’s Charter contains provisions limiting the transferability and ownership of shares of capital stock, which may delay, defer or prevent a transaction or a change in control. For example, subject to receiving an exemption from the Board of Directors, potential acquirers may not purchase more than 6% in value of the stock (other than qualified pension trusts which can acquire 9.9%). This may discourage tender offers that may be attractive to the holders of common stock and limit the opportunity for stockholders to receive a premium for their shares of common stock.
The Maryland General Corporation Law restricts the voting rights of holders of shares deemed to be “control shares.” Under the Maryland General Corporation Law, “control shares” are those which, when aggregated with any other shares held by the acquirer, entitle the acquirer to exercise voting power within specified ranges. Although the Bylaws exempt the Company from the control share provisions of the Maryland General Corporation Law, the Board of Directors may amend or eliminate the provisions of the Bylaws at any time in the future. Moreover, any such amendment or elimination of such provision of the Bylaws may result in the application of the control share provisions of the Maryland General Corporation Law not only to control shares which may be acquired in the future, but also to control shares previously acquired. If the provisions of the Bylaws are amended or eliminated, the control share provisions of the Maryland General Corporation Law could delay, defer or prevent a transaction or change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company’s stockholders.
The Company’s Charter and Bylaws as well as Maryland General Corporation Law also contain other provisions that may impede various actions by stockholders without approval of the Company’s Board of Directors, and that in turn may delay, defer or prevent a transaction, including a change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company's stockholders. Those provisions include, among others:
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• | directors may be removed by stockholders, without cause, only upon the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of the directors, and with cause, only upon the affirmative vote of a majority of the votes entitled to be cast generally in the election of the directors;

• | the Company’s board can fix the number of directors and fill vacant directorships upon the vote of a majority of the directors and the Company's board can classify the board such that the entire board is not up for re-election annually;

• | stockholders must give advance notice to nominate directors or propose business for consideration at a stockholders’ meeting; and

• | for stockholders to call a special meeting, the meeting must be requested by not less than a majority of all the votes entitled to be cast at the meeting.

A breach of the Company’s privacy or information security systems could materially adversely affect the Company’s business and financial condition. The protection of tenant, employee, and company data is critically important to the Company. Our business requires us, including some of our vendors, to use and store personally identifiable and other sensitive information of its tenants and employees. The collection and use of personally identifiable information is governed by federal and state laws and regulations. Privacy and information security laws continue to evolve and may be inconsistent from one jurisdiction to another. Compliance with all such laws and regulations may increase the Company’s operating costs and adversely impact the Company’s ability to market the Company’s properties and services.
The security measures put in place by the Company, and such vendors, cannot provide absolute security, and the Company and our vendors' information technology infrastructure may be vulnerable to criminal cyber-attacks or data security incidents, including, ransom of data, such as, without limitation, tenant and/or employee information, due to employee error, malfeasance, or other vulnerabilities. Any such incident could compromise the Company’s or such vendors' networks, and the information stored by the Company or such vendors could be accessed, misused, publicly disclosed, corrupted, lost, or stolen, resulting in fraud, including wire fraud related to Company assets, or other harm. Moreover, if a data security incident or breach affects the Company’s systems or such vendors' systems or results in the unauthorized release of personally identifiable information, the Company’s reputation and brand could be materially damaged and the Company may be exposed to a risk of loss or litigation and possible liability, including, without limitation, loss related to the fact that agreements with such vendors, or such vendors' financial condition, may not allow the Company to recover all costs related to a cyber breach for which they alone or they and the Company should be jointly responsible for, which could result in a material adverse effect on the Company’s business, results of operations, and financial condition.
In the third quarter of 2014, the Company discovered and reported that certain of its computer networks containing personal and proprietary information were compromised by a cyber-intrusion. Based on information from our forensic investigation, the Company has confirmed that evidence exists of exfiltration of data on Company systems, but found no evidence that any individual's information or any Company data was misused.
Privacy and information security risks have generally increased in recent years because of the proliferation of new technologies, such as ransomware, and the increased sophistication and activities of perpetrators of cyber-attacks. In light of this network intrusion we discovered in the third quarter of 2014, we have dedicated additional Company resources to strengthening the security of the Company’s computer systems. In the future, the Company may expend additional resources to continue to enhance the Company’s information security measures and/or to investigate and remediate any information security vulnerabilities. Despite these steps, there can be no assurance that the Company will not suffer a similar data security incident in the future, that unauthorized parties will not gain access to sensitive data stored on the Company’s systems, or that any such incident will be discovered in a timely manner. Further, the techniques used by criminals to obtain unauthorized access to sensitive data, such as phishing and other forms of human engineering, are increasing in sophistication and are often novel or change frequently; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures.
Expanding social media vehicles present new risks. The use of social media could cause us to suffer brand damage or information leakage. Negative posts or comments about us on any social networking website could damage our reputation. In addition, employees or others might disclose non-public sensitive information relating to our business through external media channels. The continuing evolution of social media will present us with new challenges and risks.
Employee theft or fraud could result in loss. Certain of our employees have access to, or signature authority with respect to, bank accounts or other Company assets, which exposes us to the risk of fraud or theft. In addition, certain employees have access to key information technology (IT) infrastructure and to tenant and other information that is commercially valuable. Should any employee compromise our IT systems, or misappropriate tenant or other information, we could incur losses, including significant financial or reputational harm, from which full recovery cannot be assured. We also may not have
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insurance that covers any losses in full or that covers losses from particular criminal acts. As of December 31, 2016, potential liabilities for theft or fraud are not quantifiable and an estimate of possible loss cannot be made.
Any material weaknesses identified in the Company's internal control over financial reporting could have an adverse effect on the Company’s stock price. Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company to evaluate and report on its internal control over financial reporting. If the Company identifies one or more material weaknesses in its internal control over financial reporting, the Company could lose investor confidence in the accuracy and completeness of its financial reports, which in turn could have an adverse effect on the Company’s stock price.
Tax Risks
Sales of apartment communities could incur tax risks. If we are found to have held, acquired or developed a community primarily with the intent to resell the community, federal tax laws may limit our ability to sell the community without incurring a 100% tax on the gain on the sale of the community and potentially adversely impacting our status as a real estate investment trust (“REIT”) unless we own the community through one of our taxable REIT subsidiaries (“TRSs”).
There are various U.S. tax risks in connection with an investment in the Company and in Essex Portfolio, L.P. The Company has elected to be taxed as a REIT under the Code. The Company’s qualification as a REIT requires it to satisfy numerous annual and quarterly requirements, including income, asset and distribution tests, established under highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations.
To qualify under the income test, (i) at least 75% of the Company’s annual gross income generally must be derived from rents from real property, mortgage interest, gain from the sale or other disposition of real property held for investment, dividends or other distributions on, and gain from the sale or other disposition of shares of other REITs and certain other limited categories of income and (ii) at least 95% of the Company’s annual gross income generally must be derived from the preceding sources plus other dividends, interest other than mortgage interest, and gain from the sale or other disposition of stock and securities held for investment. To qualify under the asset test, at the end of each quarter, at least 75% of the value of the Company’s assets must consist of cash, cash items, government securities and qualified real estate assets and there are significant additional limitations regarding the Company’s investment in securities other than government securities and qualified real estate assets, including limitations on the percentage of our assets that can be represented by the Company’s TRSs. To qualify under the distribution test, the Company generally must distribute to its shareholders each calendar year at least 90% of its REIT taxable income, determined before a deduction for dividends paid and excluding any net capital gain. In addition, to the extent the Company satisfies the 90% test, but distributes less than 100% of its REIT taxable income, it will be subject to corporate income tax on such undistributed income and could be subject to an additional 4% excise tax. Because the Company needs to meet these tests to maintain its qualification as a REIT, it could cause the Company to have to forego certain business opportunities and potentially require the Company to liquidate otherwise attractive investments.
In addition to the income, asset and distribution tests described above, the Company’s qualification as a REIT involves the determination of various factual matters and circumstances not entirely within the Company’s control. Although the Company intends that its current organization and method of operation enable it to qualify as a REIT, it cannot assure you that it so qualifies or that it will be able to remain so qualified in the future. If the Company fails to qualify as a REIT in any taxable year, the Company would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on the Company’s taxable income at corporate rates, and the Company would not be allowed to deduct dividends paid to its stockholders in computing its taxable income. The Company would also be disqualified from treatment as a REIT for the four taxable years following the year in which the Company failed to qualify. The additional tax liability would reduce its net earnings available for investment or distribution to stockholders, and the Company would no longer be required to make distributions to its stockholders for the purpose of maintaining REIT status.
Changes in tax laws, future legislation, new regulations, administrative interpretations or court decisions (any of which could have retroactive effect) could adversely affect the Company’s ability to qualify as a REIT or could generally result in REITs having fewer tax advantages, and may lead REIT’s to determine that it would be more advantageous to elect to be taxed, for federal income tax purposes, as corporations. Changes in the Code may not necessarily lead to conforming changes in the tax laws of various states. Some states use the legislative process to decide whether it is in their best interests to conform or not to various provisions of the Code. This could increase the complexity of our compliance efforts, increase compliance costs, and may subject us to additional taxes and audit risk.
The Company has established several TRSs. The TRSs must pay U.S. federal income tax on their taxable income. While the Company will attempt to ensure that its dealings with its TRSs do not adversely affect its REIT qualification, it cannot provide assurances that it will successfully achieve that result. Furthermore, the Company may be subject to a 100% penalty tax, or its
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TRSs may be denied deductions, to the extent dealings between the Company and its TRSs are not deemed to be arm’s length in nature. The Company intends that its dealings with its TRSs will be on an arm’s length basis. No assurances can be given, however, that the Internal Revenue Service will not assert a contrary position.
The Company owns interests in multiple subsidiary REITs that have elected to be taxed as REITs under the Code. These subsidiary REITs are subject to the various REIT qualification requirements and other limitations that are applicable to the Company. If any of the Company’s subsidiary REITs were to fail to qualify as a REIT, then (i) the subsidiary REIT would become subject to federal income tax and (ii) the Company’s ownership of shares in such subsidiary REIT would cease to be a qualifying asset for purposes of the asset tests applicable to REITs. If any of the Company’s subsidiary REITs were to fail to qualify as REITs, it is possible that the Company could also fail to qualify as a REIT.
From time to time, the Company may transfer or otherwise dispose of some of its properties. Under the Code, unless certain exceptions apply, any gain resulting from transfers of properties that the Company holds as inventory or primarily for sale to customers in the ordinary course of business could be treated as income from a prohibited transaction subject to a 100% penalty tax. Since the Company acquires properties for investment purposes, it does not believe that its occasional transfers or disposals of property should be treated as prohibited transactions. However, whether property is held for investment purposes depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by the Company are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then the Company would be required to pay a 100% penalty tax on any gain allocable to it from the prohibited transaction, and the Company’s ability to retain proceeds from real property sales may be jeopardized.
Dividends paid by REITs to U.S. stockholders that are individuals, trusts or estates are generally not eligible for the reduced tax rate applicable to qualified dividends received from non-REIT corporations (the maximum rate on qualified dividends is currently 23.8%). Rather, U.S. individual, trust or estate stockholders who receive dividends from a REIT that are not designated as capital gain dividends will be taxed on such dividends at ordinary income rates (at a current maximum rate of 43.4%). This may cause investors to view REIT investments to be less attractive than investments in non-REIT corporations, which in turn may adversely affect the value of stock in REITs, including the Company’s stock.
Non-U.S. investors that invest in the Company should be aware of the following U.S. federal income tax considerations in connection with such investment. First, distributions by the Company from its current and accumulated earnings and profits are subject to a 30% U.S. withholding tax in the hands of non-U.S. investors, unless the 30% is reduced by an applicable income tax treaty. Such distributions may also be subject to a 30% withholding tax under the “Foreign Account Tax Compliance Act” (“FATCA”) unless a non-U.S. investor complies with certain requirements prescribed by FATCA. Second, distributions by the Company that are attributable to gains from dispositions of U.S. real property (“capital gain dividends”) will be treated as income that is effectively connected with a U.S. trade or business in the hands of a non-U.S. investor, such that a non-U.S. investor will have U.S. federal income tax payment and filing obligations with respect to capital gain dividends. Furthermore, capital gain dividends may be subject to an additional 30% “branch profits tax” (which may be reduced by an applicable income tax treaty) in the hands of a non-U.S. investor that is a corporation. Third, any gain derived by a non-U.S. investor on a disposition of such investor’s stock in the Company will subject such investor to U.S. federal income tax payment and filing requirements unless the Company is treated as a domestically-controlled REIT. A REIT is “domestically controlled” if less than 50% of the REIT’s capital stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. The Company believes that it is a domestically-controlled REIT, but no assurances can be given in this regard. Notwithstanding the foregoing, even if the Company were not a domestically-controlled REIT, under a special exception non-U.S. investors should not have U.S. federal income tax payment and filing obligations on capital gain dividends or a disposition of their stock in the Company if (i) they did not own more than 10% of such stock at any time during the one-year period ending on the date of the disposition, and (ii) the Company’s stock continues to be regularly traded on an established securities market located in the United States and certain other non-U.S. investors may also not be subject to these payment and filing obligations. Non-U.S. investors should consult with their independent advisors as to the above U.S. tax considerations and other U.S. tax consequences of an investment in the Company’s stock, in light of their particular circumstances.
The Company believes that its operating partnership, Essex Portfolio, L.P., will continue to be treated as a partnership for U.S. federal income tax purposes. As a partnership, Essex Portfolio, L.P. is not subject to U.S. federal income tax on its income. Instead, each of its partners is required to pay tax on the partner’s allocable share of the income of Essex Portfolio, L.P. No assurances can be given, however, that the Internal Revenue Service will not challenge Essex Portfolio, L.P.’s status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the Internal Revenue Service were successful in treating Essex Portfolio, L.P. as a corporation for U.S. federal income tax purposes, the Company
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could fail to meet the income tests and/or the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, the failure of Essex Portfolio, L.P. to qualify as a partnership would cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for distribution to its partners.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company’s portfolio as of December 31, 2016 (including communities owned by unconsolidated joint ventures, but excluding communities underlying preferred equity investments) was comprised of 245 operating apartment communities
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(comprising 59,645 apartment homes), of which 27,968 apartment homes are located in Southern California, 19,480 apartment homes are located in the San Francisco Bay Area, and 12,197 apartment homes are located in the Seattle metropolitan area. The Company’s apartment communities accounted for 99.4% of the Company’s revenues for the year ended December 31, 2016.
Occupancy Rates
Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rental revenue for occupied apartment homes plus market rent for vacant apartment homes). When calculating actual rents for occupied apartment homes and market rents for vacant apartment homes, delinquencies and concessions are not taken into account. Total possible rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates and the Company's calculation of financial occupancy may not be comparable to financial occupancy as disclosed by other REITs. Market rates are determined using a variety of factors such as effective rental rates at the property based on recently signed leases and asking rates for comparable properties in the market. The recently signed effective rates at the property are used as the starting point in the determination of the market rates of vacant apartment homes. The Company then increases or decreases these rates based on the supply and demand in the apartment community’s market. The Company will check the reasonableness of these rents based on its position within the market and compare the rents against the asking rents by comparable properties in the market.
For communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric. While a community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy which is based on contractual revenue is not considered the best metric to quantify occupancy.
Communities
The Company’s communities are primarily suburban garden-style communities comprising multiple clusters of two and three-story buildings situated on three to fifteen acres of land. As of December 31, 2016, the Company’s communities include 156 garden-style, 83 mid-rise, and 6 high-rise communities. The communities have an average of approximately 243 apartment homes, with a mix of studio, one, two and some three-bedroom apartment homes. A wide variety of amenities are available at the Company’s communities, including covered parking, fireplaces, swimming pools, clubhouses with fitness facilities, volleyball and playground areas and tennis courts.
The Company hires, trains and supervises on-site service and maintenance personnel. The Company believes that the following primary factors enhance the Company’s ability to retain tenants:

• | located near employment centers;

• | attractive communities that are well maintained; and

• | proactive customer service.

Commercial Buildings
The Company owns an office building with approximately 106,564 square feet located in Irvine, California, of which the Company occupies approximately 8,000 square feet at December 31, 2016. The Company owns Essex-Hollywood, a 34,000 square foot commercial building.
The following tables describe the Company’s operating portfolio as of December 31, 2016. The first table describes the Company’s communities and the second table describes the Company’s other real estate assets. (See Note 7 of the Company’s consolidated financial statements for more information about the Company’s secured mortgage debt and Schedule III for a list of secured mortgage loans related to the Company’s portfolio.)

|  |  |  | Apartment |  | Rentable |  | Year |  | Year |  |
Communities (1) |  | Location |  | Homes |  | Square Footage |  | Built |  | Acquired |  | Occupancy(2)
Southern California |  |  |  |  |  |  |  |  |  |  |  |
Alpine Village |  | Alpine, CA |  | 301 |  |  | 254,400 |  |  | 1971 |  | 2002 |  | 97%

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|  |  |  | Apartment |  | Rentable |  | Year |  | Year |  |
Communities (1) |  | Location |  | Homes |  | Square Footage |  | Built |  | Acquired |  | Occupancy(2)
Anavia |  | Anaheim, CA |  | 250 |  |  | 312,343 |  |  | 2009 |  | 2010 |  | 96%
Barkley, The (3)(4) |  | Anaheim, CA |  | 161 |  |  | 139,800 |  |  | 1984 |  | 2000 |  | 97%
Park Viridian |  | Anaheim, CA |  | 320 |  |  | 254,600 |  |  | 2008 |  | 2014 |  | 97%
Bonita Cedars |  | Bonita, CA |  | 120 |  |  | 120,800 |  |  | 1983 |  | 2002 |  | 97%
Camarillo Oaks |  | Camarillo, CA |  | 564 |  |  | 459,000 |  |  | 1985 |  | 1996 |  | 97%
Camino Ruiz Square |  | Camarillo, CA |  | 159 |  |  | 105,448 |  |  | 1990 |  | 2006 |  | 97%
Enclave at Town Square (18) |  | Chino Hills, CA |  | 124 |  |  | 89,948 |  |  | 1987 |  | 2014 |  | 98%
The Summit (5) |  | Chino Hills, CA |  | 125 |  |  | 98,420 |  |  | 1989 |  | 2014 |  | 98%
Pinnacle at Otay Ranch I & II |  | Chula Vista, CA |  | 364 |  |  | 384,192 |  |  | 2001 |  | 2014 |  | 96%
Mesa Village |  | Clairemont, CA |  | 133 |  |  | 43,600 |  |  | 1963 |  | 2002 |  | 97%
Villa Siena |  | Costa Mesa, CA |  | 272 |  |  | 262,842 |  |  | 1974 |  | 2014 |  | 96%
Emerald Pointe |  | Diamond Bar, CA |  | 160 |  |  | 134,816 |  |  | 1989 |  | 2014 |  | 97%
Regency at Encino |  | Encino, CA |  | 75 |  |  | 78,487 |  |  | 1989 |  | 2009 |  | 97%
The Havens (18) |  | Fountain Valley, CA |  | 440 |  |  | 414,040 |  |  | 1969 |  | 2014 |  | 96%
Valley Park (4) |  | Fountain Valley, CA |  | 160 |  |  | 169,700 |  |  | 1969 |  | 2001 |  | 98%
Capri at Sunny Hills (4) |  | Fullerton, CA |  | 102 |  |  | 128,100 |  |  | 1961 |  | 2001 |  | 97%
Haver Hill (5) |  | Fullerton, CA |  | 264 |  |  | 224,130 |  |  | 1973 |  | 2012 |  | 96%
Pinnacle at Fullerton |  | Fullerton, CA |  | 192 |  |  | 174,336 |  |  | 2004 |  | 2014 |  | 96%
Wilshire Promenade |  | Fullerton, CA |  | 149 |  |  | 128,000 |  |  | 1992 |  | 1997 |  | 96%
Montejo Apartments (4) |  | Garden Grove, CA |  | 124 |  |  | 103,200 |  |  | 1974 |  | 2001 |  | 97%
CBC |  | Goleta, CA |  | 148 |  |  | 91,538 |  |  | 1962 |  | 2006 |  | 96%
The Sweeps |  | Goleta, CA |  | 91 |  |  | 88,370 |  |  | 1967 |  | 2006 |  | 96%
416 on Broadway |  | Glendale, CA |  | 115 |  |  | 126,782 |  |  | 2009 |  | 2010 |  | 97%
Hampton Court |  | Glendale, CA |  | 83 |  |  | 71,500 |  |  | 1974 |  | 1999 |  | 94%
Hampton Place |  | Glendale, CA |  | 132 |  |  | 141,500 |  |  | 1970 |  | 1999 |  | 94%
Devonshire |  | Hemet, CA |  | 276 |  |  | 207,200 |  |  | 1988 |  | 2002 |  | 97%
Huntington Breakers |  | Huntington Beach, CA |  | 342 |  |  | 241,700 |  |  | 1984 |  | 1997 |  | 96%
The Huntington |  | Huntington Beach, CA |  | 276 |  |  | 202,256 |  |  | 1975 |  | 2012 |  | 96%
Axis 2300 |  | Irvine, CA |  | 115 |  |  | 170,714 |  |  | 2010 |  | 2010 |  | 97%
Hillsborough Park (24) |  | La Habra, CA |  | 235 |  |  | 215,500 |  |  | 1999 |  | 1999 |  | 96%
Village Green |  | La Habra, CA |  | 272 |  |  | 175,762 |  |  | 1971 |  | 2014 |  | 97%
The Palms at Laguna Niguel |  | Laguna Niguel, CA |  | 460 |  |  | 362,136 |  |  | 1988 |  | 2014 |  | 96%
Trabuco Villas |  | Lake Forest, CA |  | 132 |  |  | 131,000 |  |  | 1985 |  | 1997 |  | 98%
Marbrisa |  | Long Beach, CA |  | 202 |  |  | 122,800 |  |  | 1987 |  | 2002 |  | 96%
Pathways at Bixby Village |  | Long Beach, CA |  | 296 |  |  | 197,700 |  |  | 1975 |  | 1991 |  | 96%
8th & Hope |  | Los Angeles, CA |  | 290 |  |  | 298,437 |  |  | 2014 |  | 2015 |  | 96%
5600 Wilshire |  | Los Angeles, CA |  | 284 |  |  | 243,910 |  |  | 2008 |  | 2014 |  | 96%
Alessio |  | Los Angeles, CA |  | 624 |  |  | 552,716 |  |  | 2001 |  | 2014 |  | 95%
Ashton Sherman Village |  | Los Angeles, CA |  | 264 |  |  | 296,186 |  |  | 2014 |  | 2016 |  | 100%
Avant |  | Los Angeles, CA |  | 440 |  |  | 305,989 |  |  | 2014 |  | 2015 |  | 95%
The Avery (4) |  | Los Angeles, CA |  | 121 |  |  | 129,393 |  |  | 2014 |  | 2014 |  | 98%
Bellerive |  | Los Angeles, CA |  | 63 |  |  | 79,296 |  |  | 2011 |  | 2011 |  | 97%
Belmont Station |  | Los Angeles, CA |  | 275 |  |  | 225,000 |  |  | 2009 |  | 2009 |  | 98%
Bunker Hill |  | Los Angeles, CA |  | 456 |  |  | 346,600 |  |  | 1968 |  | 1998 |  | 90%
Catalina Gardens |  | Los Angeles, CA |  | 128 |  |  | 117,585 |  |  | 1987 |  | 2014 |  | 96%
Cochran Apartments |  | Los Angeles, CA |  | 58 |  |  | 51,400 |  |  | 1989 |  | 1998 |  | 96%
Emerson Valley Village |  | Los Angeles, CA |  | 144 |  |  | 179,060 |  |  | 2012 |  | 2016 |  | 100%
Gas Company Lofts (5) |  | Los Angeles, CA |  | 251 |  |  | 226,666 |  |  | 2004 |  | 2013 |  | 96%

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|  |  |  | Apartment |  | Rentable |  | Year |  | Year |  |
Communities (1) |  | Location |  | Homes |  | Square Footage |  | Built |  | Acquired |  | Occupancy(2)
Jefferson at Hollywood |  | Los Angeles, CA |  | 270 |  |  | 238,119 |  |  | 2010 |  | 2014 |  | 95%
Kings Road |  | Los Angeles, CA |  | 196 |  |  | 132,100 |  |  | 1979 |  | 1997 |  | 97%
Marbella |  | Los Angeles, CA |  | 60 |  |  | 50,108 |  |  | 1991 |  | 2005 |  | 96%
Pacific Electric Lofts (6) |  | Los Angeles, CA |  | 314 |  |  | 277,980 |  |  | 2006 |  | 2012 |  | 95%
Park Catalina |  | Los Angeles, CA |  | 90 |  |  | 72,864 |  |  | 2002 |  | 2012 |  | 96%
Park Place |  | Los Angeles, CA |  | 60 |  |  | 48,000 |  |  | 1988 |  | 1997 |  | 96%
Regency Palm Court (5) |  | Los Angeles, CA |  | 116 |  |  | 54,844 |  |  | 1987 |  | 2014 |  | 95%
Santee Court |  | Los Angeles, CA |  | 165 |  |  | 132,040 |  |  | 2004 |  | 2010 |  | 97%
Santee Village |  | Los Angeles, CA |  | 73 |  |  | 69,817 |  |  | 2011 |  | 2011 |  | 97%
Tiffany Court |  | Los Angeles, CA |  | 101 |  |  | 74,538 |  |  | 1987 |  | 2014 |  | 98%
Wilshire La Brea |  | Los Angeles, CA |  | 478 |  |  | 354,972 |  |  | 2014 |  | 2014 |  | 96%
Windsor Court (5) |  | Los Angeles, CA |  | 95 |  |  | 51,266 |  |  | 1987 |  | 2014 |  | 96%
Windsor Court |  | Los Angeles, CA |  | 58 |  |  | 46,600 |  |  | 1988 |  | 1997 |  | 96%
Aqua Marina Del Rey |  | Marina Del Rey, CA |  | 500 |  |  | 479,312 |  |  | 2001 |  | 2014 |  | 96%
Marina City Club (7) |  | Marina Del Rey, CA |  | 101 |  |  | 127,200 |  |  | 1971 |  | 2004 |  | 97%
Mirabella |  | Marina Del Rey, CA |  | 188 |  |  | 176,800 |  |  | 2000 |  | 2000 |  | 97%
Mira Monte |  | Mira Mesa, CA |  | 354 |  |  | 262,600 |  |  | 1982 |  | 2002 |  | 97%
Madrid (6) |  | Mission Viejo, CA |  | 230 |  |  | 228,099 |  |  | 2000 |  | 2012 |  | 97%
Hillcrest Park |  | Newbury Park, CA |  | 608 |  |  | 521,900 |  |  | 1973 |  | 1998 |  | 96%
Fairway Apartments at Big Canyon (8) |  | Newport Beach, CA |  | 74 |  |  | 107,100 |  |  | 1972 |  | 1999 |  | 96%
Muse |  | North Hollywood, CA |  | 152 |  |  | 135,292 |  |  | 2011 |  | 2011 |  | 97%
Country Villas |  | Oceanside, CA |  | 180 |  |  | 179,700 |  |  | 1976 |  | 2002 |  | 97%
Mission Hills |  | Oceanside, CA |  | 282 |  |  | 244,000 |  |  | 1984 |  | 2005 |  | 97%
Renaissance at Uptown Orange |  | Orange, CA |  | 460 |  |  | 432,836 |  |  | 2007 |  | 2014 |  | 97%
Mariner's Place |  | Oxnard, CA |  | 105 |  |  | 77,200 |  |  | 1987 |  | 2000 |  | 96%
Monterey Villas |  | Oxnard, CA |  | 122 |  |  | 122,100 |  |  | 1974 |  | 1997 |  | 96%
Tierra Vista |  | Oxnard, CA |  | 404 |  |  | 387,100 |  |  | 2001 |  | 2001 |  | 97%
Arbors at Parc Rose (6) |  | Oxnard, CA |  | 373 |  |  | 503,196 |  |  | 2001 |  | 2011 |  | 96%
The Hallie |  | Pasadena, CA |  | 292 |  |  | 216,700 |  |  | 1972 |  | 1997 |  | 94%
The Stuart |  | Pasadena, CA |  | 188 |  |  | 168,630 |  |  | 2007 |  | 2014 |  | 96%
Villa Angelina (4) |  | Placentia, CA |  | 256 |  |  | 217,600 |  |  | 1970 |  | 2001 |  | 97%
Fountain Park |  | Playa Vista, CA |  | 705 |  |  | 608,900 |  |  | 2002 |  | 2004 |  | 97%
Highridge (4) |  | Rancho Palos Verdes, CA |  | 255 |  |  | 290,200 |  |  | 1972 |  | 1997 |  | 97%
Cortesia |  | Rancho Santa Margarita, CA |  | 308 |  |  | 277,580 |  |  | 1999 |  | 2014 |  | 97%
Pinnacle at Talega |  | San Clemente, CA |  | 362 |  |  | 355,764 |  |  | 2002 |  | 2014 |  | 96%
Allure at Scripps Ranch |  | San Diego, CA |  | 194 |  |  | 207,052 |  |  | 2002 |  | 2014 |  | 97%
Bernardo Crest |  | San Diego, CA |  | 216 |  |  | 205,548 |  |  | 1988 |  | 2014 |  | 97%
Cambridge Park |  | San Diego, CA |  | 320 |  |  | 317,958 |  |  | 1998 |  | 2014 |  | 96%
Carmel Creek |  | San Diego, CA |  | 348 |  |  | 384,216 |  |  | 2000 |  | 2014 |  | 95%
Carmel Landing |  | San Diego, CA |  | 356 |  |  | 283,426 |  |  | 1989 |  | 2014 |  | 97%
Carmel Summit |  | San Diego, CA |  | 246 |  |  | 225,880 |  |  | 1989 |  | 2014 |  | 97%
CentrePointe |  | San Diego, CA |  | 224 |  |  | 126,700 |  |  | 1974 |  | 1997 |  | 96%
Domain |  | San Diego, CA |  | 379 |  |  | 345,044 |  |  | 2013 |  | 2013 |  | 96%
Esplanade (18) |  | San Diego, CA |  | 616 |  |  | 479,600 |  |  | 1986 |  | 2014 |  | 96%
Form 15 |  | San Diego, CA |  | 242 |  |  | 184,190 |  |  | 2014 |  | 2016 |  | 96%
Montanosa |  | San Diego, CA |  | 472 |  |  | 414,968 |  |  | 1990 |  | 2014 |  | 96%

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|  |  |  | Apartment |  | Rentable |  | Year |  | Year |  |
Communities (1) |  | Location |  | Homes |  | Square Footage |  | Built |  | Acquired |  | Occupancy(2)
Summit Park |  | San Diego, CA |  | 300 |  |  | 229,400 |  |  | 1972 |  | 2002 |  | 96%
Essex Skyline (9) |  | Santa Ana, CA |  | 349 |  |  | 512,791 |  |  | 2008 |  | 2010 |  | 96%
Fairhaven Apartments (4) |  | Santa Ana, CA |  | 164 |  |  | 135,700 |  |  | 1970 |  | 2001 |  | 97%
Parkside Court (18) |  | Santa Ana, CA |  | 210 |  |  | 152,400 |  |  | 1986 |  | 2014 |  | 97%
Pinnacle at MacArthur Place |  | Santa Ana, CA |  | 253 |  |  | 262,867 |  |  | 2002 |  | 2014 |  | 96%
Hope Ranch |  | Santa Barbara, CA |  | 108 |  |  | 126,700 |  |  | 1965 |  | 2007 |  | 98%
Bridgeport Coast (19) |  | Santa Clarita, CA |  | 188 |  |  | 168,198 |  |  | 2006 |  | 2014 |  | 97%
Hidden Valley (10) |  | Simi Valley, CA |  | 324 |  |  | 310,900 |  |  | 2004 |  | 2004 |  | 98%
Meadowood (24) |  | Simi Valley, CA |  | 320 |  |  | 264,500 |  |  | 1986 |  | 1996 |  | 96%
Shadow Point |  | Spring Valley, CA |  | 172 |  |  | 131,200 |  |  | 1983 |  | 2002 |  | 97%
The Fairways at Westridge (19) |  | Valencia, CA |  | 234 |  |  | 223,330 |  |  | 2004 |  | 2014 |  | 96%
The Vistas of West Hills (19) |  | Valencia, CA |  | 220 |  |  | 221,119 |  |  | 2009 |  | 2014 |  | 96%
Allegro |  | Valley Village, CA |  | 97 |  |  | 127,812 |  |  | 2010 |  | 2010 |  | 98%
Lofts at Pinehurst, The |  | Ventura, CA |  | 118 |  |  | 71,100 |  |  | 1971 |  | 1997 |  | 97%
Pinehurst (11) |  | Ventura, CA |  | 28 |  |  | 21,200 |  |  | 1973 |  | 2004 |  | 98%
Woodside Village |  | Ventura, CA |  | 145 |  |  | 136,500 |  |  | 1987 |  | 2004 |  | 97%
Walnut Heights |  | Walnut, CA |  | 163 |  |  | 146,700 |  |  | 1964 |  | 2003 |  | 97%
The Dylan |  | West Hollywood, CA |  | 184 |  |  | 150,678 |  |  | 2014 |  | 2014 |  | 96%
The Huxley |  | West Hollywood, CA |  | 187 |  |  | 154,776 |  |  | 2014 |  | 2014 |  | 95%
Reveal |  | Woodland Hills, CA |  | 438 |  |  | 414,892 |  |  | 2010 |  | 2011 |  | 96%
Avondale at Warner Center |  | Woodland Hills, CA |  | 446 |  |  | 331,000 |  |  | 1970 |  | 1999 |  | 97%
|  |  |  | 27,968 |  |  | 24,870,300 |  |  |  |  |  |  | 96%
Northern California |  |  |  |  |  |  |  |  |  |  |  |
Belmont Terrace |  | Belmont, CA |  | 71 |  |  | 72,951 |  |  | 1974 |  | 2006 |  | 96%
Fourth & U |  | Berkeley, CA |  | 171 |  |  | 146,255 |  |  | 2010 |  | 2010 |  | 96%
The Commons |  | Campbell, CA |  | 264 |  |  | 153,168 |  |  | 1973 |  | 2010 |  | 97%
Pointe at Cupertino |  | Cupertino, CA |  | 116 |  |  | 135,200 |  |  | 1963 |  | 1998 |  | 97%
Connolly Station (20) |  | Dublin, CA |  | 309 |  |  | 286,348 |  |  | 2014 |  | 2014 |  | 97%
Avenue 64 |  | Emeryville, CA |  | 224 |  |  | 196,896 |  |  | 2007 |  | 2014 |  | 96%
Emme (20) |  | Emeryville, CA |  | 190 |  |  | 148,935 |  |  | 2015 |  | 2015 |  | 97%
Foster's Landing |  | Foster City, CA |  | 490 |  |  | 415,130 |  |  | 1987 |  | 2014 |  | 97%
Stevenson Place |  | Fremont, CA |  | 200 |  |  | 146,200 |  |  | 1975 |  | 2000 |  | 93%
Mission Peaks |  | Fremont, CA |  | 453 |  |  | 404,034 |  |  | 1995 |  | 2014 |  | 93%
Mission Peaks II |  | Fremont, CA |  | 336 |  |  | 294,720 |  |  | 1989 |  | 2014 |  | 95%
Paragon Apartments |  | Fremont, CA |  | 301 |  |  | 267,047 |  |  | 2013 |  | 2014 |  | 97%
Boulevard |  | Fremont, CA |  | 172 |  |  | 131,200 |  |  | 1978 |  | 1996 |  | 93%
Briarwood (6) |  | Fremont, CA |  | 160 |  |  | 111,160 |  |  | 1978 |  | 2011 |  | 94%
The Woods (6) |  | Fremont, CA |  | 160 |  |  | 105,280 |  |  | 1978 |  | 2011 |  | 96%
City Centre (19) |  | Hayward, CA |  | 192 |  |  | 175,420 |  |  | 2000 |  | 2014 |  | 97%
City View |  | Hayward, CA |  | 572 |  |  | 462,400 |  |  | 1975 |  | 1998 |  | 97%
Lafayette Highlands |  | Lafayette, CA |  | 150 |  |  | 151,790 |  |  | 1973 |  | 2014 |  | 97%
Apex |  | Milpitas, CA |  | 366 |  |  | 350,961 |  |  | 2014 |  | 2014 |  | 96%
Regency at Mountain View (5) |  | Mountain View, CA |  | 142 |  |  | 127,600 |  |  | 1970 |  | 2013 |  | 93%
Bridgeport (24) |  | Newark, CA |  | 184 |  |  | 139,000 |  |  | 1987 |  | 1987 |  | 97%
The Landing at Jack London Square |  | Oakland, CA |  | 282 |  |  | 257,796 |  |  | 2001 |  | 2014 |  | 96%
The Grand |  | Oakland, CA |  | 243 |  |  | 205,026 |  |  | 2009 |  | 2009 |  | 97%
Radius |  | Redwood City, CA |  | 264 |  |  | 245,862 |  |  | 2015 |  | 2015 |  | 96%

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|  |  |  | Apartment |  | Rentable |  | Year |  | Year |  |
Communities (1) |  | Location |  | Homes |  | Square Footage |  | Built |  | Acquired |  | Occupancy(2)
San Marcos |  | Richmond, CA |  | 432 |  |  | 407,600 |  |  | 2003 |  | 2003 |  | 96%
Bennett Lofts |  | San Francisco, CA |  | 165 |  |  | 184,713 |  |  | 2004 |  | 2012 |  | 95%
Fox Plaza |  | San Francisco, CA |  | 443 |  |  | 230,017 |  |  | 1968 |  | 2013 |  | 95%
MB 360 |  | San Francisco, CA |  | 360 |  |  | 441,489 |  |  | 2014 |  | 2014 |  | 92%
Mosso (20) |  | San Francisco, CA |  | 463 |  |  | 607,549 |  |  | 2014 |  | 2014 |  | 96%
Park West |  | San Francisco, CA |  | 126 |  |  | 90,060 |  |  | 1958 |  | 2012 |  | 94%
101 San Fernando |  | San Jose, CA |  | 323 |  |  | 296,078 |  |  | 2001 |  | 2010 |  | 96%
Bella Villagio |  | San Jose, CA |  | 231 |  |  | 227,511 |  |  | 2004 |  | 2010 |  | 97%
Enso |  | San Jose, CA |  | 183 |  |  | 179,562 |  |  | 2014 |  | 2015 |  | 96%
Epic (20) |  | San Jose, CA |  | 769 |  |  | 660,030 |  |  | 2013 |  | 2013 |  | 95%
Esplanade |  | San Jose, CA |  | 278 |  |  | 279,000 |  |  | 2002 |  | 2004 |  | 96%
Fountains at River Oaks |  | San Jose, CA |  | 226 |  |  | 209,954 |  |  | 1990 |  | 2014 |  | 97%
Marquis (21) |  | San Jose, CA |  | 166 |  |  | 136,467 |  |  | 2015 |  | 2016 |  | 91%
Mio |  | San Jose, CA |  | 103 |  |  | 92,405 |  |  | 2015 |  | 2016 |  | 97%
Museum Park |  | San Jose, CA |  | 117 |  |  | 121,329 |  |  | 2002 |  | 2014 |  | 97%
One South Market (23) |  | San Jose, CA |  | 312 |  |  | 283,268 |  |  | 2015 |  | 2015 |  | 96%
Palm Valley (15) |  | San Jose, CA |  | 1,098 |  |  | 1,132,284 |  |  | 2008 |  | 2014 |  | 95%
The Carlyle (24) |  | San Jose, CA |  | 132 |  |  | 129,200 |  |  | 2000 |  | 2000 |  | 96%
The Waterford |  | San Jose, CA |  | 238 |  |  | 219,600 |  |  | 2000 |  | 2000 |  | 97%
Willow Lake |  | San Jose, CA |  | 508 |  |  | 471,744 |  |  | 1989 |  | 2012 |  | 97%
Lakeshore Landing |  | San Mateo, CA |  | 308 |  |  | 223,972 |  |  | 1988 |  | 2014 |  | 96%
Hillsdale Garden |  | San Mateo, CA |  | 697 |  |  | 611,505 |  |  | 1948 |  | 2006 |  | 97%
Park 20 (20) |  | San Mateo, CA |  | 197 |  |  | 140,547 |  |  | 2015 |  | 2015 |  | 96%
Deer Valley |  | San Rafael, CA |  | 171 |  |  | 167,238 |  |  | 1996 |  | 2014 |  | 96%
Bel Air |  | San Ramon, CA |  | 462 |  |  | 391,000 |  |  | 1988 |  | 1995 |  | 97%
Canyon Oaks |  | San Ramon, CA |  | 250 |  |  | 237,894 |  |  | 2005 |  | 2007 |  | 98%
Crow Canyon |  | San Ramon, CA |  | 400 |  |  | 337,064 |  |  | 1992 |  | 2014 |  | 96%
Foothill Gardens |  | San Ramon, CA |  | 132 |  |  | 155,100 |  |  | 1985 |  | 1997 |  | 97%
Mill Creek at Windermere |  | San Ramon, CA |  | 400 |  |  | 381,060 |  |  | 2005 |  | 2007 |  | 98%
Twin Creeks |  | San Ramon, CA |  | 44 |  |  | 51,700 |  |  | 1985 |  | 1997 |  | 97%
1000 Kiely |  | Santa Clara, CA |  | 121 |  |  | 128,486 |  |  | 1971 |  | 2011 |  | 97%
Le Parc |  | Santa Clara, CA |  | 140 |  |  | 113,200 |  |  | 1975 |  | 1994 |  | 98%
Marina Cove (13) |  | Santa Clara, CA |  | 292 |  |  | 250,200 |  |  | 1974 |  | 1994 |  | 96%
Riley Square (6) |  | Santa Clara, CA |  | 156 |  |  | 126,900 |  |  | 1972 |  | 2012 |  | 96%
Villa Granada |  | Santa Clara, CA |  | 270 |  |  | 238,841 |  |  | 2010 |  | 2014 |  | 97%
Chestnut Street Apartments |  | Santa Cruz, CA |  | 96 |  |  | 87,640 |  |  | 2002 |  | 2008 |  | 97%
Bristol Commons |  | Sunnyvale, CA |  | 188 |  |  | 142,600 |  |  | 1989 |  | 1995 |  | 97%
Brookside Oaks (4) |  | Sunnyvale, CA |  | 170 |  |  | 119,900 |  |  | 1973 |  | 2000 |  | 97%
Lawrence Station |  | Sunnyvale, CA |  | 336 |  |  | 297,188 |  |  | 2012 |  | 2014 |  | 97%
Magnolia Lane (14) |  | Sunnyvale, CA |  | 32 |  |  | 31,541 |  |  | 2001 |  | 2007 |  | 97%
Magnolia Square (4) |  | Sunnyvale, CA |  | 156 |  |  | 110,824 |  |  | 1963 |  | 2007 |  | 97%
Montclaire |  | Sunnyvale, CA |  | 390 |  |  | 294,100 |  |  | 1973 |  | 1988 |  | 97%
Reed Square |  | Sunnyvale, CA |  | 100 |  |  | 95,440 |  |  | 1970 |  | 2011 |  | 97%
Solstice |  | Sunnyvale, CA |  | 280 |  |  | 257,659 |  |  | 2014 |  | 2014 |  | 96%
Summerhill Park |  | Sunnyvale, CA |  | 100 |  |  | 78,500 |  |  | 1988 |  | 1988 |  | 96%
Via |  | Sunnyvale, CA |  | 284 |  |  | 309,421 |  |  | 2011 |  | 2011 |  | 98%
Windsor Ridge |  | Sunnyvale, CA |  | 216 |  |  | 161,800 |  |  | 1989 |  | 1989 |  | 97%
Vista Belvedere |  | Tiburon, CA |  | 76 |  |  | 78,300 |  |  | 1963 |  | 2004 |  | 93%

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|  |  |  | Apartment |  | Rentable |  | Year |  | Year |  |
Communities (1) |  | Location |  | Homes |  | Square Footage |  | Built |  | Acquired |  | Occupancy(2)
Verandas (19) |  | Union City, CA |  | 282 |  |  | 199,092 |  |  | 1989 |  | 2014 |  | 96%
Agora(22) |  | Walnut Creek, CA |  | 49 |  |  | 106,228 |  |  | 2016 |  | 2016 |  | 71%
|  |  |  | 19,480 |  |  | 17,455,179 |  |  |  |  |  |  | 96%
Seattle, Washington Metropolitan Area |  |  |  |  |  |  |  |  |  |
Belcarra |  | Bellevue, WA |  | 296 |  |  | 241,567 |  |  | 2009 |  | 2014 |  | 96%
BellCentre |  | Bellevue, WA |  | 248 |  |  | 181,288 |  |  | 2001 |  | 2014 |  | 96%
Cedar Terrace |  | Bellevue, WA |  | 180 |  |  | 174,200 |  |  | 1984 |  | 2005 |  | 96%
Courtyard off Main |  | Bellevue, WA |  | 110 |  |  | 108,388 |  |  | 2000 |  | 2010 |  | 97%
Ellington |  | Bellevue, WA |  | 220 |  |  | 165,794 |  |  | 1994 |  | 2014 |  | 95%
Emerald Ridge |  | Bellevue, WA |  | 180 |  |  | 144,000 |  |  | 1987 |  | 1994 |  | 96%
Foothill Commons |  | Bellevue, WA |  | 394 |  |  | 288,300 |  |  | 1978 |  | 1990 |  | 96%
Palisades, The |  | Bellevue, WA |  | 192 |  |  | 159,700 |  |  | 1977 |  | 1990 |  | 97%
Park Highland |  | Bellevue, WA |  | 250 |  |  | 224,750 |  |  | 1993 |  | 2014 |  | 95%
Piedmont |  | Bellevue, WA |  | 396 |  |  | 348,969 |  |  | 1969 |  | 2014 |  | 96%
Sammamish View |  | Bellevue, WA |  | 153 |  |  | 133,500 |  |  | 1986 |  | 1994 |  | 97%
Woodland Commons |  | Bellevue, WA |  | 302 |  |  | 217,878 |  |  | 1978 |  | 1990 |  | 95%
Bothell Ridge (18) |  | Bothell, WA |  | 214 |  |  | 167,370 |  |  | 1988 |  | 2014 |  | 96%
Canyon Pointe |  | Bothell, WA |  | 250 |  |  | 210,400 |  |  | 1990 |  | 2003 |  | 96%
Inglenook Court |  | Bothell, WA |  | 224 |  |  | 183,600 |  |  | 1985 |  | 1994 |  | 97%
Pinnacle Sonata |  | Bothell, WA |  | 268 |  |  | 343,095 |  |  | 2000 |  | 2014 |  | 96%
Salmon Run at Perry Creek |  | Bothell, WA |  | 132 |  |  | 117,100 |  |  | 2000 |  | 2000 |  | 97%
Stonehedge Village |  | Bothell, WA |  | 196 |  |  | 214,800 |  |  | 1986 |  | 1997 |  | 97%
Highlands at Wynhaven |  | Issaquah, WA |  | 333 |  |  | 424,674 |  |  | 2000 |  | 2008 |  | 95%
Park Hill at Issaquah |  | Issaquah, WA |  | 245 |  |  | 277,700 |  |  | 1999 |  | 1999 |  | 96%
Wandering Creek |  | Kent, WA |  | 156 |  |  | 124,300 |  |  | 1986 |  | 1995 |  | 97%
Ascent |  | Kirkland, WA |  | 90 |  |  | 75,840 |  |  | 1988 |  | 2012 |  | 97%
Bridle Trails |  | Kirkland, WA |  | 108 |  |  | 99,700 |  |  | 1986 |  | 1997 |  | 97%
Corbella at Juanita Bay |  | Kirkland, WA |  | 169 |  |  | 103,339 |  |  | 1978 |  | 2010 |  | 96%
Evergreen Heights |  | Kirkland, WA |  | 200 |  |  | 188,300 |  |  | 1990 |  | 1997 |  | 96%
Slater 116 |  | Kirkland, WA |  | 108 |  |  | 81,415 |  |  | 2013 |  | 2013 |  | 96%
Montebello |  | Kirkland, WA |  | 248 |  |  | 272,734 |  |  | 1996 |  | 2012 |  | 95%
Aviara (12) |  | Mercer Island, WA |  | 166 |  |  | 147,033 |  |  | 2013 |  | 2014 |  | 96%
Laurels at Mill Creek |  | Mill Creek, WA |  | 164 |  |  | 134,300 |  |  | 1981 |  | 1996 |  | 97%
Parkwood at Mill Creek |  | Mill Creek, WA |  | 240 |  |  | 257,160 |  |  | 1989 |  | 2014 |  | 96%
The Elliot at Mukilteo (4) |  | Mukilteo, WA |  | 301 |  |  | 245,900 |  |  | 1981 |  | 1997 |  | 96%
Castle Creek |  | Newcastle, WA |  | 216 |  |  | 191,900 |  |  | 1998 |  | 1998 |  | 97%
Delano |  | Redmond, WA |  | 126 |  |  | 116,340 |  |  | 2005 |  | 2011 |  | 97%
Elevation |  | Redmond, WA |  | 158 |  |  | 138,916 |  |  | 1986 |  | 2010 |  | 97%
Redmond Hill (6) |  | Redmond, WA |  | 442 |  |  | 350,275 |  |  | 1985 |  | 2011 |  | 96%
Shadowbrook |  | Redmond, WA |  | 418 |  |  | 338,880 |  |  | 1986 |  | 2014 |  | 96%
The Trails of Redmond |  | Redmond, WA |  | 423 |  |  | 376,000 |  |  | 1985 |  | 2014 |  | 97%
Vesta (6) |  | Redmond, WA |  | 440 |  |  | 381,675 |  |  | 1998 |  | 2011 |  | 97%
Brighton Ridge |  | Renton, WA |  | 264 |  |  | 201,300 |  |  | 1986 |  | 1996 |  | 96%
Fairwood Pond |  | Renton, WA |  | 194 |  |  | 189,200 |  |  | 1997 |  | 2004 |  | 97%
Forest View |  | Renton, WA |  | 192 |  |  | 182,500 |  |  | 1998 |  | 2003 |  | 97%
Pinnacle on Lake Washington |  | Renton, WA |  | 180 |  |  | 190,908 |  |  | 2001 |  | 2014 |  | 96%
Annaliese |  | Seattle, WA |  | 56 |  |  | 48,216 |  |  | 2009 |  | 2013 |  | 96%
The Audrey at Belltown |  | Seattle, WA |  | 137 |  |  | 94,119 |  |  | 1992 |  | 2014 |  | 96%

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|  |  |  | Apartment |  | Rentable |  | Year |  | Year |  |
Communities (1) |  | Location |  | Homes |  | Square Footage |  | Built |  | Acquired |  | Occupancy(2)
Ballinger Commons (18) |  | Seattle, WA |  | 485 |  |  | 407,253 |  |  | 1989 |  | 2014 |  | 96%
The Bernard |  | Seattle, WA |  | 63 |  |  | 43,151 |  |  | 2008 |  | 2011 |  | 96%
Cairns, The |  | Seattle, WA |  | 100 |  |  | 70,806 |  |  | 2006 |  | 2007 |  | 97%
Citywalk (18) |  | Seattle, WA |  | 102 |  |  | 92,010 |  |  | 1988 |  | 2014 |  | 97%
Collins on Pine |  | Seattle, WA |  | 76 |  |  | 48,733 |  |  | 2013 |  | 2014 |  | 97%
Domaine |  | Seattle, WA |  | 92 |  |  | 79,421 |  |  | 2009 |  | 2012 |  | 97%
Expo (15) |  | Seattle, WA |  | 275 |  |  | 190,176 |  |  | 2012 |  | 2012 |  | 97%
Fountain Court |  | Seattle, WA |  | 320 |  |  | 207,000 |  |  | 2000 |  | 2000 |  | 96%
Joule (16) |  | Seattle, WA |  | 295 |  |  | 191,109 |  |  | 2010 |  | 2010 |  | 97%
Taylor 28 |  | Seattle, WA |  | 197 |  |  | 155,630 |  |  | 2008 |  | 2014 |  | 96%
Vox Apartments |  | Seattle, WA |  | 58 |  |  | 42,173 |  |  | 2013 |  | 2013 |  | 97%
Wharfside Pointe |  | Seattle, WA |  | 155 |  |  | 119,200 |  |  | 1990 |  | 1994 |  | 95%
|  |  |  | 12,197 |  |  | 10,503,985 |  |  |  |  |  |  | 96%
Total/Weighted Average |  |  |  | 59,645 |  |  | 52,829,464 |  |  |  |  |  |  | 96%

|  |  |  |  |  | Square |  | Year |  | Year |  |
Other real estate assets (1) |  | Location |  | Tenants |  | Footage |  | Built |  | Acquired |  | Occupancy (2)
Essex - Hollywood |  | Los Angeles, CA |  | — |  | 34,000 |  |  | 1938 |  | 2006 |  | —%
Derian Office Building (17) |  | Irvine, CA |  | 8 |  | 106,564 |  |  | 1983 |  | 2000 |  | 100%
|  |  |  | 8 |  | 140,564 |  |  |  |  |  |  | 76%

Footnotes to the Company’s Portfolio Listing as of December 31, 2016

(1) | Unless otherwise specified, the Company has a 100% ownership interest in each community.

(2) | For communities, occupancy rates are based on financial occupancy for the year ended December 31, 2016; for the commercial buildings occupancy rates are based on physical occupancy as of December 31, 2016. For an explanation of how financial occupancy and physical occupancy are calculated, see “Properties-Occupancy Rates” in this Item 2.

(3) | The community is subject to a ground lease, which, unless extended, will expire in 2082.

(4) | The Company holds a 1% special limited partner interest in the partnerships which own these apartment communities. These investments were made under arrangements whereby Essex Management Company became the 1% sole general partner and the other limited partners were granted the right to require the applicable partnership to redeem their interest for cash. Subject to certain conditions, the Company may, however, elect to deliver an equivalent number of shares of the Company’s common stock in satisfaction of the applicable partnership’s cash redemption obligation.

(5) | This community is owned by Wesco III. The Company has a 50% interest in Wesco III which is accounted for using the equity method of accounting.

(6) | This community is owned by Wesco I. The Company has a 50% interest in Wesco I which is accounted for using the equity method of accounting.

(7) | This community is subject to a ground lease, which, unless extended, will expire in 2067.

(8) | This community is subject to a ground lease, which, unless extended, will expire in 2027.

(9) | The Company has a 97% interest and an Executive Vice President of the Company has a 3% interest in this community.

(10) | The Company has a 75% member interest.

(11) | The community is subject to a ground lease, which, unless extended, will expire in 2028.

(12) | This community is subject to a ground lease, which, unless extended, will expire in 2070.

(13) | A portion of this community on which 84 apartment homes are presently located is subject to a ground lease, which, unless extended, will expire in 2028.

(14) | The community is subject to a ground lease, which, unless extended, will expire in 2070.

(15) | The Company has 50% ownership in each of these communities which is accounted for using the equity method of accounting.

(16) | The Company has 99% ownership in this community.

(17) | The Company occupies 8% of space in this property.

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Table of Contents

(18) | This community is owned by BEXAEW. The Company has a 50% interest in BEXAEW which is accounted for using the equity method of accounting.

(19) | This community is owned by Wesco IV. The Company has a 50% interest in Wesco IV which is accounted for using the equity method of accounting.

(20) | This community is owned by an entity that is co-owned by the Company and CPP. The Company has a 55% ownership in this community which is accounted for using the equity method of accounting.

(21) | The Company has a 50.1% membership interest in this community which is accounted for using the equity method of accounting.

(22) | This community is owned by an entity that is co-owned by the Company and CPP. The Company has a 51% membership interest in this community which is accounted for using the equity method of accounting.

(23) | The Company has a 55% membership interest in this community which is accounted for using the equity method of accounting.

(24) | This community is owned by BEX II. The Company has a 50.1% interest in BEX II which is accounted for using the equity method of accounting.

Item 3. Legal Proceedings
The information, which regards lawsuits, other proceedings and claims, set forth in Note 15, “Commitments and Contingencies”, of our notes to consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K is incorporated by reference into this Item 3. In addition to such matters referred to in Note 15, the Company is subject to various other legal and/or regulatory proceedings arising in the course of its business operations. We believe that, with respect to such matters that we are currently a party to, the ultimate disposition of any such matter will not result in a material adverse effect on the Company’s financial condition, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not Applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The shares of the Company’s common stock are traded on the New York Stock Exchange (“NYSE”) under the symbol ESS. ESS common stock has been traded on the NYSE since June 13, 1994. The high, low and closing price per share of common stock reported on the NYSE for the quarters indicated are as follows:

Quarter Ended |  | High |  | Low |  | Close
December 31, 2016 |  | $ | 234.07 |  |  | $ | 200.01 |  |  | $ | 232.50 |
September 30, 2016 |  | $ | 236.56 |  |  | $ | 217.16 |  |  | $ | 222.70 |
June 30, 2016 |  | $ | 237.50 |  |  | $ | 207.20 |  |  | $ | 228.09 |
March 31, 2016 |  | $ | 240.55 |  |  | $ | 191.25 |  |  | $ | 233.86 |
December 31, 2015 |  | $ | 244.71 |  |  | $ | 214.29 |  |  | $ | 239.41 |
September 30, 2015 |  | $ | 232.20 |  |  | $ | 205.72 |  |  | $ | 223.42 |
June 30, 2015 |  | $ | 231.90 |  |  | $ | 208.85 |  |  | $ | 212.50 |
March 31, 2015 |  | $ | 243.17 |  |  | $ | 207.26 |  |  | $ | 229.90 |

The closing price of ESS stock as of February 21, 2017 was $230.97.
There is no established public trading market for Essex Portfolio, L.P.’s OP Units.
Holders
The approximate number of holders of record of the shares of ESS common stock was 1,336 as of February 21, 2017. This number does not include stockholders whose shares are held in investment accounts by other entities. ESS believes the actual number of stockholders is greater than the number of holders of record.
As of February 21, 2017, there were 184 holders of record of Essex Portfolio, L.P.’s OP Units, including ESS.
Return of Capital
Under provisions of the Internal Revenue Code of 1986, as amended, the portion of the cash dividend, if any, that exceeds earnings and profits is considered a return of capital. The return of capital is generated due to a variety of factors, including the deduction of non-cash expenses, primarily depreciation, in the determination of earnings and profits.
The status of the cash dividends distributed for the years ended December 31, 2016, 2015, and 2014 related to common stock, and Series H preferred stock for tax purposes are as follows:

|  | 2016 |  | 2015 |  | 2014
Common Stock |  |  |  |  |  |
Ordinary income |  | 86.68 | % |  | 99.28 | % |  | 70.03 | %
Capital gain |  | 7.11 | % |  | 0.72 | % |  | 21.95 | %
Unrecaptured section 1250 capital gain |  | 6.21 | % |  | — | % |  | 8.02 | %
|  | 100.00 | % |  | 100.00 | % |  | 100.00 | %
|  | 2016 |  | 2015 |  | 2014
Series G and H Preferred stock |  |  |  |  |  |  |  |  |
Ordinary income |  | 86.68 | % |  | 99.28 | % |  | 70.03 | %
Capital gains |  | 7.11 | % |  | 0.72 | % |  | 21.95 | %
Unrecaptured section 1250 capital gain |  | 6.21 | % |  | — | % |  | 8.02 | %
|  | 100.00 | % |  | 100.00 | % |  | 100.00 | %

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Dividends and Distributions
Since ESS’s initial public offering on June 13, 1994, ESS and the Operating Partnership have paid regular quarterly dividends/distributions to its stockholders and unitholders. ESS paid the following dividends per share of common stock and the Operating Partnership paid the following distributions per limited partner OP unit:

Year Ended |  | Annual Dividend/Distribution |  | Quarter Ended |  | 2016 |  | 2015 |  | 2014
1995 |  | $ | 1.69 |  |  | March 31, |  | $1.60 |  | $1.44 |  | $1.21
1996 |  | $ | 1.72 |  |  | June 30, |  | $1.60 |  | $1.44 |  | $1.30
1997 |  | $ | 1.77 |  |  | September 30, |  | $1.60 |  | $1.44 |  | $1.30
1998 |  | $ | 1.95 |  |  | December 31, |  | $1.60 |  | $1.44 |  | $1.30
1999 |  | $ | 2.15 |  |  |  |  |  |  |  |  |
2000 |  | $ | 2.38 |  |  | Annual Dividend/Distribution |  | $6.40 |  | $5.76 |  | $5.11
2001 |  | $ | 2.80 |  |  |  |  |  |  |  |  |
2002 |  | $ | 3.08 |  |  |  |  |  |  |  |  |
2003 |  | $ | 3.12 |  |  |  |  |  |  |  |  |
2004 |  | $ | 3.16 |  |  |  |  |  |  |  |  |
2005 |  | $ | 3.24 |  |  |  |  |  |  |  |  |
2006 |  | $ | 3.36 |  |  |  |  |  |  |  |  |
2007 |  | $ | 3.72 |  |  |  |  |  |  |  |  |
2008 |  | $ | 4.08 |  |  |  |  |  |  |  |  |
2009 |  | $ | 4.12 |  |  |  |  |  |  |  |  |
2010 |  | $ | 4.13 |  |  |  |  |  |  |  |  |
2011 |  | $ | 4.16 |  |  |  |  |  |  |  |  |
2012 |  | $ | 4.40 |  |  |  |  |  |  |  |  |
2013 |  | $ | 4.84 |  |  |  |  |  |  |  |  |

Future dividends/distributions by ESS and the Operating Partnership will be at the discretion of the Board of Directors of ESS and will depend on the actual cash flows from operations of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, applicable legal restrictions and such other factors as the Board of Directors deem relevant. There are currently no contractual restrictions on ESS and the Operating Partnership present or future ability to pay dividends and distributions.
The Board of Directors has declared a dividend/distribution for the fourth quarter of 2016 of $1.60 per share. The dividend/distribution was paid on January 17, 2017 to shareholders/unitholders of record as of December 30, 2016.
Dividend Reinvestment and Share Purchase Plan
ESS has adopted a dividend reinvestment and share purchase plan designed to provide holders of common stock with a convenient and economical means to reinvest all or a portion of their cash dividends in shares of common stock and to acquire additional shares of common stock through voluntary purchases. Computershare, LLC, which serves as ESS transfer agent, administers the dividend reinvestment and share purchase plan. For a copy of the plan, contact Computershare, LLC at (312) 360-5354.
Securities Authorized for Issuance under Equity Compensation Plans
See the Company’s disclosure in the 2017 Proxy Statement under the heading “Equity Compensation Plan Information”, which disclosure is incorporated herein by reference.
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Issuance of Registered Equity Securities
During 2016, ESS did not make any common stock sales pursuant to its registration statement. Additionally, during the first quarter of 2017 through February 21, 2017, ESS has not issued any shares of common stock.
Issuer Purchases of Equity Securities
In December 2015, ESS Board of Directors authorized a stock repurchase plan to allow ESS to acquire shares in an aggregate of up to $250 million. Under the program, in October 2016, the Company repurchased and retired 5,100 shares totaling $1.0 million, including commissions, at an average stock price of $204.92 per share. There have been no other repurchases since the inception of this plan. The Company has $249 million of purchase authority remaining under the plan.
Performance Graph
The line graph below compares the cumulative total stockholder return on ESS common stock for the last five years with the cumulative total return on the S&P 500 and the NAREIT All Equity REIT index over the same period. This comparison assumes that the value of the investment in the common stock and each index was $100 on December 31, 2011 and that all dividends were reinvested (1).

|  | Period Ending
Index |  | 12/31/2011 |  |  | 12/31/2012 |  |  | 12/31/2013 |  |  | 12/31/2014 |  |  | 12/31/2015 |  |  | 12/31/2016 |
Essex Property Trust, Inc. |  | 100.00 |  |  | 107.51 |  |  | 108.64 |  |  | 160.79 |  |  | 191.14 |  |  | 190.89 |
NAREIT All Equity REIT Index |  | 100.00 |  |  | 119.70 |  |  | 123.12 |  |  | 157.63 |  |  | 162.08 |  |  | 176.07 |
S&P 500 |  | 100.00 |  |  | 116.00 |  |  | 153.57 |  |  | 174.60 |  |  | 177.01 |  |  | 198.18 |

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(1) | Common stock performance data is provided by SNL Financial.

The graph and other information furnished under the above caption “Performance Graph” in this Part II Item 5 of this Form 10-K shall not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of the Exchange Act, as amended.
Unregistered Sales of Equity Securities
During the years ended December 31, 2016 and 2015, the Operating Partnership issued partnership units in private placements in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, in the amounts and for the consideration set forth below:
During the years ended December 31, 2016 and 2015, ESS issued an aggregate of 137,622 and 203,556 shares of its common stock upon the exercise of stock options, respectively. ESS contributed the proceeds from the option exercises of $18.9 million and $26.5 million to our Operating Partnership in exchange for an aggregate of 137,622 and 203,556 common OP Units, as required by the Operating Partnership’s partnership agreement, during the years ended December 31, 2016 and 2015, respectively.
During the years ended December 31, 2016 and 2015, ESS issued an aggregate of 2,018 and 3,338 shares of its common stock in connection with restricted stock awards for no cash consideration, respectively. For each share of common stock issued by ESS in connection with such awards, our Operating Partnership issued common OP units to ESS as required by the partnership agreement, for an aggregate of 2,018 and 3,338 units during the years ended December 31, 2016 and 2015, respectively.
During the years ended December 31, 2016 and 2015, ESS issued an aggregate of 14,094 and 6,450 shares of its common stock in connection with the exchange of Operating Partnership limited partnership units and DownREIT limited partnership units by limited partners into shares of common stock. For each share of common stock issued by ESS in connection with such exchange, our Operating Partnership issued common OP units to ESS as required by the partnership agreement, for an aggregate of 14,094 and 6,450 units during the year ended December 31, 2016 and 2015, respectively.
During the year ended December 31, 2016, there were no shares of ESS's common stock issued or sold pursuant to its equity distribution program. During the year ended December 31, 2015, ESS issued and sold an aggregate of 1,481,737 shares of its common stock, respectively, pursuant to a registration statement and its equity distribution program. ESS contributed the net proceeds from these share issuances of $332.3 million in exchange for an aggregate of 1,481,737 common OP Units, respectively, as required by the Operating Partnership's partnership agreement.
Item 6. Selected Financial Data
The following tables set forth summary financial and operating information for the ESS and the Operating Partnership from January 1, 2012 through December 31, 2016.
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Essex Property Trust, Inc. and Subsidiaries

|  | Years Ended December 31,
|  | 2016 |  | 2015 |  | 2014 |  | 2013 |  | 2012
|  | ($ in thousands, except per share amounts)
OPERATING DATA:(1) |  |  |  |  |  |  |  |  |  |
Rental and other property |  | $ | 1,285,723 |  |  | $ | 1,185,498 |  |  | $ | 961,591 |  |  | $ | 603,327 |  |  | $ | 527,945 |
Management and other fees from affiliates |  | 8,278 |  |  | 8,909 |  |  | 9,347 |  |  | 7,263 |  |  | 8,457 |
Income before discontinued operations |  | $ | 438,410 |  |  | $ | 248,239 |  |  | $ | 134,438 |  |  | $ | 140,882 |  |  | $ | 127,653 |
Income from discontinued operations |  | — |  |  | — |  |  | — |  |  | 31,173 |  |  | 11,937 |
Net income |  | 438,410 |  |  | 248,239 |  |  | 134,438 |  |  | 172,055 |  |  | 139,590 |
Net income available to common stockholders |  | $ | 411,124 |  |  | $ | 226,865 |  |  | $ | 116,859 |  |  | $ | 150,811 |  |  | $ | 119,812 |
Per share data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income before discontinued operations available to common stockholders |  | $ | 6.28 |  |  | $ | 3.50 |  |  | $ | 2.07 |  |  | $ | 3.26 |  |  | $ | 3.10 |
Net income available to common stockholders |  | $ | 6.28 |  |  | $ | 3.50 |  |  | $ | 2.07 |  |  | $ | 4.05 |  |  | $ | 3.42 |
Weighted average common stock outstanding |  | 65,472 |  |  | 64,872 |  |  | 56,547 |  |  | 37,249 |  |  | 35,032 |
Diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income before discontinued operations available to common stockholders |  | $ | 6.27 |  |  | $ | 3.49 |  |  | $ | 2.06 |  |  | $ | 3.25 |  |  | $ | 3.09 |
Net income available to common stockholders |  | $ | 6.27 |  |  | $ | 3.49 |  |  | $ | 2.06 |  |  | $ | 4.04 |  |  | $ | 3.41 |
Weighted average common stock outstanding |  | 65,588 |  |  | 65,062 |  |  | 56,697 |  |  | 37,335 |  |  | 35,125 |
Cash dividend per common share |  | $ | 6.40 |  |  | $ | 5.76 |  |  | $ | 5.11 |  |  | $ | 4.84 |  |  | $ | 4.40 |

(1) | Reclassifications have been made in prior periods to conform to the current year’s presentation.

|  | As of December 31,
|  | 2016 |  | 2015 |  | 2014 |  | 2013 |  | 2012
|  | ($ in thousands)
BALANCE SHEET DATA:(1) |  |  |  |  |  |  |  |  |  |
Investment in rental properties (before accumulated depreciation) |  | $ | 12,676,306 |  |  | $ | 12,331,469 |  |  | $ | 11,244,681 |  |  | $ | 5,443,757 |  |  | $ | 5,033,672 |
Net investment in rental properties |  | 10,364,760 |  |  | 10,381,577 |  |  | 9,679,875 |  |  | 4,188,871 |  |  | 3,952,155 |
Real estate under development |  | 190,505 |  |  | 242,326 |  |  | 429,096 |  |  | 50,430 |  |  | 66,851 |
Co-investments |  | 1,161,275 |  |  | 1,036,047 |  |  | 1,042,423 |  |  | 677,133 |  |  | 571,345 |
Total assets |  | 12,217,408 |  |  | 12,008,384 |  |  | 11,530,299 |  |  | 5,164,171 |  |  | 4,828,821 |
Total indebtedness |  | 5,563,260 |  |  | 5,318,757 |  |  | 5,084,256 |  |  | 3,010,856 |  |  | 2,800,281 |
Redeemable noncontrolling interest |  | 44,684 |  |  | 45,452 |  |  | 23,256 |  |  | — |  |  | — |
Cumulative convertible preferred stock |  | — |  |  | — |  |  | — |  |  | 4,349 |  |  | 4,349 |
Cumulative redeemable preferred stock |  | — |  |  | 73,750 |  |  | 73,750 |  |  | 73,750 |  |  | 73,750 |
Stockholders' equity |  | 6,192,178 |  |  | 6,237,733 |  |  | 6,022,672 |  |  | 1,884,619 |  |  | 1,764,804 |

(1) | Reclassifications have been made in prior periods to conform to the current year’s presentation.

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|  | As of and for the years ended December 31,
|  | 2016 |  | 2015 |  | 2014 |  | 2013 |  | 2012
|  | ($ in thousands, except per share amounts)
OTHER DATA: |  |
Funds from operations (FFO)(1) attributable to common stockholders and unitholders: |  |  |  |  |  |  |  |  |  |
Net income available to common stockholders |  | $ | 411,124 |  |  | $ | 226,865 |  |  | $ | 116,859 |  |  | $ | 150,811 |  |  | $ | 119,812 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  | 441,682 |  |  | 453,423 |  |  | 360,592 |  |  | 193,518 |  |  | 170,686 |
Gains not included in FFO attributable to common stockholders and unitholders |  | (167,607 | ) |  | (81,347 | ) |  | (50,064 | ) |  | (67,975 | ) |  | (60,842 | )
Deferred tax expense on sale of real estate and land - taxable REIT subsidiary activity |  | 4,410 |  |  | — |  |  | — |  |  | — |  |  | — |
Depreciation add back from unconsolidated co-investments |  | 50,956 |  |  | 49,826 |  |  | 33,975 |  |  | 15,748 |  |  | 14,467 |
Noncontrolling interest related to Operating Partnership units |  | 14,089 |  |  | 7,824 |  |  | 4,911 |  |  | 8,938 |  |  | 7,950 |
Insurance reimbursements |  | — |  |  | (1,751 | ) |  | — |  |  | — |  |  | — |
Depreciation attributable to third party ownership and other |  | (9 | ) |  | (781 | ) |  | (1,331 | ) |  | (1,309 | ) |  | (1,223 | )
Funds from operations attributable to common stockholders and unitholders |  | $ | 754,645 |  |  | $ | 654,059 |  |  | $ | 464,942 |  |  | $ | 299,731 |  |  | $ | 250,850 |
Non-core items: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Merger and integration expenses |  | — |  |  | 3,798 |  |  | 53,530 |  |  | 4,284 |  |  | — |
Acquisition and investment related costs |  | 1,841 |  |  | 2,414 |  |  | 1,878 |  |  | 1,161 |  |  | 2,255 |
Gain on sale of marketable securities, note prepayment, and other investments |  | (5,719 | ) |  | (598 | ) |  | (886 | ) |  | (2,519 | ) |  | (819 | )
Gain on sale of land |  | — |  |  | — |  |  | (2,533 | ) |  | (1,503 | ) |  | — |
Interest rate hedge ineffectiveness (2) |  | (250 | ) |  | — |  |  | — |  |  | — |  |  | — |
Loss on early retirement of debt |  | 606 |  |  | 6,114 |  |  | 268 |  |  | 300 |  |  | 5,009 |
Co-investment promote income |  | — |  |  | (192 | ) |  | (10,640 | ) |  | — |  |  | (2,299 | )
Income from early redemption of preferred equity investments |  | — |  |  | (1,954 | ) |  | (5,250 | ) |  | (1,358 | ) |  | — |
Excess of redemption value of preferred stock over carrying value |  | 2,541 |  |  | — |  |  | — |  |  | — |  |  | — |
Insurance reimbursements, legal settlements, and other, net (3) |  | (4,470 | ) |  | (2,970 | ) |  | 1,852 |  |  | — |  |  | — |
Core funds from operations (Core FFO) attributable to common stockholders and unitholders |  | $ | 749,194 |  |  | $ | 660,671 |  |  | $ | 503,161 |  |  | $ | 300,096 |  |  | $ | 254,996 |
Weighted average number of shares outstanding, diluted (FFO)(4) |  | 67,890 |  |  | 67,310 |  |  | 58,921 |  |  | 39,501 |  |  | 37,378 |
Funds from operations attributable to common stockholders and unitholders per share - diluted |  | $ | 11.12 |  |  | $ | 9.72 |  |  | $ | 7.89 |  |  | $ | 7.59 |  |  | $ | 6.71 |
Core funds from operations attributable to common stockholders and unitholders per share - diluted |  | $ | 11.04 |  |  | $ | 9.82 |  |  | $ | 8.54 |  |  | $ | 7.60 |  |  | $ | 6.82 |

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

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FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor does it intend to present, a complete picture of the Company's 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. The Company considers FFO and FFO excluding non-routine items (referred to as “Core FFO”) to be useful financial performance measurements of an equity REIT because, together with net income and cash flows, FFO provides investors with an additional basis to evaluate operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and its ability to pay dividends. 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 Real Estate Investment Trusts (“NAREIT”), which is a REIT trade association. The Company believes that, under the NAREIT FFO definition, the three most significant adjustments made to net income are (i) the exclusion of historical cost depreciation, (ii) the exclusion of gains and losses from the sale of previously depreciated properties and (iii) the exclusion of impairment losses on depreciated properties. Essex agrees that these three NAREIT adjustments are useful to investors for the following reasons:

(a) | historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.

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

Management has consistently applied the NAREIT definition of FFO to all periods presented. However, other REITs in calculating FFO may vary from the NAREIT definition for this measure, and thus their disclosure of FFO may not be comparable to the Company’s calculation.

(2) | Interest rate swaps generally are adjusted to fair value through other comprehensive income (loss). However, because certain of our interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portion of the change in fair value of these interest rate swaps attributable to this mismatch is recorded as noncash interest rate hedge ineffectiveness through interest expense.

(3) | Other items, net are non-recurring in nature.

(4) | Assumes conversion of all dilutive outstanding operating partnership interests in the Operating Partnership and excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the DownREIT limited partnership units for cash and does not consider them to be common stock equivalents.

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Essex Portfolio, L.P. and Subsidiaries

|  | Years Ended December 31,
|  | 2016 |  | 2015 |  | 2014 |  | 2013 |  | 2012
|  | ($ in thousands, except per unit amounts)
OPERATING DATA:(1) |  |  |  |  |  |  |  |  |  |
Rental and other property |  | $ | 1,285,723 |  |  | $ | 1,185,498 |  |  | $ | 961,591 |  |  | $ | 603,327 |  |  | $ | 527,945 |
Management and other fees from affiliates |  | 8,278 |  |  | 8,909 |  |  | 9,347 |  |  | 7,263 |  |  | 8,457 |
Income before discontinued operations |  | $ | 438,410 |  |  | $ | 248,239 |  |  | $ | 134,438 |  |  | $ | 140,882 |  |  | $ | 127,653 |
Income from discontinued operations |  | — |  |  | — |  |  | — |  |  | 31,173 |  |  | 11,937 |
Net income |  | 438,410 |  |  | 248,239 |  |  | 134,438 |  |  | 172,055 |  |  | 139,590 |
Net income available to common unitholders |  | $ | 425,213 |  |  | $ | 234,689 |  |  | $ | 121,726 |  |  | $ | 159,749 |  |  | $ | 127,771 |
Per unit data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income before discontinued operations available to common unitholders |  | $ | 6.28 |  |  | $ | 3.50 |  |  | $ | 2.07 |  |  | $ | 3.27 |  |  | $ | 3.11 |
Net income available to common unitholders |  | $ | 6.28 |  |  | $ | 3.50 |  |  | $ | 2.07 |  |  | $ | 4.06 |  |  | $ | 3.43 |
Weighted average common units outstanding |  | 67,696 |  |  | 67,054 |  |  | 58,772 |  |  | 39,380 |  |  | 37,252 |
Diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income before discontinued operations available to common unitholders |  | $ | 6.27 |  |  | $ | 3.49 |  |  | $ | 2.07 |  |  | $ | 3.26 |  |  | $ | 3.10 |
Net income available to common unitholders |  | $ | 6.27 |  |  | $ | 3.49 |  |  | $ | 2.07 |  |  | $ | 4.05 |  |  | $ | 3.42 |
Weighted average common units outstanding |  | 67,812 |  |  | 67,244 |  |  | 58,921 |  |  | 39,467 |  |  | 37,344 |
Cash distributions per common unit |  | $ | 6.40 |  |  | $ | 5.76 |  |  | $ | 5.11 |  |  | $ | 4.84 |  |  | $ | 4.40 |

(1) | Reclassifications have been made in prior periods to conform to the current year’s presentation.

|  | As of December 31,
|  | 2016 |  | 2015 |  | 2014 |  | 2013 |  | 2012
|  | ($ in thousands)
BALANCE SHEET DATA:(1) |  |  |  |  |  |  |  |  |  |
Investment in rental properties (before accumulated depreciation) |  | $ | 12,676,306 |  |  | $ | 12,331,469 |  |  | $ | 11,244,681 |  |  | $ | 5,443,757 |  |  | $ | 5,033,672 |
Net investment in rental properties |  | 10,364,760 |  |  | 10,381,577 |  |  | 9,679,875 |  |  | 4,188,871 |  |  | 3,952,155 |
Real estate under development |  | 190,505 |  |  | 242,326 |  |  | 429,096 |  |  | 50,430 |  |  | 66,851 |
Co-investments |  | 1,161,275 |  |  | 1,036,047 |  |  | 1,042,423 |  |  | 677,133 |  |  | 571,345 |
Total assets |  | 12,217,408 |  |  | 12,008,384 |  |  | 11,530,299 |  |  | 5,164,171 |  |  | 4,828,821 |
Total indebtedness |  | 5,563,260 |  |  | 5,318,757 |  |  | 5,084,256 |  |  | 3,010,856 |  |  | 2,800,281 |
Redeemable noncontrolling interest |  | 44,684 |  |  | 45,452 |  |  | 23,256 |  |  | — |  |  | — |
Cumulative convertible preferred interest |  | — |  |  | — |  |  | — |  |  | 4,349 |  |  | 4,349 |
Cumulative redeemable preferred interest |  | — |  |  | 71,209 |  |  | 71,209 |  |  | 71,209 |  |  | 71,209 |
Partners' capital |  | 6,244,364 |  |  | 6,287,381 |  |  | 6,073,433 |  |  | 1,932,108 |  |  | 1,811,427 |

(1) | Reclassifications have been made in prior periods to conform to the current year’s presentation.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto. These consolidated financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results and all such adjustments are of a normal recurring nature.
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OVERVIEW
ESS is a self-administered and self-managed REIT that acquires, develops, redevelops, and manages apartment communities in selected residential areas located primarily in the West Coast of the United States. ESS owns all of its interests in its real estate investments, directly or indirectly, through the Operating Partnership. ESS is the sole general partner of the Operating Partnership and, as of December 31, 2016, had an approximately 96.7% general partner interest in the Operating Partnership.
The Company’s investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth. The Company’s strong financial condition supports its investment strategy by enhancing its ability to quickly shift acquisition, development, redevelopment, and disposition activities to markets that will optimize the performance of the portfolio.
As of December 31, 2016, the Company had ownership interests in 245 communities, comprising 59,645 apartment homes, excluding the Company's ownership in preferred equity interest co-investments.
The Company’s apartment communities are predominately located in the following major regions:
Southern California (Los Angeles, Orange, San Diego, and Ventura counties)
Northern California (the San Francisco Bay Area)
Seattle Metro (Seattle metropolitan area)
As of December 31, 2016, the Company’s development pipeline was comprised of two consolidated projects under development, four unconsolidated joint venture projects under development and various consolidated predevelopment projects aggregating 2,223 apartment homes, with total incurred costs of $0.6 billion, and estimated remaining project costs of approximately $0.7 billion for total estimated project costs of $1.3 billion.
As of December 31, 2016, the Company also had ownership interests in two operating commercial buildings (with approximately 140,564 square feet).
By region, the Company's operating results for 2016 and 2015 and projections for 2017 new housing supply (defined as new multi-family apartment homes and single family homes, excluding developments with fewer than 50 apartment homes as well as student, senior and 100% affordable housing), job growth, and rental income are as follows:
Southern California Region: As of December 31, 2016, this region represented 49% of the Company’s consolidated apartment homes. Revenues for “2016/2015 Same-Properties” (as defined below), or “Same-Property revenues,” increased 6.2% in 2016 as compared to 2015. In 2017, the Company projects new residential supply of 36,425 apartment homes and single family homes, which represents 0.6% of the total housing stock. The Company projects an increase of 145,450 jobs or 2.0%, and an increase in Same-Property revenues of between 3.50% to 4.50% in 2017.
Northern California Region: As of December 31, 2016, this region represented 30% of the Company’s consolidated apartment homes. Same-Property revenues increased 6.8% in 2016 as compared to 2015. In 2017, the Company projects new residential supply of 19,150 apartment homes and single family homes, which represents 0.8% of the total housing stock. The Company projects an increase of 68,350 jobs or 2.2%, and an increase in Same-Property revenues of between 1.25% to 2.25% in 2017.
Seattle Metro Region: As of December 31, 2016, this region represented 21% of the Company’s consolidated apartment homes. Same-Property revenues increased 7.9% in 2016 as compared to 2015. In 2017, the Company projects new residential supply of 19,600 apartment homes and single family homes, which represents 1.6% of the total housing stock. The Company projects an increase of 44,600 jobs or 2.7%, and an increase in Same-Property revenues of between 3.75% to 4.75% in 2017.
The Company projects an increase in 2017 Same-Property revenues of between 2.75% to 3.75%, as renewal and new leases are signed at higher rents in 2017 than 2016. Same-Property operating expenses are projected to increase in 2017 by 2.50% to 3.50%.
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The Company’s consolidated communities are as follows:

| As of |  | As of
| December 31, 2016 |  | December 31, 2015
| Apartment Homes |  | % |  | Apartment Homes |  | %
Southern California | 23,613 |  |  | 49 | % |  | 23,707 |  |  | 49 | %
Northern California | 14,519 |  |  | 30 | % |  | 14,694 |  |  | 30 | %
Seattle Metro | 10,239 |  |  | 21 | % |  | 10,239 |  |  | 21 | %
Total | 48,371 |  |  | 100 | % |  | 48,640 |  |  | 100 | %

Co-investments, including Wesco I, LLC ("Wesco I"), Wesco III, LLC ("Wesco III"), Wesco IV, LLC (“Wesco IV”), Canadian Pension Plan Investment Board ("CPPIB" or "CPP"), Palm Valley, BEXAEW, LLC (“BEXAEW”), BEX II, LLC ("BEX II"), communities, developments under construction and preferred equity interest co-investment communities are not included in the table presented above for both periods.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 2016 to the Year Ended December 31, 2015
The Company’s average financial occupancies for the Company’s stabilized apartment communities or “2016/2015 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2016 and 2015) increased 30 basis points to 96.3% in 2016 from 96.0% in 2015. Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rental revenue for occupied apartment homes plus market rent for vacant apartment homes). Actual rental revenue represents contractual rental revenue pursuant to leases without considering delinquency and concessions. Total potential rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. 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.
Market rates are determined using the recently signed effective rates on new leases at the property and are used as the starting point in the determination of the market rates of vacant apartment homes. The Company may increase or decrease these rates based on the supply and demand in the apartment community’s market. The Company will check the reasonableness of these rents based on its position within the market and compare the rents against the asking rents by comparable properties in the market. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates and the Company's calculation of financial occupancy may not be comparable to financial occupancy as disclosed by other REITs.
The Company does not take into account delinquency and concessions to calculate actual rent for occupied apartment homes and market rents for vacant apartment homes. The calculation of financial occupancy compares contractual rates for occupied apartment homes to estimated market rents for unoccupied apartment homes, and thus the calculation compares the gross value of all apartment homes excluding delinquency and concessions. For apartment communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric. While an apartment community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy, which is based on contractual revenue is not considered the best metric to quantify occupancy.
The regional breakdown of the Company’s 2016/2015 Same-Property portfolio for financial occupancy for the years ended December 31, 2016 and 2015 is as follows:

| Years ended December 31,
| 2016 |  | 2015
Southern California | 96.4 | % |  | 95.9 | %
Northern California | 96.3 | % |  | 96.1 | %
Seattle Metro | 96.1 | % |  | 96.1 | %

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The following table provides a breakdown of revenue amounts, including the revenues attributable to 2016/2015 Same-Properties.

|  | Number of Apartment |  | Years Ended December 31, |  | Dollar |  | Percentage
Property Revenues ($ in thousands) |  | Homes |  | 2016 |  | 2015 |  | Change |  | Change
2016/2015 Same-Properties: (1) |  |  |  |  |  |  |  |  |  |
Southern California |  | 20,698 |  |  | $ | 497,448 |  |  | $ | 468,614 |  |  | $ | 28,834 |  |  | 6.2 | %
Northern California |  | 13,220 |  |  | 401,642 |  |  | 376,019 |  |  | 25,623 |  |  | 6.8 | %
Seattle Metro |  | 10,239 |  |  | 217,259 |  |  | 201,417 |  |  | 15,842 |  |  | 7.9 | %
Total 2016/2015 Same-Property revenues |  | 44,157 |  |  | 1,116,349 |  |  | 1,046,050 |  |  | 70,299 |  |  | 6.7 | %
2016/2015 Non-Same Property Revenues |  |  |  |  | 169,374 |  |  | 139,448 |  |  | 29,926 |  |  | 21.5 | %
Total property revenues |  |  |  |  | $ | 1,285,723 |  |  | $ | 1,185,498 |  |  | $ | 100,225 |  |  | 8.5 | %

(1) | Same-property excludes properties held for sale.

2016/2015 Same-Property Revenues increased by $70.3 million or 6.7% to $1.1 billion for 2016 compared to $1.0 billion in 2015. The increase was primarily attributable to an increase of 6.4% in average rental rates from $1,942 per apartment home for 2015 to $2,066 per apartment home for 2016.
2016/2015 Non-Same Property Revenues increased by $29.9 million or 21.5% to $169.4 million in 2016 compared to $139.4 million in 2015. The increase was primarily due to revenue generated by the acquisition, completed development, or consolidation of three communities, net of dispositions, since January 1, 2015.
Management and other fees from affiliates decreased by $0.6 million in 2016 compared to 2015. The decrease is primarily due to the loss of asset and management fees in 2016 as compared to 2015 associated with the Company's purchase of the joint venture partner's remaining membership interest in The Huxley, The Dylan, and Reveal communities during 2015 and the sale of certain communities.
Property operating expenses, excluding real estate taxes increased $14.8 million or 6.3% in 2016 compared to 2015, primarily due to the acquisition, completed development, or consolidation of three communities, net of dispositions, since January 1, 2015. 2016/2015 Same-Property operating expenses excluding real estate taxes, increased by $9.9 million or 4.7% in 2016 compared to 2015, due mainly to a $4.7 million increase in property management fees and a $2.3 million increase in maintenance and repairs.
Real estate taxes increased $10.6 million or 8.3% in 2016 compared to 2015, primarily due to the acquisition, completed development, or consolidation of three communities, net of dispositions, since January 1, 2015. 2016/2015 Same-Property real estate taxes increased by $2.2 million or 2.0% for 2016 compared to 2015 due to increases in tax rates and property valuations.
Depreciation and amortization expense decreased by $11.7 million or 2.6% in 2016 compared to 2015, primarily due to the amortization of a larger amount of in-place leases during 2015 compared to 2016, offset by the acquisition, completed development, or consolidation of three communities, net of dispositions, since January 1, 2015.
Merger and integration expenses include, but are not limited to, advisor fees, legal fees, and accounting fees related to the merger with BRE and related integration activity. There were no merger and integration expenses for 2016 and $3.8 million for 2015.
Interest expense increased $14.8 million or 7.2% in 2016, primarily due to the $500.0 senior unsecured notes due on April 1, 2025 issued in March 2015 and the $450.0 million senior unsecured notes due on April 15, 2026 issued in April 2016, which resulted in an increase of $14.9 million in interest expense for 2016 compared to 2015. Additionally, there was a $3.1 million decrease in capitalized interest in 2016 compared to 2015, which was due to a decrease in development costs as compared to the same period in 2015. These additions were offset by a reduction in interest expense due to the payoff of $150.0 million in private placement unsecured bonds in 2016.
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Total return swap income of $11.7 million in 2016 consists of monthly settlements related to the Company's total return swap contracts that were entered into during 2015, in connection with $257.3 million of tax-exempt mortgage notes payable. The Company had total return swap income of $5.7 million in 2015.
Interest and other income increased $8.2 million or 42.6% in 2016, primarily due to an increase of $5.1 million in gains from the sale of marketable securities and $2.5 million in income from marketable securities and other interest income.
Equity income from co-investments increased by $26.8 million or 122.8% in 2016 compared to 2015, primarily due to $13.0 million in income on the gain on sale of two co-investment communities as well as income from five preferred equity investments originated during 2016.
Gains on sale of real estate and land increased by $107.2 million or 226.5% in 2016 compared to 2015, due primarily to a $126.6 million gain from the sale of minority membership interest in BEX II, LLC, $10.7 million gain on the sale of Harvest Park before a tax expense, a $7.3 million gain on the sale of Candlewood North and a $9.6 million gain on the sale of the Company's headquarters office building during 2016, as compared to approximately $7.1 million in gains on the sales of Pinnacle South Mountain and two commercial buildings as well as a $40.2 million gain on the sale of Sharon Green during 2015.
Deferred tax expense on gain on sale of real estate and land of $4.4 million for 2016 was recorded primarily due to the sale of Harvest Park, which was owned by our wholly owned taxable REIT subsidiary. There was no current tax expense on the sale of real estate and land for 2016 as the Harvest Park proceeds were used in a like-kind exchange transaction.
Gains on remeasurement of co-investment of $34.0 million in 2015 was due to the remeasurement of the Company's investments, caused by the Company's acquisition of a controlling interest in The Huxley and The Dylan properties, resulting in a gain of $21.3 million, and Reveal, resulting in a gain of $12.7 million. There were no gains on remeasurement of co-investments in 2016.
Comparison of Year Ended December 31, 2015 to the Year Ended December 31, 2014
The Company’s average financial occupancies for the Company’s stabilized apartment communities for “2015/2014 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2015 and 2014) was unchanged at 96.2% in both 2015 and 2014. The regional breakdown of the Company’s stabilized 2015/2014 Same-Property portfolio for financial occupancy for the years ended December 31, 2015 and 2014 is as follows:

| Years ended December 31,
| 2015 |  | 2014
Southern California | 96.2 | % |  | 96.3 | %
Northern California | 96.3 | % |  | 96.2 | %
Seattle Metro | 96.2 | % |  | 96.0 | %

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2015/2014 Same-Properties.

|  | Number of Apartment |  | Years Ended December 31, |  | Dollar |  | Percentage
Property Revenues ($ in thousands) |  | Homes |  | 2015 |  | 2014 |  | Change |  | Change
2015/2014 Same-Properties: (1) |  |  |  |  |  |  |  |  |  |
Southern California |  | 12,875 |  |  | $ | 283,435 |  |  | $ | 267,413 |  |  | $ | 16,022 |  |  | 6.0 | %
Northern California |  | 9,080 |  |  | 250,478 |  |  | 226,679 |  |  | 23,799 |  |  | 10.5 | %
Seattle Metro |  | 6,558 |  |  | 124,143 |  |  | 115,219 |  |  | 8,924 |  |  | 7.7 | %
Total 2015/2014 Same-Property revenues |  | 28,513 |  |  | 658,056 |  |  | 609,311 |  |  | 48,745 |  |  | 8.0 | %
2015/2014 Non-Same Property Revenues |  |  |  |  | 527,442 |  |  | 352,280 |  |  | 175,162 |  |  | 49.7 | %
Total property revenues |  |  |  |  | $ | 1,185,498 |  |  | $ | 961,591 |  |  | $ | 223,907 |  |  | 23.3 | %

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(1) | Same-property excludes BRE properties acquired April 1, 2014 and properties held for sale.

2015/2014 Same-Property Revenues increased by $48.7 million or 8.0% to $658 million for 2015 compared to $609.3 million in 2014. The increase was primarily attributable to an increase of 8.1% in average rental rates from $1,741 per apartment home for 2014 to $1,882 per apartment home for 2015.
2015/2014 Non-Same Property Revenues increased by $175.2 million or 49.7% to $527.4 million in 2015 compared to $352.3 million in 2014. The increase was primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and properties held for sale, since January 1, 2014.
Property operating expenses, excluding real estate taxes increased $30.3 million or 14.8% in 2015 compared to 2014, primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and properties held for sale, since January 1, 2014. 2015/2014 Same-Property operating expenses excluding real estate taxes, increased by $2.3 million or 1.7% in 2015 compared to 2014, due mainly to a $1.7 million increase in repairs and maintenance.
Real estate taxes increased $20.7 million or 19.2% in 2015 compared to 2014, due primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and held for sale, since January 1, 2014. 2015/2014 Same-Property real estate taxes increased by $1.7 million or 3.2% for 2015 compared to 2014.
Depreciation and amortization expense increased by $92.8 million or 25.7% in 2015 compared to 2014, primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and properties held for sale, since January 1, 2014.
Merger and integration expenses include, but are not limited to, advisor fees, legal fees, and accounting fees related to the BRE merger and related integration activity. The Company completed the merger with BRE on April 1, 2014. Merger and integration expenses were $3.8 million for 2015 and $53.5 million for 2014.
Interest expense increased $40.3 million or 24.5% in 2015, due to an increase in average outstanding debt primarily due to assumed debt in connection with the BRE merger in addition to a $6.8 million decrease in capitalized interest in 2015 compared to 2014, which was due to a decrease in development costs as compared to the same period in 2014.
Total return swap income of $5.7 million in 2015 consists of monthly settlements related to the Company's total return swap contracts that were entered into during the year, in connection with $257.3 million of tax-exempt mortgage notes payable. The Company had no total return swap income in 2014.
Interest and other income increased $7.3 million or 62.1% in 2015, due to an increase in the investment of mortgage backed securities, an increase of $3.1 million in insurance proceeds and $0.6 million in income from the sale of an investment.
Equity income from co-investments decreased by $18.0 million to $21.9 million in 2015 compared to $39.9 million in 2014, primarily due to events in 2014 which did not recur in 2015, including the Company’s share of the gain on the sale of two co-investment communities of $6.6 million, promote income of $10.6 million, and income from the early redemption of preferred equity investments of $5.3 million in 2014, partially offset by $2.0 million in income from the early redemption of two preferred equity investments during 2015 and an increase of $7.4 million in equity income from co-investment operations. Additionally, income from preferred equity investments decreased by approximately $5.1 million from 2014 to 2015.
Gains on sale of real estate and land increased by $1.3 million or 2.8% in 2015 compared to 2014, due primarily to $7.1 million in gains on the sales of Pinnacle South Mountain and two commercial buildings as well as a $40.2 million gain on the sale of Sharon Green during 2015 as compared to approximately $16.8 million in gains on the sales of Vista Capri North, Coldwater Canyon, Pinnacle Town Center, and a land parcel adjacent to the Company's Park Viridian property, as well as a $29.2 million gain on the sale of Mt. Sutro during 2014.
Gains on remeasurement of co-investment increased by $34.0 million in 2015 compared to 2014, due to the remeasurement of the Company's investments, as a result of the Company's acquisition of a controlling interest in The Huxley and The Dylan properties, resulting in a gain of $21.3 million, and Reveal, resulting in a gain of $12.7 million.
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Liquidity and Capital Resources
The following table sets forth the Company’s cash flows for 2016, 2015 and 2014 ($ in thousands):

|  | For the year ended December 31,
|  | 2016 |  | 2015 |  | 2014
Cash flow provided by (used in): |  |  |  |  |  |
Operating activities |  | $ | 712,523 |  |  | $ | 617,410 |  |  | $ | 493,312 |
Investing activities |  | $ | (421,412 | ) |  | $ | (725,556 | ) |  | $ | (1,147,156 | )
Financing activities |  | $ | (255,873 | ) |  | $ | 108,214 |  |  | $ | 520,610 |

ESS’s business is operated primarily through the Operating Partnership. ESS issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by the Operating Partnership. ESS itself does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. ESS’s principal funding requirement is the payment of dividends on its common stock and preferred stock. ESS’s sole source of funding for its dividend payments is distributions it receives from the Operating Partnership.
As of December 31, 2016, ESS owned a 96.7% general partner interest and the limited partners owned the remaining 3.3% interest in the Operating Partnership.
The liquidity of ESS is dependent on the Operating Partnership’s ability to make sufficient distributions to ESS. The primary cash requirement of ESS is its payment of dividends to its stockholders. ESS also guarantees some of the Operating Partnership’s debt, as discussed further in Notes 6 and 7 of the notes to consolidated financial statements included elsewhere herein. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger the ESS’s guarantee obligations, then ESS will be required to fulfill its cash payment commitments under such guarantees. However, ESS’s only significant asset is its investment in the Operating Partnership.
For ESS to maintain its qualification as a REIT, it must pay dividends to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains. While historically ESS has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, ESS’s own stock. As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. ESS may need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, acquisitions and developments.
At December 31, 2016, the Company had $64.9 million of unrestricted cash and cash equivalents and $139.2 million in marketable securities, of which $44.8 million were held available for sale. The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of the Company’s reasonably anticipated cash needs during 2017. The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect the Company’s plans for acquisitions, dispositions, development and redevelopment activities.
As of December 31, 2016, the Company had $315.0 million of private placement unsecured bonds outstanding at an average interest rate of 4.5% with maturity dates ranging from September 2017 through August 2021.
As of December 31, 2016, the Company had $2.9 billion of fixed rate public bonds outstanding, with interest rates varying from 3.25% to 5.50% and maturity dates ranging from 2017 to 2026.
As of December 31, 2016, the Company had $100.0 million outstanding on its $350.0 million unsecured term loan. The $350.0 million unsecured term loan has a delayed draw feature and bears a variable interest rate of LIBOR plus 0.95%. The Company has entered into four forward starting interest rate swap contracts for a term of five years with an aggregate notional balance of $150.0 million, with settlements starting in March 2017, which effectively will convert the interest rate on $150.0 million of the term loan to a fixed rate of 2.2%. At December 31, 2016, the Company had an active $25.0 million notional interest rate swap, with a maturity date in July 2017, which effectively converts $25.0 million of the term loan to a fixed rate of 2.4%
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As of December 31, 2016, the Company’s mortgage notes payable totaled $2.2 billion, net of unamortized premiums and debt issuance costs, which consisted of $1.9 billion in fixed rate debt with interest rates varying from 3.0% to 6.4% and maturity dates ranging from 2017 to 2027 and $281.7 million of tax-exempt variable rate demand notes with a weighted average interest rate of 1.2%. The tax-exempt variable rate demand notes have maturity dates ranging from 2025 to 2046, and $20.7 million is subject to interest rate caps and $257.3 million is subject to total return swaps.
The Company has two lines of credit aggregating $1.03 billion as of December 31, 2016 including a $1.0 billion unsecured line of credit. As of December 31, 2016, there was a $125.0 million balance on this unsecured line of credit with an underlying interest rate of LIBOR plus 0.90%. In January 2017, the facility maturity date was extended to December 31, 2020 with one 18-month extension, exercisable at the Company's option. The Company also has a $25.0 million working capital unsecured line of credit agreement. As of December 31, 2016, there were no amounts outstanding on this unsecured line with an underlying interest rate of LIBOR plus 0.90%.
The Company’s unsecured line of credit and unsecured debt agreements contain debt covenants related to limitations on indebtedness and liabilities and maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization. The Company was in compliance with the debt covenants as of December 31, 2016 and 2015.
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 investment grade securities held available for sale or is used by the Company to reduce balances outstanding under its line of credit.
Derivative Activity
The Company uses interest rate swaps, interest rate caps, and total return swap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps and total return swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparties nonperformance risk in the fair value measurements.
The Company has entered into interest rate swap contracts with an aggregate notional amount of $175.0 million, $25 million of which effectively fixed the interest rate on $25.0 million of the $100.0 million drawn on its $350.0 million unsecured term loan at 2.4%. The remaining $150.0 million in swaps are forward starting swaps, with settlement payments commencing in March 2017. These derivatives qualify for hedge accounting.
The Company has entered into four total return swap contracts, with an aggregate notional amount of $257.3 million, that effectively converts $257.3 million of mortgage notes payable to a floating interest rate based on SIFMA plus a spread. Additionally, the total return swaps provide fair market value protection on the mortgage notes payable to our counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call one of the total return swaps with $114.4 million of the outstanding debt at par, while the call option on the other three total return swaps relating to $142.9 million of the outstanding debt can be exercised starting on January 1, 2017. These derivatives do not qualify for hedge accounting.
As of December 31, 2016 the Company also had three interest rate caps with an aggregate notional amount of $20.7 million that effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for $20.7 million of the Company’s tax exempt variable rate debt.
As of December 31, 2016 and 2015, the aggregate carrying value of the interest rate swap contracts was an asset of $4.4 million and zero, respectively and is included in prepaid expenses and other assets on the consolidated balance sheets and a liability of $33.1 thousand and $1.0 million, respectively. The aggregate carrying value of the interest rate caps was zero on the balance sheets as of both December 31, 2016 and 2015. The aggregate carrying value of the total return swaps was zero and $4.0 thousand as of December 31, 2016 and 2015, respectively.
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Hedge ineffectiveness related to cash flow hedges, which is reported in current year income as interest expense, net was income of $0.3 million for the year ended December 31, 2016. Hedge ineffectiveness was not significant for the years ended 2015 and 2014.
Issuance of Common Stock
In 2016, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number or amount of certain equity (only ESS) and debt securities as defined in the prospectus.
ESS has entered into equity distribution agreements with Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., Capital One Securities, Inc., Citigroup Global Markets Inc, Jefferies LLC, J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA), Inc, and UBS Securities LLC. The Company did not issue any shares of common stock pursuant to its equity distribution program in 2016. In 2015, ESS issued 1,481,737 shares of common stock for proceeds of $332.3 million, net of fees and commissions. During the first quarter of 2017 through February 21, 2017, ESS has not issued any shares of common stock pursuant to this program. Under this program, ESS may from time to time sell shares of common stock into the existing trading market at current market prices, and the Company anticipates using the net proceeds, which are contributed to the Operating Partnership, to pay down debt, fund redevelopment and development pipelines, fund acquisitions, and for general corporate purposes. As of February 21, 2017, ESS may sell an additional 5,000,000 shares under the current equity distribution program.
Capital Expenditures
Non-revenue generating capital expenditures are improvements and upgrades that extend the useful life of the property. For the year ended December 31, 2016, non-revenue generating capital expenditures totaled approximately $1,219 per apartment home. The Company projects to incur approximately $1,250 per apartment home in non-revenue generating capital expenditures for the year ending December 31, 2017. These expenditures do not include the improvements required in connection with the origination of mortgage loans, expenditures for deferred maintenance on acquisition properties, expenditures for property renovations and improvements which are expected to generate additional revenue, and do not include expenditures incurred, due to changes in government regulations, that the Company would not have incurred otherwise. The Company expects that cash from operations and/or its lines of credit will fund such expenditures. However, there can be no assurance that the actual expenditures incurred during 2017 and/or the funding thereof will not be significantly different than the Company’s current expectations.
Development and Predevelopment Pipeline
The Company defines development projects as new communities that are being constructed or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of December 31, 2016, the Company had two consolidated development projects comprised of 796 apartment homes with an estimated cost of $0.5 billion of which $0.4 billion remains to be expended, and four unconsolidated joint venture active development projects comprised of 1,427 apartment homes with an estimated cost of $0.8 billion, of which approximately $0.4 billion remains to be expended. The Company's share of these estimated remaining project costs is approximately $0.2 billion.
The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects. The Company may also acquire land for future development purposes or sale.
The Company expects to fund the development and predevelopment pipeline by using a combination of some or all of the following sources: its working capital, amounts available on its lines of credit, construction loans, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of properties, if any.
Redevelopment Pipeline
The Company defines redevelopment communities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. During redevelopment, apartment homes may not be available for rent and, as a result, may have less than stabilized operations. As of December 31, 2016, the Company had ownership interests in six major redevelopment communities aggregating 1,869 apartment homes with estimated redevelopment costs of $170.2 million, of which approximately $65.5 million remains to be expended.
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Alternative Capital Sources
The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities. As of December 31, 2016, the Company had an interest in 1,427 apartment homes of communities actively under development with joint ventures for a total estimated cost of $0.8 billion. Total estimated remaining costs total approximately $0.4 billion, of which the Company estimates that its remaining investment in these development joint ventures will be approximately $0.2 billion. In addition, the Company had an interest in 11,274 apartment homes of operating communities with joint ventures for a total book value of $0.8 billion.
Contractual Obligations and Commercial Commitments
The following table summarizes the maturity or due dates of the Company’s contractual obligations and other commitments at December 31, 2016, and the effect such obligations could have on the Company’s liquidity and cash flow in future periods ($ in thousands):

|  | 2017 |  | 2018 and 2019 |  | 2020 and 2021 |  | Thereafter |  | Total
Mortgage notes payable |  | $ | 82,796 |  |  | $ | 878,529 |  |  | $ | 745,452 |  |  | $ | 441,313 |  |  | $ | 2,148,090 |
Unsecured debt |  | 340,000 |  |  | 75,000 |  |  | 500,000 |  |  | 2,350,000 |  |  | 3,265,000 |
Lines of credit |  | — |  |  | 125,000 |  |  | — |  |  | — |  |  | 125,000 |
Interest on indebtedness (1) |  | 217,709 |  |  | 379,762 |  |  | 243,695 |  |  | 262,494 |  |  | 1,103,660 |
Ground leases |  | 2,897 |  |  | 5,794 |  |  | 5,794 |  |  | 106,111 |  |  | 120,596 |
Operating leases |  | 1,750 |  |  | 3,673 |  |  | 3,915 |  |  | 10,361 |  |  | 19,699 |
Development commitments (including co-investments) (2) |  | 287,827 |  |  | 308,219 |  |  | 107,954 |  |  | — |  |  | 704,000 |
|  | $ | 932,979 |  |  | $ | 1,775,977 |  |  | $ | 1,606,810 |  |  | $ | 3,170,279 |  |  | $ | 7,486,045 |

(1) | Interest on indebtedness for variable debt was calculated using interest rates as of December 31, 2016.

(2) | Estimated project cost for development of the Company's 500 Folsom project is net of a projected value for low-income housing tax credit proceeds and savings from tax exempt bonds.

Variable Interest Entities
In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidates the Operating Partnership, 19 DownREIT limited partnerships (comprising eleven communities), and 9 co-investments. The Company consolidates these entities because it is deemed the primary beneficiary. The consolidated total assets and liabilities related to the 9 consolidated co-investments and 19 DownREIT limited partnerships, net of intercompany eliminations, were approximately $989.3 million and $288.1 million, respectively, as of December 31, 2016, and $893.1 million and $231.8 million respectively, as of December 31, 2015. Noncontrolling interests in these entities was $52.9 million and $54.6 million as of December 31, 2016 and 2015, respectively. As of December 31, 2016, the Company did not have any other VIEs of which it was not deemed to be the primary beneficiary and did not have any VIEs of which it was not deemed to be the primary beneficiary.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements, in accordance with U.S. generally accepted accounting principles, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. The Company defines critical accounting policies as those accounting policies that require the Company's management to exercise their most difficult, subjective and complex judgments. The Company’s critical accounting policies relate principally to the following key areas: (i) accounting for business combinations; (ii) consolidation under applicable accounting standards of various entities; (iii) assessing the carrying values of the Company's real estate and investments in and advances to joint ventures and affiliates; and (iv) internal cost capitalization. The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management.
The Company accounts for its business combinations, including the merger and other acquisitions of investments in real estate, in accordance with ASC 805-10, Business Combinations, which requires the acquired tangible and intangible assets and
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liabilities to be recorded at fair value, with excess purchase price, if any, recorded to goodwill. The Company must make significant assumptions in determining the fair value of the tangible and intangible assets and liabilities acquired and consideration transferred. The use of different assumptions in estimating the fair value could affect the measurement and timing of recognition of acquired assets and liabilities and related expenses.
The consideration transferred in a business combination is generally measured at fair value. For debt assumed by the Company, the fair value is determined using estimated market interest rates for debt with comparable terms in place at the time of the acquisition. For equity issued by the Company, the fair value is generally based on the fair value of the Company’s equity interests at the date of issuance.
The fair value of the tangible assets, which principally includes land and building, is determined first by valuing the property as a whole as if it were vacant, using stabilized net operating income and market specific capitalization rates. The fair value of the land and building is then recorded based on its estimated fair value.
In calculating the fair value of identified intangible assets of an acquired property, the in-place leases are valued based on in-place rent rates and amortized over the average remaining term of all acquired leases.
The Company assesses each entity in which it has an investment or contractual relationship to determine if it may be deemed to be a VIE. If such an entity is a VIE, then the Company performs an analysis to determine who is the primary beneficiary. If the Company is the primary beneficiary, then the entity is consolidated. The analysis required to identify VIEs and primary beneficiaries is complex and judgmental, and the analysis must be applied to various types of entities and legal structures.
The Company assesses the carrying value of its real estate investments by monitoring investment market conditions and performance compared to budget for operating properties and joint ventures, and by monitoring estimated costs for properties under development. Local market knowledge and data is used to assess carrying values of properties and the market value of acquisition opportunities. Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment may not be fully recoverable, the carrying amount is evaluated. If the sum of the property’s expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the property, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property. Adverse changes in market conditions or poor operating results of real estate investments could result in impairment charges. When the Company determines that a property is held for sale, it discontinues the periodic depreciation of that property. The criteria for determining when a property is held for sale requires judgment and has potential financial statement impact as depreciation would cease and an impairment loss could occur upon determination of held for sale status. Assets held for sale are reported at the lower of the carrying amount or estimated fair value less costs to sell.
Further, the Company evaluates whether its co-investments are other than temporarily impaired and, if so, records an impairment loss equal to the excess of the co-investments' carrying value over its estimated fair value.
The Company capitalizes all direct and certain indirect costs, including interest and real estate taxes, incurred during development and redevelopment activities. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use. The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period. Included in capitalized costs are management’s accounting estimates of the direct and incremental personnel costs and indirect project costs associated with the Company's development and redevelopment activities. Indirect project costs consist primarily of personnel costs associated with construction administration and development, including accounting, legal fees, and various corporate and community onsite costs that clearly relate to projects under development.
The Company bases its accounting estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.
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Net Operating Income
Same-Property net operating income (“Same-Property NOI”) is considered by management to be an important supplemental performance measure to earnings from operations included in the Company’s consolidated statements of income. The presentation of Same-Property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. Same-Property NOI, which is based on net operating income ("NOI"), reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. Prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, and NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines Same-Property NOI as Same-Property revenue less Same-Property operating expenses.
The reconciliation of earnings from operations to Same-Property NOI for the periods presented:

| 2016 |  | 2015 |  | 2014
Earnings from operations | $ | 420,800 |  |  | $ | 331,174 |  |  | $ | 201,514 |
Adjustments: |  |  |  |  |  |  |  |
Depreciation and amortization | 441,682 |  |  | 453,423 |  |  | 360,592 |
Management and other fees from affiliates | (8,278 | ) |  | (8,909 | ) |  | (9,347 | )
General and administrative | 40,751 |  |  | 40,090 |  |  | 40,878 |
Merger and integration expenses | — |  |  | 3,798 |  |  | 53,530 |
Acquisition and investment related costs | 1,841 |  |  | 2,414 |  |  | 1,878 |
Net operating income | 896,796 |  |  | 821,990 |  |  | 649,045 |
Less: Non Same-Property NOI | (115,934 | ) |  | (99,320 | ) |  | (60,464 | )
Same-Property NOI | $ | 780,862 |  |  | $ | 722,670 |  |  | $ | 588,581 |

Forward Looking Statements
Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Annual Report on Form 10-K which are not historical facts may be considered forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the Company's expectations, hopes, intentions, beliefs and strategies regarding the future. Forward looking statements include statements regarding the Company's expectations as to the timing of completion of current development and redevelopment projects and the stabilization dates of such projects, expectation as to the total projected costs of development and redevelopment projects, beliefs as to the adequacy of future cash flows to meet anticipated cash needs, expectations as to the amount of non-revenue generating capital expenditures, future acquisitions, the Company's development and redevelopment pipeline and the sources of funding for it, the anticipated performance of existing properties, anticipated property and growth trends in various geographic regions, statements regarding the Company’s expected 2017 Same-Property revenue generally and in various areas, and 2017 Same-Property operating expenses, statements regarding the Company's financing activities, and the use of proceeds from such activities.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, that the Company will fail to achieve its business objectives, that the actual completion of development and redevelopment projects will be subject to delays, that the stabilization dates of such projects will be delayed, that the total projected costs of current development and redevelopment projects will exceed expectations, that such development and redevelopment projects will not be completed, that development and redevelopment projects and acquisitions will fail to meet expectations, that estimates of future income from an acquired property may prove to be inaccurate, that future cash flows will be inadequate to meet operating requirements and/or will be insufficient to provide for dividend payments in accordance with REIT requirements, that the actual non-revenue generating capital expenditures will exceed the Company's current expectations, that there may be a downturn in the markets in which the Company's communities are located, that the terms of any refinancing may not be as favorable as the terms of existing indebtedness, as well as those risks, special considerations, and other factors discussed in Item 1A, Risk Factors, of this Form 10-K, and those risk factors and special considerations set forth in the Company’s other filings with the SEC which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. All forward-looking statements are made as of today, and the Company assumes no obligation to update this information.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Hedging Activities
The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company entered into interest rate swaps as part of its cash flow hedging strategy. As of December 31, 2016, the Company has five interest rate swap contracts to mitigate the risk of changes in the interest-related cash outflows on $175.0 million, of the five-year unsecured term debt, $150.0 million of which relate to four forward starting interest rate swaps that have settlement payments starting in March 2017. As of December 31, 2016, the Company also had $281.7 million of variable rate indebtedness, of which $20.7 million is subject to interest rate cap protection. All of the Company’s interest rate swaps are designated as cash flow hedges as of December 31, 2016. The following table summarizes the notional amount, carrying value, and estimated fair value of the Company’s derivative instruments used to hedge interest rates as of December 31, 2016. The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rates or market risks. The table also includes a sensitivity analysis to demonstrate the impact on the Company’s derivative instruments from an increase or decrease in 10-year Treasury bill interest rates by 50 basis points, as of December 31, 2016.

|  |  |  |  |  | Carrying and |  | Estimated Carrying Value
|  |  |  | Maturity |  | Estimated |  | + 50 |  | - 50
($ in thousands) |  | Notional Amount |  | Date Range |  | Fair Value |  | Basis Points |  | Basis Points
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 175,000 |  |  | 2017-2022 |  | $ | 4,406 |  |  | $ | 7,930 |  |  | $ | 883 |
Interest rate caps |  | 20,674 |  |  | 2018-2019 |  | — |  |  | 1 |  |  | — |
Total cash flow hedges |  | $ | 195,674 |  |  | 2017-2022 |  | $ | 4,406 |  |  | $ | 7,931 |  |  | $ | 883 |

Additionally, the Company has entered into total return swap contracts, with an aggregate notional amount of $257.3 million, that effectively converts $257.3 million of mortgage notes payable to a floating interest rate based on SIFMA plus a spread and carrying value of zero at December 31, 2016. The Company is exposed to insignificant interest rate risk on these swaps as the related mortgages are callable, at par, by the Company, co-terminus with the termination of any related swap. These derivatives do not qualify for hedge accounting.
Interest Rate Sensitive Liabilities
The Company is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company’s real estate investment portfolio and operations. The Company’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.
The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows. Management has estimated that the fair value of the Company’s $5.1 billion of fixed rate debt, including premiums, discounts and debt financing costs, at December 31, 2016, to be $5.1 billion. Management has estimated the fair value of the Company’s $499.7 million of variable rate debt, including debt financing costs, at December 31, 2016, to be $502.8 million based on the terms of existing mortgage notes payable and variable rate demand notes compared to those available in the marketplace. The following table represents scheduled principal payments ($ in thousands).
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| For the Years Ended December 31,
| 2017 |  | 2018 |  | 2019 |  | 2020 |  | 2021 |  | Thereafter | Total |  | Fair value
Fixed rate debt | $422,263 |  | $301,033 |  | $651,362 |  | $693,221 |  | $550,876 |  | $ | 2,412,626 |  | $ | 5,031,381 |  |  | $ | 5,123,058 |
Average interest rate | 2.7 | % |  | 5.5 | % |  | 4.3 | % |  | 4.8 | % |  | 4.3 | % |  | 3.6 | % |  |  |  |  |
Variable rate debt (1) | $ | 533 |  |  | $ | 542 |  |  | $ | 125,592 |  |  | $ | 647 |  |  | $ | 708 |  |  | $ | 378,687 |  | $ | 506,709 |  |  | $ | 502,767 |
Average interest rate | 1.5 | % |  | 1.5 | % |  | 1.8 | % |  | 1.5 | % |  | 1.5 | % |  | 1.6 | % |  |  |  |  |

(1) | $195.7 million is subject to interest rate protection agreements ($150.0 million in swaps have settlement payments starting in March 2017).

The table incorporates only those exposures that exist as of December 31, 2016; it does not consider those exposures or positions that could arise after that date. As a result, the Company’s ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies would depend on the exposures that arise during the period.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this Form 10-K. See Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Essex Property Trust, Inc.
As of December 31, 2016, ESS carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, ESS’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2016, ESS’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by ESS in the reports that ESS files or submits under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that ESS files or submits under the Exchange Act is accumulated and communicated to the ESS’s management, including ESS’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes in ESS’s internal control over financial reporting, that occurred during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, ESS’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
ESS’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). ESS’s management assessed the effectiveness of ESS’s internal control over financial reporting as of December 31, 2016. In making this assessment, ESS’s management used the criteria set forth in the report entitled “Internal Control-Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). ESS’s management has concluded that, as of December 31, 2016, its internal control over financial reporting was effective based on these criteria. ESS’s independent registered public accounting firm, KPMG LLP, has issued an attestation report over ESS’s internal control over financial reporting, which is included herein.
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Essex Portfolio, L.P.
As of December 31, 2016, the Operating Partnership carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer of the general partner, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of the general partner concluded that as of December 31, 2016, the Operating Partnership’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Operating Partnership in the reports that it files or submits under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that the Operating Partnership files or submits under the Exchange Act is accumulated and communicated to the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of the general partner, to allow timely decisions regarding required disclosure.
There were no changes in the Operating Partnership’s internal control over financial reporting, that occurred during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The Operating Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Operating Partnership’s management assessed the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2016. In making this assessment, the Operating Partnership’s management used the criteria set forth in the report entitled “Internal Control-Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Operating Partnership’s management has concluded that, as of December 31, 2016, its internal control over financial reporting was effective based on these criteria.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the heading “Board and Corporate Governance Matters,” to be filed with the SEC within 120 days of December 31, 2016.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the headings “Executive Compensation” and “Director Compensation,” to be filed with the SEC within 120 days of December 31, 2016.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the heading “Security Ownership of Certain Beneficial Owners and Management,” to be filed with the SEC within 120 days of December 31, 2016.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the heading “Certain Relationships and Related Persons Transactions,” to be filed with the SEC within 120 days of December 31, 2016.
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Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the headings “Report of the Audit Committee” and “Fees Paid to KPMG LLP,” to be filed with the SEC within 120 days of December 31, 2016.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(A) Financial Statements

(1) Consolidated Financial Statements of Essex Property Trust, Inc. | Page
Reports of Independent Registered Public Accounting Firm | F- 1
Consolidated Balance Sheets: As of December 31, 2016 and 2015 | F- 4
Consolidated Statements of Income: Years ended December 31, 2016, 2015, and 2014 | F- 5
Consolidated Statements of Comprehensive Income: Years ended December 31, 2016, 2015, and 2014 | F- 6
Consolidated Statements of Equity: Years ended December 31, 2016, 2015, and 2014 | F- 7
Consolidated Statements of Cash Flows: Years ended December 31, 2016, 2015, and 2014 | F- 10
Notes to Consolidated Financial Statements | F- 20
(2) Consolidated Financial Statements of Essex Portfolio, L.P. |
Report of Independent Registered Public Accounting Firm | F- 3
Consolidated Balance Sheets: As of December 31, 2016 and 2015 | F- 12
Consolidated Statements of Income: Years ended December 31, 2016, 2015, and 2014 | F- 13
Consolidated Statements of Comprehensive Income: Years ended December 31, 2016, 2015, and 2014 | F- 14
Consolidated Statements of Capital: Years ended December 31, 2016, 2015, and 2014 | F- 15
Consolidated Statements of Cash Flows: Years ended December 31, 2016, 2015, and 2014 | F- 18
Notes to Consolidated Financial Statements | F- 20
(3) Financial Statement Schedule – Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2016 | F- 51
(4) See the Exhibit Index immediately following the signature page and certifications for a list of exhibits filed or incorporated by reference as part of this report. |

(B) Exhibits
The Company hereby files, as exhibits to this Form 10-K, those exhibits listed on the Exhibit Index referenced in Item 15(A)(4) above.
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Essex Property Trust, Inc.:
We have audited the accompanying consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2016. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These consolidated financial statements and the accompanying financial statement schedule III are the responsibility of Essex Property Trust, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements and the accompanying financial statement schedule III based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Essex Property Trust, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2017 expressed an unqualified opinion on the effectiveness of Essex Property Trust, Inc.’s internal control over financial reporting.

/S/ KPMG LLP
KPMG LLP

San Francisco, California
February 24, 2017
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Essex Property Trust, Inc.:
We have audited Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Essex Property Trust, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express an opinion on Essex Property Trust, Inc.'s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Essex Property Trust, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2016, and our report dated February 24, 2017, expressed an unqualified opinion on those consolidated financial statements.

/S/ KPMG LLP
KPMG LLP

San Francisco, California
February 24, 2017
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Report of Independent Registered Public Accounting Firm
The General Partner
Essex Portfolio, L.P.:
We have audited the accompanying consolidated balance sheets of Essex Portfolio, L.P. (the Operating Partnership) and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2016. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These consolidated financial statements and the accompanying financial statement schedule III are the responsibility of Operating Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements and the accompanying financial statement schedule III based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Essex Portfolio, L.P. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/S/ KPMG LLP
KPMG LLP

San Francisco, California
February 24, 2017
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2016 and 2015
(Dollars in thousands, except share amounts)

| 2016 |  | 2015
ASSETS
Real estate: |  |  |
Rental properties: |  |  |
Land and land improvements | $ | 2,559,743 |  |  | $ | 2,522,842 |
Buildings and improvements | 10,116,563 |  |  | 9,808,627 |
| 12,676,306 |  |  | 12,331,469 |
Less accumulated depreciation | (2,311,546 | ) |  | (1,949,892 | )
| 10,364,760 |  |  | 10,381,577 |
Real estate under development | 190,505 |  |  | 242,326 |
Co-investments | 1,161,275 |  |  | 1,036,047 |
Real estate held for sale, net | 101,957 |  |  | 26,879 |
| 11,818,497 |  |  | 11,686,829 |
Cash and cash equivalents-unrestricted | 64,921 |  |  | 29,683 |
Cash and cash equivalents-restricted | 105,381 |  |  | 93,372 |
Marketable securities | 139,189 |  |  | 137,485 |
Notes and other receivables | 40,970 |  |  | 19,285 |
Prepaid expenses and other assets | 48,450 |  |  | 41,730 |
Total assets | $ | 12,217,408 |  |  | $ | 12,008,384 |
LIABILITIES AND EQUITY
Unsecured debt, net | $ | 3,246,779 |  |  | $ | 3,088,680 |
Mortgage notes payable, net | 2,191,481 |  |  | 2,215,077 |
Lines of credit | 125,000 |  |  | 15,000 |
Accounts payable and accrued liabilities | 138,226 |  |  | 131,415 |
Construction payable | 35,909 |  |  | 40,953 |
Dividends payable | 110,170 |  |  | 100,266 |
Other liabilities | 32,922 |  |  | 34,518 |
Total liabilities | 5,880,487 |  |  | 5,625,909 |
Commitments and contingencies |  |  |  |  |
Redeemable noncontrolling interest | 44,684 |  |  | 45,452 |
Equity: |  |  |  |  |
Common stock; $.0001 par value, 670,000,000 and 656,020,000 shares authorized, respectively; 65,527,993 and 65,379,359 shares issued and outstanding, respectively | 6 |  |  | 6 |
Cumulative redeemable 7.125% Series H preferred stock at liquidation value | — |  |  | 73,750 |
Additional paid-in capital | 7,029,679 |  |  | 7,003,317 |
Distributions in excess of accumulated earnings | (805,409 | ) |  | (797,329 | )
Accumulated other comprehensive loss, net | (32,098 | ) |  | (42,011 | )
Total stockholders' equity | 6,192,178 |  |  | 6,237,733 |
Noncontrolling interest | 100,059 |  |  | 99,290 |
Total equity | 6,292,237 |  |  | 6,337,023 |
Total liabilities and equity | $ | 12,217,408 |  |  | $ | 12,008,384 |

See accompanying notes to consolidated financial statements.
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2016, 2015 and 2014
(Dollars in thousands, except per share and share amounts)

| 2016 |  | 2015 |  | 2014
Revenues: |  |  |  |  |
Rental and other property | $ | 1,285,723 |  |  | $ | 1,185,498 |  |  | $ | 961,591 |
Management and other fees from affiliates | 8,278 |  |  | 8,909 |  |  | 9,347 |
| 1,294,001 |  |  | 1,194,407 |  |  | 970,938 |
Expenses: |  |  |  |  |  |  |  |
Property operating, excluding real estate taxes | 249,765 |  |  | 234,953 |  |  | 204,673 |
Real estate taxes | 139,162 |  |  | 128,555 |  |  | 107,873 |
Depreciation and amortization | 441,682 |  |  | 453,423 |  |  | 360,592 |
General and administrative | 40,751 |  |  | 40,090 |  |  | 40,878 |
Merger and integration expenses | — |  |  | 3,798 |  |  | 53,530 |
Acquisition and investment related costs | 1,841 |  |  | 2,414 |  |  | 1,878 |
| 873,201 |  |  | 863,233 |  |  | 769,424 |
Earnings from operations | 420,800 |  |  | 331,174 |  |  | 201,514 |
Interest expense | (219,654 | ) |  | (204,827 | ) |  | (164,551 | )
Total return swap income | 11,716 |  |  | 5,655 |  |  | — |
Interest and other income | 27,305 |  |  | 19,143 |  |  | 11,811 |
Equity income from co-investments | 48,698 |  |  | 21,861 |  |  | 39,893 |
Loss on early retirement of debt | (606 | ) |  | (6,114 | ) |  | (268 | )
Gain on sale of real estate and land | 154,561 |  |  | 47,333 |  |  | 46,039 |
Deferred tax expense on gain on sale of real estate and land | (4,410 | ) |  | — |  |  | — |
Gain on remeasurement of co-investment | — |  |  | 34,014 |  |  | — |
Net income | 438,410 |  |  | 248,239 |  |  | 134,438 |
Net income attributable to noncontrolling interest | (23,431 | ) |  | (16,119 | ) |  | (12,288 | )
Net income attributable to controlling interest | 414,979 |  |  | 232,120 |  |  | 122,150 |
Dividends to preferred stockholders | (1,314 | ) |  | (5,255 | ) |  | (5,291 | )
Excess of redemption value of preferred stock over the carrying value | (2,541 | ) |  | — |  |  | — |
Net income available to common stockholders | $ | 411,124 |  |  | $ | 226,865 |  |  | $ | 116,859 |
Per share data: |  |  |  |  |  |  |  |
Basic: |  |  |  |  |  |  |  |
Net income available to common stockholders | $ | 6.28 |  |  | $ | 3.50 |  |  | $ | 2.07 |
Weighted average number of shares outstanding during the year | 65,471,540 |  |  | 64,871,717 |  |  | 56,546,959 |
Diluted: |  |  |  |  |  |  |  |
Net income available to common stockholders | $ | 6.27 |  |  | $ | 3.49 |  |  | $ | 2.06 |
Weighted average number of shares outstanding during the year | 65,587,816 |  |  | 65,061,685 |  |  | 56,696,525 |

See accompanying notes to consolidated financial statements.
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Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2016, 2015 and 2014
(Dollars in thousands)

| 2016 |  | 2015 |  | 2014
Net income | $ | 438,410 |  |  | $ | 248,239 |  |  | $ | 134,438 |
Other comprehensive income (loss): |  |  |  |  |  |  |  |
Change in fair value of derivatives and amortization of swap settlements | 15,926 |  |  | 7,893 |  |  | 4,168 |
Changes in fair value of marketable securities, net | (828 | ) |  | 1,865 |  |  | 6,302 |
Reversal of unrealized gains upon the sale of marketable securities | (4,848 | ) |  | — |  |  | (886 | )
Total other comprehensive income | 10,250 |  |  | 9,758 |  |  | 9,584 |
Comprehensive income | 448,660 |  |  | 257,997 |  |  | 144,022 |
Comprehensive income attributable to noncontrolling interest | (23,768 | ) |  | (16,436 | ) |  | (12,852 | )
Comprehensive income attributable to controlling interest | $ | 424,892 |  |  | $ | 241,561 |  |  | $ | 131,170 |

See accompanying notes to consolidated financial statements.
F- 6

Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
Years ended December 31, 2016, 2015 and 2014
(Dollars and shares in thousands)

| Series H Preferred stock |  | Common stock |  | Additional paid-in |  | Distributions in excess of accumulated |  | Accumulated other comprehensive |  | Noncontrolling |  |
| Shares |  | Amount |  | Shares |  | Amount |  | capital |  | earnings |  | loss, net |  | Interest |  | Total
Balances at December 31, 2013 | 2,950 |  |  | 73,750 |  |  | 37,421 |  |  | 4 |  |  | 2,345,763 |  |  | (474,426 | ) |  | (60,472 | ) |  | 113,619 |  |  | 1,998,238 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 122,150 |  |  | — |  |  | 12,288 |  |  | 134,438 |
Reversal of unrealized gains upon the sale of marketable securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (841 | ) |  | (45 | ) |  | (886 | )
Changes in fair value of derivatives and amortization of swap settlements | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,721 |  |  | 447 |  |  | 4,168 |
Changes in fair value of marketable securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,140 |  |  | 162 |  |  | 6,302 |
Issuance of common stock under: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock consideration in the Merger, net | — |  |  | — |  |  | 23,067 |  |  | 2 |  |  | 3,774,085 |  |  | — |  |  | — |  |  | — |  |  | 3,774,087 |
Stock option and restricted stock plans, net | — |  |  | — |  |  | 218 |  |  | — |  |  | 11,024 |  |  | — |  |  | — |  |  | — |  |  | 11,024 |
Equity distribution agreements, net | — |  |  | — |  |  | 2,943 |  |  | — |  |  | 532,670 |  |  | — |  |  | — |  |  | — |  |  | 532,670 |
Equity-based compensation costs | — |  |  | — |  |  | — |  |  | — |  |  | 5,719 |  |  | — |  |  | — |  |  | 6,153 |  |  | 11,872 |
Reclassification of noncontrolling interest to redeemable noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | (19,823 | ) |  | — |  |  | — |  |  | (1,067 | ) |  | (20,890 | )
Changes in the redemption value of redeemable noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | 312 |  |  | — |  |  | — |  |  | — |  |  | 312 |
Conversion of Series G preferred stock | — |  |  | — |  |  | 34 |  |  | — |  |  | 4,349 |  |  | — |  |  | — |  |  | — |  |  | 4,349 |
Contributions from noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,419,816 |  |  | 1,419,816 |
Retirement of noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,419,816 | ) |  | (1,419,816 | )
Distributions to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (17,069 | ) |  | (17,069 | )
Redemptions of noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | (2,934 | ) |  | — |  |  | — |  |  | (1,092 | ) |  | (4,026 | )

F- 7

Table of Contents

Common and preferred stock dividends | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (298,521 | ) |  | — |  |  | — |  |  | (298,521 | )
Balances at December 31, 2014 | 2,950 |  |  | 73,750 |  |  | 63,683 |  |  | 6 |  |  | 6,651,165 |  |  | (650,797 | ) |  | (51,452 | ) |  | 113,396 |  |  | 6,136,068 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 232,120 |  |  | — |  |  | 16,119 |  |  | 248,239 |
Change in fair value of derivatives and amortization of swap settlements | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 7,637 |  |  | 256 |  |  | 7,893 |
Change in fair value of marketable securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,804 |  |  | 61 |  |  | 1,865 |
Issuance of common stock under: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock option and restricted stock plans, net | — |  |  | — |  |  | 207 |  |  | — |  |  | 26,540 |  |  | — |  |  | — |  |  | — |  |  | 26,540 |
Sale of common stock, net | — |  |  | — |  |  | 1,482 |  |  | — |  |  | 332,137 |  |  | — |  |  | — |  |  | — |  |  | 332,137 |
Equity based compensation costs | — |  |  | — |  |  | — |  |  | — |  |  | 5,946 |  |  | — |  |  | — |  |  | 3,700 |  |  | 9,646 |
Reclassification of noncontrolling interest to redeemable noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | (7,657 | ) |  | — |  |  | — |  |  | (12,115 | ) |  | (19,772 | )
Changes in the redemption value of redeemable noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | (2,615 | ) |  | — |  |  | — |  |  | — |  |  | (2,615 | )
Distributions to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (21,705 | ) |  | (21,705 | )
Redemptions of noncontrolling interest | — |  |  | — |  |  | 7 |  |  | — |  |  | (2,199 | ) |  | — |  |  | — |  |  | (422 | ) |  | (2,621 | )
Common and preferred stock dividends | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (378,652 | ) |  | — |  |  | — |  |  | (378,652 | )
Balances at December 31, 2015 | 2,950 |  |  | $ | 73,750 |  |  | 65,379 |  |  | $ | 6 |  |  | $ | 7,003,317 |  |  | $ | (797,329 | ) |  | $ | (42,011 | ) |  | $ | 99,290 |  |  | $ | 6,337,023 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 414,979 |  |  | — |  |  | 23,431 |  |  | 438,410 |
Reversal of unrealized gains upon the sale of marketable securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (4,689 | ) |  | (159 | ) |  | (4,848 | )
Change in fair value of derivatives and amortization of swap settlements | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 15,403 |  |  | 523 |  |  | 15,926 |
Change in fair value of marketable securities, net | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (801 | ) |  | (27 | ) |  | (828 | )
Issuance of common stock under: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock option and restricted stock plans, net | — |  |  | — |  |  | 140 |  |  | — |  |  | 18,949 |  |  | — |  |  | — |  |  | — |  |  | 18,949 |
Sale of common stock, net | — |  |  | — |  |  | — |  |  | — |  |  | (384 | ) |  | — |  |  | — |  |  | — |  |  | (384 | )
Equity based compensation costs | — |  |  | — |  |  | — |  |  | — |  |  | 8,246 |  |  | — |  |  | — |  |  | 2,653 |  |  | 10,899 |

F- 8

Table of Contents

Redemption of Series H preferred stock | (2,950 | ) |  | (73,750 | ) |  | — |  |  | — |  |  | 2,541 |  |  | (2,541 | ) |  | — |  |  | — |  |  | (73,750 | )
Retirement of common stock, net | — |  |  | — |  |  | (5 | ) |  | — |  |  | (1,045 | ) |  | — |  |  | — |  |  | — |  |  | (1,045 | )
Changes in the redemption value of redeemable noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | 172 |  |  | — |  |  | — |  |  | 596 |  |  | 768 |
Distributions to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (25,854 | ) |  | (25,854 | )
Redemptions of noncontrolling interest | — |  |  | — |  |  | 14 |  |  | — |  |  | (2,117 | ) |  | — |  |  | — |  |  | (394 | ) |  | (2,511 | )
Common and preferred stock dividends | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (420,518 | ) |  | — |  |  | — |  |  | (420,518 | )
Balances at December 31, 2016 | — |  |  | $ | — |  |  | 65,528 |  |  | $ | 6 |  |  | $ | 7,029,679 |  |  | $ | (805,409 | ) |  | $ | (32,098 | ) |  | $ | 100,059 |  |  | $ | 6,292,237 |

See accompanying notes to consolidated financial statements.
F- 9

Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2016, 2015 and 2014
(Dollars in thousands)

| 2016 |  | 2015 |  | 2014
Cash flows from operating activities: |  |  |  |  |
Net income | $ | 438,410 |  |  | $ | 248,239 |  |  | $ | 134,438 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization | 441,682 |  |  | 453,423 |  |  | 360,592 |
Amortization of discount on marketable securities and other investments | (14,211 | ) |  | (12,389 | ) |  | (9,325 | )
Amortization of (premium) discount and financing costs, net | (15,234 | ) |  | (19,361 | ) |  | (14,672 | )
Gain on sale of marketable securities and other investments | (5,719 | ) |  | (598 | ) |  | (886 | )
Company's share of gain on the sales of co-investments | (13,046 | ) |  | — |  |  | (6,558 | )
Earnings from co-investments | (35,652 | ) |  | (21,861 | ) |  | (33,335 | )
Operating distributions from co-investments | 60,472 |  |  | 46,608 |  |  | 49,486 |
Gain on the sales of real estate and land | (154,561 | ) |  | (47,333 | ) |  | (46,039 | )
Equity-based compensation | 10,899 |  |  | 6,061 |  |  | 8,740 |
Loss on early retirement of debt, net | 606 |  |  | 6,114 |  |  | 268 |
Gain on remeasurement of co-investments | — |  |  | (34,014 | ) |  | — |
Noncash merger and integration expenses | — |  |  | — |  |  | 9,025 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Prepaid expenses, receivables and other assets | (2,328 | ) |  | 267 |  |  | 15,828 |
Accounts payable and accrued liabilities | 1,701 |  |  | (9,633 | ) |  | 24,233 |
Other liabilities | (496 | ) |  | 1,887 |  |  | 1,517 |
Net cash provided by operating activities | 712,523 |  |  | 617,410 |  |  | 493,312 |
Cash flows from investing activities: |  |  |  |  |  |  |  |
Additions to real estate: |  |  |  |  |  |  |  |
Acquisitions of real estate and acquisition related capital expenditures | (315,632 | ) |  | (515,726 | ) |  | (387,547 | )
Redevelopment | (83,927 | ) |  | (99,346 | ) |  | (81,429 | )
Development acquisitions of and additions to real estate under development | (76,455 | ) |  | (157,900 | ) |  | (152,766 | )
Capital expenditures on rental properties | (60,013 | ) |  | (57,277 | ) |  | (78,864 | )
Acquisition of membership interest in co-investments | — |  |  | (115,724 | ) |  | — |
Collections of notes and other receivables | 4,070 |  |  | — |  |  | 76,585 |
Investments in notes receivable | (24,070 | ) |  | — |  |  | — |
Proceeds from insurance for property losses | 5,543 |  |  | 16,811 |  |  | 35,547 |
BRE merger consideration paid | — |  |  | — |  |  | (555,826 | )
Proceeds from dispositions of real estate | 239,289 |  |  | 319,008 |  |  | 141,189 |
Contributions to co-investments | (183,989 | ) |  | (127,879 | ) |  | (246,006 | )
Changes in restricted cash and refundable deposits | (14,138 | ) |  | (14,068 | ) |  | (36,582 | )
Purchases of marketable securities | (18,779 | ) |  | (14,300 | ) |  | (20,516 | )
Sales and maturities of marketable securities and other investments | 30,458 |  |  | 8,907 |  |  | 8,753 |
Non-operating distributions from co-investments | 76,231 |  |  | 31,938 |  |  | 150,306 |
Net cash used in investing activities | (421,412 | ) |  | (725,556 | ) |  | (1,147,156 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |

F- 10

Table of Contents

Borrowings under debt agreements | 1,265,388 |  |  | 1,345,855 |  |  | 2,093,406 |
Repayment of debt | (1,018,126 | ) |  | (1,197,351 | ) |  | (1,814,020 | )
Repayment of cumulative redeemable preferred stock | (73,750 | ) |  | — |  |  | — |
Retirement of common stock | (1,045 | ) |  | — |  |  | — |
Additions to deferred charges | (7,926 | ) |  | (8,034 | ) |  | (17,402 | )
Net proceeds from issuance of common stock | (384 | ) |  | 332,137 |  |  | 531,379 |
Net proceeds from stock options exercised | 18,949 |  |  | 26,540 |  |  | 11,039 |
Distributions to noncontrolling interest | (25,334 | ) |  | (21,055 | ) |  | (17,465 | )
Redemption of noncontrolling interest | (2,511 | ) |  | (2,621 | ) |  | (5,753 | )
Common and preferred stock dividends paid | (411,134 | ) |  | (367,257 | ) |  | (260,574 | )
Net cash (used in) provided by financing activities | (255,873 | ) |  | 108,214 |  |  | 520,610 |
Cash acquired from the BRE merger | — |  |  | — |  |  | 140,353 |
Cash acquired from consolidation of co-investment | — |  |  | 4,005 |  |  | — |
Net increase in cash and cash equivalents | 35,238 |  |  | 4,073 |  |  | 7,119 |
Cash and cash equivalents at beginning of year | 29,683 |  |  | 25,610 |  |  | 18,491 |
Cash and cash equivalents at end of year | $ | 64,921 |  |  | $ | 29,683 |  |  | $ | 25,610 |
Supplemental disclosure of cash flow information: |  |  |  |  |
Cash paid for interest, net of capitalized interest | $ | 203,743 |  |  | $ | 181,106 |  |  | $ | 130,691 |
Interest capitalized | $ | 12,486 |  |  | $ | 15,571 |  |  | $ | 22,510 |
Supplemental disclosure of noncash investing and financing activities: |  |  |  |  |  |  |  |
Issuance of Operating Partnership units for contributed properties | $ | — |  |  | $ | — |  |  | $ | 1,419,816 |
Retirement of Operating Partnership units | $ | — |  |  | $ | — |  |  | $ | (1,419,816 | )
Transfers between real estate under development to rental properties, net | $ | 104,159 |  |  | $ | 308,704 |  |  | $ | 10,203 |
Transfer from real estate under development to co-investments | $ | 9,919 |  |  | $ | 6,234 |  |  | $ | 83,574 |
Reclassifications (from) to redeemable noncontrolling interest to or from additional paid in capital and noncontrolling interest | $ | (768 | ) |  | $ | 22,387 |  |  | $ | 18,766 |
Debt assumed in connection with acquisition (excluding BRE merger) | $ | 48,832 |  |  | $ | 114,435 |  |  | $ | 72,568 |
Debt deconsolidated in connection with BEX II transaction | $ | 20,195 |  |  | $ | — |  |  | $ | — |

See accompanying notes to consolidated financial statements
F- 11

Table of Contents
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2016 and 2015
(Dollars in thousands, except per unit amounts)

| 2016 |  | 2015
ASSETS
Real estate: |  |  |
Rental properties: |  |  |
Land and land improvements | $ | 2,559,743 |  |  | $ | 2,522,842 |
Buildings and improvements | 10,116,563 |  |  | 9,808,627 |
| 12,676,306 |  |  | 12,331,469 |
Less: accumulated depreciation | (2,311,546 | ) |  | (1,949,892 | )
| 10,364,760 |  |  | 10,381,577 |
Real estate under development | 190,505 |  |  | 242,326 |
Co-investments | 1,161,275 |  |  | 1,036,047 |
Real estate held for sale, net | 101,957 |  |  | 26,879 |
| 11,818,497 |  |  | 11,686,829 |
Cash and cash equivalents-unrestricted | 64,921 |  |  | 29,683 |
Cash and cash equivalents-restricted | 105,381 |  |  | 93,372 |
Marketable securities | 139,189 |  |  | 137,485 |
Notes and other receivables | 40,970 |  |  | 19,285 |
Prepaid expenses and other assets | 48,450 |  |  | 41,730 |
Total assets | $ | 12,217,408 |  |  | $ | 12,008,384 |
LIABILITIES AND CAPITAL
Unsecured debt, net | $ | 3,246,779 |  |  | $ | 3,088,680 |
Mortgage notes payable, net | 2,191,481 |  |  | 2,215,077 |
Lines of credit | 125,000 |  |  | 15,000 |
Accounts payable and accrued liabilities | 138,226 |  |  | 131,415 |
Construction payable | 35,909 |  |  | 40,953 |
Distributions payable | 110,170 |  |  | 100,266 |
Other liabilities | 32,922 |  |  | 34,518 |
Total liabilities | 5,880,487 |  |  | 5,625,909 |
Commitments and contingencies |  |  |  |  |
Redeemable noncontrolling interest | 44,684 |  |  | 45,452 |
Capital: |  |  |  |  |
General Partner: |  |  |  |  |
Common equity (65,527,993 and 65,379,359 units issued and outstanding, respectively) | 6,224,276 |  |  | 6,208,535 |
Series H 7.125% Preferred interest (liquidation value $0 and $73,750, respectively) | — |  |  | 71,209 |
| 6,224,276 |  |  | 6,279,744 |
Limited Partners: |  |  |  |  |
Common equity (2,237,290 and 2,214,545 units issued and outstanding, respectively) | 49,436 |  |  | 47,235 |
Accumulated other comprehensive loss | (29,348 | ) |  | (39,598 | )
Total partners' capital | 6,244,364 |  |  | 6,287,381 |
Noncontrolling interest | 47,873 |  |  | 49,642 |
Total capital | 6,292,237 |  |  | 6,337,023 |
Total liabilities and capital | $ | 12,217,408 |  |  | $ | 12,008,384 |

See accompanying notes to consolidated financial statements
F- 12

Table of Contents
ESSEX PORTFOLIO, L.P. AND SUBSIDIARES
Consolidated Statements of Income
Years ended December 31, 2016, 2015, and 2014
(Dollars in thousands, except per unit and unit amounts)

| 2016 |  | 2015 |  | 2014
Revenues: |  |  |  |  |
Rental and other property | $ | 1,285,723 |  |  | $ | 1,185,498 |  |  | $ | 961,591 |
Management and other fees from affiliates | 8,278 |  |  | 8,909 |  |  | 9,347 |
| 1,294,001 |  |  | 1,194,407 |  |  | 970,938 |
Expenses: |  |  |  |  |  |  |  |
Property operating, excluding real estate taxes | 249,765 |  |  | 234,953 |  |  | 204,673 |
Real estate taxes | 139,162 |  |  | 128,555 |  |  | 107,873 |
Depreciation and amortization | 441,682 |  |  | 453,423 |  |  | 360,592 |
General and administrative | 40,751 |  |  | 40,090 |  |  | 40,878 |
Merger and integration expenses | — |  |  | 3,798 |  |  | 53,530 |
Acquisition and investment related costs | 1,841 |  |  | 2,414 |  |  | 1,878 |
| 873,201 |  |  | 863,233 |  |  | 769,424 |
Earnings from operations | 420,800 |  |  | 331,174 |  |  | 201,514 |
Interest expense | (219,654 | ) |  | (204,827 | ) |  | (164,551 | )
Total return swap income | 11,716 |  |  | 5,655 |  |  | — |
Interest and other income | 27,305 |  |  | 19,143 |  |  | 11,811 |
Equity income from co-investments | 48,698 |  |  | 21,861 |  |  | 39,893 |
Loss on early retirement of debt, net | (606 | ) |  | (6,114 | ) |  | (268 | )
Gain on sale of real estate and land | 154,561 |  |  | 47,333 |  |  | 46,039 |
Deferred tax expense on gain on sale of real estate and land | (4,410 | ) |  | — |  |  | — |
Gain on remeasurement of co-investment | — |  |  | 34,014 |  |  | — |
Net income | 438,410 |  |  | 248,239 |  |  | 134,438 |
Net income attributable to noncontrolling interest | (9,342 | ) |  | (8,295 | ) |  | (7,421 | )
Net income attributable to controlling interest | 429,068 |  |  | 239,944 |  |  | 127,017 |
Preferred interest distributions | (1,314 | ) |  | (5,255 | ) |  | (5,291 | )
Excess of redemption value of preferred units over the carrying value | (2,541 | ) |  | — |  |  | — |
Net income available to common unitholders | $ | 425,213 |  |  | $ | 234,689 |  |  | $ | 121,726 |
Per unit data: |  |  |  |  |  |  |  |
Basic: |  |  |  |  |  |  |  |
Net income available to common unitholders | $ | 6.28 |  |  | $ | 3.50 |  |  | $ | 2.07 |
Weighted average number of common units outstanding during the year | 67,695,640 |  |  | 67,054,184 |  |  | 58,771,666 |
Diluted: |  |  |  |  |  |  |  |
Net income available to common unitholders | $ | 6.27 |  |  | $ | 3.49 |  |  | $ | 2.07 |
Weighted average number of common units outstanding during the year | 67,811,916 |  |  | 67,244,152 |  |  | 58,921,232 |

See accompanying notes to consolidated financial statements
F- 13

Table of Contents
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2016, 2015, and 2014
(Dollars in thousands)

| 2016 |  | 2015 |  | 2014
Net income | $ | 438,410 |  |  | $ | 248,239 |  |  | $ | 134,438 |
Other comprehensive income (loss): |  |  |  |  |  |  |  |
Change in fair value of derivatives and amortization of swap settlements | 15,926 |  |  | 7,893 |  |  | 4,168 |
Changes in fair value of marketable securities, net | (828 | ) |  | 1,865 |  |  | 6,302 |
Reversal of unrealized gains upon the sale of marketable securities | (4,848 | ) |  | — |  |  | (886 | )
Total other comprehensive income | 10,250 |  |  | 9,758 |  |  | 9,584 |
Comprehensive income | 448,660 |  |  | 257,997 |  |  | 144,022 |
Comprehensive income attributable to noncontrolling interest | (9,342 | ) |  | (8,295 | ) |  | (7,421 | )
Comprehensive income attributable to controlling interest | $ | 439,318 |  |  | $ | 249,702 |  |  | $ | 136,601 |

See accompanying notes to consolidated financial statements.
F- 14

Table of Contents
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Capital
Years ended December 31, 2016, 2015, and 2014
(Dollars and units in thousands)

| General Partner |  | Limited Partners |  | Accumulated |  |  |  |
|  |  |  |  | Preferred |  |  |  |  |  | Preferred |  | other |  |  |  |
| Common Equity |  | Equity |  | Common Equity |  | Equity |  | comprehensive |  | Noncontrolling |  |
| Units |  | Amount |  | Amount |  | Units |  | Amount |  | Amount |  | loss, net |  | Interest |  | Total
Balances at December 31, 2013 | 37,421 |  |  | 1,873,882 |  |  | 71,209 |  |  | 2,150 |  |  | 45,957 |  |  | — |  |  | (58,940 | ) |  | 66,130 |  |  | 1,998,238 |
Net income | — |  |  | 116,859 |  |  | 5,291 |  |  | — |  |  | 4,867 |  |  | — |  |  | — |  |  | 7,421 |  |  | 134,438 |
Reversal of unrealized gains upon the sale of marketable securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (886 | ) |  | — |  |  | (886 | )
Changes in fair value of derivatives and amortization of swap settlements | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,168 |  |  | — |  |  | 4,168 |
Changes in fair value of marketable securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,302 |  |  | — |  |  | 6,302 |
Issuance of common units under: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock issued as consideration by general partner in merger | 23,067 |  |  | 3,774,087 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,774,087 |
General partner's stock based compensation, net | 218 |  |  | 11,024 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 11,024 |
Sale of common stock by the general partner, net | 2,943 |  |  | 532,670 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 532,670 |
Equity-based compensation costs | — |  |  | 5,719 |  |  | — |  |  | 28 |  |  | 6,153 |  |  | — |  |  | — |  |  | — |  |  | 11,872 |
Reclassification of noncontrolling interest to redeemable noncontrolling interest | — |  |  | (19,823 | ) |  | — |  |  | (10 | ) |  | 4,017 |  |  | — |  |  | — |  |  | (5,084 | ) |  | (20,890 | )
Changes in the redemption value of redeemable noncontrolling interest | — |  |  | 312 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 312 |
Conversion of Series G preferred stock | 34 |  |  | 4,349 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,349 |
Contributions from noncontrolling interest | — |  |  | — |  |  | — |  |  | 8,561 |  |  | 1,419,816 |  |  | — |  |  | — |  |  | — |  |  | 1,419,816 |
Retirement of noncontrolling interest | — |  |  | — |  |  | — |  |  | (8,561 | ) |  | (1,419,816 | ) |  | — |  |  | — |  |  | — |  |  | (1,419,816 | )
Distributions to noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (4,890 | ) |  | (4,890 | )
Redemptions | — |  |  | (3,374 | ) |  | — |  |  | — |  |  | (1,181 | ) |  | — |  |  | — |  |  | (942 | ) |  | (5,497 | )
Distributions declared | — |  |  | (292,790 | ) |  | (5,291 | ) |  | — |  |  | (11,148 | ) |  | — |  |  | — |  |  | — |  |  | (309,229 | )

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Table of Contents

Balances at December 31, 2014 | 63,683 |  |  | 6,002,915 |  |  | 71,209 |  |  | 2,168 |  |  | 48,665 |  |  | — |  |  | (49,356 | ) |  | 62,635 |  |  | 6,136,068 |
Net income | — |  |  | 226,865 |  |  | 5,255 |  |  | — |  |  | 7,824 |  |  | — |  |  | — |  |  | 8,295 |  |  | 248,239 |
Change in fair value of derivatives and amortization of swap settlements | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 7,893 |  |  | — |  |  | 7,893 |
Changes in fair value of marketable securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,865 |  |  | — |  |  | 1,865 |
Issuance of common units under: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
General partner's stock based, net compensation | 207 |  |  | 26,540 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 26,540 |
Sale of common stock by the general partner, net | 1,482 |  |  | 332,137 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 332,137 |
Equity based compensation costs | — |  |  | 5,946 |  |  | — |  |  | 54 |  |  | 3,700 |  |  | — |  |  | — |  |  | — |  |  | 9,646 |
Changes in redemption value of redeemable noncontrolling interest | — |  |  | (2,615 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,615 | )
Reclassification of noncontrolling interest to redeemable noncontrolling interest | — |  |  | (7,657 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (12,115 | ) |  | (19,772 | )
Distributions to noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (8,751 | ) |  | (8,751 | )
Redemptions | 7 |  |  | (2,199 | ) |  | — |  |  | (7 | ) |  | — |  |  | — |  |  | — |  |  | (422 | ) |  | (2,621 | )
Distributions declared | — |  |  | (373,397 | ) |  | (5,255 | ) |  | — |  |  | (12,954 | ) |  | — |  |  | — |  |  | — |  |  | (391,606 | )
Balances at December 31, 2015 | 65,379 |  |  | $ | 6,208,535 |  |  | $ | 71,209 |  |  | 2,215 |  |  | $ | 47,235 |  |  | $ | — |  |  | $ | (39,598 | ) |  | $ | 49,642 |  |  | $ | 6,337,023 |
Net income | — |  |  | 411,124 |  |  | 3,855 |  |  | — |  |  | 14,089 |  |  | — |  |  | — |  |  | 9,342 |  |  | 438,410 |
Reversal of unrealized gains upon the sale of marketable securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (4,848 | ) |  | — |  |  | (4,848 | )
Change in fair value of derivatives and amortization of swap settlements | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 15,926 |  |  | — |  |  | 15,926 |
Change in fair value of marketable securities, net | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (828 | ) |  | — |  |  | (828 | )
Issuance of common stock under: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
General partner's stock based compensation, net | 140 |  |  | 18,949 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 18,949 |
Sale of common stock by general partner, net | — |  |  | (384 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (384 | )
Equity based compensation costs | — |  |  | 8,246 |  |  | — |  |  | 37 |  |  | 2,653 |  |  | — |  |  | — |  |  | — |  |  | 10,899 |
Redemption of Series H preferred units | — |  |  | — |  |  | (73,750 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (73,750 | )
Retirement of common units, net | (5 | ) |  | (1,045 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,045 | )

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Changes in the redemption value of redeemable noncontrolling interest | — |  |  | 172 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 596 |  |  | 768 |
Distributions to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (11,296 | ) |  | (11,296 | )
Redemptions | 14 |  |  | (2,117 | ) |  | — |  |  | (15 | ) |  | 17 |  |  | — |  |  | — |  |  | (411 | ) |  | (2,511 | )
Distributions declared | — |  |  | (419,204 | ) |  | (1,314 | ) |  | — |  |  | (14,558 | ) |  | — |  |  | — |  |  | — |  |  | (435,076 | )
Balances at December 31, 2016 | 65,528 |  |  | $ | 6,224,276 |  |  | $ | — |  |  | 2,237 |  |  | $ | 49,436 |  |  | $ | — |  |  | $ | (29,348 | ) |  | $ | 47,873 |  |  | $ | 6,292,237 |

See accompanying notes to consolidated financial statements
F- 17

Table of Contents
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2016, 2015, and 2014
(Dollars in thousands)

| 2016 |  | 2015 |  | 2014
Cash flows from operating activities: |  |  |  |  |
Net income | $ | 438,410 |  |  | $ | 248,239 |  |  | $ | 134,438 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization | 441,682 |  |  | 453,423 |  |  | 360,592 |
Amortization of discount on marketable securities and other investments | (14,211 | ) |  | (12,389 | ) |  | (9,325 | )
Amortization of (premium) discount and financing costs, net | (15,234 | ) |  | (19,361 | ) |  | (14,672 | )
Gain on sale of marketable securities and other investments | (5,719 | ) |  | (598 | ) |  | (886 | )
Company's share of gain on the sales of co-investments | (13,046 | ) |  | — |  |  | (6,558 | )
Earnings from co-investments | (35,652 | ) |  | (21,861 | ) |  | (33,335 | )
Operating distributions from co-investments | 60,472 |  |  | 46,608 |  |  | 49,486 |
Gain on the sales of real estate and land | (154,561 | ) |  | (47,333 | ) |  | (46,039 | )
Equity-based compensation | 10,899 |  |  | 6,061 |  |  | 8,740 |
Loss on early retirement of debt, net | 606 |  |  | 6,114 |  |  | 268 |
Gain on remeasurement of co-investment | — |  |  | (34,014 | ) |  | — |
Noncash merger and integration expenses | — |  |  | — |  |  | 9,025 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Prepaid expenses, receivables and other assets | (2,328 | ) |  | 267 |  |  | 15,828 |
Accounts payable and accrued liabilities | 1,701 |  |  | (9,633 | ) |  | 24,233 |
Other liabilities | (496 | ) |  | 1,887 |  |  | 1,517 |
Net cash provided by operating activities | 712,523 |  |  | 617,410 |  |  | 493,312 |
Cash flows from investing activities: |  |  |  |  |  |  |  |
Additions to real estate: |  |  |  |  |  |  |  |
Acquisitions of real estate and acquisition related capital expenditures | (315,632 | ) |  | (515,726 | ) |  | (387,547 | )
Redevelopment | (83,927 | ) |  | (99,346 | ) |  | (81,429 | )
Development acquisitions of and additions to real estate under development | (76,455 | ) |  | (157,900 | ) |  | (152,766 | )
Capital expenditures on rental properties | (60,013 | ) |  | (57,277 | ) |  | (78,864 | )
Acquisition of membership interest in co-investments | — |  |  | (115,724 | ) |  | — |
Collections of notes and other receivables | 4,070 |  |  | — |  |  | 76,585 |
Investments in notes receivable | (24,070 | ) |  | — |  |  | — |
Proceeds from insurance for property losses | 5,543 |  |  | 16,811 |  |  | 35,547 |
BRE merger consideration paid | — |  |  | — |  |  | (555,826 | )
Proceeds from dispositions of real estate | 239,289 |  |  | 319,008 |  |  | 141,189 |
Contributions to co-investments | (183,989 | ) |  | (127,879 | ) |  | (246,006 | )
Changes in restricted cash and refundable deposits | (14,138 | ) |  | (14,068 | ) |  | (36,582 | )
Purchases of marketable securities | (18,779 | ) |  | (14,300 | ) |  | (20,516 | )
Sales and maturities of marketable securities and other investments | 30,458 |  |  | 8,907 |  |  | 8,753 |
Non-operating distributions from co-investments | 76,231 |  |  | 31,938 |  |  | 150,306 |
Net cash used in investing activities | (421,412 | ) |  | (725,556 | ) |  | (1,147,156 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |

F- 18

Table of Contents

Borrowings under debt agreements | 1,265,388 |  |  | 1,345,855 |  |  | 2,093,406 |
Repayment of debt | (1,018,126 | ) |  | (1,197,351 | ) |  | (1,814,020 | )
Repayment of cumulative redeemable preferred stock | (73,750 | ) |  | — |  |  | — |
Retirement of common stock | (1,045 | ) |  | — |  |  | — |
Additions to deferred charges | (7,926 | ) |  | (8,034 | ) |  | (17,402 | )
Net proceeds from issuance of common units | (384 | ) |  | 332,137 |  |  | 531,379 |
Net proceeds from stock options exercised | 18,949 |  |  | 26,540 |  |  | 11,039 |
Distributions to noncontrolling interest | (6,960 | ) |  | (7,615 | ) |  | (4,841 | )
Redemption of noncontrolling interests | (2,511 | ) |  | (2,621 | ) |  | (802 | )
Common and preferred units and preferred interests distributions paid | (429,508 | ) |  | (380,697 | ) |  | (278,149 | )
Net cash (used in) provided by financing activities | (255,873 | ) |  | 108,214 |  |  | 520,610 |
Cash acquired from the BRE merger | — |  |  | — |  |  | 140,353 |
Cash acquired from consolidation of co-investment | — |  |  | 4,005 |  |  | — |
Net increase in cash and cash equivalents | 35,238 |  |  | 4,073 |  |  | 7,119 |
Cash and cash equivalents at beginning of year | 29,683 |  |  | 25,610 |  |  | 18,491 |
Cash and cash equivalents at end of year | $ | 64,921 |  |  | $ | 29,683 |  |  | $ | 25,610 |
Supplemental disclosure of cash flow information: |  |  |  |  |
Cash paid for interest, net of capitalized interest | $ | 203,743 |  |  | $ | 181,106 |  |  | $ | 130,691 |
Interest capitalized | $ | 12,486 |  |  | $ | 15,571 |  |  | $ | 22,510 |
Supplemental disclosure of noncash investing and financing activities: |  |  |  |  |  |  |  |
Issuance of Operating Partnership units for contributed properties | $ | — |  |  | $ | — |  |  | $ | 1,419,816 |
Retirement of Operating Partnership units | $ | — |  |  | $ | — |  |  | $ | (1,419,816 | )
Transfers between real estate under development to rental properties, net | $ | 104,159 |  |  | $ | 308,704 |  |  | $ | 10,203 |
Transfer from real estate under development to co-investments | $ | 9,919 |  |  | $ | 6,234 |  |  | $ | 83,574 |
Reclassifications (from) to redeemable noncontrolling interest to or from additional paid in capital and noncontrolling interest | $ | (768 | ) |  | $ | 22,387 |  |  | $ | 18,766 |
Debt assumed in connection with acquisition (excluding BRE merger) | $ | 48,832 |  |  | $ | 114,435 |  |  | $ | 72,568 |
Debt deconsolidated in connection with BEX II transaction | $ | 20,195 |  |  | $ | — |  |  | $ | — |

See accompanying notes to consolidated financial statements
F- 19

Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
(1) Organization
The accompanying consolidated financial statements present the accounts of Essex Property Trust, Inc. (“Essex”, “ESS”, or the “Company”), which include the accounts of the Company and Essex Portfolio, L.P. and subsidiaries (the “Operating Partnership,” which holds the operating assets of the Company). Unless otherwise indicated, the notes to consolidated financial statements apply to both the Company and the Operating Partnership.
ESS is the sole general partner in the Operating Partnership with a 96.7% general partner interest and the limited partners owned a 3.3% interest as of December 31, 2016. The limited partners may convert their Operating Partnership units into an equivalent number of shares of common stock. Total Operating Partnership limited partnership units outstanding were 2,237,290 and 2,214,545 as of December 31, 2016 and 2015, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $520.2 million and $530.2 million, as of December 31, 2016 and 2015, respectively. The Company has reserved shares of common stock for such conversions.
As of December 31, 2016, the Company owned or had ownership interests in 245 apartment communities, (aggregating 59,645 apartment homes), two operating commercial buildings, and six active development projects (collectively, the “Portfolio”). The communities are located in Southern California (Los Angeles, Orange, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan areas.
On April 1, 2014, Essex completed the merger with BRE Properties, Inc. (“BRE”). In connection with the closing of the merger, (1) BRE merged into a wholly owned subsidiary of Essex, and (2) each outstanding share of BRE common stock was converted into (i) 0.2971 shares (the “Stock Consideration”) of Essex common stock, and (ii) $7.18 in cash, (the “Cash Consideration”), plus cash in lieu of fractional shares for total consideration of approximately $4.3 billion. The Cash Consideration was adjusted as a result of the authorization and declaration of a special distribution to the stockholders of BRE of $5.15 per share of BRE common stock payable to BRE stockholders of record as of the close of business on March 31, 2014 (the “Special Dividend”). The Special Dividend was payable as a result of the closing of the sale of certain interests in assets of BRE to certain parties, which closed on March 31, 2014. Pursuant to the terms of the merger agreement, the amounts payable as a Special Dividend reduced the Cash Consideration of $12.33 payable by Essex in the merger to $7.18 per share of BRE common stock.
Essex issued approximately 23.1 million shares of Essex common stock as Stock Consideration in the merger. For purchase accounting, the value of the common stock issued by Essex upon the consummation of the merger was determined based on the closing price of BRE’s common stock on the closing date of the merger. As a result of Essex being admitted to the S&P 500 on the same date as the closing of the merger, Essex’s common stock price experienced significantly higher than usual trading volume and the closing price of $174 per share was significantly higher than its volume-weighted average trading price for the days before and after April 1, 2014. BRE’s common stock did not experience the same proportionate increase in common stock price leading up to April 1, 2014. As a result, given that a substantial component of the purchase price is an exchange of equity instruments, Essex used the closing price of BRE’s common stock on April 1, 2014 of $61 per share, less the Cash Consideration, as the fair value of the equity consideration. After deducting the Special Dividend and the Cash Consideration per share, this resulted in a value of $48.67 per share of BRE common stock which is the equivalent of approximately $164 per share of Essex common stock issued.
(2) Summary of Critical and Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
The accounts of the Company, its controlled subsidiaries and the variable interest entities (“VIEs”) in which it is the primary beneficiary are consolidated in the accompanying financial statements and prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). 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. All significant inter-company accounts and transactions have been eliminated. Certain reclassifications have been made in prior period amounts to conform to the current year’s presentation including the reclassification of $3.3 million in deferred financing costs related to lines of credit which were reclassified from lines of credit to prepaid expenses and other assets as of December 31, 2015. Such reclassifications had no net effect on previously reported financial results.
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Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Noncontrolling interest includes the 3.3% limited partner interests in the Operating Partnership not held by the Company at both December 31, 2016 and 2015. These percentages include the Operating Partnership’s vested long term incentive plan units (see Note 12).
(b) Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The new standard provides a single comprehensive revenue recognition model for contracts with customers (excluding certain contracts, such as lease contracts) to improve comparability within industries. The new standard requires an entity to recognize revenue to reflect the transfer of goods or services to customers at an amount the entity expects to be paid in exchange for those goods and services and provide enhanced disclosures, all to provide more comprehensive guidance for transactions such as service revenue and contract modifications. In August 2015, the FASB deferred the effective date of the new standard by one year, and it is now effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The new standard may be applied using either a full retrospective or a modified approach upon adoption. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.
In January 2016, the FASB issued ASU No. 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities", which requires changes to the classification and measurement of investments in certain equity securities and to the presentation of certain fair value changes for financial liabilities measured at fair value. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption is permitted. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.
In February 2016, the FASB issued ASU No. 2016-02 "Leases", which requires an entity that is a lessee to classify leases as either finance or operating and to recognize a lease liability and a right-of-use asset for all leases that have a duration of greater than 12 months. Leases of 12 months or less will be accounted for similar to existing guidance for operating leases today. For lessors, accounting for leases under the new standard will be substantially the same as existing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of initial direct costs. The new standard will be effective for the Company beginning on January 1, 2019 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a modified retrospective approach. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.
In March 2016, the FASB issued ASU No. 2016-07 "Simplifying the Transition to the Equity Method of Accounting", which eliminates the requirement to retroactively adjust an investment, results of operations, and retained earnings when the investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The new standard will be effective for the Company beginning on January 1, 2017 and early adoption is permitted. The Company does not expect the impact of this to be material on its consolidated results of operations or financial position.
In March 2016, the FASB issued ASU No. 2016-09 "Improvement to Employee Share-Based Payment Accounting", which amends certain aspects of how an entity accounts for share-based payments to employees. This amendment requires entities to recognize the income tax effects of share-based awards in the income statement when the awards vest or are settled, rather than recording such effects in additional paid-in capital. Entities will also be permitted to elect to account for forfeitures of share-based payments as they occur or continue with the current practice which requires estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change. The new standard will be effective January 1, 2017, with early adoption permitted. The change in recognition of income tax effects of share-based awards will be applied prospectively. If the Company elects to account for forfeitures of share-based payments as they occur, such change will be applied using a modified retrospective approach, with a cumulative-effect adjustment to distributions in excess of accumulated earnings. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.
In June 2016, the FASB issued ASU No. 2016-13 "Measure of Credit Losses on Financial Instruments", which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Currently, U.S. GAAP requires entities to write down credit losses only
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
when losses are probable and loss reversals are not permitted. The new standard will be effective for the Company beginning on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.
In August 2016, the FASB issued ASU No. 2016-15 "Classification of Certain Cash Receipts and Cash Payments", which requires entities to adhere to a uniform classification and presentation of certain cash receipts and cash payments in the statement of cash flows. The amendments in this update provide guidance on eight specific cash flow issues. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption is permitted. The Company does not expect the impact of the other items identified in the ASU to be material on its consolidated results of operations or financial position.
In October 2016, the FASB issued ASU No. 2016-17 "Interests Held through Related Parties that are Under Common Control", which further refines the consolidation guidance of variable interest entities as outlined in ASU 2015-02 "Consolidation: Amendments to the Consolidation Analysis" (which became effective for the Company since January 2016) and requires entities to consider only their proportionate indirect interest in a variable interest entity held through an entity under common control. Currently, U.S. GAAP requires entities to consider such proportionate indirect interests as if the entities held the interest themselves. This new standard will be effective for the Company beginning January 1, 2017 and early adoption is permitted. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.
In November 2016, the FASB issued ASU No. 2016-18 "Statement of Cash Flows", which requires entities to include restricted cash and restricted cash equivalents in the reconciliation of beginning-of period to the end-of-period of cash and cash equivalents in the statement of cash flows. This new standard seeks to eliminate the current diversity in practice in how changes in restricted cash and restricted cash equivalents is presented in the statement of cash flows. This new standard will be effective for the Company beginning January 1, 2018 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated statements of cash flows.
In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations: Clarifying the Definition of a Business", which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Currently, U.S. GAAP does not specify the minimum inputs and processes required for an integrated set of assets and activities to meet the definition of a business, causing a broad interpretation of the definition of a business. This new standard will be effective for the Company beginning January 1, 2018 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.
(c) Real Estate Rental Properties
Significant expenditures, which improve or extend the life of an asset and have a useful life of greater than one year, are capitalized. Operating real estate assets are stated at cost and consist of land, buildings and improvements, furniture, fixtures and equipment, and other costs incurred during their development, redevelopment and acquisition. Expenditures for maintenance and repairs are charged to expense as incurred.
The depreciable life of various categories of fixed assets is as follows:

Computer software and equipment | 3 - 5 years
Interior apartment home improvements | 5 years
Furniture, fixtures and equipment | 5 - 10 years
Land improvements and certain exterior components of real property | 10 years
Real estate structures | 30 years

The Company capitalizes all costs incurred with the predevelopment, development or redevelopment of real estate assets or are associated with the construction or expansion of real property. Such capitalized costs include land, land improvements, allocated costs of the Company’s project management staff, construction costs, as well as interest and related loan fees, property taxes and insurance. Capitalization begins for predevelopment, development, and redevelopment projects when activity commences. Capitalization ends when the apartment home is completed and the property is available for a new resident or if the development activities cease.
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
The Company allocates the purchase price of real estate to land and building including personal property, and identifiable intangible assets, such as the value of above, below and in-place leases. The values of the above and below market leases are amortized and recorded as either a decrease (in the case of above market leases) or an increase (in the case of below market leases) to rental revenue over the remaining term of the associated leases acquired, which in the case of below market leases the Company assumes lessees will elect to renew their leases. The value of acquired in-place leases are amortized to expense over the average remaining term of the leases acquired. The net carrying value of acquired in-place leases is $1.4 million and $2.9 million as of December 31, 2016 and 2015, respectively, and are included in prepaid expenses and other assets on the Company's consolidated balance sheets.
The Company performs the following evaluation for communities acquired:

(1) | adjust the purchase price for any fair value adjustments resulting from such things as assumed debt or contingencies;

(2) | estimate the value of the real estate “as if vacant” as of the acquisition date;

(3) | allocate that value among land and buildings including personal property;

(4) | compute the value of the difference between the “as if vacant” value and the adjusted purchase price, which will represent the total intangible assets;

(5) | compute the value of the above and below market leases and determine the associated life of the above market/ below market leases;

(6) | compute the value of the in-place leases and customer relationships, if any, and the associated lives of these assets.

Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment or held for sale may not be fully recoverable, the carrying amount will be evaluated for impairment. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount (including intangible assets) of a property held for investment, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property. Fair value of a property is determined using conventional real estate valuation methods, such as discounted cash flow, the property’s unleveraged yield in comparison to the unleveraged yields and sales prices of similar communities that have been recently sold, and other third party information, if available. Communities held for sale are carried at the lower of cost and fair value less estimated costs to sell. As of December 31, 2016 one property was classified as held for sale. As of December 31, 2015 two properties were classified as held for sale. No impairment charges were recorded in 2016, 2015 or 2014.
In the normal course of business, the Company will receive purchase offers for its communities, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. The Company classifies real estate as "held for sale" when all criteria under the accounting standard for the disposals of long-lived assets have been met.
(d) Co-investments
The Company owns investments in joint ventures (“co-investments”) in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with the accounting standards. Therefore, the Company accounts for these investments using the equity method of accounting. Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company’s equity in earnings less distributions received and the Company’s share of losses.
A majority of the co-investments, excluding the preferred equity investments, compensate the Company for its asset management services and some of these investments may provide promote distributions if certain financial return benchmarks are achieved. Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible. Any promote fees are reflected in equity income from co-investments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
(e) Revenues and Gains on Sale of Real Estate
Revenues from tenants renting or leasing apartment homes are recorded when due from tenants and are recognized monthly as they are earned, which is not materially different than on a straight-line basis. Apartment homes are rented under short-term leases (generally, lease terms of 6 to 12 months). Revenues from tenants leasing commercial space are recorded on a straight-line basis over the life of the respective lease.
The Company recognizes gains on sales of real estate when a contract is in place, a closing has taken place, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property and the Company does not have a substantial continuing involvement with the property.
(f) Cash Equivalents and Restricted Cash
Highly liquid investments with original maturities of three months or less when purchased are classified as cash equivalents. Restricted cash balances relate primarily to reserve requirements for capital replacement at certain communities in connection with the Company’s mortgage debt.
(g) Marketable Securities
The Company reports its available for sale securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds, Level 2 for the unsecured bonds and Level 3 for investments in mortgage backed securities, as defined by the FASB standard for fair value measurements as discussed later in Note 2), and any unrealized gain or loss is recorded as other comprehensive income. There were no other than temporary impairment charges for the years ended December 31, 2016, 2015, and 2014. Realized gains and losses, interest income, and amortization of purchase discounts are included in interest and other income on the consolidated statements of income.
As of December 31, 2016 and 2015, marketable securities consisted primarily of investment-grade unsecured bonds, common stock, investments in mortgage backed securities, investment funds that invest in U.S. treasury or agency securities, and other limited partnership investments. As of December 31, 2016 and 2015, the Company classified its investments in mortgage backed securities, which mature in November 2019 and September 2020, as held to maturity, and accordingly, these securities are stated at their amortized cost. The discount on the mortgage backed securities is being amortized to interest income based on an estimated yield and the maturity date of the securities.
As of December 31, 2016 and 2015 marketable securities consist of the following ($ in thousands):

| December 31, 2016
| Amortized Cost |  | Gross Unrealized Gain (Loss) |  | Carrying Value
Available for sale: |  |  |  |  |
Investment-grade unsecured bonds | $ | 19,604 |  |  | $ | (73 | ) |  | $ | 19,531 |
Investment funds - U.S. treasuries | 10,022 |  |  | (22 | ) |  | 10,000 |
Common stock and stock funds | 13,696 |  |  | 1,569 |  |  | 15,265 |
Held to maturity: |  |  |  |  |  |  |  |
Mortgage backed securities | 94,393 |  |  | — |  |  | 94,393 |
Total - Marketable securities | $ | 137,715 |  |  | $ | 1,474 |  |  | $ | 139,189 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014

| December 31, 2015
| Amortized Cost |  | Gross Unrealized Gain (Loss) |  | Carrying Value
Available for sale: |  |  |  |  |
Investment-grade unsecured bonds | $ | 11,618 |  |  | $ | 68 |  |  | $ | 11,686 |
Investment funds - U.S. treasuries | 3,675 |  |  | (9 | ) |  | 3,666 |
Common stock and stock funds | 34,655 |  |  | 7,091 |  |  | 41,746 |
Held to maturity: |  |  |  |  |  |  |  |
Mortgage backed securities | 80,387 |  |  | — |  |  | 80,387 |
Total - Marketable securities | $ | 130,335 |  |  | $ | 7,150 |  |  | $ | 137,485 |

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 years ended December 31, 2016, 2015 and 2014, the proceeds from sales of available for sale securities totaled $30.5 million, $3.3 million and $8.8 million, respectively. For the years ended December 31, 2016, 2015 and 2014 these sales resulted in gains of $4.8 million, no net gains or losses, and gains of $0.9 million, respectively.
For the year ended December 31, 2015, the proceeds from the sale of other investments totaled $5.6 million, which resulted in a realized gain of $0.6 million recorded in interest and other income on the consolidated statements of income. There were no such sales for the years ended December 31, 2016 and 2014.
(h) Notes Receivable
Notes receivable relate to real estate financing arrangements including mezzanine and bridge loans and are secured by real estate. Interest is recognized over the life of the note as interest income.
Each note is analyzed to determine if it is impaired. A note is impaired if it is probable that the Company will not collect all contractually due principal and interest. The Company does not accrue interest when a note is considered impaired and an allowance is recorded for any principal and previously accrued interest that are not believed to be collectible. All cash receipts on impaired notes are applied to reduce the principal amount of such notes until the principal has been recovered and, thereafter, are recognized as interest income. As of December 31, 2016 and 2015, no notes were impaired.
(i) Capitalization Policy
The Company capitalizes all direct and certain indirect costs, including interest, real estate taxes and insurance, incurred during development and redevelopment activities. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use. The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period. Included in capitalized costs are management’s estimates of the direct and incremental personnel costs and indirect project costs associated with the Company's development and redevelopment activities. Indirect project costs consist primarily of personnel costs associated with construction administration and development, including accounting, legal fees, and various corporate and community onsite costs that clearly relate to projects under development. Those costs as well as capitalized development and redevelopment fees totaled $18.5 million, $17.6 million and $17.6 million for the years ended December 31, 2016, 2015 and 2014, respectively, most of which relates to development projects. The Company capitalizes leasing costs associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized are immaterial for all periods presented.
(j) Fair Value of Financial Instruments
The Company values its financial instruments based on the fair value hierarchy of valuation techniques described in the FASB’s accounting standard for fair value measurements. Level 1 inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include quoted prices for similar assets and liabilities in active
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
markets and inputs other than quoted prices observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability. The Company uses Level 1 inputs for the fair values of its cash equivalents and its marketable securities except for unsecured bonds and mortgage backed securities. The Company uses Level 2 inputs for its investments in unsecured bonds, notes receivable, notes payable, and derivative assets/liabilities. These inputs include interest rates for similar financial instruments. The Company’s valuation methodology for derivatives is described in Note 8. The Company uses Level 3 inputs to estimate the fair value of its mortgage backed securities. 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.
Management believes that the carrying amounts of the outstanding balances under its notes and other receivables approximate fair value as of December 31, 2016 and 2015, 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 fixed rate debt with a carrying value of $5.1 billion and $4.8 billion, including premiums, discounts and debt financing costs, at December 31, 2016 and 2015, respectively, to be $5.1 billion and $4.8 billion. Management has estimated the fair value of the Company’s $499.7 million and $525.3 million of variable rate debt, including debt financing costs, at December 31, 2016 and 2015, respectively, to be $502.8 million and $527.6 million based on the terms of the Company’s existing variable rate debt compared to those available in the marketplace. Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payable, other liabilities and dividends payable approximate fair value as of December 31, 2016 and 2015 due to the short-term maturity of these instruments. Marketable securities, excluding mortgage backed securities, and derivative assets/liabilities are carried at fair value as of December 31, 2016 and 2015.
At December 31, 2016 and 2015, the Company’s investments in mortgage backed securities had a carrying value of $94.4 million and $80.4 million, respectively. The Company estimated the fair value of investment in mortgage backed securities at December 31, 2016 and 2015 to be approximately $108.8 million and $110.2 million, respectively. The Company determines the fair value of the mortgage backed securities based on unobservable inputs (Level 3 of the fair value hierarchy) considering the assumptions that market participants would make in valuing these securities. Assumptions such as estimated default rates and discount rates are used to determine expected, discounted cash flows to estimate the fair value.
(k) Interest Rate Protection, Swap, and Forward Contracts
The Company uses interest rate swaps, interest rate cap contracts, and forward starting swaps to manage interest rate risks. 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 and interest rate caps as part of its cash flow hedging strategy.
The Company records all derivatives on its consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
For derivatives designated for accounting purposes as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated for accounting purposes as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the initial and ongoing effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.
For derivatives not designated for accounting purposes as cash flow hedges, changes in fair value are recognized in earnings. All of the Company’s interest rate swaps are considered cash flow hedges. The change in fair value of the total return swaps is reported as total return swap income in the consolidated statements of income.
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
(l) Income Taxes
Generally in any year in which ESS qualifies as a real estate investment trust (“REIT”) under the Internal Revenue Code (the “IRC”), it is not subject to federal income tax on that portion of its income that it distributes to stockholders. No provision for federal income taxes, other than the taxable REIT subsidiaries discussed below, has been made in the accompanying consolidated financial statements for each of the years in the three-year period ended December 31, 2016 as ESS has elected to be and believes it qualifies under the IRC as a REIT and has made distributions during the periods in amounts to preclude ESS from paying federal income tax.
In order to maintain compliance with REIT tax rules, the Company utilizes taxable REIT subsidiaries for various revenue generating or investment activities. The taxable REIT subsidiaries are consolidated by the Company. In general, the activities and tax related provisions, assets and liabilities are not material. In 2016, a taxable REIT subsidiary sold two properties that it had acquired in 2007, resulting in Company's recognition of a deferred income tax expense of approximately $4.4 million.
As a partnership, the Operating Partnership is not subject to federal or state income taxes except that in order to maintain ESS’s compliance with REIT tax rules that are applicable to ESS, the Operating Partnership utilizes taxable REIT subsidiaries for various revenue generating or investment activities. The taxable REIT subsidiaries are consolidated by the Operating Partnership.
The status of cash dividends distributed for the years ended December 31, 2016, 2015, and 2014 related to common stock, Series G and Series H preferred stock are classified for tax purposes as follows:

| 2016 |  | 2015 |  | 2014
Common Stock |  |  |  |  |
Ordinary income | 86.68 | % |  | 99.28 | % |  | 70.03 | %
Capital gain | 7.11 | % |  | 0.72 | % |  | 21.95 | %
Unrecaptured section 1250 capital gain | 6.21 | % |  | — | % |  | 8.02 | %
| 100.00 | % |  | 100.00 | % |  | 100.00 | %

| 2016 |  | 2015 |  | 2014
Series G and H Preferred stock |  |  |  |  |
Ordinary income | 86.68 | % |  | 99.28 | % |  | 70.03 | %
Capital gains | 7.11 | % |  | 0.72 | % |  | 21.95 | %
Unrecaptured section 1250 capital gain | 6.21 | % |  | — | % |  | 8.02 | %
| 100.00 | % |  | 100.00 | % |  | 100.00 | %

(m) Equity-based Compensation
The cost of share and unit based compensation awards is measured at the grant date based on the estimated fair value of the awards. The estimated fair value of stock options and restricted stock granted by the Company are being amortized over the vesting period. The estimated grant date fair values of the long term incentive plan units (discussed in Note 12) are being amortized over the expected service periods.
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
(n) Changes in Accumulated Other Comprehensive Loss, by Component
Changes in Accumulated Other Comprehensive Loss, Net, by Component
Essex Property Trust, Inc. ($ in thousands)

| Change in fair value and amortization of swap settlements |  | Unrealized gains on available for sale securities |  | Total
Balance at December 31, 2015 | $ | (48,366 | ) |  | $ | 6,355 |  |  | $ | (42,011 | )
Other comprehensive income before reclassification | 25,371 |  |  | (801 | ) |  | 24,570 |
Amounts reclassified from accumulated other comprehensive loss | (9,968 | ) |  | (4,689 | ) |  | (14,657 | )
Other comprehensive income | 15,403 |  |  | (5,490 | ) |  | 9,913 |
Balance at December 31, 2016 | $ | (32,963 | ) |  | $ | 865 |  |  | $ | (32,098 | )

Changes in Accumulated Other Comprehensive Loss, by Component
Essex Portfolio, L.P. ($ in thousands)

| Change in fair value and amortization of swap settlements |  | Unrealized gains on available for sale securities |  | Total
Balance at December 31, 2015 | $ | (46,087 | ) |  | $ | 6,489 |  |  | $ | (39,598 | )
Other comprehensive income before reclassification | 26,234 |  |  | (828 | ) |  | 25,406 |
Amounts reclassified from accumulated other comprehensive loss | (10,308 | ) |  | (4,848 | ) |  | (15,156 | )
Other comprehensive income | 15,926 |  |  | (5,676 | ) |  | 10,250 |
Balance at December 31, 2016 | $ | (30,161 | ) |  | $ | 813 |  |  | $ | (29,348 | )

Amounts reclassified from accumulated other comprehensive loss in connection with derivatives are recorded to interest expense on the consolidated statements of income. Realized gains and losses on available for sale securities are included in interest and other income on the consolidated statements of income.
(o) Redeemable Noncontrolling Interest
The carrying value of redeemable noncontrolling interest in the accompanying balance sheets was $44.7 million and $45.5 million as of December 31, 2016 and 2015, respectively. The amounts represent limited partners' interests as to which it is outside of the Company’s control to redeem the noncontrolling interests with Company common stock and may potentially be redeemed for cash.
The changes in the redemption value of redeemable noncontrolling interests for the years ended December 31, 2016, 2015, and 2014 is as follows:

| 2016 |  | 2015 |  | 2014
Balance at January 1, | $ | 45,452 |  |  | $ | 23,256 |  |  | $ | — |
Reclassifications due to change in redemption value and other | (768 | ) |  | 22,196 |  |  | 18,505 |
Redemptions | — |  |  | — |  |  | — |
Additions | — |  |  | — |  |  | 4,751 |
Balance at December 31, | $ | 44,684 |  |  | $ | 45,452 |  |  | $ | 23,256 |

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
(p) Accounting Estimates
The preparation of consolidated financial statements, in accordance with GAAP, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate portfolio, its investments in and advances to joint ventures and affiliates, and its notes receivable. 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.
(q) Variable Interest Entities
In February 2015, the FASB issued ASU No. 2015-02 "Consolidation: Amendments to the Consolidation Analysis," which provides new consolidation guidance and makes changes to both the variable interest model and the voting model. Among other changes, the new standard specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or similar entity unless that presumption can be overcome. The Company adopted ASU No. 2015-02 on January 1, 2016. Based on the Company’s evaluation of the new standard, it determined that no change was required to its accounting for variable interest entities (“VIEs”). However, under the guidance of ASU No. 2015-02, 9 previously consolidated co-investments now meet the definition of a VIE and require additional disclosure about these VIEs which the Company continues to consolidate as the Company was determined to be the primary beneficiary.
The Company continues to be the primary beneficiary and consolidates the Operating Partnership and 19 DownREIT limited partnerships (comprising eleven communities). Commencing on January 1, 2016, 9 other consolidated co-investments were determined to be VIEs and the Company continues to consolidate those co-investments as the Company was determined to be the primary beneficiary. The Company has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to the 9 consolidated co-investments and 19 DownREIT limited partnerships, net of intercompany eliminations, were approximately $989.3 million and $288.1 million, respectively, as of December 31, 2016, and $893.1 million and $231.8 million, respectively, as of December 31, 2015. Noncontrolling interests in these entities was $52.9 million and $54.6 million as of December 31, 2016 and 2015, respectively. The Company's financial risk in each VIE is limited to its equity investment in the VIE.
The DownREIT VIEs collectively own eleven apartment communities in which Essex Management Company (“EMC”) is the general partner, the Operating Partnership is a special limited partner, and the other limited partners were granted rights of redemption for their interests. Such limited partners can request to be redeemed and the Company, subject to certain restrictions, can elect to redeem their rights for cash or by issuing shares of its common stock on a one share per unit basis. Conversion values will be based on the market value of the Company's common stock at the time of redemption multiplied by the number of units stipulated under various arrangements, as noted above. The other limited partners receive distributions based on the Company's current dividend rate times the number of units held. Total DownREIT units outstanding were 952,140 and 963,172 as of December 31, 2016 and 2015 respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $221.4 million and $230.6 million, as of December 31, 2016 and 2015, respectively. The carrying value of redeemable noncontrolling interest in the accompanying balance sheets was $44.7 million and $45.5 million as of December 31, 2016 and 2015, respectively. The amounts represent units of limited partners' interests in DownREIT VIEs as to which it is outside of the Company’s control to redeem the DownREIT units with Company common stock and may potentially be redeemed for cash, and are presented at either their redemption value or historical cost, depending on the limited partner's right to redeem their units as of the balance sheet date. The carrying value of DownREIT units as to which it is within the control of the Company to redeem the units with its common stock was $18.6 million and $18.4 million as of December 31, 2016 and 2015, respectively and is classified within noncontrolling interests in the accompanying consolidated balance sheets.
Interest holders in VIEs consolidated by the Company are allocated a priority of net income equal to the cash payments made to those interest holders or distributions from cash flow. The remaining results of operations are generally allocated to the Company.
As of December 31, 2016 and 2015, the Company did not have any other VIEs of which it was deemed to be the primary beneficiary and did not have any VIEs of which it was not deemed to be the primary beneficiary.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
(r) Discontinued Operations
The Company determined that the disposals during the years ended December 31, 2016 and 2015 were not considered discontinued operations in accordance with ASU 2014-08. The gains related to these disposals are recorded in gain on sale of real estate and land in the consolidated statements of income.
(3) Real Estate Investments
(a) Acquisitions of Real Estate
For the year ended December 31, 2016, the Company purchased four communities consisting of 753 apartment homes for $333.7 million. The table below summarizes acquisition activity for the year ended December 31, 2016 ($ in millions):

Property Name | Location | Apartment Homes | Essex Ownership Percentage | Quarter in 2016 | Purchase Price
Mio | San Jose, CA | 103 |  | 100 | % | Q1 | $ | 51.3 |
Form 15 | San Diego, CA | 242 |  | 100 | % | Q1 | 97.4 |
Emerson Valley Village | Los Angeles, CA | 144 |  | 100 | % | Q4 | 67.0 |
Ashton Sherman Village | Los Angeles, CA | 264 |  | 100 | % | Q4 | 118.0 |
Total 2016 | 753 |  |  |  |  | $ | 333.7 |

The $333.7 million aggregate purchase price for the acquisitions listed above were included on the Company's consolidated balance sheet as follows: $72.4 million was included in land and land improvements, $259.3 million was included in buildings and improvements, and $2.0 million was included in prepaid expenses and other assets, within the Company's consolidated balance sheets.
For the year ended December 31, 2015, the Company purchased seven communities consisting of 1,722 apartment homes for $638.1 million.
(b) Sales of Real Estate Investments
For the year ended December 31, 2016, the Company sold three communities consisting of 323 apartment homes for $80.8 million resulting in gains totaling $14.0 million, net of $4.4 million deferred tax on gain on sale of real estate. The table below summarizes disposition activity for the year ended December 31, 2016 ($ in millions):

Property Name | Location | Apartment Homes | Essex Ownership Percentage | Ownership | Quarter in 2016 | Sales Price | Gains |
Harvest Park | Santa Rosa, CA | 104 |  | 100 | % | EPLP | Q1 | $ | 30.5 |  | $ | 6.4 |  | (1)
Tuscana | Tracy, CA | 30 |  | 100 | % | EPLP | Q4 | 6.7 |  | 0.3 |  | (2)
Candlewood North | Northridge, CA | 189 |  | 100 | % | EPLP | Q4 | 43.6 |  | 7.3 |  |
Total 2016 | 323 |  |  |  |  |  | $ | 80.8 |  | $ | 14.0 |  |

(1) | Net of $4.3 million deferred tax on gain on sale of real estate.

(2) | Net of $0.1 million deferred tax on gain on sale of real estate.

During 2016, the Company sold its former headquarters office building, located in Palo Alto, CA, for gross proceeds of $18.0 million, resulting in a gain of $9.6 million, which is included in the line item gain on sale of real estate and land in the Company's consolidated statement of income.
During 2015, the Company sold two communities, consisting of 848 apartment homes, for $308.8 million resulting in gains totaling $44.9 million, which are included in the line item gain on sale of real estate and land in the Company's consolidated statement of income. In March 2015, the Company sold two commercial buildings, located in Emeryville, CA for $13.0 million,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
resulting in gain of $2.4 million, which are included in the line item gain on sale of real estate and land in the Company's consolidated statements of income.
During 2014, the Company sold four communities, consisting of 594 apartment homes, for $120.4 million resulting in gains totaling $43.6 million, which are included in the line item gain on sale of real estate and land in the Company's consolidated statements of income.
(c) Real Estate Assets Held for Sale, net
As of December 31, 2016, Jefferson at Hollywood, a 270 apartment home community, located in Los Angeles, CA, was classified as held for sale. The carrying value of $102.0 million is included in real estate assets held for sale, net, on the Company's consolidated balance sheet.
(d) Co-investments
The Company has joint ventures and preferred equity investments in co-investments which are accounted for under the equity method. The co-investments’ accounting policies are similar to the Company’s accounting policies. The co-investments own, operate, and develop apartment communities.
During 2016, a co-investment of the Company sold two communities, consisting of 532 apartment homes, for $147.3 million, resulting in gains totaling $13.0 million, which represents the Company's share of the gain, and are included in the line item equity income from co-investments in the Company's consolidated statements of income.
In November 2016, the Company converted its preferred equity investment, with a carrying value of $12.9 million, in a limited liability company that owns a property located in San Jose, CA to a 50.1% equity interest ownership. The Company continues to account for its interest in this limited liability company under the equity method.
In November 2016, the Company contributed four wholly owned properties into a new entity, BEX II. In December 2016, the Company sold a 49.9% ownership interest in BEX II to a third party. Subsequent to the sale the Company accounts for its interest in BEX II under the equity method. The sale of the 49.9% ownership interest resulted in a gain of $126.6 million, which is included in the line item gain on sale of real estate and land in the Company's consolidated statement of income.
The carrying values of the Company’s co-investments as of December 31, 2016 and 2015 are as follows ($ in thousands):

| Ownership | December 31,
| Percentage | 2016 |  | 2015
Membership interest/Partnership interest in: |  |  |  |
CPPIB | 50%-55% |  | $ | 422,068 |  |  | $ | 422,317 |
Wesco I, III and IV | 50 | % | 180,687 |  |  | 218,902 |
Palm Valley | 50 | % | 68,396 |  |  | 68,525 |
BEXAEW | 50 | % | 47,963 |  |  | 88,850 |
BEX II | 50 | % | 19,078 |  |  | — |
Other | 50%-55% |  | 43,713 |  |  | 32,927 |
Total operating co-investments |  | 781,905 |  |  | 831,521 |
Total development co-investments | 50%-55% |  | 157,317 |  |  | 98,214 |
Total preferred interest co-investments (includes related party investments of $35.9 million and $35.8 million as of December 31, 2016 and December 31, 2015, respectively - FN 5 - Related Party Transactions for further discussion) |  | 222,053 |  |  | 106,312 |
Total co-investments |  | $ | 1,161,275 |  |  | $ | 1,036,047 |

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
The combined summarized financial information of co-investments is as follows ($ in thousands):

| December 31,
| 2016 |  | 2015
Combined balance sheets: (1) |  |  |
Rental properties and real estate under development | $ | 3,807,245 |  |  | $ | 3,360,360 |
Other assets | 121,505 |  |  | 96,785 |
Total assets | $ | 3,928,750 |  |  | $ | 3,457,145 |
Debt | $ | 1,617,639 |  |  | $ | 1,499,601 |
Other liabilities | 74,607 |  |  | 92,241 |
Equity | 2,236,504 |  |  | 1,865,303 |
Total liabilities and equity | $ | 3,928,750 |  |  | $ | 3,457,145 |
Company's share of equity | $ | 1,161,275 |  |  | $ | 1,036,047 |

| Years ended December 31,
| 2016 |  | 2015 |  | 2014
Combined statements of income: (1) |  |  |  |  |
Property revenues | $ | 289,011 |  |  | $ | 260,175 |  |  | $ | 188,548 |
Property operating expenses | (99,637 | ) |  | (93,067 | ) |  | (71,419 | )
Net operating income | 189,374 |  |  | 167,108 |  |  | 117,129 |
Gain on sale of real estate | 28,291 |  |  | 14 |  |  | 23,333 |
Interest expense | (46,894 | ) |  | (44,834 | ) |  | (39,990 | )
General and administrative | (7,448 | ) |  | (5,879 | ) |  | (6,321 | )
Equity income from co-investments (2) | — |  |  | — |  |  | 26,798 |
Depreciation and amortization | (103,986 | ) |  | (103,613 | ) |  | (74,657 | )
Net income | $ | 59,337 |  |  | $ | 12,796 |  |  | $ | 46,292 |
Company's share of net income (3) | $ | 48,698 |  |  | $ | 21,861 |  |  | $ | 39,893 |

(1) | Includes preferred equity investments held by the Company.

(2) | Represents income from Wesco II's preferred equity investment in Park Merced.

(3) | Includes the Company's share of equity income from co-investments, income from preferred equity investments, gain on sale of co-investments, co-investment promote income, and income from early redemption of preferred equity investments. Includes income earned from investments with a related party of $3.4 million and $3.7 million for the years ended December 31, 2016 and 2015, respectively.

Operating Co-investments
As of December 31, 2016 and 2015, the Company, through several joint ventures, owned 11,274 and 10,520 apartment homes, respectively, in operating communities. The Company owns 50%-55% of these joint ventures and the Company’s book value of these co-investments was $781.9 million and $831.5 million at December 31, 2016 and 2015, respectively.
Development Co-Investments
As of December 31, 2016 and 2015, the Company, through several joint ventures, owned 1,427 and 1,676 apartment homes, respectively, in development communities. The Company owns 50%-55% of these joint ventures and the Company’s book value of these co-investments was $157.3 million and $98.2 million at December 31, 2016 and 2015, respectively.
In February 2015, the Company entered into a joint venture to develop 500 Folsom, a multi-family community comprised of 545 apartment homes located in San Francisco, California. The Company has a 50% ownership interest in the development
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
which has a projected total cost of $415.0 million. Construction began in the fourth quarter of 2015 and the property is projected to open in the fourth quarter of 2018. At December 31, 2016, the total remaining estimated costs to be incurred on this project were $307.6 million, of which the Company’s portion of the remaining costs was $153.7 million.
Preferred Equity Investments
As of December 31, 2016 and 2015, the Company held preferred equity investment interests in several joint-ventures which own real estate. The Company’s book value of these preferred equity investments was $222.1 million and $106.3 million at December 31, 2016 and 2015, respectively.
In March 2016, the Company made a commitment to fund a $47.1 million preferred equity investment in a limited liability company located in Glendale, CA. As of December 31, 2016, the entire commitment of $47.1 million was funded. This investment earns a 12.0% preferred return and is scheduled to mature in March 2020.
In May 2016, the Company made a $23.7 million preferred equity investment in a limited liability company located in Seattle, WA. This investment will accrue interest based on a 10.0% compounded preferred return for the first 30 months, after which the rate may decrease to 8.0% if certain loan-to-value thresholds are met and is scheduled to mature in November 2020.
In August 2016, the Company made a commitment to fund a $11.6 million preferred equity investment in a limited liability company located in Santa Ana, CA. As of December 31, 2016, the entire commitment of $11.6 million was funded. This investment will accrue interest based on a 12.0% compounded preferred return and is scheduled to mature in March 2020.
In November 2016, the Company made a $23.0 million preferred equity investments in a limited liability company located in San Jose, CA. The investment accrues interest based on a 11.0% compounded preferred return which will decrease to 9.0% upon stabilization of the operating property which the limited liability company owns. This investment is scheduled to mature on the later of the date when permanent financing is obtained or November 2019.
In November 2016, the Company made a $10.7 million preferred equity investment in a limited liability company located in Redmond, WA. The investment accrues interest based on a 11.0% compounded preferred return for the first 30 months, after which the rate may decrease to 9.5% if certain loan-to-value thresholds are met and is scheduled to mature in November 2020.
In March 2015, a multi-family property, located in Anaheim, CA that was owned by an entity affiliated with a related party, in which the Company held a $13.7 million preferred equity investment, was sold. That investment of $13.7 million plus an additional $1.3 million in cash was invested as outlined in the next paragraph. Prior to the property sale, the $13.7 million preferred equity investment earned a 9.0% preferred return.
In June 2015, the Company made $10.0 million and $5.0 million preferred equity investments in limited liability companies owned by a related party, that own properties located in San Jose and Concord, California, respectively. These investments earn a 9.5% preferred return and are scheduled to mature in June 2022.
In August 2015, the Company made a $5.0 million preferred equity investment in a limited liability company owned by a related party that owns a property located in Los Angeles, California. This investment earns a 9.5% preferred return and is scheduled to mature in August 2022.
In August 2015, the Company redeemed a preferred equity investment in a joint venture that holds a property in San Jose, California with a carrying value of $20.4 million. The Company recognized a gain of $1.5 million as a result of this redemption which is included in equity income from co-investments in the consolidated statements of income.
(e) Real Estate under Development
The Company defines development projects as new communities that are being constructed, or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of December 31, 2016, the Company had two consolidated development projects, four unconsolidated joint venture development projects, and various consolidated predevelopment projects, aggregating 2,223 apartment homes for an estimated total cost of $1.3 billion, of which $704.0 million remains to be expended. The Company’s portion of the remaining costs was $528.0 million at December 31, 2016.
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
(4) Notes and Other Receivables
Notes receivables, secured by real estate, and other receivables consist of the following as December 31, 2016 and 2015 ($ in thousands):

| 2016 |  | 2015
Note receivable, secured, bearing interest at 10.75%, due September 2020 | $ | 17,685 |  |  | $ | — |
Related party note receivable, secured, bearing interest at 9.5%, due October 2019(2) | 6,593 |  |  | — |
Note receivable, secured, bearing interest at 6.0%, due December 2016 | — |  |  | 3,219 |
Notes and other receivables from affiliates (1) | 4,695 |  |  | 3,092 |
Other receivables | 11,997 |  |  | 12,974 |
Total notes and receivables | $ | 40,970 |  |  | $ | 19,285 |

(1) | The Company had $4.7 million and $3.1 million of short-term loans outstanding and due from various joint ventures as of December 31, 2016 and 2015, respectively. See Note 5, Related Party Transactions, for additional details.

(2) | See Note 5, Related Party Transactions, for additional details.

(5) Related Party Transactions
The Company has adopted written related party transaction guidelines that are intended to cover transactions in which the Company (including entities it controls) is a party and in which any “related person” has a direct or indirect interest. A “related person” means any Company director, director nominee, or executive officer, any beneficial owner of more than 5% of the Company’s outstanding common stock, and any immediate family member of any of the foregoing persons. A related person may be considered to have an indirect interest in a transaction if he or she (i) is an owner, director, officer or employee of or otherwise associated with another company that is engaging in a transaction with the Company, or (ii) otherwise, through one or more entities or arrangements, has an indirect financial interest in or personal benefit from the transaction.
The related person transaction review and approval process is intended to determine, among any other relevant issues, the dollar amount involved in the transaction; the nature and value of any related person’s direct or indirect interest (if any) in the transaction; and whether or not (i) a related person’s interest is material, (ii) the transaction is fair, reasonable, and serves the best interest of the Company and its shareholders, and (iii) whether the transaction or relationship should be entered into, continued or ended.
The Company’s Chairman and founder, Mr. George Marcus, is the Chairman of the Marcus & Millichap Company (“MMC”), which is a parent company of a diversified group of real estate service, investment, and development firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in MMI. MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013. For the year ended December 31, 2016, the Company paid brokerage commissions totaling $1.1 million to affiliates of MMC related to real estate transactions. There were no brokerage commissions paid by the Company to MMI or its affiliates during 2015 and 2014.
The Company charges certain fees relating to its co-investments for asset management, property management, development and redevelopment services. These fees from affiliates total $12.4 million, $15.6 million, and $16.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. All of these fees are net of intercompany amounts eliminated by the Company. The Company netted development and redevelopment fees of $4.2 million, $6.7 million, and $7.2 million against general and administrative expenses for the years ended December 31, 2016, 2015 and 2014, respectively.
As described in Note 4, the Company has provided short-term bridge loans to affiliates. As of December 31, 2016 and 2015, $4.7 million and $3.1 million, respectively, of short-term loans remained outstanding due from joint venture affiliates and is classified within notes and other receivables in the accompanying consolidated balance sheets. In November 2016, the Company provided a $6.6 million mezzanine loan to a limited liability company in which MMC holds a significant ownership interest through subsidiaries. The mezzanine loan is also classified within notes and other receivables in the accompanying consolidated balance sheets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
In March 2015, a multi-family property, located in Anaheim, CA that was owned by an entity affiliated with MMC, in which the Company held a $13.7 million preferred equity investment, was sold. That investment of $13.7 million plus an additional $1.3 million in cash was invested as outlined in the next two paragraphs. Prior to the property sale, the $13.7 million preferred equity investment earned a 9.0% preferred return and was scheduled to mature in September 2020.
In June 2015, the Company made a $10.0 million preferred equity investment in an entity affiliated with MMC that owns Greentree Apartments, a 220 apartment community located in San Jose, CA. This investment will earn a 9.5% preferred return and is scheduled to mature in June 2022.
In June 2015, the Company made a $5.0 million preferred equity investment in an entity affiliated with MMC that owns Sterling Cove Apartments, a 218 apartment community located in Concord, CA. This investment will earn a 9.5% preferred return and is scheduled to mature in June 2022.
In August 2015, the Company made a $5 million preferred equity investment in an entity affiliated with MMC that owns Alta Vista Apartments, a 92 apartment community located in Los Angeles, CA. This investment will earn a 9.5% preferred return and is scheduled to mature in August 2022.
In July 2014, the Company acquired Paragon Apartments, a 301 unit apartment community located in Fremont, CA for $111.0 million from an entity that was partially owned by an affiliate of MMC.
In January 2013, the Company invested $8.6 million as a preferred equity interest investment in an entity affiliated with MMC that owns an apartment development in Redwood City, California. In March 2015 the Company's preferred interest investment was prepaid and the Company recognized a gain of $0.5 million as a result of the prepayment.
In 2010, an Executive Vice President of the Company invested $4.0 million for a 3% limited partnership interest in a partnership with the Company that owns Essex Skyline at MacArthur Place. The Executive Vice President’s investment is equal to a pro-rata share of the contributions to the limited partnership. The Executive Vice President’s investment also receives pro-rata distributions resulting from distributable cash generated by the property if and when distributions are made.
(6) Unsecured Debt
ESS does not have any indebtedness as all debt is incurred by the Operating Partnership. ESS guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities up to the maximum amounts and for the full term of the facilities.
Unsecured debt consists of the following as of December 31, 2016 and 2015 ($ in thousands):

| 2016 |  | 2015 |  | Weighted Average Maturity In Years
Unsecured bonds private placement - fixed rate | $ | 314,190 |  |  | $ | 463,891 |  |  | 3.6
Term loan - variable rate | 98,189 |  |  | 224,467 |  |  | 5.1
Bonds public offering - fixed rate | 2,834,400 |  |  | 2,400,322 |  |  | 6.3
Unsecured debt, net (1) | 3,246,779 |  |  | 3,088,680 |  |  |
Lines of credit (2) | 125,000 |  |  | 15,000 |  |  |
Total unsecured debt | $ | 3,371,779 |  |  | $ | 3,103,680 |  |  |
Weighted average interest rate on fixed rate unsecured and unsecured private placement bonds | 3.6 | % |  | 3.6 | % |  |
Weighted average interest rate on variable rate term loan | 2.3 | % |  | 2.4 | % |  |
Weighted average interest rate on lines of credit | 1.8 | % |  | 1.9 | % |  |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014

(1) | Includes unamortized premium and discounts of $(0.1) million and $14.3 million and reduced by unamortized debt issuance costs of $18.1 million and $15.6 million as of December 31, 2016 and 2015, respectively.

(2) | Lines of credit, related to the Company's two lines of unsecured credit aggregating $1.03 billion, excludes unamortized debt issuance costs of $3.3 million as of both December 31, 2016 and 2015. The debt issuance costs are included in prepaid expenses and other assets on the condensed consolidated balance sheets.

As of December 31, 2016 and 2015, the Company had $315.0 million and $465.0 million of private placement unsecured bonds outstanding at an average effective interest rate of 4.5%, for both periods.
The following is a summary of the Company’s unsecured private placement bonds as of December 31, 2016 and 2015 ($ in thousands):

| Maturity |  | 2016 |  | 2015 |  | Coupon Rate
Senior unsecured private placement notes | March 2016 |  | $ | — |  |  | $ | 150,000 |  |  | 4.36 | %
Senior unsecured private placement notes | September 2017 |  | 40,000 |  |  | 40,000 |  |  | 4.50 | %
Senior unsecured private placement notes | December 2019 |  | 75,000 |  |  | 75,000 |  |  | 4.92 | %
Senior unsecured private placement notes | April 2021 |  | 100,000 |  |  | 100,000 |  |  | 4.27 | %
Senior unsecured private placement notes | June 2021 |  | 50,000 |  |  | 50,000 |  |  | 4.30 | %
Senior unsecured private placement notes | August 2021 |  | 50,000 |  |  | 50,000 |  |  | 4.37 | %
|  |  | $ | 315,000 |  |  | $ | 465,000 |  |  |  |

In November 2016, the Company paid off its unsecured $225 million term loan and entered into a new $350 million term loan commitment, with a delayed draw feature and a variable interest rate of LIBOR plus 0.95%, with a scheduled maturity date of February 2022. As of December 31, 2016 and 2015, the Company had unsecured term loans outstanding of $100.0 million and $225.0 million at an average interest rate of 2.3% and 2.4%, respectively. These loans are included in the line “Term loan-variable rate” in the table above, and as of December 31, 2016 and 2015, the carrying value, net of debt issuance costs, was $98.2 million and $224.5 million, respectively. The Company entered into four forward starting interest rate swap contracts, with settlement payments starting in March 2017, for a term of five years with a notional amount totaling $150.0 million, which will effectively convert the interest rate on $150.0 million of the term loan to a fixed rate of 2.2%. These four forward starting interest rate swaps are accounted for as cash flow hedges. Additionally, the Company has a $25 million interest rate swap contract, which effectively converts the interest rate on $25.0 million of the $100.0 million drawn on its new term loan to a fixed rate of 2.4%. As of December 31, 2015, the Company had unsecured term loans with a $225.0 million commitment and an outstanding balance of $225.0 million at a variable interest rate of LIBOR plus 1.05%. The $200 million tranche of this unsecured term loan had a maturity date of November 2016 and the $25 million tranche had a maturity date of August 2017. The Company previously entered into interest rate swap contracts for a term of five years with a notional amount totaling $225.0 million which effectively converted the interest rate on $225.0 million of the term loan to a fixed rate of 2.4%. In November 2016, the Company paid off and terminated the $225.0 million commitment and the notional amount of $200.0 million of the $225.0 million interest rate swap contracts matured. The remaining notional amount of $25.0 million interest rate swap contract will mature in July 2017.
In April 2016, the Company issued $450.0 million of senior unsecured notes due on April 15, 2026 with a coupon rate of 3.375% per annum and are payable on April 15 th and October 15 th of each year, beginning October 15, 2016 (the "2026 Notes"). The 2026 Notes were offered to investors at a price of 99.386% of par value. The 2026 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line “Bonds public offering-fixed rate” in the table above, and as of December 31, 2016, the carrying value of the 2026 Notes, net of discount and debt issuance costs was $443.7 million.
In March 2015, the Company issued $500.0 million of senior unsecured notes due on April 1, 2025 with a coupon rate of 3.5% per annum and are payable on April 1 st and October 1 st of each year, beginning October 1, 2015 (the "2025 Notes"). The 2025 Notes were offered to investors at a price of 99.747% of par value. The 2025 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
“Bonds public offering-fixed rate” in the table above, and as of December 31, 2016 and 2015, the carrying value of the 2025 Notes, net of discount and debt issuance costs was $495.4 million and $494.8 million, respectively.
In April 2014, the Company assumed $900.0 million aggregate principal amount of BRE’s 5.500% senior notes due 2017; 5.200% senior notes due 2021; and 3.375% senior notes due 2023 (together “BRE Notes”). These notes are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2016 and 2015, the carrying value of the BRE Notes, plus unamortized premium was $907.1 million and $919.1 million, respectively.
In April 2014, the Company issued $400.0 million of senior unsecured notes due on May 1, 2024 with a coupon rate of 3.875% per annum and are payable on May 1 st and November 1 st of each year, beginning November 1, 2014 (the "2024 Notes"). The 2024 Notes were offered to investors at a price of 99.234% of par value. The 2024 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2016 and 2015, the carrying value of the 2024 Notes, net of discount and debt issuance costs was $395.1 million and $394.5 million, respectively.
In April 2013, the Company issued $300.0 million of senior unsecured notes due on May 1, 2023 with a coupon rate of 3.25% per annum and are payable on May 1 st and November 1 st of each year, beginning November 1, 2013 (the "2023 Notes"). The 2023 Notes were offered to investors at a price of 99.152% of par value. The 2023 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line “Bonds public offering-fixed rate” in the table above, and as of December 31, 2016 and 2015, the carrying value of the 2023 Notes, net of discount and debt issuance costs was $296.5 million and $295.9 million, respectively.
During the third quarter 2012, the Company issued $300.0 million of senior unsecured notes due August 2022 with a coupon rate of 3.625% per annum and are payable on February 15th and August 15th of each year, beginning February 15, 2013 (the "2022 Notes"). The 2022 Notes were offered to investors at a price of 98.99% of par value. The 2022 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2016 and 2015, the carrying value of the 2022 Notes, net of unamortized discount and debt issuance costs was $296.6 million and $296.0 million, respectively.
The following is a summary of the Company’s senior unsecured notes as of December 31, 2016 and 2015 ($ in thousands):

| Maturity |  | 2016 |  | 2015 |  | Coupon Rate
Senior notes | March 2017 |  | $ | 300,000 |  |  | $ | 300,000 |  |  | 5.500 | %
Senior notes | March 2021 |  | 300,000 |  |  | 300,000 |  |  | 5.200 | %
Senior notes | August 2022 |  | 300,000 |  |  | 300,000 |  |  | 3.625 | %
Senior notes | January 2023 |  | 300,000 |  |  | 300,000 |  |  | 3.375 | %
Senior notes | May 2023 |  | 300,000 |  |  | 300,000 |  |  | 3.250 | %
Senior notes | May 2024 |  | 400,000 |  |  | 400,000 |  |  | 3.875 | %
Senior notes | April 2025 |  | 500,000 |  |  | 500,000 |  |  | 3.500 | %
Senior notes | April 2026 |  | 450,000 |  |  | — |  |  | 3.375 | %
|  |  | $ | 2,850,000 |  |  | $ | 2,400,000 |  |  |

The aggregate scheduled principal payments of unsecured debt payable, excluding lines of credit, at December 31, 2016 are as follows ($ in thousands):
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014

2017 | $ | 340,000 |
2018 | — |
2019(1) | 75,000 |
2020 | — |
2021 | 500,000 |
Thereafter | 2,350,000 |
| $ | 3,265,000 |

(1) | Amount does not include $125.0 million outstanding on the Company's lines of credit as of December 31, 2016, that becomes due in December 2020 in accordance with the January 2017 amendment.

The Company has two lines of credit aggregating $1.03 billion as of December 31, 2016. The Company has a $1.0 billion credit facility with an underlying interest rate based on a tiered rate structure tied to the Company's credit ratings and was LIBOR plus 0.90% as of December 31, 2016. As of December 31, 2016 and 2015, the balance of the $1.0 billion credit facility was $125.0 million and $15.0 million, respectively. In January 2017, the facility maturity date was extended to December 31, 2020 with one 18-month extension, exercisable at the Company's option. The Company also has a working capital unsecured line of credit agreement for $25.0 million. The underlying interest rate on the $25.0 million line is based on a tiered rate structure tied to the Company's credit ratings on the credit facility of LIBOR plus 0.90% and has a maturity date of January 2018. As of December 31, 2016 and 2015, there was a zero balance outstanding on this unsecured line.
The Company’s unsecured line of credit and unsecured debt agreements contain debt covenants related to limitations on indebtedness and liabilities, and maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization. The Company was in compliance with the debt covenants as of December 31, 2016 and 2015.
(7) Mortgage Notes Payable
ESS does not have any indebtedness as all debt is incurred by the Operating Partnership. Mortgage notes payable consist of the following as of December 31, 2016 and 2015 ($ in thousands):

| 2016 |  | 2015
Fixed rate mortgage notes payable | $ | 1,911,699 |  |  | $ | 1,925,985 |
Variable rate mortgage notes payable (1) | 279,782 |  |  | 289,092 |
Total mortgage notes payable (2) | $ | 2,191,481 |  |  | $ | 2,215,077 |
Number of properties securing mortgage notes | 61 |  |  | 64 |
Remaining terms | 1-30 years |  |  | 1-31 years |
Weighted average interest rate | 4.3 | % |  | 4.4 | %

The aggregate scheduled principal payments of mortgage notes payable at December 31, 2016 are as follows ($ in thousands):

2017 | $ | 82,796 |
2018 | 301,575 |
2019 | 576,954 |
2020 | 693,868 |
2021 | 51,584 |
Thereafter | 441,313 |
| $ | 2,148,090 |

(1) | Variable rate mortgage notes payable, including $257.3 million in bonds that have been converted to variable rate through total return swap contracts, consists of multi-family housing mortgage revenue bonds secured by deeds of trust on rental properties and guaranteed by collateral pledge agreements, payable monthly at a variable rate as defined in the Loan Agreement (approximately 1.2% at December 2016 and 1.2% at December 2015) plus credit enhancement

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
and underwriting fees ranging from approximately 1.0% to 1.3%. Among the terms imposed on the properties, which are security for the bonds, is a requirement that 20% of the apartment homes are subject to tenant income criteria. Principal balances are due in full at various maturity dates from May 2025 through December 2046. Of these bonds $20.7 million are subject to various interest rate cap agreements that limit the maximum interest rate to such bonds.

(2) | Includes total unamortized premium of $50.8 million and $64.8 million and reduced by unamortized debt issuance costs of $7.4 million and $8.0 million as of December 31, 2016 and 2015, respectively.

For the Company’s mortgage notes payable as of December 31, 2016, monthly interest expense and principal amortization, excluding balloon payments, totaled approximately $7.4 million and $2.5 million, respectively. Second deeds of trust accounted for zero of the $2.2 billion in mortgage notes payable as of December 31, 2016. Repayment of debt before the scheduled maturity date could result in prepayment penalties. The prepayment penalty on the majority of the Company’s mortgage notes payable are computed by the greater of (a) 1% of the amount of the principal being prepaid or (b) the present value of the mortgage note payable which is calculated by multiplying the principal being prepaid by the difference between the interest rate of the mortgage note and the stated yield rate on a specified U.S. treasury security as defined in the mortgage note agreement.
(8) Derivative Instruments and Hedging Activities
The Company uses interest rate swaps and interest rate cap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.
In November 2016, the Company replaced its $225.0 million term loan with a new $350 million five-year term loan with a delayed draw feature. The new term loan carries a variable interest rate of LIBOR plus 95 basis points. Also in November 2016, four interest rate swaps related to the replaced term loan, with a total notional balance of $200.0 million, matured. An additional swap with a notional of $25.0 million, with a maturity date in July 2017, was still in place as of December 31, 2016 and was hedging a portion of the $100 million drawn on the $350.0 million term loan as of December 31, 2016. In 2016, the Company entered into four new forward starting interest rate swaps (settlement payments begin in March 2017) related to the new $350.0 million term. These four new swaps, with a total notional amount of $150.0 million bear an average fixed interest rate of 2.2% and are scheduled to mature in February 2022. These derivatives qualify for hedge accounting.
As of December 31, 2016, the Company had interest rate caps, which are not accounted for as hedges, totaling a notional amount of $20.7 million that effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for $20.7 million of the Company’s tax exempt variable rate debt.
As of December 31, 2016 and 2015, the aggregate carrying value of the interest rate swap contracts was an asset of $4.4 million and zero, respectively and is included in prepaid expenses and other assets on the consolidated balance sheets and a liability of $0.03 million and $1.0 million, respectively, and is included in other liabilities on the consolidated balance sheets. The aggregate carrying value of the interest rate cap was zero on the balance sheet as of December 31, 2016 and December 31, 2015.
Hedge ineffectiveness related to cash flow hedges, which is reported in current year income as interest expense was $0.3 million of income for the year ended December 31, 2016. Hedge ineffectiveness was not significant for the years ended 2015 and 2014.
Additionally, the Company has entered into four total return swaps, that effectively convert $257.3 million of mortgage notes payable to a floating interest rate based on SIFMA plus a spread. The total return swaps provide fair market value protection on the mortgage notes payable to our counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call one of the total return swaps with $114.4 million of the outstanding debt at par, while the call option on the other three total return swaps relating to $142.9 million of the
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
outstanding debt can be exercised starting on January 1, 2017. These derivatives do not qualify for hedge accounting and had a carrying and fair value of zero and $4 thousand at December 31, 2016 and 2015, respectively. These total return swaps are scheduled to mature between September 2021 and November 2022. The realized gains of $11.7 million and $5.7 million as of December 31, 2016 and 2015, respectively, were reported in current year income as total return swap income. No such income or expense was incurred for the year ended December 31, 2014.
(9) Lease Agreements
As of December 31, 2016 the Company is a lessor for two commercial buildings and the commercial portions of 37 mixed use communities. The tenants’ lease terms expire at various times through 2031. The future minimum non-cancelable base rent to be received under these operating leases for each of the years ending after December 31 is summarized as follows ($ in thousands):

| Future
| Minimum
| Rent
2017 | $ | 13,453 |
2018 | 12,773 |
2019 | 12,347 |
2020 | 11,518 |
2021 | 10,073 |
Thereafter | 39,043 |
| $ | 99,207 |

(10) Equity Transactions
Preferred Securities Offerings
In April 2016, the Company redeemed all of the issued and outstanding 2,950,000 shares of the Company's 7.125% Series H Cumulative Redeemable Preferred Stock ("Series H") for $25.00 per share for $73.8 million in cash. In connection with the Series H redemption, the Operating Partnership redeemed the Series H 7.125% Preferred Interest. The notice of redemption was given in March 2016, which resulted in the Company and the Operating Partnership each recording $2.5 million in excess of redemption value over carrying value charge to net income attributable to common stockholders and net income related to unitholders, respectively.
Common Stock Offerings
During 2016, the Company did not issue any shares of common stock through its equity distribution program. During 2015, the Company issued 1,481,737 shares of common stock, through its equity distribution program, at an average price of $226.46 for net proceeds of $332.3 million.
Operating Partnership Units and Long Term Incentive Plan (“LTIP”) Units
As of December 31, 2016 and 2015, the Operating Partnership had outstanding 2,056,263 and 2,070,360 operating partnership units and 181,027 and 144,185 vested LTIP units, respectively. The Operating Partnership’s general partner, ESS, owned 96.7% of the partnership interests in the Operating Partnership at both December 31, 2016 and 2015, and ESS is responsible for the management of the Operating Partnership’s business. As the general partner of the Operating Partnership, ESS effectively controls the ability to issue common stock of ESS upon a limited partner’s notice of redemption. ESS has generally acquired OP units upon a limited partner’s notice of redemption in exchange for shares of its common stock. The redemption provisions of OP units owned by limited partners that permit ESS to settle in either cash or common stock at the option of ESS were further evaluated in accordance with applicable accounting guidance to determine whether temporary or permanent equity classification on the balance sheet is appropriate. The Operating Partnership evaluated this guidance, including the requirement
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
to settle in unregistered shares, and determined that, with few exceptions, these OP units meet the requirements to qualify for presentation as permanent equity.
LTIP units represent an interest in the Operating Partnership for services rendered or to be rendered by the LTIP unit holder in its capacity as a partner, or in anticipation of becoming a partner, in the Operating Partnership. Upon the occurrence of specified events, LTIP units may over time achieve full parity with common units of the Operating Partnership for all purposes. Upon achieving full parity, LTIP units will be exchanged for an equal number of the OP Units.
The redemption value of OP and LTIP units owned by the limited partners, not including ESS, had such units been redeemed at December 31, 2016, was approximately $520.2 million and $530.2 million based on the closing price of ESS’s common stock as of December 31, 2016 and 2015, respectively.
(11) Net Income Per Common Share and Net Income Per Common Unit
Essex Property Trust, Inc.
Basic and diluted income per share is calculated as follows for the years ended December 31 ($ in thousands, except share and per share amounts):

| 2016 |  | 2015 |  | 2014
| Income |  | Weighted- average Common Shares |  | Per Common Share Amount |  | Income |  | Weighted- average Common Shares |  | Per Common Share Amount |  | Income |  | Weighted- average Common Shares |  | Per Common Share Amount
Basic: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income available to common stockholders | 411,124 |  |  | 65,471,540 |  |  | $ | 6.28 |  |  | 226,865 |  |  | 64,871,717 |  |  | $ | 3.50 |  |  | 116,859 |  |  | 56,546,959 |  |  | $ | 2.07 |
Effect of Dilutive Securities (1) | — |  |  | 116,276 |  |  |  |  |  | — |  |  | 189,968 |  |  |  |  |  | — |  |  | 149,566 |  |  |  |
Diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income available to common stockholders | 411,124 |  |  | 65,587,816 |  |  | $ | 6.27 |  |  | 226,865 |  |  | 65,061,685 |  |  | $ | 3.49 |  |  | 116,859 |  |  | 56,696,525 |  |  | $ | 2.06 |

(1) | Weighted average convertible limited partnership units of 2,224,100, 2,182,467, and 2,224,707, which include vested Series Z Incentive Units, Series Z-1 Incentive Units, 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units, for the years ended December 31, 2016, 2015 and 2014, respectively, were not included in the determination of diluted earnings per share calculation because they were anti-dilutive. The related income allocated to these convertible limited partnership units aggregated $14.1 million, $7.8 million, and $4.9 million for the years ended December 31, 2016, 2015, and 2014, respectively. Additionally, excludes all DownREIT units as they are anti-dilutive.

Stock options of 252,334, 54,100, and 10,843, for the years ended December 31, 2016, 2015, and 2014, respectively, were not included in the diluted earnings per share calculation because the assumed proceeds per share of these options plus the average unearned compensation were greater than the average market price of the common stock for the years ended and, therefore, were anti-dilutive.
All shares of cumulative convertible Series H preferred interest have been excluded from diluted earnings per share for the years ended December 31, 2016, 2015, and 2014 respectively, as the effect was anti-dilutive. All shares of cumulative convertible Series G preferred interest have been excluded from diluted earnings per share for the year ended December 31, 2014 as the effect was anti-dilutive.
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Essex Portfolio, L.P.
Basic and diluted income per unit is calculated as follows for the years ended December 31 ($ in thousands, except unit and per unit amounts):

| 2016 |  | 2015 |  | 2014
| Income |  | Weighted- average Common Units |  | Per Common Unit Amount |  | Income |  | Weighted- average Common Units |  | Per Common Unit Amount |  | Income |  | Weighted- average Common Units |  | Per Common Unit Amount
Basic: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income available to common unitholders | $ | 425,213 |  |  | 67,695,640 |  |  | $ | 6.28 |  |  | $ | 234,689 |  |  | 67,054,184 |  |  | $ | 3.50 |  |  | $ | 121,726 |  |  | 58,771,666 |  |  | $ | 2.07 |
Effect of Dilutive Securities (1) | — |  |  | 116,276 |  |  |  |  |  | — |  |  | 189,968 |  |  |  |  |  | — |  |  | 149,566 |  |  |  |
Diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income available to common unitholders | $ | 425,213 |  |  | 67,811,916 |  |  | $ | 6.27 |  |  | $ | 234,689 |  |  | 67,244,152 |  |  | $ | 3.49 |  |  | $ | 121,726 |  |  | 58,921,232 |  |  | $ | 2.07 |

(1) | Stock options of 252,334, 54,100, and 10,843, for the years ended December 31, 2016, 2015, and 2014, respectively, were not included in the diluted earnings per unit calculation because the assumed proceeds per share of these options plus the average unearned compensation were greater than the average market price of the common shares for the years ended and, therefore, were anti-dilutive. Additionally, excludes all DownREIT units as they are anti-dilutive.

The cumulative convertible Series H preferred interest have been excluded from diluted earnings per unit for the years ended December 31, 2016, 2015, and 2014 respectively, as the effect was anti-dilutive. The cumulative convertible Series G preferred interest have been excluded from diluted earnings per unit for the year ended December 31, 2014 as the effect was anti-dilutive.
(12) Equity Based Compensation Plans
Stock Options and Restricted Stock
In May 2013, stockholders approved the Company’s 2013 Stock Award and Incentive Compensation Plan (“2013 Plan”). The 2013 Plan became effective on June 1, 2013 and serves as the successor to the Company’s 2004 Stock Incentive Plan (the “2004 Plan”), and no additional equity awards can be granted under the 2004 Plan after the date the 2013 Plan became effective.
The Company’s 2013 Plan provides incentives to attract and retain officers, directors and key employees. The 2013 Plan provides for the grants of options to purchase shares of common stock, grants of restricted stock and other award types. Under the 2013 Plan, the maximum aggregate number of shares that may be issued is 1,000,000, plus any shares that have not been issued under the 2004 Plan, including shares subject to outstanding awards under the 2004 Plan that are not issued or delivered to a participant for any reason. The 2013 Plan is administered by the Compensation Committee of the Board of Directors, which is comprised of independent directors. The Compensation Committee is authorized to establish the exercise price; however, the exercise price cannot be less than 100% of the fair market value of the common stock on the grant date. The Company’s options have a life of five to ten years. Option grants for officers and employees fully vest between 0 and 5 years after the grant date.
Stock-based compensation expense for options and restricted stock under the fair value method totaled $8.2 million, $6.1 million, and $6.1 million for years ended December 31, 2016, 2015 and 2014 respectively. Stock-based compensation expense for options and restricted stock for the year ended December 31, 2016 and 2015, includes $0.1 million and $0.2 million related to the BRE merger, of which zero and $0.1 million relates to merger and integration expenses, and which is recorded in merger and integration expense in the consolidated statements of income, respectively. For the years ended December 31, 2016 and 2015, stock-based compensation expense included $3.5 million and $2.7 million related to an immediate vesting of options and
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
restricted stock for bonuses awarded based on asset dispositions, which is recorded as a cost of real estate and land sold, respectively. Stock-based compensation for options and restricted stock related to recipients who are direct and incremental to projects under development were capitalized and totaled $0.5 million, $0.3 million, and $0.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. The intrinsic value of the options exercised totaled $11.9 million, $19.4 million, and $12.7 million, for the years ended December 31, 2016, 2015, and 2014 respectively. The intrinsic value of the options exercisable totaled $20.8 million and $29.8 million as of December 31, 2016 and 2015, respectively.
Total unrecognized compensation cost related to unvested stock options totaled $5.0 million as of December 31, 2016 and the unrecognized compensation cost is expected to be recognized over a period of 2.8 years.
The average fair value of stock options granted for the years ended December 31, 2016, 2015 and 2014 was $21.65, $22.78 and $20.56, respectively. Certain stock options granted in 2016, 2015, and 2014 included a $75 cap, a $100 cap or a $125 cap on the appreciation of the market price over the exercise price. The fair value of stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:

| 2016 |  | 2015 |  | 2014
Stock price | $ | 219.60 |  |  | $ | 227.75 |  |  | $ | 176.65 |
Risk-free interest rates | 2.08 | % |  | 1.83 | % |  | 2.37 | %
Expected lives | 6 years |  |  | 6 years |  |  | 8 years |
Volatility | 26.47 | % |  | 20.06 | % |  | 18.00 | %
Dividend yield | 2.89 | % |  | 2.73 | % |  | 2.90 | %

A summary of the status of the Company’s stock option plans as of December 31, 2016, 2015, and 2014 and changes during the years ended on those dates is presented below:

| 2016 |  | 2015 |  | 2014
| Shares |  | Weighted- average exercise price |  | Shares |  | Weighted- average exercise price |  | Shares |  | Weighted- average exercise price
Outstanding at beginning of year | 525,094 |  |  | $ | 154.98 |  |  | 664,785 |  |  | $ | 138.78 |  |  | 695,488 |  |  | $ | 133.37 |
Granted | 207,429 |  |  | 219.60 |  |  | 78,600 |  |  | 227.75 |  |  | 42,518 |  |  | 176.65 |
Granted - BRE options converted | — |  |  | — |  |  | — |  |  | — |  |  | 133,766 |  |  | 121.03 |
Exercised | (138,054 | ) |  | 138.79 |  |  | (203,556 | ) |  | 131.53 |  |  | (185,387 | ) |  | 113.72 |
Forfeited and canceled | (36,821 | ) |  | 178.18 |  |  | (14,735 | ) |  | 136.11 |  |  | (21,600 | ) |  | 144.29 |
Outstanding at end of year | 557,648 |  |  | 181.50 |  |  | 525,094 |  |  | 154.98 |  |  | 664,785 |  |  | 138.78 |
Options exercisable at year end | 290,340 |  |  | 160.90 |  |  | 342,048 |  |  | 152.42 |  |  | 395,986 |  |  | 133.99 |

The following table summarizes information about restricted stock outstanding as of December 31, 2016, 2015 and 2014 and changes during the years ended:
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014

| 2016 |  | 2015 |  | 2014
| Shares |  | Weighted- average grant price |  | Shares |  | Weighted- average grant price |  | Shares |  | Weighted- average grant price
Unvested at beginning of year | 54,676 |  |  | $ | 147.10 |  |  | 25,820 |  |  | $ | 168.22 |  |  | 16,176 |  |  | $ | 108.06 |
Granted | 49,183 |  |  | 150.13 |  |  | 56,177 |  |  | 155.21 |  |  | 22,014 |  |  | 194.03 |
Granted - BRE restricted stock converted | — |  |  | — |  |  | — |  |  | — |  |  | 119,411 |  |  | 173.82 |
Vested | (38,427 | ) |  | 147.12 |  |  | (22,939 | ) |  | 148.20 |  |  | (126,931 | ) |  | 171.56 |
Forfeited and canceled | (7,083 | ) |  | 141.76 |  |  | (4,382 | ) |  | 122.06 |  |  | (4,850 | ) |  | 135.10 |
Unvested at end of year | 58,349 |  |  | 149.11 |  |  | 54,676 |  |  | 147.10 |  |  | 25,820 |  |  | 168.22 |

The unrecognized compensation cost related to unvested restricted stock totaled $5.9 million as of December 31, 2016 and is expected to be recognized over a period of 2.2 years.
Long Term Incentive Plans – LTIP Units
On December 9, 2014, the Operating Partnership issued 44,750 units under the 2015 Long-Term Incentive Plan Award agreements to executives of the Company. The 2015 Long-Term Incentive Plan Units (the “2015 LTIP Units”) are subject to forfeiture based on performance-based and service based conditions. An additional 24,000 units were granted subject only to performance-based criteria and were fully vested on the date granted. The 2015 LTIP Units, that were subject to vesting, will vest at 20% per year on each of the first five anniversaries of the initial grant date. The 2015 LTIP Units performance conditions measurement ended on December 9, 2015 and 95.75% of the units awarded were earned by the recipients. 2015 LTIP Units not earned based on the performance-based criteria were automatically forfeited by the recipients. The 2015 LTIP Units, once earned and vested, are convertible one-for-one into common units of the Operating Partnership which, in turn, are convertible into common stock of the Company subject to a ten-year liquidity restriction.
In December 2013, the Operating Partnership issued 50,500 units under the 2014 Long-Term Incentive Plan Award agreements to executives of the Company. The 2014 Long-Term Incentive Plan Units (the “2014 LTIP Units”) were subject to forfeiture based on performance-based conditions and are currently subject to service based vesting. The 2014 LTIP Units vest 25% per year on each of the first four anniversaries of the initial grant date. In December 2014, the Company achieved the performance criteria and all of the 2014 LTIP Units awarded were earned by the recipients, subject to satisfaction of service based vesting conditions. The 2014 LTIP Units are convertible one-for-one into common units of the Operating Partnership which, in turn, are convertible into common stock of the Company subject to a ten year liquidity restriction.
The estimated fair value of the 2015 LTIP Units and 2014 LTIP Units were determined on the grant date using Monte Carlo simulations under a risk-neutral premise and considered Essex’s stock price on the date of grant, the unpaid dividends on unvested units and the discount factor for 10 years of illiquidity.
Prior to 2013, the Company issued Series Z Incentive Units and Series Z-1 Incentive Units (collectively referred to as “Z Units”) of limited partnership interest in the Operating Partnership. Vesting in the Z Units is based on performance criteria established in the plan. The criteria can be revised by the Board's Compensation Committee if the Committee deems that the plan's criterion is unachievable for any given year. The sale of Z Units is contractually prohibited. Z Units are convertible into Operating Partnership units which are exchangeable for shares of the Company’s common stock that have marketability restrictions. The estimated fair value of Z Units were determined on the grant date and considered the Company's stock price on the date of grant, the dividends that are not paid on unvested units and a marketability discount for the 8 to 15 years of illiquidity. Compensation expense is calculated by multiplying estimated vesting increases for the period by the estimated fair value as of the grant date.
During 2011 and 2010, the Operating Partnership issued 154,500 Series Z-1 Incentive Units (the “Z-1 Units”) of limited partner interest to executives of the Company. The 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 2026. The conversion ratchet (accounted for as vesting) of the Z-1 Units into common units, is to
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
increase consistent with the Company’s annual FFO growth, but is not to be less than zero or greater than 14 percent. Z-1 Unit holders are entitled to receive distributions, on vested units, that are now equal to dividends distributed to common stockholders.
Stock-based compensation expense for LTIP and Z Units under the fair value method totaled approximately $2.7 million, $3.5 million and $6.0 million for the years ended December 31, 2016, 2015 and 2014, respectively. Stock-based compensation expense for the year ended December 31, 2014 includes $1.7 million related to merger and integration expenses and is recorded in merger and integration expense in the consolidated statements of income. No such amounts were recorded in merger and integration expense in 2015. For the year ended December 31, 2014, stock-based compensation expense included $2.4 million related to an immediate vesting of certain of the 2015 LTIP Units. No such amounts were recorded in 2015. Stock-based compensation related to LTIP Units attributable to recipients who are direct and incremental to these projects was capitalized to real estate under development and totaled approximately $0.6 million, $0.5 million, and $0.4 million, for the years ended December 31, 2016, 2015, and 2014, respectively. The intrinsic value of the vested and unvested LTIP Units totaled $56.0 million as of December 31, 2016. Total unrecognized compensation cost related to the unvested LTIP Units under the LTIP Units plans totaled $3.6 million as of December 31, 2016. On a weighted average basis, the unamortized cost for the 2014 and 2015 LTIP Units and the Z Units is expected to be recognized over the next 2.2 years to 8.5 years, depending on certain performance targets.
The following table summarizes information about the LTIP Units outstanding as of December 31, 2016 ($ in thousands):

| Long Term Incentive Plan - LTIP Units
| Total Vested Units |  | Total Unvested Units |  | Total Outstanding Units |  | Weighted- average Grant-date Fair Value |  | Weighted- average Remaining Contractual Life (years)
Balance, December 31, 2013 | 118,190 |  |  | 149,381 |  |  | 267,571 |  |  | $ | 63.53 |  |  | 9.3
Granted | 24,000 |  |  | 44,750 |  |  | 68,750 |  |  |  |  |  |
Vested | 41,729 |  |  | (41,729 | ) |  | — |  |  |  |  |  |
Converted | (2,000 | ) |  | — |  |  | (2,000 | ) |  |  |  |  |
Cancelled | — |  |  | (1,335 | ) |  | (1,335 | ) |  |  |  |  |
Balance, December 31, 2014 | 181,919 |  |  | 151,067 |  |  | 332,986 |  |  | 71.14 |  |  | 10.5
Granted | — |  |  | — |  |  | — |  |  |  |  |  |
Vested | 36,650 |  |  | (36,650 | ) |  | — |  |  |  |  |  |
Converted | (74,384 | ) |  | — |  |  | (74,384 | ) |  |  |  |  |
Cancelled | — |  |  | (8,260 | ) |  | (8,260 | ) |  |  |  |  |
Balance, December 31, 2015 | 144,185 |  |  | 106,157 |  |  | 250,342 |  |  | 75.41 |  |  | 9.5
Granted | — |  |  | — |  |  | — |  |  |  |  |  |
Vested | 36,842 |  |  | (36,842 | ) |  | — |  |  |  |  |  |
Converted | — |  |  | — |  |  | — |  |  |  |  |  |
Cancelled | — |  |  | (9,288 | ) |  | (9,288 | ) |  |  |  |  |
Balance, December 31, 2016 | 181,027 |  |  | 60,027 |  |  | 241,054 |  |  | $ | 75.11 |  |  | 8.5

(13) Segment Information
The Company's segment disclosures present the measure used by the chief operating decision makers for purposes of assessing each segment's performance. Essex's chief operating decision makers are comprised of several members of its executive management team who use NOI to assess the performance of the business for the Company's reportable operating segments. NOI represents total property revenue less direct property operating expenses.
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
The executive management team evaluates the Company's operating performance geographically. The Company defines its reportable operating segments as the three geographical regions in which its communities are located: Southern California, Northern California and Seattle Metro.
Excluded from segment revenues and net operating income are 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 and properties that have been sold. Other non-segment assets include real estate under development, co-investments, real estate held for sale, net, cash and cash equivalents, marketable securities, notes and other receivables and prepaid expenses and other assets.
The revenues and net operating income for each of the reportable operating segments are summarized as follows for the years ended December 31, 2016, 2015, and 2014 ($ in thousands):

| Years Ended December 31,
| 2016 |  | 2015 |  | 2014
Revenues: |  |  |  |  |
Southern California | $ | 561,094 |  |  | $ | 507,536 |  |  | $ | 418,495 |
Northern California | 453,140 |  |  | 407,590 |  |  | 319,082 |
Seattle Metro | 217,259 |  |  | 201,417 |  |  | 168,337 |
Other real estate assets | 54,230 |  |  | 68,955 |  |  | 55,677 |
Total property revenues | $ | 1,285,723 |  |  | $ | 1,185,498 |  |  | $ | 961,591 |
Net operating income: |  |  |  |  |  |  |  |
Southern California | $ | 382,312 |  |  | $ | 340,797 |  |  | $ | 274,806 |
Northern California | 325,394 |  |  | 291,168 |  |  | 223,559 |
Seattle Metro | 148,279 |  |  | 136,579 |  |  | 112,494 |
Other real estate assets | 40,811 |  |  | 53,446 |  |  | 38,186 |
Total net operating income | 896,796 |  |  | 821,990 |  |  | 649,045 |
Management and other fees from affiliates | 8,278 |  |  | 8,909 |  |  | 9,347 |
Depreciation and amortization | (441,682 | ) |  | (453,423 | ) |  | (360,592 | )
General and administrative | (40,751 | ) |  | (40,090 | ) |  | (40,878 | )
Merger and integration expenses | — |  |  | (3,798 | ) |  | (53,530 | )
Acquisition and investment related costs | (1,841 | ) |  | (2,414 | ) |  | (1,878 | )
Interest expense | (219,654 | ) |  | (204,827 | ) |  | (164,551 | )
Total return swap income | 11,716 |  |  | 5,655 |  |  | — |
Interest and other income | 27,305 |  |  | 19,143 |  |  | 11,811 |
Equity income in co-investments | 48,698 |  |  | 21,861 |  |  | 39,893 |
Loss on early retirement of debt | (606 | ) |  | (6,114 | ) |  | (268 | )
Gain on sale of real estate and land | 154,561 |  |  | 47,333 |  |  | 46,039 |
Deferred tax expense on gain on sale of real estate and land | (4,410 | ) |  | — |  |  | — |
Gain on remeasurement of co-investment | — |  |  | 34,014 |  |  | — |
Net income | $ | 438,410 |  |  | $ | 248,239 |  |  | $ | 134,438 |

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Total assets for each of the reportable operating segments are summarized as follows as of December 31, 2016 and 2015 ($ in thousands):

| As of December 31,
Assets: | 2016 |  | 2015
Southern California | $ | 4,924,792 |  |  | $ | 4,752,174 |
Northern California | 3,791,549 |  |  | 3,733,218 |
Seattle Metro | 1,570,340 |  |  | 1,613,175 |
Other real estate assets | 78,079 |  |  | 283,010 |
Net reportable operating segments - real estate assets | 10,364,760 |  |  | 10,381,577 |
Real estate under development | 190,505 |  |  | 242,326 |
Co-investments | 1,161,275 |  |  | 1,036,047 |
Real estate held for sale, net | 101,957 |  |  | 26,879 |
Cash and cash equivalents, including restricted cash | 170,302 |  |  | 123,055 |
Marketable securities | 139,189 |  |  | 137,485 |
Notes and other receivables | 40,970 |  |  | 19,285 |
Prepaid expenses and other assets | 48,450 |  |  | 41,730 |
Total assets | $ | 12,217,408 |  |  | $ | 12,008,384 |

(14) 401(k) Plan
The Company has a 401(k) benefit plan (the “Plan”) for all eligible employees. Employee contributions are limited by the maximum allowed under Section 401(k) of the Internal Revenue Code. The Company matches 50% of the employee contributions up to a specified maximum. Company contributions to the Plan were approximately $1.8 million, $1.6 million, and $0.9 million for the years ended December 31, 2016, 2015, and 2014, respectively.
(15) Commitments and Contingencies
As of December 31, 2016, the Company had seven ground leases for certain apartment communities and buildings that expire between 2027 and 2082. Ground lease payments are typically the greater of a stated minimum or a percentage of gross rents generated by these apartment communities, some of which may be subject to future adjustments, which are not contemplated in the disclosed minimum lease commitments. The total minimum lease commitments, under ground leases and operating leases, for each of the years ending December 31 is summarized as follows ($ in thousands):

| Total Minimum
| Lease Commitments
2017 | $ | 4,647 |
2018 | 4,704 |
2019 | 4,763 |
2020 | 4,823 |
2021 | 4,886 |
Thereafter | 116,472 |
| $ | 140,295 |

To the extent that an environmental matter arises or is identified in the future that has other than a remote risk of having a material impact on the financial statements, the Company will disclose the estimated range of possible outcomes associated with it and, if an outcome is probable, accrue an appropriate liability for that matter. The Company will consider whether any such matter results in an impairment of value on the affected property and, if so, the impairment will be recognized.
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
The Company has no way of determining the magnitude of any potential liability to which it may be subject arising out of unknown environmental conditions with respect to the communities currently or formerly owned by the Company. No assurance can be given that: existing environmental assessments conducted with respect to any of these communities have revealed all environmental conditions or potential liabilities associated with such conditions; any prior owner or operator of a property did not create any material environmental condition not known to the Company; or a material unknown environmental condition does not otherwise exist as to any one or more of the communities. The Company has limited insurance coverage for some of the types of environmental conditions and associated liabilities described above.
The Company has entered into transactions that may require the Company to pay the tax liabilities of the partners in the Operating Partnership or in the DownREIT entities. These transactions are within the Company’s control. Although the Company plans to hold the contributed assets or defer recognition of gain on their sale pursuant to like-kind exchange rules under Section 1031 of the Internal Revenue Code, the Company can provide no assurance that it will be able to do so and if such tax liabilities were incurred they may have a material impact on the Company’s financial position.
There continue to be lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in the residential units and common areas of those communities. 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, such suits. Insurance carriers have reacted to the increase in mold related liability awards by excluding mold related claims from standard general liability policies and pricing mold endorsements at prohibitively high rates. The Company has, however, purchased pollution liability insurance which includes some coverage for some mold claims. The Company has also adopted policies intended to promptly address and resolve reports of mold and to minimize any impact mold might have on residents of its properties. The Company believes its mold policies and proactive response to address reported mold exposures reduces its risk of loss from mold claims. While no assurances can be given that the Company has identified and responded to all mold occurrences, the Company promptly addresses and responds to all known mold reports. Liabilities resulting from such mold related matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. As of December 31, 2016, potential liabilities for mold and other environmental liabilities are not quantifiable and an estimate of possible loss cannot be made.
The Company carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the communities. There are, however, certain types of extraordinary losses, such as, for example, losses from terrorism or earthquakes, for which the Company has limited insurance coverage. Substantially all of the communities are located in areas that are subject to earthquake activity. The Company has established a wholly-owned insurance subsidiary, Pacific Western Insurance LLC (“PWI”). Through PWI, the Company is self-insured as it relates to earthquake related losses. Additionally, since January 2008, PWI has provided property and casualty insurance coverage for the first $5.0 million of the Company’s property level insurance claims per incident. As of December 31, 2016, PWI has cash and marketable securities of approximately $69.9 million. These assets are consolidated in the Company’s financial statements. Beginning in 2013, the Company has obtained limited third party seismic insurance on selected assets in the Company's co-investments.
On December 19, 2014, a putative class action was filed against the Company in the U.S. District Court for the Northern
District of California, entitled Foster v. Essex Property Trust, Inc. alleging that the Company failed to properly secure the
personally-identifying information of its residents. The lawsuit seeks the recovery of unspecified damages and certain
injunctive relief. This lawsuit was filed in connection with a cyber-intrusion that the Company discovered in the third quarter of
2014. This matter was dismissed subject to possible appeal.
The Company is subject to various other legal and/or regulatory proceedings arising in the course of its business operations. We believe that, with respect to such matters that we are currently a party to, the ultimate disposition of any such matter will not result in a material adverse effect on the Company’s financial condition, results of operations or cash flows.
(16) Subsequent Events
In January 2017, the Company sold Jefferson at Hollywood, a 270 apartment home community, located in Los Angeles, CA, for $132.5 million.
In January 2017, the Company purchased its joint venture partner's 50.0% interest in Palm Valley, for a contract price of $183.0 million. Prior to the purchase, an approximately $220.0 million mortgage encumbered the property. Concurrent with the closing
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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
of the acquisition, the entire mortgage balance was repaid and the property is now unencumbered. Palm Valley has 1,098 apartment homes, within four communities, and is located in San Jose, CA.
(17) Quarterly Results of Operations (Unaudited)
Essex Property Trust, Inc.
The following is a summary of quarterly results of operations for 2016 and 2015 ($ in thousands, except per share and dividend amounts):

| Quarter ended December 31 |  | Quarter ended September 30 |  | Quarter ended June 30 |  | Quarter ended March 31
2016: |  |  |  |  |  |  |
Total property revenues | $ | 326,905 |  |  | $ | 327,078 |  |  | $ | 319,562 |  |  | $ | 312,178 |
Net income | $ | 204,517 |  |  | $ | 70,162 |  |  | $ | 76,824 |  |  | $ | 86,907 |
Net income available to common stockholders | $ | 195,569 |  |  | $ | 65,561 |  |  | $ | 72,013 |  |  | $ | 77,981 |
Per share data: |  |  |  |  |  |  |  |  |  |  |
Net income: |  |  |  |  |  |  |  |  |  |  |
Basic (1) | $ | 2.98 |  |  | $ | 1.00 |  |  | $ | 1.10 |  |  | $ | 1.19 |
Diluted (1) | $ | 2.98 |  |  | $ | 1.00 |  |  | $ | 1.10 |  |  | $ | 1.19 |
Market price: |  |  |  |  |  |  |  |  |  |  |
High | $ | 234.07 |  |  | $ | 236.56 |  |  | $ | 237.50 |  |  | $ | 240.55 |
Low | $ | 200.01 |  |  | $ | 217.16 |  |  | $ | 207.20 |  |  | $ | 191.25 |
Close | $ | 232.50 |  |  | $ | 222.70 |  |  | $ | 228.09 |  |  | $ | 233.86 |
Dividends declared | $ | 1.60 |  |  | $ | 1.60 |  |  | $ | 1.60 |  |  | $ | 1.60 |
2015: |  |  |  |  |  |  |  |  |  |  |
Total property revenues | $ | 308,646 |  |  | $ | 302,522 |  |  | $ | 294,101 |  |  | $ | 280,229 |
Net income | $ | 85,762 |  |  | $ | 47,182 |  |  | $ | 50,542 |  |  | $ | 64,753 |
Net income available to common stockholders | $ | 79,624 |  |  | $ | 42,323 |  |  | $ | 45,555 |  |  | $ | 59,363 |
Per share data: |  |  |  |  |  |  |  |  |  |  |
Net income: |  |  |  |  |  |  |  |  |  |  |
Basic (1) | $ | 1.22 |  |  | $ | 0.65 |  |  | $ | 0.70 |  |  | $ | 0.92 |
Diluted (1) | $ | 1.22 |  |  | $ | 0.65 |  |  | $ | 0.70 |  |  | $ | 0.92 |
Market price: |  |  |  |  |  |  |  |  |  |  |
High | $ | 244.71 |  |  | $ | 232.20 |  |  | $ | 231.90 |  |  | $ | 243.17 |
Low | $ | 214.29 |  |  | $ | 205.72 |  |  | $ | 208.85 |  |  | $ | 207.26 |
Close | $ | 239.41 |  |  | $ | 223.42 |  |  | $ | 212.50 |  |  | $ | 229.90 |
Dividends declared | $ | 1.44 |  |  | $ | 1.44 |  |  | $ | 1.44 |  |  | $ | 1.44 |

(1) | Quarterly earnings per common unit amounts may not total to the annual amounts due to rounding and the changes in the number of weighted common units outstanding and included in the calculation of basic and diluted shares.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Essex Portfolio, L.P.
The following is a summary of quarterly results of operations for 2016 and 2015 ($ in thousands, except per unit and distribution amounts):

| Quarter ended December 31 |  | Quarter ended September 30 |  | Quarter ended June 30 |  | Quarter ended March 31
2016: |  |  |  |  |  |  |
Total property revenues | $ | 326,905 |  |  | $ | 327,078 |  |  | $ | 319,562 |  |  | $ | 312,178 |
Net income | $ | 204,517 |  |  | $ | 70,162 |  |  | $ | 76,824 |  |  | $ | 86,907 |
Net income available to common unitholders | $ | 202,201 |  |  | $ | 67,784 |  |  | $ | 74,463 |  |  | $ | 80,765 |
Per unit data: |  |  |  |  |  |  |  |  |  |  |
Net income: |  |  |  |  |  |  |  |  |  |  |
Basic (1) | $ | 2.98 |  |  | $ | 1.00 |  |  | $ | 1.10 |  |  | $ | 1.19 |
Diluted (1) | $ | 2.98 |  |  | $ | 1.00 |  |  | $ | 1.10 |  |  | $ | 1.19 |
Distributions declared | $ | 1.60 |  |  | $ | 1.60 |  |  | $ | 1.60 |  |  | $ | 1.60 |
2015: |  |  |  |  |  |  |  |  |  |  |
Total property revenues | $ | 308,646 |  |  | $ | 302,522 |  |  | $ | 294,101 |  |  | $ | 280,229 |
Net income | $ | 85,762 |  |  | $ | 47,182 |  |  | $ | 50,542 |  |  | $ | 64,753 |
Net income available to common unitholders | $ | 82,333 |  |  | $ | 43,794 |  |  | $ | 47,088 |  |  | $ | 61,474 |
Per unit data: |  |  |  |  |  |  |  |  |  |  |
Net income: |  |  |  |  |  |  |  |  |  |  |
Basic (1) | $ | 1.22 |  |  | $ | 0.65 |  |  | $ | 0.70 |  |  | $ | 0.93 |
Diluted (1) | $ | 1.22 |  |  | $ | 0.65 |  |  | $ | 0.70 |  |  | $ | 0.92 |
Distributions declared | $ | 1.44 |  |  | $ | 1.44 |  |  | $ | 1.44 |  |  | $ | 1.44 |

(1) | Quarterly earnings per common unit amounts may not total to the annual amounts due to rounding and the changes in the number of weighted common units outstanding and included in the calculation of basic and diluted shares.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(Dollars in thousands)

|  |  |  |  |  | Costs |  |  |  |  |  |  |
|  |  |  | Initial cost | capitalized | Gross amount carried at close of period |  |  |  |
| Apartment |  |  |  | Buildings and | subsequent to | Land and | Buildings and |  | Accumulated | Date of | Date | Lives
Property | Homes | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total (1) | depreciation | construction | acquired | (years)
Encumbered communities |  |  |  |  |  |  |  |  |  |  |  |  |
Avondale at Warner Center | 446 |  | Woodland Hills, CA | $ | 43,687 |  | $ | 10,536 |  | $ | 24,522 |  | $ | 20,008 |  | $ | 10,601 |  | $ | 44,465 |  | $ | 55,066 |  | $ | (28,536 | ) | 1970 | Jan-99 | 3-30
Bel Air | 462 |  | San Ramon, CA | 51,531 |  | 12,105 |  | 18,252 |  | 33,311 |  | 12,682 |  | 50,986 |  | 63,668 |  | (30,311 | ) | 1988 | Jan-95 | 3-30
Belcarra | 296 |  | Bellevue, WA | 52,238 |  | 21,725 |  | 92,091 |  | 487 |  | 21,725 |  | 92,578 |  | 114,303 |  | (9,268 | ) | 2009 | Apr-14 | 5-30
BellCentre | 248 |  | Bellevue, WA | 39,597 |  | 16,197 |  | 67,207 |  | 3,240 |  | 16,197 |  | 70,447 |  | 86,644 |  | (7,170 | ) | 2001 | Apr-14 | 5-30
Belmont Station | 275 |  | Los Angeles, CA | 29,629 |  | 8,100 |  | 66,666 |  | 5,704 |  | 8,267 |  | 72,203 |  | 80,470 |  | (23,456 | ) | 2009 | Mar-09 | 3-30
Brookside Oaks | 170 |  | Sunnyvale, CA | 18,536 |  | 7,301 |  | 16,310 |  | 23,979 |  | 10,328 |  | 37,262 |  | 47,590 |  | (18,245 | ) | 1973 | Jun-00 | 3-30
Canyon Oaks | 250 |  | San Ramon, CA | 27,059 |  | 19,088 |  | 44,473 |  | 2,845 |  | 19,088 |  | 47,318 |  | 66,406 |  | (15,836 | ) | 2005 | May-07 | 3-30
Carmel Creek | 348 |  | San Diego, CA | 63,142 |  | 26,842 |  | 107,368 |  | 3,952 |  | 26,842 |  | 111,320 |  | 138,162 |  | (11,480 | ) | 2000 | Apr-14 | 5-30
City View | 572 |  | Hayward, CA | 61,761 |  | 9,883 |  | 37,670 |  | 24,081 |  | 10,350 |  | 61,284 |  | 71,634 |  | (41,530 | ) | 1975 | Mar-98 | 3-30
Courtyard off Main | 110 |  | Bellevue, WA | 15,133 |  | 7,465 |  | 21,405 |  | 3,467 |  | 7,465 |  | 24,872 |  | 32,337 |  | (5,651 | ) | 2000 | Oct-10 | 3-30
Domaine | 92 |  | Seattle, WA | 14,597 |  | 9,059 |  | 27,177 |  | 830 |  | 9,059 |  | 28,007 |  | 37,066 |  | (4,152 | ) | 2009 | Sep-12 | 3-30
Elevation | 158 |  | Redmond, WA | 10,697 |  | 4,758 |  | 14,285 |  | 5,961 |  | 4,757 |  | 20,247 |  | 25,004 |  | (6,425 | ) | 1986 | Jun-10 | 3-30
Ellington | 220 |  | Bellevue, WA | 21,497 |  | 15,066 |  | 45,249 |  | 2,170 |  | 15,066 |  | 47,419 |  | 62,485 |  | (3,879 | ) | 1994 | Jul-14 | 3-30
Fairhaven Apartments | 164 |  | Santa Ana, CA | 15,761 |  | 2,626 |  | 10,485 |  | 6,622 |  | 2,957 |  | 16,776 |  | 19,733 |  | (8,593 | ) | 1970 | Nov-01 | 3-30
Form 15 | 242 |  | San Diego, CA | 47,442 |  | 24,510 |  | 72,221 |  | 4,513 |  | 25,540 |  | 75,704 |  | 101,244 |  | (2,120 | ) | 2014 | Mar-16 | 3-30
Foster's Landing | 490 |  | Foster City, CA | 97,220 |  | 61,714 |  | 144,000 |  | 7,016 |  | 61,714 |  | 151,016 |  | 212,730 |  | (15,886 | ) | 1987 | Apr-14 | 5-30
Fountains at River Oaks | 226 |  | San Jose, CA | 32,118 |  | 26,046 |  | 60,773 |  | 3,229 |  | 26,046 |  | 64,002 |  | 90,048 |  | (6,363 | ) | 1990 | Apr-14 | 3-30
Fountain Park | 705 |  | Playa Vista, CA | 82,435 |  | 25,073 |  | 94,980 |  | 30,967 |  | 25,203 |  | 125,817 |  | 151,020 |  | (59,294 | ) | 2002 | Feb-04 | 3-30
Hampton Place/Hampton Court | 215 |  | Glendale, CA | 19,833 |  | 6,695 |  | 16,753 |  | 19,093 |  | 6,733 |  | 35,808 |  | 42,541 |  | (15,684 | ) | 1970 | Jun-99 | 3-30
Hidden Valley | 324 |  | Simi Valley, CA | 29,295 |  | 14,174 |  | 34,065 |  | 3,373 |  | 9,674 |  | 41,938 |  | 51,612 |  | (17,484 | ) | 2004 | Dec-04 | 3-30
Highlands at Wynhaven | 333 |  | Issaquah, WA | 30,901 |  | 16,271 |  | 48,932 |  | 9,533 |  | 16,271 |  | 58,465 |  | 74,736 |  | (18,290 | ) | 2000 | Aug-08 | 3-30
Highridge | 255 |  | Rancho Palos Verdes, CA | 69,202 |  | 5,419 |  | 18,347 |  | 29,991 |  | 6,073 |  | 47,684 |  | 53,757 |  | (30,084 | ) | 1972 | May-97 | 3-30
Hillcrest Park | 608 |  | Newbury Park, CA | 64,211 |  | 15,318 |  | 40,601 |  | 18,880 |  | 15,755 |  | 59,044 |  | 74,799 |  | (34,815 | ) | 1973 | Mar-98 | 3-30
Huntington Breakers | 342 |  | Huntington Beach, CA | 35,943 |  | 9,306 |  | 22,720 |  | 18,651 |  | 9,315 |  | 41,362 |  | 50,677 |  | (22,606 | ) | 1984 | Oct-97 | 3-30
Inglenook Court | 224 |  | Bothell, WA | 8,194 |  | 3,467 |  | 7,881 |  | 7,159 |  | 3,474 |  | 15,033 |  | 18,507 |  | (11,373 | ) | 1985 | Oct-94 | 3-30
1000 Kiely | 121 |  | Santa Clara, CA | 48,414 |  | 9,359 |  | 21,845 |  | 7,268 |  | 9,359 |  | 29,113 |  | 38,472 |  | (7,266 | ) | 1971 | Mar-11 | 3-30
Magnolia Square/Magnolia Lane (2) | 188 |  | Sunnyvale, CA | 52,175 |  | 8,190 |  | 24,736 |  | 15,223 |  | 8,191 |  | 39,958 |  | 48,149 |  | (15,672 | ) | 1963 | Sep-07 | 3-30
Mill Creek at Windermere | 400 |  | San Ramon, CA | 46,414 |  | 29,551 |  | 69,032 |  | 3,935 |  | 29,551 |  | 72,967 |  | 102,518 |  | (23,405 | ) | 2005 | Sep-07 | 3-30
Mirabella | 188 |  | Marina Del Rey, CA | 42,544 |  | 6,180 |  | 26,673 |  | 14,474 |  | 6,270 |  | 41,057 |  | 47,327 |  | (21,140 | ) | 2000 | May-00 | 3-30
Montanosa | 472 |  | San Diego, CA | 61,972 |  | 26,697 |  | 106,787 |  | 3,280 |  | 26,697 |  | 110,067 |  | 136,764 |  | (11,271 | ) | 1990 | Apr-14 | 5-30

F- 51

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(Dollars in thousands)

|  |  |  |  |  | Costs |  |  |  |  |  |  |
|  |  |  | Initial cost | capitalized | Gross amount carried at close of period |  |  |  |
| Apartment |  |  |  | Buildings and | subsequent to | Land and | Buildings and |  | Accumulated | Date of | Date | Lives
Property | Homes | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total (1) | depreciation | construction | acquired | (years)
Montclaire | 390 |  | Sunnyvale, CA | 44,122 |  | 4,842 |  | 19,776 |  | 21,476 |  | 4,997 |  | 41,097 |  | 46,094 |  | (35,665 | ) | 1973 | Dec-88 | 3-30
Montebello | 248 |  | Kirkland, WA | 26,475 |  | 13,857 |  | 41,575 |  | 4,077 |  | 13,858 |  | 45,651 |  | 59,509 |  | (7,791 | ) | 1996 | Jul-12 | 3-30
Montejo Apartments | 124 |  | Garden Grove, CA | 11,939 |  | 1,925 |  | 7,685 |  | 3,173 |  | 2,194 |  | 10,589 |  | 12,783 |  | (5,420 | ) | 1974 | Nov-01 | 3-30
Park Highland | 250 |  | Bellevue, WA | 26,617 |  | 9,391 |  | 38,224 |  | 10,626 |  | 9,391 |  | 48,850 |  | 58,241 |  | (5,230 | ) | 1993 | Apr-14 | 5-30
Park Hill at Issaquah | 245 |  | Issaquah, WA | 27,224 |  | 7,284 |  | 21,937 |  | 6,769 |  | 7,284 |  | 28,706 |  | 35,990 |  | (11,712 | ) | 1999 | Feb-99 | 3-30
Pathways at Bixby Village | 296 |  | Long Beach, CA | 35,673 |  | 4,083 |  | 16,757 |  | 19,526 |  | 6,239 |  | 34,127 |  | 40,366 |  | (27,669 | ) | 1975 | Feb-91 | 3-30
Piedmont | 396 |  | Bellevue, WA | 45,454 |  | 19,848 |  | 59,606 |  | 9,087 |  | 19,848 |  | 68,693 |  | 88,541 |  | (6,386 | ) | 1969 | May-14 | 3-30
Pinnacle at Fullerton | 192 |  | Fullerton, CA | 26,804 |  | 11,019 |  | 45,932 |  | 1,699 |  | 11,019 |  | 47,631 |  | 58,650 |  | (4,847 | ) | 2004 | Apr-14 | 5-30
Pinnacle on Lake Washington | 180 |  | Renton, WA | 18,078 |  | 7,760 |  | 31,041 |  | 755 |  | 7,760 |  | 31,796 |  | 39,556 |  | (3,245 | ) | 2001 | Apr-14 | 5-30
Pinnacle at MacArthur Place | 253 |  | Santa Ana, CA | 38,538 |  | 15,810 |  | 66,401 |  | 2,115 |  | 15,810 |  | 68,516 |  | 84,326 |  | (6,945 | ) | 2002 | Apr-14 | 5-30
Pinnacle at Otay Ranch I & II | 364 |  | Chula Vista, CA | 40,069 |  | 17,023 |  | 68,093 |  | 2,561 |  | 17,023 |  | 70,654 |  | 87,677 |  | (7,157 | ) | 2001 | Apr-14 | 5-30
Pinnacle at Talega | 362 |  | San Clemente, CA | 44,804 |  | 19,292 |  | 77,168 |  | 1,576 |  | 19,292 |  | 78,744 |  | 98,036 |  | (8,014 | ) | 2002 | Apr-14 | 5-30
Stevenson Place | 200 |  | Fremont, CA | 20,628 |  | 996 |  | 5,582 |  | 10,694 |  | 1,001 |  | 16,271 |  | 17,272 |  | (11,105 | ) | 1975 | Apr-00 | 3-30
Summerhill Park | 100 |  | Sunnyvale, CA | 12,793 |  | 2,654 |  | 4,918 |  | 10,432 |  | 2,656 |  | 15,348 |  | 18,004 |  | (7,221 | ) | 1988 | Sep-88 | 3-30
The Audrey at Belltown | 137 |  | Seattle, WA | 21,279 |  | 9,228 |  | 36,911 |  | 423 |  | 9,228 |  | 37,334 |  | 46,562 |  | (3,761 | ) | 1992 | Apr-14 | 5-30
The Barkley (3) | 161 |  | Anaheim, CA | 15,666 |  | — |  | 8,520 |  | 5,984 |  | 2,353 |  | 12,151 |  | 14,504 |  | (6,678 | ) | 1984 | Apr-00 | 3-30
The Bernard | 63 |  | Seattle, WA | 8,841 |  | 3,699 |  | 11,345 |  | 384 |  | 3,689 |  | 11,739 |  | 15,428 |  | (2,136 | ) | 2008 | Sep-11 | 3-30
The Dylan | 184 |  | West Hollywood, CA | 59,866 |  | 19,984 |  | 82,286 |  | 405 |  | 19,984 |  | 82,691 |  | 102,675 |  | (5,863 | ) | 2015 | Mar-15 | 3-30
The Elliot at Mukilteo | 301 |  | Mukilteo, WA | 10,639 |  | 2,498 |  | 10,595 |  | 15,308 |  | 2,824 |  | 25,577 |  | 28,401 |  | (16,550 | ) | 1981 | Jan-97 | 3-30
The Huntington | 276 |  | Huntington Beach, CA | 29,861 |  | 10,374 |  | 41,495 |  | 4,191 |  | 10,374 |  | 45,686 |  | 56,060 |  | (7,652 | ) | 1975 | Jun-12 | 3-30
The Huxley | 187 |  | West Hollywood, CA | 54,501 |  | 19,362 |  | 75,641 |  | 770 |  | 19,362 |  | 76,411 |  | 95,773 |  | (5,537 | ) | 2014 | Mar-15 | 3-30
The Landing at Jack London Square | 282 |  | Oakland, CA | 53,055 |  | 33,554 |  | 78,292 |  | 4,246 |  | 33,554 |  | 82,538 |  | 116,092 |  | (8,759 | ) | 2001 | Apr-14 | 5-30
The Palisades | 192 |  | Bellevue, WA | 19,752 |  | 1,560 |  | 6,242 |  | 12,093 |  | 1,565 |  | 18,330 |  | 19,895 |  | (15,115 | ) | 1977 | May-90 | 3-30
The Palms at Laguna Niguel | 460 |  | Laguna Niguel, CA | 55,441 |  | 23,584 |  | 94,334 |  | 3,393 |  | 23,584 |  | 97,727 |  | 121,311 |  | (9,922 | ) | 1988 | Apr-14 | 5-30
The Waterford | 238 |  | San Jose, CA | 30,240 |  | 11,808 |  | 24,500 |  | 14,172 |  | 15,165 |  | 35,315 |  | 50,480 |  | (19,053 | ) | 2000 | Jun-00 | 3-30
Tierra Vista | 404 |  | Oxnard, CA | 52,715 |  | 13,652 |  | 53,336 |  | 4,595 |  | 13,661 |  | 57,922 |  | 71,583 |  | (25,300 | ) | 2001 | Jan-01 | 3-30
Valley Park | 160 |  | Fountain Valley, CA | 21,530 |  | 3,361 |  | 13,420 |  | 5,545 |  | 3,761 |  | 18,565 |  | 22,326 |  | (9,050 | ) | 1969 | Nov-01 | 3-30
Villa Angelina | 256 |  | Placentia, CA | 24,723 |  | 4,498 |  | 17,962 |  | 6,808 |  | 4,962 |  | 24,306 |  | 29,268 |  | (12,185 | ) | 1970 | Nov-01 | 3-30
Villa Granada | 270 |  | Santa Clara, CA | 58,828 |  | 38,299 |  | 89,365 |  | 1,059 |  | 38,299 |  | 90,424 |  | 128,723 |  | (9,193 | ) | 2010 | Apr-14 | 5-30
Wandering Creek | 156 |  | Kent, WA | 5,224 |  | 1,285 |  | 4,980 |  | 3,981 |  | 1,296 |  | 8,950 |  | 10,246 |  | (6,767 | ) | 1986 | Nov-95 | 3-30
Wilshire Promenade | 149 |  | Fullerton, CA | 16,924 |  | 3,118 |  | 7,385 |  | 7,984 |  | 3,797 |  | 14,690 |  | 18,487 |  | (9,114 | ) | 1992 | Jan-97 | 3-30
| 16,620 |  |  | $ | 2,191,481 |  | $ | 794,369 |  | $ | 2,564,810 |  | $ | 529,149 |  | $ | 807,080 |  | $ | 3,081,248 |  | $ | 3,888,328 |  | $ | (848,327 | ) |  |  |

F- 52

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(Dollars in thousands)

|  |  |  |  |  | Costs |  |  |  |  |  |  |
|  |  |  | Initial cost | capitalized | Gross amount carried at close of period |  |  |  |
| Apartment |  |  |  | Buildings and | subsequent to | Land and | Buildings and |  | Accumulated | Date of | Date | Lives
Property | Homes | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total (1) | depreciation | construction | acquired | (years)
Unencumbered Communities |  |  |  |  |  |  |  |  |  |  |  |  |
8th & Hope | 290 |  | Los Angeles, CA | $ | — |  | $ | 29,279 |  | $ | 169,350 |  | $ | 1,746 |  | $ | 29,279 |  | $ | 171,096 |  | $ | 200,375 |  | $ | (11,991 | ) | 2014 | Feb-15 | 3-30
Alessio | 624 |  | Los Angeles, CA | — |  | 32,136 |  | 128,543 |  | 4,416 |  | 32,136 |  | 132,959 |  | 165,095 |  | (13,779 | ) | 2001 | Apr-14 | 5-30
Allegro | 97 |  | Valley Village, CA | — |  | 5,869 |  | 23,977 |  | 1,811 |  | 5,869 |  | 25,788 |  | 31,657 |  | (7,554 | ) | 2010 | Oct-10 | 3-30
Allure at Scripps Ranch | 194 |  | San Diego, CA | — |  | 11,923 |  | 47,690 |  | 862 |  | 11,923 |  | 48,552 |  | 60,475 |  | (4,885 | ) | 2002 | Apr-14 | 5-30
Alpine Village | 301 |  | Alpine, CA | — |  | 4,967 |  | 19,728 |  | 7,285 |  | 4,982 |  | 26,998 |  | 31,980 |  | (12,764 | ) | 1971 | Dec-02 | 3-30
Anavia | 250 |  | Anaheim, CA | — |  | 15,925 |  | 63,712 |  | 7,262 |  | 15,925 |  | 70,974 |  | 86,899 |  | (14,512 | ) | 2009 | Dec-10 | 3-30
Annaliese | 56 |  | Seattle, WA | — |  | 4,727 |  | 14,229 |  | 426 |  | 4,726 |  | 14,656 |  | 19,382 |  | (1,977 | ) | 2009 | Jan-13 | 3-30
Apex | 366 |  | Milpitas, CA | — |  | 44,240 |  | 103,251 |  | 1,685 |  | 44,240 |  | 104,936 |  | 149,176 |  | (8,143 | ) | 2014 | Aug-14 | 3-30
Aqua Marina Del Rey | 500 |  | Marina Del Rey, CA | — |  | 58,442 |  | 175,326 |  | 8,039 |  | 58,442 |  | 183,365 |  | 241,807 |  | (19,062 | ) | 2001 | Apr-14 | 5-30
Ascent | 90 |  | Kirkland, WA | — |  | 3,924 |  | 11,862 |  | 1,726 |  | 3,924 |  | 13,588 |  | 17,512 |  | (2,335 | ) | 1988 | Oct-12 | 3-30
Ashton Sherman Village | 264 |  | Los Angeles, CA | — |  | 23,550 |  | 93,811 |  | 12 |  | 23,550 |  | 93,823 |  | 117,373 |  | (136 | ) | 2014 | Dec-16 | 3-30
Avant | 440 |  | Los Angeles, CA | — |  | 32,379 |  | 137,940 |  | 593 |  | 32,379 |  | 138,533 |  | 170,912 |  | (6,522 | ) | 2014 | Jun-15 | 3-30
Avenue 64 | 224 |  | Emeryville, CA | — |  | 27,235 |  | 64,403 |  | 13,349 |  | 27,235 |  | 77,752 |  | 104,987 |  | (7,074 | ) | 2007 | Apr-14 | 5-30
Aviara (4) | 166 |  | Mercer Island, WA | — |  | — |  | 49,813 |  | 498 |  | — |  | 50,311 |  | 50,311 |  | (5,693 | ) | 2013 | Apr-14 | 5-30
Axis 2300 | 115 |  | Irvine, CA | — |  | 5,405 |  | 33,585 |  | 1,287 |  | 5,405 |  | 34,872 |  | 40,277 |  | (9,957 | ) | 2010 | Aug-10 | 3-30
Bella Villagio | 231 |  | San Jose, CA | — |  | 17,247 |  | 40,343 |  | 2,544 |  | 17,247 |  | 42,887 |  | 60,134 |  | (9,707 | ) | 2004 | Sep-10 | 3-30
Bellerive | 63 |  | Los Angeles, CA | — |  | 5,401 |  | 21,803 |  | 856 |  | 5,401 |  | 22,659 |  | 28,060 |  | (5,427 | ) | 2011 | Aug-11 | 3-30
Belmont Terrace | 71 |  | Belmont, CA | — |  | 4,446 |  | 10,290 |  | 5,181 |  | 4,473 |  | 15,444 |  | 19,917 |  | (6,223 | ) | 1974 | Oct-06 | 3-30
Bennett Lofts | 165 |  | San Francisco, CA | — |  | 21,771 |  | 50,800 |  | 27,370 |  | 28,371 |  | 71,570 |  | 99,941 |  | (10,291 | ) | 2004 | Dec-12 | 3-30
Bernardo Crest | 216 |  | San Diego, CA | — |  | 10,802 |  | 43,209 |  | 2,263 |  | 10,802 |  | 45,472 |  | 56,274 |  | (4,633 | ) | 1988 | Apr-14 | 5-30
Bonita Cedars | 120 |  | Bonita, CA | — |  | 2,496 |  | 9,913 |  | 2,842 |  | 2,503 |  | 12,748 |  | 15,251 |  | (6,100 | ) | 1983 | Dec-02 | 3-30
Boulevard | 172 |  | Fremont, CA | — |  | 3,520 |  | 8,182 |  | 11,391 |  | 3,580 |  | 19,513 |  | 23,093 |  | (14,961 | ) | 1978 | Jan-96 | 3-30
Bridle Trails | 108 |  | Kirkland, WA | — |  | 1,500 |  | 5,930 |  | 5,622 |  | 1,531 |  | 11,521 |  | 13,052 |  | (7,672 | ) | 1986 | Oct-97 | 3-30
Brighton Ridge | 264 |  | Renton, WA | — |  | 2,623 |  | 10,800 |  | 4,523 |  | 2,656 |  | 15,290 |  | 17,946 |  | (10,385 | ) | 1986 | Dec-96 | 3-30
Bristol Commons | 188 |  | Sunnyvale, CA | — |  | 5,278 |  | 11,853 |  | 8,069 |  | 5,293 |  | 19,907 |  | 25,200 |  | (11,273 | ) | 1989 | Jan-95 | 3-30
416 on Broadway | 115 |  | Glendale, CA | — |  | 8,557 |  | 34,235 |  | 2,111 |  | 8,557 |  | 36,346 |  | 44,903 |  | (8,028 | ) | 2009 | Dec-10 | 3-30
Bunker Hill | 456 |  | Los Angeles, CA | — |  | 11,498 |  | 27,871 |  | 63,985 |  | 11,639 |  | 91,715 |  | 103,354 |  | (32,678 | ) | 1968 | Mar-98 | 3-30
Camarillo Oaks | 564 |  | Camarillo, CA | — |  | 10,953 |  | 25,254 |  | 5,444 |  | 11,075 |  | 30,576 |  | 41,651 |  | (20,556 | ) | 1985 | Jul-96 | 3-30
Cambridge Park | 320 |  | San Diego, CA | — |  | 18,185 |  | 72,739 |  | 1,619 |  | 18,185 |  | 74,358 |  | 92,543 |  | (7,679 | ) | 1998 | Apr-14 | 5-30
Camino Ruiz Square | 159 |  | Camarillo, CA | — |  | 6,871 |  | 26,119 |  | 1,567 |  | 6,931 |  | 27,626 |  | 34,557 |  | (9,542 | ) | 1990 | Dec-06 | 3-30

F- 53

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(Dollars in thousands)

|  |  |  |  |  | Costs |  |  |  |  |  |  |
|  |  |  | Initial cost | capitalized | Gross amount carried at close of period |  |  |  |
| Apartment |  |  |  | Buildings and | subsequent to | Land and | Buildings and |  | Accumulated | Date of | Date | Lives
Property | Homes | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total (1) | depreciation | construction | acquired | (years)
Canyon Pointe | 250 |  | Bothell, WA | — |  | 4,692 |  | 18,288 |  | 6,623 |  | 4,693 |  | 24,910 |  | 29,603 |  | (11,707 | ) | 1990 | Oct-03 | 3-30
Capri at Sunny Hills | 102 |  | Fullerton, CA | — |  | 3,337 |  | 13,320 |  | 8,626 |  | 4,048 |  | 21,235 |  | 25,283 |  | (11,437 | ) | 1961 | Sep-01 | 3-30
Carmel Landing | 356 |  | San Diego, CA | — |  | 16,725 |  | 66,901 |  | 3,866 |  | 16,725 |  | 70,767 |  | 87,492 |  | (7,321 | ) | 1989 | Apr-14 | 5-30
Carmel Summit | 246 |  | San Diego, CA | — |  | 14,968 |  | 59,871 |  | 2,007 |  | 14,968 |  | 61,878 |  | 76,846 |  | (6,271 | ) | 1989 | Apr-14 | 5-30
Castle Creek | 216 |  | Newcastle, WA | — |  | 4,149 |  | 16,028 |  | 3,066 |  | 4,833 |  | 18,410 |  | 23,243 |  | (12,291 | ) | 1998 | Dec-98 | 3-30
Catalina Gardens | 128 |  | Los Angeles, CA | — |  | 6,714 |  | 26,856 |  | 710 |  | 6,714 |  | 27,566 |  | 34,280 |  | (2,811 | ) | 1987 | Apr-14 | 5-30
CBC Apartments & The Sweeps | 239 |  | Goleta, CA | — |  | 11,841 |  | 45,320 |  | 5,848 |  | 11,906 |  | 51,103 |  | 63,009 |  | (21,004 | ) | 1962 | Jan-06 | 3-30
Cedar Terrace | 180 |  | Bellevue, WA | — |  | 5,543 |  | 16,442 |  | 5,457 |  | 5,652 |  | 21,790 |  | 27,442 |  | (9,597 | ) | 1984 | Jan-05 | 3-30
CentrePointe | 224 |  | San Diego, CA | — |  | 3,405 |  | 7,743 |  | 20,221 |  | 3,442 |  | 27,927 |  | 31,369 |  | (13,724 | ) | 1974 | Jun-97 | 3-30
Chestnut Street Apartments | 96 |  | Santa Cruz, CA | — |  | 6,582 |  | 15,689 |  | 1,387 |  | 6,582 |  | 17,076 |  | 23,658 |  | (5,165 | ) | 2002 | Jul-08 | 3-30
Collins on Pine | 76 |  | Seattle, WA | — |  | 7,276 |  | 22,226 |  | 179 |  | 7,276 |  | 22,405 |  | 29,681 |  | (1,973 | ) | 2013 | May-14 | 3-30
Corbella at Juanita Bay | 169 |  | Kirkland, WA | — |  | 5,801 |  | 17,415 |  | 2,368 |  | 5,801 |  | 19,783 |  | 25,584 |  | (4,515 | ) | 1978 | Nov-10 | 3-30
Cortesia | 308 |  | Rancho Santa Margarita, CA | — |  | 13,912 |  | 55,649 |  | 1,103 |  | 13,912 |  | 56,752 |  | 70,664 |  | (5,799 | ) | 1999 | Apr-14 | 5-30
Country Villas | 180 |  | Oceanside, CA | — |  | 4,174 |  | 16,583 |  | 3,902 |  | 4,187 |  | 20,472 |  | 24,659 |  | (10,111 | ) | 1976 | Dec-02 | 3-30
Crow Canyon | 400 |  | San Ramon, CA | — |  | 37,579 |  | 87,685 |  | 3,158 |  | 37,579 |  | 90,843 |  | 128,422 |  | (9,277 | ) | 1992 | Apr-14 | 5-30
Deer Valley | 171 |  | San Rafael, CA | — |  | 21,478 |  | 50,116 |  | 1,629 |  | 21,478 |  | 51,745 |  | 73,223 |  | (5,335 | ) | 1996 | Apr-14 | 5-30
Delano | 126 |  | Redmond, WA | — |  | 7,470 |  | 22,511 |  | 1,056 |  | 7,470 |  | 23,567 |  | 31,037 |  | (4,127 | ) | 2005 | Dec-11 | 3-30
Devonshire | 276 |  | Hemet, CA | — |  | 3,470 |  | 13,786 |  | 3,685 |  | 3,482 |  | 17,459 |  | 20,941 |  | (8,659 | ) | 1988 | Dec-02 | 3-30
Domain | 379 |  | San Diego, CA | — |  | 23,848 |  | 95,394 |  | 1,141 |  | 23,848 |  | 96,535 |  | 120,383 |  | (10,174 | ) | 2013 | Nov-13 | 3-30
Emerald Pointe | 160 |  | Diamond Bar, CA | — |  | 8,458 |  | 33,832 |  | 1,203 |  | 8,458 |  | 35,035 |  | 43,493 |  | (3,605 | ) | 1989 | Apr-14 | 5-30
Emerald Ridge | 180 |  | Bellevue, WA | — |  | 3,449 |  | 7,801 |  | 4,937 |  | 3,449 |  | 12,738 |  | 16,187 |  | (8,907 | ) | 1987 | Nov-94 | 3-30
Emerson Valley Village | 144 |  | Los Angeles, CA | — |  | 13,378 |  | 53,240 |  | 9 |  | 13,378 |  | 53,249 |  | 66,627 |  | (77 | ) | 2012 | Dec-16 | 3-30
Enso | 183 |  | San Jose, CA | — |  | 21,397 |  | 71,135 |  | 858 |  | 21,397 |  | 71,993 |  | 93,390 |  | (2,637 | ) | 2014 | Dec-15 | 3-30
Esplanade | 278 |  | San Jose, CA | — |  | 18,170 |  | 40,086 |  | 11,222 |  | 18,429 |  | 51,049 |  | 69,478 |  | (21,749 | ) | 2002 | Apr-04 | 3-30
Essex Skyline | 349 |  | Santa Ana, CA | — |  | 21,537 |  | 146,099 |  | 4,587 |  | 21,537 |  | 150,686 |  | 172,223 |  | (24,175 | ) | 2008 | Apr-10 | 3-30
Evergreen Heights | 200 |  | Kirkland, WA | — |  | 3,566 |  | 13,395 |  | 4,936 |  | 3,649 |  | 18,248 |  | 21,897 |  | (11,867 | ) | 1990 | Jun-97 | 3-30
Fairway Apartments at Big Canyon (5) | 74 |  | Newport Beach, CA | — |  | — |  | 7,850 |  | 7,136 |  | 9 |  | 14,977 |  | 14,986 |  | (8,513 | ) | 1972 | Jun-99 | 3-28
Fairwood Pond | 194 |  | Renton, WA | — |  | 5,296 |  | 15,564 |  | 2,784 |  | 5,297 |  | 18,347 |  | 23,644 |  | (8,155 | ) | 1997 | Oct-04 | 3-30
Foothill Commons | 394 |  | Bellevue, WA | — |  | 2,435 |  | 9,821 |  | 38,221 |  | 2,440 |  | 48,037 |  | 50,477 |  | (34,450 | ) | 1978 | Mar-90 | 3-30
Foothill Gardens/Twin Creeks | 176 |  | San Ramon, CA | — |  | 5,875 |  | 13,992 |  | 8,902 |  | 5,964 |  | 22,805 |  | 28,769 |  | (13,660 | ) | 1985 | Feb-97 | 3-30
Forest View | 192 |  | Renton, WA | — |  | 3,731 |  | 14,530 |  | 2,101 |  | 3,731 |  | 16,631 |  | 20,362 |  | (7,661 | ) | 1998 | Oct-03 | 3-30

F- 54

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(Dollars in thousands)

|  |  |  |  |  | Costs |  |  |  |  |  |  |
|  |  |  | Initial cost | capitalized | Gross amount carried at close of period |  |  |  |
| Apartment |  |  |  | Buildings and | subsequent to | Land and | Buildings and |  | Accumulated | Date of | Date | Lives
Property | Homes | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total (1) | depreciation | construction | acquired | (years)
Fountain Court | 320 |  | Seattle, WA | — |  | 6,702 |  | 27,306 |  | 10,809 |  | 6,585 |  | 38,232 |  | 44,817 |  | (21,314 | ) | 2000 | Mar-00 | 3-30
Fourth & U | 171 |  | Berkeley, CA | — |  | 8,879 |  | 52,351 |  | 2,621 |  | 8,879 |  | 54,972 |  | 63,851 |  | (13,809 | ) | 2010 | Apr-10 | 3-30
Fox Plaza | 443 |  | San Francisco, CA | — |  | 39,731 |  | 92,706 |  | 18,477 |  | 39,731 |  | 111,183 |  | 150,914 |  | (15,448 | ) | 1968 | Feb-13 | 3-30
Hillsdale Garden | 697 |  | San Mateo, CA | — |  | 22,000 |  | 94,681 |  | 21,533 |  | 22,000 |  | 116,214 |  | 138,214 |  | (44,137 | ) | 1948 | Sep-06 | 3-30
Hope Ranch | 108 |  | Santa Barbara, CA | — |  | 4,078 |  | 16,877 |  | 2,675 |  | 4,208 |  | 19,422 |  | 23,630 |  | (6,308 | ) | 1965 | Mar-07 | 3-30
Joule | 295 |  | Seattle, WA | — |  | 14,558 |  | 69,417 |  | 3,849 |  | 14,558 |  | 73,266 |  | 87,824 |  | (18,880 | ) | 2010 | Mar-10 | 3-30
Kings Road | 196 |  | Los Angeles, CA | — |  | 4,023 |  | 9,527 |  | 12,514 |  | 4,031 |  | 22,033 |  | 26,064 |  | (12,625 | ) | 1979 | Jun-97 | 3-30
Lafayette Highlands | 150 |  | Lafayette, CA | — |  | 17,774 |  | 41,473 |  | 851 |  | 17,774 |  | 42,324 |  | 60,098 |  | (4,330 | ) | 1973 | Apr-14 | 5-30
Lakeshore Landing | 308 |  | San Mateo, CA | — |  | 38,155 |  | 89,028 |  | 4,172 |  | 38,155 |  | 93,200 |  | 131,355 |  | (10,025 | ) | 1988 | Apr-14 | 5-30
Laurels at Mill Creek | 164 |  | Mill Creek, WA | — |  | 1,559 |  | 6,430 |  | 5,701 |  | 1,595 |  | 12,095 |  | 13,690 |  | (8,373 | ) | 1981 | Dec-96 | 3-30
Lawrence Station | 336 |  | Sunnyvale, CA | — |  | 45,532 |  | 106,735 |  | 517 |  | 45,532 |  | 107,252 |  | 152,784 |  | (13,299 | ) | 2012 | Apr-14 | 5-30
Le Parc | 140 |  | Santa Clara, CA | — |  | 3,090 |  | 7,421 |  | 11,503 |  | 3,092 |  | 18,922 |  | 22,014 |  | (13,388 | ) | 1975 | Feb-94 | 3-30
Marbrisa | 202 |  | Long Beach, CA | — |  | 4,700 |  | 18,605 |  | 7,913 |  | 4,760 |  | 26,458 |  | 31,218 |  | (12,247 | ) | 1987 | Sep-02 | 3-30
Marina City Club (6) | 101 |  | Marina Del Rey, CA | — |  | — |  | 28,167 |  | 42,537 |  | — |  | 70,704 |  | 70,704 |  | (20,352 | ) | 1971 | Jan-04 | 3-30
Marina Cove (7) | 292 |  | Santa Clara, CA | — |  | 5,320 |  | 16,431 |  | 13,464 |  | 5,324 |  | 29,891 |  | 35,215 |  | (20,354 | ) | 1974 | Jun-94 | 3-30
Mariner's Place | 105 |  | Oxnard, CA | — |  | 1,555 |  | 6,103 |  | 2,218 |  | 1,562 |  | 8,314 |  | 9,876 |  | (4,954 | ) | 1987 | May-00 | 3-30
MB 360 | 360 |  | San Francisco, CA | — |  | 21,421 |  | 114,376 |  | 121,769 |  | 42,001 |  | 215,565 |  | 257,566 |  | (12,003 | ) | 2014 | Apr-14 | 3-30
Mesa Village | 133 |  | Clairemont, CA | — |  | 1,888 |  | 7,498 |  | 1,501 |  | 1,894 |  | 8,993 |  | 10,887 |  | (4,323 | ) | 1963 | Dec-02 | 3-30
Mio | 103 |  | San Jose, CA | — |  | 11,012 |  | 39,982 |  | 182 |  | 11,012 |  | 40,164 |  | 51,176 |  | (1,363 | ) | 2015 | Jan-16 | 3-30
Mira Monte | 354 |  | Mira Mesa, CA | — |  | 7,165 |  | 28,459 |  | 9,962 |  | 7,186 |  | 38,400 |  | 45,586 |  | (20,783 | ) | 1982 | Dec-02 | 3-30
Miracle Mile/Marbella | 236 |  | Los Angeles, CA | — |  | 7,791 |  | 23,075 |  | 13,759 |  | 7,886 |  | 36,739 |  | 44,625 |  | (22,818 | ) | 1988 | Aug-97 | 3-30
Mission Hills | 282 |  | Oceanside, CA | — |  | 10,099 |  | 38,778 |  | 5,762 |  | 10,167 |  | 44,472 |  | 54,639 |  | (18,507 | ) | 1984 | Jul-05 | 3-30
Mission Peaks | 453 |  | Fremont, CA | — |  | 46,499 |  | 108,498 |  | 2,168 |  | 46,499 |  | 110,666 |  | 157,165 |  | (11,305 | ) | 1995 | Apr-14 | 5-30
Mission Peaks II | 336 |  | Fremont, CA | — |  | 31,429 |  | 73,334 |  | 3,170 |  | 31,429 |  | 76,504 |  | 107,933 |  | (7,962 | ) | 1989 | Apr-14 | 5-30
Monterey Villas | 122 |  | Oxnard, CA | — |  | 2,349 |  | 5,579 |  | 6,117 |  | 2,424 |  | 11,621 |  | 14,045 |  | (6,834 | ) | 1974 | Jul-97 | 3-30
Muse | 152 |  | North Hollywood, CA | — |  | 7,822 |  | 33,436 |  | 2,457 |  | 7,823 |  | 35,892 |  | 43,715 |  | (9,961 | ) | 2011 | Feb-11 | 3-30
Museum Park | 117 |  | San Jose, CA | — |  | 13,864 |  | 32,348 |  | 934 |  | 13,864 |  | 33,282 |  | 47,146 |  | (3,438 | ) | 2002 | Apr-14 | 5-30
Paragon Apartments | 301 |  | Fremont, CA | — |  | 32,230 |  | 77,320 |  | 589 |  | 32,230 |  | 77,909 |  | 110,139 |  | (6,431 | ) | 2013 | Jul-14 | 3-30
Park Catalina | 90 |  | Los Angeles, CA | — |  | 4,710 |  | 18,839 |  | 2,785 |  | 4,710 |  | 21,624 |  | 26,334 |  | (3,739 | ) | 2002 | Jun-12 | 3-30
Park Viridian | 320 |  | Anaheim, CA | — |  | 15,894 |  | 63,574 |  | 1,727 |  | 15,894 |  | 65,301 |  | 81,195 |  | (6,673 | ) | 2008 | Apr-14 | 5-30
Park West | 126 |  | San Francisco, CA | — |  | 9,424 |  | 21,988 |  | 11,278 |  | 9,424 |  | 33,266 |  | 42,690 |  | (5,609 | ) | 1958 | Sep-12 | 3-30
Parkwood at Mill Creek | 240 |  | Mill Creek, WA | — |  | 10,680 |  | 42,722 |  | 1,896 |  | 10,680 |  | 44,618 |  | 55,298 |  | (4,667 | ) | 1989 | Apr-14 | 5-30

F- 55

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(Dollars in thousands)

|  |  |  |  |  | Costs |  |  |  |  |  |  |
|  |  |  | Initial cost | capitalized | Gross amount carried at close of period |  |  |  |
| Apartment |  |  |  | Buildings and | subsequent to | Land and | Buildings and |  | Accumulated | Date of | Date | Lives
Property | Homes | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total (1) | depreciation | construction | acquired | (years)
Pinehurst (8) | 28 |  | Ventura, CA | — |  | — |  | 1,711 |  | 519 |  | 6 |  | 2,224 |  | 2,230 |  | (1,344 | ) | 1973 | Dec-04 | 3-24
Pinnacle Sonata | 268 |  | Bothell, WA | — |  | 14,647 |  | 58,586 |  | 1,911 |  | 14,647 |  | 60,497 |  | 75,144 |  | (6,089 | ) | 2000 | Apr-14 | 5-30
Pointe at Cupertino | 116 |  | Cupertino, CA | — |  | 4,505 |  | 17,605 |  | 11,631 |  | 4,505 |  | 29,236 |  | 33,741 |  | (13,938 | ) | 1963 | Aug-98 | 3-30
Radius | 264 |  | Redwood City, CA | — |  | 11,702 |  | 152,336 |  | (39 | ) | 11,702 |  | 152,297 |  | 163,999 |  | (14,159 | ) | 2015 | Apr-14 | 3-30
Reed Square | 100 |  | Sunnyvale, CA | — |  | 6,873 |  | 16,037 |  | 7,788 |  | 6,873 |  | 23,825 |  | 30,698 |  | (5,865 | ) | 1970 | Jan-12 | 3-30
Regency at Encino | 75 |  | Encino, CA | — |  | 3,184 |  | 12,737 |  | 3,066 |  | 3,184 |  | 15,803 |  | 18,987 |  | (4,623 | ) | 1989 | Dec-09 | 3-30
Renaissance at Uptown Orange | 460 |  | Orange, CA | — |  | 27,870 |  | 111,482 |  | 3,165 |  | 27,870 |  | 114,647 |  | 142,517 |  | (11,618 | ) | 2007 | Apr-14 | 5-30
Reveal | 438 |  | Woodland Hills, CA | — |  | 25,073 |  | 121,314 |  | 854 |  | 25,073 |  | 122,168 |  | 147,241 |  | (8,165 | ) | 2010 | Apr-15 | 3-30
Salmon Run at Perry Creek | 132 |  | Bothell, WA | — |  | 3,717 |  | 11,483 |  | 1,781 |  | 3,801 |  | 13,180 |  | 16,981 |  | (7,106 | ) | 2000 | Oct-00 | 3-30
Sammamish View | 153 |  | Bellevue, WA | — |  | 3,324 |  | 7,501 |  | 6,497 |  | 3,331 |  | 13,991 |  | 17,322 |  | (11,078 | ) | 1986 | Nov-94 | 3-30
101 San Fernando | 323 |  | San Jose, CA | — |  | 4,173 |  | 58,961 |  | 9,052 |  | 4,173 |  | 68,013 |  | 72,186 |  | (16,920 | ) | 2001 | Jul-10 | 3-30
San Marcos | 432 |  | Richmond, CA | — |  | 15,563 |  | 36,204 |  | 28,870 |  | 22,866 |  | 57,771 |  | 80,637 |  | (26,023 | ) | 2003 | Nov-03 | 3-30
Santee Court/Santee Village | 238 |  | Los Angeles, CA | — |  | 9,581 |  | 40,317 |  | 4,935 |  | 9,582 |  | 45,251 |  | 54,833 |  | (10,633 | ) | 2004 | Oct-10 | 3-30
Shadow Point | 172 |  | Spring Valley, CA | — |  | 2,812 |  | 11,170 |  | 2,818 |  | 2,820 |  | 13,980 |  | 16,800 |  | (6,781 | ) | 1983 | Dec-02 | 3-30
Shadowbrook | 418 |  | Redmond, WA | — |  | 19,292 |  | 77,168 |  | 3,028 |  | 19,292 |  | 80,196 |  | 99,488 |  | (8,197 | ) | 1986 | Apr-14 | 5-30
Slater 116 | 108 |  | Kirkland, WA | — |  | 7,379 |  | 22,138 |  | 540 |  | 7,379 |  | 22,678 |  | 30,057 |  | (2,621 | ) | 2013 | Sep-13 | 3-30
Solstice | 280 |  | Sunnyvale, CA | — |  | 34,444 |  | 147,262 |  | 4,404 |  | 34,444 |  | 151,666 |  | 186,110 |  | (17,915 | ) | 2014 | Apr-14 | 5-30
Stonehedge Village | 196 |  | Bothell, WA | — |  | 3,167 |  | 12,603 |  | 5,889 |  | 3,201 |  | 18,458 |  | 21,659 |  | (12,004 | ) | 1986 | Oct-97 | 3-30
Summit Park | 300 |  | San Diego, CA | — |  | 5,959 |  | 23,670 |  | 5,523 |  | 5,977 |  | 29,175 |  | 35,152 |  | (14,340 | ) | 1972 | Dec-02 | 3-30
Taylor 28 | 197 |  | Seattle, WA | — |  | 13,915 |  | 57,700 |  | 648 |  | 13,915 |  | 58,348 |  | 72,263 |  | (5,840 | ) | 2008 | Apr-14 | 5-30
The Avery | 121 |  | Los Angeles, CA | — |  | 6,964 |  | 29,922 |  | 105 |  | 6,964 |  | 30,027 |  | 36,991 |  | (2,793 | ) | 2014 | Mar-14 | 3-30
The Cairns | 100 |  | Seattle, WA | — |  | 6,937 |  | 20,679 |  | 1,195 |  | 6,939 |  | 21,872 |  | 28,811 |  | (7,191 | ) | 2006 | Jun-07 | 3-30
The Commons | 264 |  | Campbell, CA | — |  | 12,555 |  | 29,307 |  | 5,378 |  | 12,556 |  | 34,684 |  | 47,240 |  | (9,005 | ) | 1973 | Jul-10 | 3-30
The Grand | 243 |  | Oakland, CA | — |  | 4,531 |  | 89,208 |  | 5,646 |  | 4,531 |  | 94,854 |  | 99,385 |  | (27,586 | ) | 2009 | Jan-09 | 3-30
The Hallie | 292 |  | Pasadena, CA | — |  | 2,202 |  | 4,794 |  | 51,281 |  | 8,385 |  | 49,892 |  | 58,277 |  | (21,785 | ) | 1972 | Apr-97 | 3-30
The Lofts at Pinehurst | 118 |  | Ventura, CA | — |  | 1,570 |  | 3,912 |  | 4,648 |  | 1,618 |  | 8,512 |  | 10,130 |  | (4,933 | ) | 1971 | Jun-97 | 3-30
The Stuart | 188 |  | Pasadena, CA | — |  | 13,574 |  | 54,298 |  | 1,857 |  | 13,574 |  | 56,155 |  | 69,729 |  | (5,919 | ) | 2007 | Apr-14 | 5-30
The Trails of Redmond | 423 |  | Redmond, WA | — |  | 21,930 |  | 87,720 |  | 2,992 |  | 21,930 |  | 90,712 |  | 112,642 |  | (9,312 | ) | 1985 | Apr-14 | 5-30
Tiffany Court | 101 |  | Los Angeles, CA | — |  | 6,949 |  | 27,796 |  | 906 |  | 6,949 |  | 28,702 |  | 35,651 |  | (2,902 | ) | 1987 | Apr-14 | 5-30
Trabuco Villas | 132 |  | Lake Forest, CA | — |  | 3,638 |  | 8,640 |  | 2,707 |  | 3,890 |  | 11,095 |  | 14,985 |  | (7,091 | ) | 1985 | Oct-97 | 3-30
Via | 284 |  | Sunnyvale, CA | — |  | 22,000 |  | 82,270 |  | 1,792 |  | 22,016 |  | 84,046 |  | 106,062 |  | (19,028 | ) | 2011 | Jul-11 | 3-30
Villa Siena | 272 |  | Costa Mesa, CA | — |  | 13,842 |  | 55,367 |  | 3,627 |  | 13,842 |  | 58,994 |  | 72,836 |  | (5,937 | ) | 1974 | Apr-14 | 5-30

F- 56

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(Dollars in thousands)

|  |  |  |  |  | Costs |  |  |  |  |  |  |
|  |  |  | Initial cost | capitalized | Gross amount carried at close of period |  |  |  |
| Apartment |  |  |  | Buildings and | subsequent to | Land and | Buildings and |  | Accumulated | Date of | Date | Lives
Property | Homes | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total (1) | depreciation | construction | acquired | (years)
Village Green | 272 |  | La Habra, CA | — |  | 6,488 |  | 36,768 |  | 2,820 |  | 6,488 |  | 39,588 |  | 46,076 |  | (4,132 | ) | 1971 | Apr-14 | 5-30
Vista Belvedere | 76 |  | Tiburon, CA | — |  | 5,573 |  | 11,901 |  | 8,205 |  | 5,573 |  | 20,106 |  | 25,679 |  | (8,793 | ) | 1963 | Aug-04 | 3-30
Vox Apartments | 58 |  | Seattle, WA | — |  | 5,545 |  | 16,635 |  | 79 |  | 5,545 |  | 16,714 |  | 22,259 |  | (1,802 | ) | 2013 | Oct-13 | 3-30
Walnut Heights | 163 |  | Walnut, CA | — |  | 4,858 |  | 19,168 |  | 4,269 |  | 4,887 |  | 23,408 |  | 28,295 |  | (10,501 | ) | 1964 | Oct-03 | 3-30
Wharfside Pointe | 155 |  | Seattle, WA | — |  | 2,245 |  | 7,020 |  | 11,286 |  | 2,258 |  | 18,293 |  | 20,551 |  | (11,308 | ) | 1990 | Jun-94 | 3-30
Willow Lake | 508 |  | San Jose, CA | — |  | 43,194 |  | 101,030 |  | 9,603 |  | 43,194 |  | 110,633 |  | 153,827 |  | (17,032 | ) | 1989 | Oct-12 | 3-30
5600 Wilshire | 284 |  | Los Angeles, CA | — |  | 30,535 |  | 91,604 |  | 1,004 |  | 30,535 |  | 92,608 |  | 123,143 |  | (9,435 | ) | 2008 | Apr-14 | 5-30
Wilshire La Brea | 478 |  | Los Angeles, CA | — |  | 56,932 |  | 211,998 |  | 7,368 |  | 56,932 |  | 219,366 |  | 276,298 |  | (25,646 | ) | 2014 | Apr-14 | 5-30
Windsor Ridge | 216 |  | Sunnyvale, CA | — |  | 4,017 |  | 10,315 |  | 15,508 |  | 4,021 |  | 25,819 |  | 29,840 |  | (17,389 | ) | 1989 | Mar-89 | 3-30
Woodland Commons | 302 |  | Bellevue, WA | — |  | 2,040 |  | 8,727 |  | 22,031 |  | 2,044 |  | 30,754 |  | 32,798 |  | (16,605 | ) | 1978 | Mar-90 | 3-30
Woodside Village | 145 |  | Ventura, CA | — |  | 5,331 |  | 21,036 |  | 3,751 |  | 5,341 |  | 24,777 |  | 30,118 |  | (10,673 | ) | 1987 | Dec-04 | 3-30
| 31,481 |  |  | $ | — |  | $ | 1,693,968 |  | $ | 6,072,893 |  | $ | 977,660 |  | $ | 1,738,155 |  | $ | 7,006,366 |  | $ | 8,744,521 |  | $ | (1,446,609 | ) |  |  |

|  |  |  |  |  | Costs |  |  |  |  |  |  |
|  |  |  | Initial cost | capitalized | Gross amount carried at close of period |  |  |  |
| Square |  |  |  | Buildings and | subsequent | Land and | Buildings and |  | Accumulated | Date of | Date | Lives
Property | Footage | Location | Encumbrance | Land | improvements | to acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years)
Other real estate assets |  |  |  |  |  |  |  |  |  |  |  |  |
Hollywood | 34,000 |  | Los Angeles, CA | $ | — |  | $ | 10,200 |  | $ | 13,800 |  | $ | 14 |  | $ | 10,200 |  | $ | 13,814 |  | $ | 24,014 |  | $ | (3,934 | ) | 1938 | Jul-06 | 3-30
Derian Office Building | 106,564 |  | Irvine, CA | — |  | 3,079 |  | 12,315 |  | 4,049 |  | 4,308 |  | 15,135 |  | 19,443 |  | (12,676 | ) | 1983 | Jul-00 | 3-30
| 140,564 |  |  | $ | — |  | $ | 13,279 |  | $ | 26,115 |  | $ | 4,063 |  | $ | 14,508 |  | $ | 28,949 |  | $ | 43,457 |  | $ | (16,610 | ) |  |  |
Total | $ | 2,191,481 |  | $ | 2,501,616 |  | $ | 8,663,818 |  | $ | 1,510,872 |  | $ | 2,559,743 |  | $ | 10,116,563 |  | $ | 12,676,306 |  | $ | (2,311,546 | ) |  |  |

(1) The aggregate cost for federal income tax purposes is approximately $10.0 billion (unaudited).
(2) A portion of land is leased pursuant to a ground lease expiring 2070.
(3) The land is leased pursuant to a ground lease expiring 2082.
(4) The land is leased pursuant to a ground lease expiring 2070.
(5) The land is leased pursuant to a ground lease expiring 2027.
(6) The land is leased pursuant to a ground lease expiring 2067.
(7) A portion of land is leased pursuant to a ground lease expiring in 2028.
(8) The land is leased pursuant to a ground lease expiring in 2028.
F- 57

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(Dollars in thousands)
A summary of activity for rental properties and accumulated depreciation is as follows:

| 2016 |  | 2015 |  | 2014 |  | 2016 |  | 2015 |  | 2014
Rental properties: |  |  |  |  |  | Accumulated depreciation: |  |  |  |  |
Balance at beginning of year | $ | 12,331,469 |  |  | $ | 11,244,681 |  |  | $ | 5,443,757 |  | Balance at beginning of year | $ | 1,949,892 |  |  | $ | 1,564,806 |  |  | $ | 1,254,886 |
Acquisition, development, and improvement of real estate (1) (2) | 609,669 |  |  | 1,333,102 |  |  | 5,833,617 |  | Depreciation expense (1) | 432,165 |  |  | 402,687 |  |  | 320,921 |
Disposition of real estate and other | (264,832 | ) |  | (246,314 | ) |  | (32,693 | ) | Depreciation expense - Disposals and other | (70,511 | ) |  | (17,601 | ) |  | (11,001 | )
Balance at the end of year | $ | 12,676,306 |  |  | $ | 12,331,469 |  |  | $ | 11,244,681 |  | Balance at the end of year | $ | 2,311,546 |  |  | $ | 1,949,892 |  |  | $ | 1,564,806 |

(1) Reclassifications have been made in prior periods to conform to the current year's presentation.
(2) Amount for 2014 includes $5.2 billion related to BRE merger.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Mateo, State of California, on February 24, 2017.

| ESSEX PROPERTY TRUST, INC.
| By: /S/ ANGELA L. KLEIMAN
| Angela L. Kleiman
| Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial Officer)
| By: /S/ JOHN FARIAS
| John Farias
| Group Vice President, Chief Accounting Officer
| ESSEX PORTFOLIO, L.P. By: Essex Property Trust, Inc., its general partner
| By: /S/ ANGELA L. KLEIMAN
| Angela L. Kleiman
| Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial Officer)
| By: /S/ JOHN FARIAS
| John Farias
| Group Vice President, Chief Accounting Officer

F- 58

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KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael J. Schall and Angela L. Kleiman, and each of them, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each Registrant and in the capacities and on the dates indicated.

Signature | Title | Date
/S/ MICHAEL J. SCHALL Michael J. Schall | Chief Executive Officer and President, and Director (Principal Executive Officer) | February 24, 2017
/S/ KEITH R. GUERICKE Keith R. Guericke | Director, and Vice Chairman of the Board | February 24, 2017
/S/ GEORGE M. MARCUS George M. Marcus | Director and Chairman of the Board | February 24, 2017
/S/ IRVING F. LYONS, III Irving F. Lyons, III | Director | February 24, 2017
/S/ GARY P. MARTIN Gary P. Martin | Director | February 24, 2017
/S/ ISSIE N. RABINOVITCH Issie N. Rabinovitch | Director | February 24, 2017
/S/ THOMAS E. ROBINSON Thomas E. Robinson | Director | February 24, 2017
/S/ BYRON A. SCORDELIS Byron A. Scordelis | Director | February 24, 2017
/S/ JANICE L. SEARS Janice L. Sears | Director | February 24, 2017

S-1

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EXHIBIT INDEX

Exhibit No. | Document
3.1 | Articles of Amendment and Restatement of Essex Property Trust, Inc., attached as Exhibit 3.2 to the Company's Current Report on Form 8-K, filed May 23, 2016, and incorporated herein by reference.
3.2 | Fifth Amended and Restated Bylaws of Essex Property Trust, Inc. (as of May 17, 2016), attached as Exhibit 3.3 to the Company's Current Report on Form 8-K, filed May 23, 2016, and incorporated herein by reference.
3.3 | Certificate of Limited Partnership of Essex Portfolio, L.P. and amendments thereto, attached as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013, and incorporated herein by reference.
4.1 | Indenture, dated August 15, 2012, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.625% Senior Notes due 2022 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed August 15, 2012, and incorporated herein by reference.
4.2 | Indenture, dated April 15, 2013, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.25% Senior Notes due 2023 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed April 15, 2013, and incorporated herein by reference.
4.3 | Form of Common Stock Certificate of Essex Property Trust, Inc., filed as Exhibit 4.5 to the Company's Form S-4 Registration Statement, filed January 29, 2014, and incorporated herein by reference.
4.4 | Indenture governing 5.500% Senior Notes due 2017, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 5.500% Senior Notes due 2017, attached as Exhibit 4.1 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
4.5 | Indenture governing 5.200% Senior Notes due 2021, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 5.200% Senior Notes due 2021, attached as Exhibit 4.2 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
4.6 | Indenture governing 3.375% Senior Notes due 2023, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 3.375% Senior Notes due 2023, attached as Exhibit 4.3 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
4.7 | Indenture, dated April 15, 2014, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.875% Senior Notes due 2024 and the guarantee thereof, attached as Exhibit 4.1 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 16, 2014, and incorporated herein by reference.
4.8 | Indenture, dated March 17, 2015, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.500% Senior Notes due 2025 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed March 17, 2015, and incorporated herein by reference.
4.9 | Indenture, dated April 11, 2016, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of the 3.375% Senior Notes due 2026 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed April 11, 2016, and incorporated herein by reference.
10.1 | Agreement between Essex Property Trust, Inc. and George M. Marcus, dated March 27, 2003 attached as Exhibit 10.32 to the Company's Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
10.2 | Essex Property Trust, Inc. 2004 Stock Incentive Plan, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference.*
10.3 | 2005 Deferred Compensation Plan (as amended and restated) of Essex Portfolio, L.P., dated as of December 2, 2008, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 8, 2008, and incorporated herein by reference.*
10.4 | Form of Indemnification Agreement between Essex Property Trust, Inc. and its directors and officers, attached as Exhibit 99.1 to the Company's Current Report on Form 8-K, filed February 25, 2011, and incorporated herein by reference.*

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10.5 | Note Purchase Agreement, dated as of June 30, 2011, among Essex Portfolio, L.P., Essex Property Trust, Inc. and the purchasers of the notes party thereto (including the forms of the 4.50% Senior Guaranteed Notes, Series A, due September 30, 2017, and the 4.92% Senior Guaranteed Notes, Series B, due December 30, 2019), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed July 5, 2011, and incorporated herein by reference. †
10.6 | Amended and Restated Revolving Credit Agreement, dated as of September 16, 2011, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer, and other lenders as specified therein, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference.
10.7 | Note Purchase Agreement, dated as of March 14, 2012, among Essex Portfolio, L.P., the Company and the purchasers of the notes party thereto (including the forms of the 4.27% Senior Guaranteed Notes, Series C, due April 30, 2021, the 4.30% Senior Guaranteed Notes, Series D, due June 29, 2021, and the 4.37% Senior Guaranteed Notes, Series E, due August 30, 2021), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on March 20, 2012, and incorporated herein by reference. †
10.8 | First Amendment to Amended and Restated Revolving Credit Agreement, dated May 31, 2012, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer, and the other lenders party thereto, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference.
10.9 | Modification Agreement, dated July 30, 2012, attached as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference.
10.10 | Amendment to Agreement, dated as of September 11, 2012, between the Company and George Marcus, attached as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, and incorporated herein by reference.
10.11 | Essex Property Trust, Inc. Executive Severance Plan (as Amended and Restated effective March 12, 2013), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 18, 2013, and incorporated herein by reference.*
10.12 | Second Amendment to Amended and Restated Revolving Credit Agreement, dated August 30, 2012, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer, and the other lenders party thereto, attached as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.
10.13 | Third Amendment to Amended and Restated Revolving Credit Agreement, dated January 22, 2013, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer, and the other lenders party thereto, attached as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.
10.14 | Essex Property Trust, Inc. 2013 Stock Award and Incentive Compensation Plan, attached as Appendix B to the Company's Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Stockholders held May 14, 2013, filed April 1, 2013, and incorporated herein by reference.*
10.15 | Essex Property Trust, Inc. 2013 Employee Stock Purchase Plan, attached as Appendix C to the Company's Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Stockholders held May 14, 2013, filed April 1, 2013, and incorporated herein by reference.*
10.16 | Forms of equity award agreements for officers under the 2013 Stock Award and Incentive Compensation Plan, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference.*
10.17 | Amended and Restated Non-Employee Director Equity Award Program, dated May 17, 2016, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed May 23, 2016, and incorporated herein by reference.*
10.18 | Third Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of December 10, 2013, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 12, 2013, and incorporated herein by reference.*
10.19 | Fourth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 29, 2014, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and the other lenders party thereto, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed January 31, 2014, and incorporated herein by reference.

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10.20 | Third Modification Agreement, dated as of January 29, 2014 by and among Essex Portfolio, L.P., U.S. Bank National Association, as Administrative Agent and Lender and the other lenders party thereto, attached as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed January 31, 2014, and incorporated herein by reference.
10.21 | BRE Properties, Inc. 1999 Stock Incentive Plan (assumed by Essex Property Trust, Inc.), attached as Exhibit 99.1 to Essex Property Trust, Inc.'s Registration Statement on Form S-8, filed April 1, 2014, and incorporated herein by reference.*
10.22 | BRE Properties, Inc. Fifth Amended and Restated Non-Employee Stock Option and Restricted Stock Plan (assumed by Essex Property Trust, Inc.), attached as Exhibit 99.2 to Essex Property Trust, Inc.'s Registration Statement on Form S-8, filed April 1, 2014, and incorporated herein by reference.*
10.23 | Form of Equity Distribution Agreement between Essex Property Trust, Inc. and various entities, dated March 8, 2016, attached as Exhibit 10.1 to the Company's Current Report of From 8-K, filed on March 9, 2016, and incorporated herein by reference.
10.24 | Fifth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 22, 2015, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto, attached as Exhibit 10.27 to the Company's Annual Report on Form 10-K, filed March 2, 2015, and incorporated herein by reference.
10.25 | Forms of Essex Property Trust, Inc., Essex Portfolio L.P., Long-Term Incentive Plan Award Agreements, attached as Exhibit 10.28 to the Company's Annual Report on Form 10-K, filed March 2, 2015, and incorporated herein by reference.*
10.26 | Terms Agreement dated as of May 20, 2015, among Essex Property Trust, Inc. and Citigroup Global Markets Inc., attached as Exhibit 1.1 to the Company's Current Report on Form 8-K, filed on May 26, 2015, and incorporated herein by reference.
10.27 | Sixth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 19, 2016, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto, attached as Exhibit 10.30 to the Company's Annual Report on Form 10-K, filed on February 26, 2016 and incorporated herein by reference.
10.28 | Seventh Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 24, 2017, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto.
12.1 | Schedule of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
21.1 | List of Subsidiaries of Essex Property Trust, Inc. and Essex Portfolio, L.P.
23.1 | Consent of KPMG LLP, Independent Registered Public Accounting Firm.
23.2 | Consent of KPMG LLP, Independent Registered Public Accounting Firm.
24.1 | Power of Attorney (see signature page)
31.1 | Certification of Michael J. Schall, Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 | Certification of Angela L. Kleiman, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3 | Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4 | Certification of Angela L. Kleiman, Principal Financial Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 | Certification of Michael J. Schall, Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 | Certification of Angela L. Kleiman, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3 | Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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32.4 | Certification of Angela L. Kleiman, Principal Financial Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS | XBRL Instance Document
101.SCH | XBRL Taxonomy Extension Schema Document
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB | XBRL Taxonomy Extension Label Linkbase Document
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract or compensatory plan or arrangement.
† The schedules and certain exhibits to this agreement, as set forth in the agreement, have not been filed herewith. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.