<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 333-44467-01
ESSEX PORTFOLIO, L.P.
(Exact name of Registrant as specified in its Charter)
Maryland 77-0369575
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
925 E. Meadow Drive, Palo Alto, California 94303
(Address of principal executive offices)
(Zip code)
(650) 494-3700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or for such shorter period that the
Registrant was required to file such report, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited) 3
Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997 4
Consolidated Statements of Operations
for the three months ended September 30, 1998 and 1997 5
Consolidated Statements of Operations
for the nine months ended September 30, 1998 and 1997 6
Consolidated Statements of Partners' Capital
for the nine months ended September 30, 1998 and the year
ended December 31, 1997 7
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997 8
Notes to Consolidated Financial Statements 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
Page 2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Essex Portfolio, L.P., a California limited partnership, (the
"Operating Partnership") effectively holds the assets and
liabilities and conducts the operating activities of Essex Property
Trust, Inc., ("Essex" or "The Company"). Essex Property Trust, Inc.,
a real estate investment trust incorporated in the State of
Maryland, is the sole general partner of the Operating Partnership.
The information furnished in the accompanying consolidated unaudited
balance sheets, statements of operations, partners' capital and cash
flows of the Operating Partnership reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation
of the aforementioned financial statements for the interim periods.
The accompanying unaudited financial statements should be read in
conjunction with the notes to such financial statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Page 3
<PAGE> 4
ESSEX PORTFOLIO, L.P.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------ ------------- ------------
<S> <C> <C>
Real estate:
Rental properties:
Land and land improvements $ 219,013 $ 182,416
Buildings and improvements 663,457 548,571
--------- ---------
882,470 730,987
Less accumulated depreciation (71,734) (58,040)
--------- ---------
810,736 672,947
Investments 9,848 2,347
Real estate under development 45,028 27,422
--------- ---------
865,612 702,716
Cash and cash equivalents-unrestricted 3,071 4,282
Restricted cash 15,205 6,093
Notes and other related party receivables 9,864 9,264
Notes and other receivables 10,770 8,602
Prepaid expenses and other assets 10,402 3,838
Deferred charges, net 5,310 4,040
--------- ---------
$ 920,234 $ 738,835
========= =========
Liabilities and Partners' Capital
Mortgage notes payable $ 297,508 $ 248,997
Lines of credit 63,000 27,600
Accounts payable and accrued liabilities 37,648 21,337
Distributions payable 10,913 9,189
Deferred gain 5,002 --
Other liabilities 5,316 4,208
--------- ---------
Total liabilities 419,387 311,331
Minority interests 2,980 3,102
Partners' capital:
General Partner:
Common equity 357,230 361,410
Preferred equity 37,505 37,505
--------- ---------
394,735 398,915
Limited Partners:
Common equity 25,357 25,487
Preferred equity 77,775 --
--------- ---------
Total partners' capital 497,867 424,402
--------- ---------
Total liabilities and partners' capital $ 920,234 $ 738,835
========= =========
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
Page 4
<PAGE> 5
ESSEX PORTFOLIO, L.P.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Rental $ 31,068 $ 20,887
Interest and other income 1,583 1,088
------------ ------------
32,651 21,975
------------ ------------
Expenses:
Property operating expenses:
Maintenance and repairs 1,858 1,678
Real estate taxes 2,349 1,571
Utilities 2,023 1,369
Administrative 2,888 1,493
Advertising 342 309
Insurance 224 224
Depreciation and amortization 5,575 3,555
------------ ------------
15,259 10,199
Interest 5,245 3,118
Amortization of deferred financing costs 212 128
General and administrative 1,007 631
Provision for litigation loss 930 --
============ ============
Total expenses 22,653 14,076
------------ ------------
Income before gain on sale of
real estate, minority interests
and extraordinary item 9,998 7,899
Gain on sales of real estate 9 4,713
------------ ------------
Income before minority interests
and extraordinary item 10,007 12,612
Minority interests (105) (127)
------------ ------------
Income before extraordinary item 9,902 12,485
Extraordinary item:
Loss on early extinguishment
of debt (806) --
------------ ------------
Net income 9,096 12,485
Distributions on preferred units (2,450) (875)
------------ ------------
Net income available to
common units $ 6,646 $ 11,610
============ ============
Per Operating Partnership Unit data:
Basic:
Income before extraordinary item $ 0.40 $ 0.74
Extraordinary item - debt extinguishment (0.04) 0.00
------------ ------------
Net income $ 0.36 $ 0.74
============ ============
Weighted average number of
partnership units outstanding
during the period 18,508,701 15,789,263
============ ============
Diluted:
Income before extraordinary item $ 0.40 $ 0.70
Extraordinary item - debt extinguishment (0.04) 0.00
------------ ------------
Net income $ 0.36 $ 0.70
============ ============
Weighted average number of
partnership units outstanding
during the period 18,694,894 17,835,400
============ ============
Distributions per Operating
Partnership Unit: $ 0.500 $ 0.450
============ ============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
Page 5
<PAGE> 6
ESSEX PORTFOLIO, L.P.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- ------------
<S> <C> <C>
Revenues:
Rental $ 87,871 $ 56,596
Interest and other income 4,300 3,510
------------ ------------
92,171 60,106
------------ ------------
Expenses:
Property operating expenses
Maintenance and repairs 6,585 4,765
Real estate taxes 6,767 4,473
Utilities 5,631 3,649
Administrative 7,022 3,845
Advertising 1,190 861
Insurance 859 688
Depreciation and amortization 15,876 9,863
------------ ------------
43,930 28,144
Interest 14,259 9,348
Amortization of deferred
financing costs 553 383
General and administrative 2,841 1,682
Provision for litigation loss 930 --
============ ============
Total expenses 62,513 39,557
============ ============
Income before gain on sales
of real estate, minority
interests and extraordinary item 29,658 20,549
Gain on sales of real estate 9 5,127
------------ ------------
Income before minority interests and
extraordinary item 29,667 25,676
Minority interests (334) (325)
------------ ------------
Income before extraordinary item 29,333 25,351
Extraordinary item:
Loss on early extinguishment of debt (806) (104)
------------ ------------
Net income 28,527 25,247
Distributions on preferred units (6,414) (1,805)
------------ ------------
Net income available to common unit $ 22,113 $ 23,442
============ ============
Per Operating Partnership Unit data:
Basic:
Income before extraordinary item $ 1.24 $ 1.58
Extraordinary item - debt extinguishment (0.04) (0.01)
------------ ------------
Net income $ 1.20 $ 1.57
============ ============
Weighted average number of
partnership units outstanding
during the period 18,502,194 14,885,921
============ ============
Diluted:
Income before extraordinary item $ 1.22 $ 1.55
Extraordinary item - debt extinguishment (0.04) (0.01)
------------ ------------
Net income $ 1.18 $ 1.54
============ ============
Weighted average number of
partnership units outstanding
during the period 18,688,353 16,347,497
============ ============
Distributions per Operating
Partnership Unit: $ 1.450 $ 1.320
============ ============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
Page 6
<PAGE> 7
ESSEX PORTFOLIO, L.P.
Consolidated Statements of Partners' Capital
For the nine months ended September 30, 1998 and the
year ended December 31, 1997
(Unaudited)
(Dollars and units in thousands)
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNERS
--------------------------------- ------------------------------------
PREFERRED PREFERRED
COMMON EQUITY EQUITY COMMON EQUITY EQUITY
------------------- --------- ------------------ ---------
UNITS AMOUNT AMOUNT UNITS AMOUNT AMOUNT TOTAL
------ --------- --------- ----- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 11,592 $ 205,302 $ 17,505 1,855 $ 24,239 $ -- $ 247,046
Contribution-net proceeds
from preferred stock -- -- 20,000 -- -- -- 20,000
Contribution-net proceeds
from common stock 4,995 154,012 -- -- -- -- 154,012
Contribution-net proceeds
from options exercised 28 686 -- -- -- -- 686
Contributions-net proceeds
from partners -- -- -- 18 543 -- 543
Net income -- 26,636 2,681 -- 4,005 -- 33,322
Partners' distributions -- (25,226) (2,681) -- (3,300) -- (31,207)
------ --------- --------- ----- --------- --------- ---------
Balances at December 31, 1997 16,615 361,410 37,505 1,873 25,487 -- 424,402
Contribution-net proceeds
from perpetual preferred units -- -- -- -- -- 77,775 77,775
Contribution-net proceeds
from options exercised 19 383 -- -- -- -- 383
Contribution-net proceeds
from dividend reinvestment plan 2 10 -- -- -- -- 10
Net income -- 19,527 2,625 -- 2,586 3,789 28,527
Partners' distributions -- (24,100) (2,625) -- (2,716) (3,789) (33,230)
------ --------- --------- ----- --------- --------- ---------
Balances at September 30, 1998 16,636 $ 357,230 $ 37,505 1,873 $ 25,357 $ 77,775 $ 497,867
====== ========= ========= ===== ========= ========= =========
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
Page 7
<PAGE> 8
ESSEX PORTFOLIO, L.P.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 48,725 $ 30,839
--------- ---------
Cash flows from investing activities:
Additions to rental properties (152,660) (122,667)
Additions to restricted cash (9,112) (1,468)
Dispositions of rental properties 26,354 15,470
Additions to notes receivable (438) (785)
Additions to real estate under development (24,018) (22,663)
Investments in corporations and limited partnerships 531 371
--------- ---------
Net cash used in investing activities (159,343) (131,742)
--------- ---------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit 199,347 75,055
Repayment of mortgage and other notes payable
and lines of credit (133,879) (89,471)
Additions to deferred charges (1,823) (413)
Additions to related party notes and other receivables (3,450) (23,277)
Repayment of related party notes and other receivables 2,850 11,576
Decrease in offering related accounts payable (282) (789)
Net proceeds from convertible preferred stock sale -- 20,000
Net proceeds from follow-on offerings -- 104,119
Net proceeds from perpetual preferred units sale 77,775 --
Contributions from stock options exercised and
dividend reinvestment plan - general partner 393 338
Distributions to limited partners and minority interest (5,624) (2,785)
Distributions to general partners (25,900) (17,374)
--------- ---------
Net cash provided by financing activities 109,407 76,979
--------- ---------
Net (decrease) increase in cash and cash equivalents (1,211) (23,924)
Cash and cash equivalents at beginning of period 4,282 42,705
--------- ---------
Cash and cash equivalents at end of period $ 3,071 $ 18,781
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of $2,575
and $1,276 capitalized $ 10,917 $ 8,741
========= =========
Supplemental disclosure of non-cash investing and financing activities:
Mortgage notes payable assumed in connection
with purchase of real estate $ 18,443 $ 49,137
========= =========
Distributions payable $ 10,913 $ 8,509
========= =========
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
Page 8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Essex Portfolio, L.P. (the "Operating Partnership") was formed in March
1994 and commenced operations on June 13, 1994, when Essex Property Trust,
Inc. (the "Company"), the general partner of the Operating Partnership,
completed its initial public offering (the "Offering") in which it issued
6,275,000 shares of common stock at $19.50 per share. The net proceeds
from the Offering of $112,071 were used by the Company to acquire a 77.2%
interest in the Operating Partnership. The Company has elected to be
treated as a real estate investment trust ("REIT") under the Internal
Revenue Code of 1986 (the "Code"), as amended.
The unaudited consolidated financial statements of the Operating
Partnership are prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions to Form 10-Q. In the opinion of management, all adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented have been included and
are normal and recurring in nature.
The Company is the sole general partner in the Operating Partnership,
owning an 89.9%, 89.9% and 89.0% general partnership interest as of
September 30, 1998, December 31, 1997 and September 30, 1997,
respectively.
All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
(2) SIGNIFICANT TRANSACTIONS
(A) Acquisitions
On August 10, 1998, the Operating Partnership acquired Westwood
Apartments, a 116-unit apartment community located in Cupertino,
California, for a contract price of $19,850. The community features a
swimming pool, large private backyards, and convenient freeway access.
This third quarter 1998 acquisition was funded with proceeds from the
disposition of Santa Fe Ridge Apartments and borrowings under the
Operating Partnership's lines of credit.
(B) Dispositions
On August 5, 1998, the Operating Partnership sold Santa Fe Ridge
Apartments located in Silverdale, Washington, for a gross sales price of
$12,000 resulting in a gain of $9. The gain included an estimated $1,000
receivable relating to a defective siding claim based on estimates
provided by a court appointed claims administrator in accordance with a
class action suit arrangement.
(C) Litigation Loss
In September of 1998, the Operating Partnership established a $930
provision for litigation loss relating to employee claims made several
years ago. The provision reduces net income per unit by approximately $.05
and represents a non-recurring charge included in the accompanying
unaudited consolidated statement of operations.
Page 9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)
(D) Debt Related Transactions
On July 28, 1998 the Operating Partnership repaid the Prudential loan
secured by Santa Fe Ridge and originated a new loan with Prudential
secured by Wilshire Promenade. The fixed interest rate on the new loan is
7.0% compared to 8.9% on the repaid loan. A prepayment penalty of
approximately $806 was incurred and is reflected in the accompanying
unaudited consolidated statement of operations as an extraordinary charge
resulting from early extinguishment of debt.
(E) Subsequent Events
On October 9, 1998, the Operating Partnership completed financing for a
$100,000 mortgage loan, bearing interest at a fixed rate of 6.62% per
annum, which matures in October 2008. This mortgage loan is secured by
eight apartment communities. This loan provides for the option to release
the underlying collateral, thereby making the loan unsecured, upon
satisfying several conditions, including the requirement that the
resulting unsecured debt is rated at least BBB- by Standard & Poors and
Baa3 by Moody's Investors Service. A portion of the proceeds were utilized
by the Operating Partnership to repay an existing loan of $47,000 which
had an approximate 7.9% effective rate. The remainder of the proceeds was
utilized by the Operating Partnership to pay down outstanding balances
under its line of credit. In connection with this refinancing, the
Operating Partnership has incurred an approximate extraordinary loss of
$3,900 relating to prepayment penalties and the write-off of unamortized
loan costs which will be reflected as an extraordinary item in the
Operating Partnership's financial statements for the year ending December
31, 1998.
(3) RELATED PARTY TRANSACTIONS
All general and administrative expenses of the Company, the Operating
Partnership, and Essex Management Corporation ("EMC") are initially borne
by the Operating Partnership, with a portion subsequently allocated to
EMC. Expenses allocated to EMC for the three and nine months ended
September 30, 1998 totaled $37 and $174, respectively, and are reflected
as a reduction in general and administrative expenses in the accompanying
consolidated statements of operations.
Rental income in the accompanying consolidated statements of operations
includes related party rents earned from space leased to The Marcus &
Millichap Company ("M&M"), including operating expense reimbursement, of
$133 and $563 for the three and nine months ended September 30, 1998,
respectively, and $175 and $518 for the three and nine months ended
September 30, 1997, respectively.
Other income for the three and nine months ended September 30, 1998
includes interest income of $249 and $784, respectively, earned
principally under notes receivable from the partnerships which
collectively own Highridge Apartments, a 255 unit multifamily property
located in Rancho Palos Verde, California ("Highridge"), the partnerships
which collectively own an approximate 30.7% minority interest in Pathways
Apartments, a 296 unit multifamily property located in Long Beach,
California ("Pathways") and from notes receivable from Essex Fidelity I
Corporation. For the three and nine months ended September 30, 1998, the
Operating Partnership earned $0 and $196, respectively, of dividend income
from Essex Sacramento Corporation and Essex Fidelity I Corporation
combined. In addition, the Operating Partnership earned management fee
income of $143 and $348 for the three and nine months ended September 30,
1998, respectively, from Anchor Village, Highridge, Pathways, and the
partnerships which collectively own the three retail shopping centers
located in the Portland, Oregon metropolitan area.
Page 10
<PAGE> 11
\
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)
Notes and other related party receivables as of September 30, 1998 and
December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------
<S> <C> <C>
Notes and other related party receivables:
Note receivable from Highridge Apartments
secured, bearing interest at 9%, due March, 2008 $1,047 $2,750
Notes receivable from Fidelity I, secured,
bearing interest at 12%, due December 1998 1,580 1,580
Note receivable from Fidelity I and JSV, secured,
bearing interest at 9.5%-10%, due 2015 1,026 726
Notes receivable from Highridge Apartments,
non-interest bearing, due on demand 2,784 1,699
Loans to officers, bearing interest at 8%, due April
2006 375 375
Other related party receivables, substantially
due on demand 3,052 2,134
------ ------
$9,864 $9,264
====== ======
</TABLE>
Other related party receivables consist primarily of accrued interest
income on related party notes receivables and loans to officers, advances
and accrued management fees from joint venture partnerships, and
unreimbursed expenses due from EMC.
(4) FORWARD TREASURY CONTRACTS:
In October 1997, the Operating Partnership entered into four forward
treasury contracts for an aggregate notional amount of $60,000, locking
the 10 year treasury rate at between 6.15% - 6.26%. These contracts are to
limit the interest rate exposure on identified future debt financing
requirements relating to the multi-family residential projects under
development and a maturity of an $18,520 fixed rate loan. These contracts
will be settled no later than June 2000. If the contracts were settled as
of October 30, 1998, the Operating Partnership would be obliged to pay
approximately $4,500.
The Operating Partnership has a LIBOR based swap contract for a notional
amount of $12,298, fixing the one month LIBOR rate at 6.14%. This contract
was originally purchased to cover a variable rate loan which was repaid in
March 1997. The Operating Partnership has kept this contract in place to
limit its interest rate exposure on borrowings on its LIBOR based lines of
credit. If this contract were settled as of October 30, 1998, the
Operating Partnership would be obligated to pay approximately $544.
(5) RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the FASB issued Financial Accounting Standard No. 130 (SFAS
130), Reporting Comprehensive Income. SFAS 130 is effective with the
year-end 1998 financial statements; however, the total comprehensive
income is required in the financial statements for interim periods
beginning in 1998. In March 1998, the Emerging Issues Task Force issued
EITF 97-11 Accounting for Internal Costs Related to Real Estate Property
Acquisitions. The Operating Partnership has adopted SFAS 130 and EITF
97-11 for interim periods beginning in 1998. The adoption does not have a
material impact on the Operating Partnership's financial statements.
In June 1997, the FASB issued Financial Accounting Standard No. 131,
Disclosure About Segments of An Enterprise and Related Information. SFAS
131 is effective with the year-end 1998 financial statements. In February
1998, the FASB issued Financial Accounting Standards No. 132, Employees'
Disclosures about Pensions and Other Postretirement Benefits. SFAS 132 is
effective
Page 11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)
with the year-end 1998 Financial Statements. In June 1998, the FASB issued
Financial Accounting Statement No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities. The Operating Partnership
will adopt SFAS 133 for interim periods beginning in 2000, the effective
date of SFAS 133. Management believes that the adoption of these
statements will not have a material impact on the Operating Partnership's
financial statements.
(6) NET INCOME PER UNIT:
Net income per unit in the accompanying consolidated statements of
operations is calculated for the three months ended September 30, 1998 and
1997, respectively, by dividing net income applicable to the Operating
Partnership common units of $6,646 and $11,610 by the weighted average
units outstanding during the period. Net income applicable to the
Operating Partnership units is calculated by deducting preferred
distributions of $2,450 and $875 for the three months ended September 30,
1998 and 1997, respectively, from net income.
Net income per unit in the accompanying consolidated statements of
operations is calculated for the nine months ended September 30, 1998 and
1997, respectively, by dividing net income applicable to the Operating
Partnership common units of $22,113 and $23,442 by the weighted average
units outstanding during the period. Net income applicable to the
Operating Partnership units is calculated by deducting preferred
distributions of $6,414 and $1,805 for the nine months ended September 30,
1998 and 1997, respectively, from net income.
Page 12
<PAGE> 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion is based primarily on the consolidated financial
statements of the Operating Partnership as of September 30, 1998 and 1997 and
for the three and nine months ended September 30, 1998 and 1997.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These 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.
The Operating Partnership holds, directly or indirectly, all of the Company's
interests in the Company's properties and all of the Company's operations
relating to the Company's properties are conducted through the Operating
Partnership. The Company is the sole general partner of the Operating
Partnership and, as of September 30, 1998 and 1997, owned an 89.9% and 89.0%
general partnership interest in the Operating Partnership, respectively.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in the quarterly report on
Form 10-Q which are not historical facts may be considered forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
including statements regarding the Operating Partnership's expectations, hopes,
intentions, beliefs and strategies regarding the future. Forward looking
statements include statements regarding the Operating Partnership's expectation
as to the timing of completion of current development projects, beliefs as to
the adequacy of future cash flows to meet operating requirements, expectations
as to the amount of non-revenue generating capital expenditures for the year
ended December 31, 1998, statements regarding potential acquisitions and
developments, the anticipated performance of existing properties, future
acquisitions and developments, and statements regarding the Operating
Partnership's financing activities. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors including, but not
limited to, that the actual completion of development projects will be subject
to delays, that such development projects will not be completed, that future
cash flows will be inadequate to meet operating requirements, the actual
non-revenue generating capital expenditures will exceed the Operating
Partnership's current expectations, as well as those risks, special
considerations, and other factors discussed under the caption "Other Matters" in
Item 1 of the Company's Annual Report on Form 10-K for the year ended December
31, 1997, and those other risk factors and special considerations set forth in
Essex's and the Operating Partnership's other filings with the Securities and
Exchange Commission (the "SEC") which may cause the actual results, performance
or achievements of the Operating Partnership to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements.
GENERAL BACKGROUND
The Operating Partnership's revenues are generated primarily from multifamily
residential and commercial property operations, which accounted for 97% and 96%
of its revenues for the nine months ended September 30, 1998 and 1997,
respectively. The Operating Partnership's properties (the "Properties") are
located in California, Washington and Oregon. Occupancy levels of the
multifamily residential Properties in these markets have averaged over 95% for
the last five years.
Since the Operating Partnership began operations in June 1994, the Operating
Partnership has acquired ownership interests in 49 multifamily residential
properties, of which 32 are located in California, 16 are located in Washington
and one is located in Oregon. In aggregate, these acquisitions consist of a
total of 9,498 units and had a total capitalized cost of approximately $716.7
million. As part of its active portfolio management strategy, the Operating
Partnership has sold, since its IPO, six multifamily residential properties
(five in Northern California and one in the Pacific Northwest) consisting of a
total of 819 units and six retail shopping centers in the Portland, Oregon
metropolitan area at an aggregate gross sales price of approximately $71.1
million resulting in net aggregate gain recognition of approximately $13.6
million.
Page 13
<PAGE> 14
Average financial occupancy rates (the percentage resulting from dividing actual
rents by total possible rents as determined by valuing occupied units at
contractual rates and vacant units at market rents) of the Operating
Partnership's multifamily properties on a same-property basis decreased to 96.5%
for the three months ended September 30, 1998 from 96.7% for the three months
ended September 30, 1997. The regional breakdown of such financial occupancy for
the three months ended September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Northern California 97.3% 97.7%
Pacific Northwest 95.2% 96.0%
Southern California 96.9% 96.1%
</TABLE>
The Operating Partnership's commercial properties were 100% occupied (based on
square footage) as of September 30, 1998 and September 30, 1997.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 1998 to the Three Months
Ended September 30, 1997.
Total Revenues increased by $10,676,000 or 48.6% to $32,651,000 in the third
quarter of 1998 from $21,975,000 in the third quarter of 1997. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to properties that the Operating Partnership owned for both of the
quarters ended September 30, 1998 and 1997 ("Quarterly Same Store Properties").
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
NUMBER OF DOLLAR PERCENTAGE
PROPERTIES 1998 1997 CHANGE CHANGE
---------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Quarterly Same Store Properties
Rental income:
Northern California 12 $ 9,014 $ 8,285 $ 729 8.8%
Pacific Northwest 12 5,656 5,323 333 6.3
Southern California 9 4,306 4,005 301 7.5
Commercial 1 476 410 66 16.1
--- ------- ------- ------- -----
Total rental income quarterly
same store properties 34 19,452 18,023 1,429 7.9%
=== ------- ------- ------- -----
Other property income 466 318 148 46.5
------- ------- ------- -----
Total revenues quarterly
same store properties 19,918 18,341 1,577 8.6%
Properties Acquired/Disposed of
Subsequent to July 1, 1997
Rental income 11,616 2,864 8,752 305.6%
Other property income 256 56 200 357.1
------- ------- ------- -----
Total revenues properties
acquired/disposed of
subsequent to July 1, 1997 11,872 2,920 8,952 306.6%
Interest and other income 861 714 147 20.6
------- ------- ------- -----
Total revenues $32,651 $21,975 $10,676 48.6%
======= ======= ======= ====
</TABLE>
As set forth in the above table, $8,752,000 of the $10,676,000 increase in total
revenues between the comparable quarters is attributable to properties acquired
or disposed of subsequent to July 1, 1997. During this period, the Operating
Partnership acquired interests in 22 multifamily properties (the "Quarterly
Page 14
<PAGE> 15
Acquisition Properties"), and disposed of two multifamily properties and four
retail shopping centers (the "Quarterly Disposition Properties").
Of the increase in total revenues, $1,429,000 is attributable to increases in
rental income from the Quarterly Same Store Properties. Rental income from the
Quarterly Same Store Properties increased by $1,429,000 or 7.9% to $19,452,000
in the third quarter of 1998 from $18,023,000 in the third quarter of 1997. The
majority of this increase was attributable to the 12 multifamily Quarterly Same
Store Properties located in Northern California, the rental income of which
increased by $729,000 or 8.8% to $9,014,000 in the third quarter of 1998 from
$8,285,000 in the third quarter of 1997. This $729,000 increase is primarily
attributable to rental rate increases as offset by a decrease in financial
occupancy to 97.3% in the third quarter of 1998 from 97.7% in the third quarter
of 1997. The 12 multifamily Quarterly Same Store Properties located in the
Pacific Northwest accounted for the next largest regional component of the
Quarterly Same Store Properties rental income increase. The rental income of
these properties increased by $333,000 or 6.3% to $5,656,000 in the third
quarter of 1998 from $5,323,000 in the third quarter of 1997. The $333,000
increase is attributable to rental rate increases as offset by a decrease in
financial occupancy to 95.2% in the third quarter of 1998 from 96.0% in the
third quarter of 1997. The nine multifamily Quarterly Same Store Properties
located in Southern California also contributed towards the Quarterly Same Store
Properties rental income increase. The rental income of these properties
increased by $301,000 or 7.5% to $4,306,000 in the third quarter of 1998 from
$4,005,000 in the third quarter of 1997. This $301,000 increase is primarily
attributable to rental rate increases and an increase in financial occupancy to
96.9% in the third quarter of 1998 from 96.1% in the third quarter of 1997.
The increase in total revenue also reflected an increase of $148,000 in other
property income from the Quarterly Same Store Properties, an increase of
$200,000 in other property income from the Quarterly Acquisition Properties, and
an increase of $147,000 attributable to interest and other income.
Total Expenses increased by $8,577,000 or approximately 60.9% to $22,653,000 in
the third quarter of 1998 from $14,076,000 in the third quarter of 1997.
Interest expense increased by $2,127,000 or 68.2% to $5,245,000 in the third
quarter of 1998 from $3,118,000 in the third quarter of 1997. Such increase was
primarily due to the net addition of outstanding mortgage debt in connection
with property and investment acquisitions. Property operating expenses,
exclusive of depreciation and amortization, increased by $3,040,000 or 45.8% to
$9,684,000 in the third quarter of 1998 from $6,644,000 in the third quarter of
1997. Of such increase, $3,227,000 was attributable to the Quarterly Acquisition
Properties and the Quarterly Disposition Properties. General and administrative
expenses represents the costs of the Operating Partnership's various acquisition
and administrative departments as well as partnership administration and
non-operating expenses. Such expenses increased by $376,000 in the third quarter
of 1998 from the amount for the third quarter of 1997. This increase is largely
due to additional staffing requirements resulting from the growth of the
Operating Partnership.
Net income decreased by $3,389,000 to $9,096,000 in the third quarter of 1998
from $12,485,000 in the third quarter of 1997. The decrease in net income was
primarily a result of a recorded loss on early debt extinguishment of $806,000
and a provision for litigation loss and related legal costs of $930,000 in the
third quarter of 1998. Furthermore, the Operating Partnership recorded a gain on
sale of real estate of $4,713,000 in the third quarter of 1997. The net effect
of these items were offset by the net contribution of the Quarterly Acquisition
Properties and an increase in net operating income from the Quarterly Same Store
Properties, as offset by a decrease in operating income attributable to the
Quarterly Disposition Properties.
Comparison Of The Nine Months Ended September 30, 1998 To Nine Months Ended
September 30, 1997.
Total Revenues increased by $32,065,000 or 53.3% to $92,171,000 in the first
nine months of 1998 from $60,106,000 in the first nine months of 1997. The
following table sets forth a breakdown of these revenue amounts, including the
revenues attributable to properties that the Operating Partnership owned for
both of the nine months ended September 30, 1998 and 1997 ("Same Store
Properties").
Page 15
<PAGE> 16
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
NUMBER OF ------------------ DOLLAR PERCENTAGE
PROPERTIES 1998 1997 CHANGE CHANGE
---------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Same Store Properties
Rental income:
Northern California 11 $24,580 $22,336 $ 2,244 10.0%
Pacific Northwest 11 15,104 14,244 860 6.0
Southern California 3 6,212 5,912 300 5.1
Commercial 1 1,496 1,222 274 22.4
-- ------- ------- ------- -----
Total rental income
same store properties 26 47,392 43,714 3,678 8.4%
==
Other property income 1,042 781 261 33.4
------- ------- ------- -----
Total revenues same
store properties 48,434 44,495 3,939 8.9%
Properties Acquired/Disposed of
Subsequent to January 1, 1997
Rental Income 40,479 12,882 27,597 214.2%
Other property income 869 287 582 202.8
------- ------- ------- ------
Total revenues properties
acquired/disposed of
subsequent to January 1, 1997 41,348 13,169 28,179 214.0%
Interest and other income 2,389 2,442 (53) (2.2)
------- ------- -------- ------
Total revenues $92,171 $60,106 $32,065 53.3%
======= ======= ======= =====
</TABLE>
As set forth in the above table, $27,597,000 of the $32,065,000 increase in
total revenues between the comparable periods is attributable to properties
acquired or disposed of subsequent to January 1, 1997. During this period, the
Operating Partnership acquired interest in 35 multifamily properties (the
"Acquisition Properties"), and disposed of two multifamily properties and six
retail shopping centers (the "Disposition Properties").
Of the increase in total revenues, $3,678,000 is attributable to increases in
rental income from the Same Store Properties. Rental income from the Same Store
Properties increased by $3,678,000 or 8.4% to $47,392,000 in the first nine
months of 1998 from $43,714,000 in the first nine months of 1997. The majority
of this increase was attributable to the 11 multifamily Same Store Properties
located in Northern California, the rental income of which increased by
$2,244,000 or 10.0% to $24,580,000 in the first nine months of 1998 from
$22,336,000 in the first nine months of 1997. This $2,244,000 increase is
primarily attributable to rental rate increases as offset by a decrease in
financial occupancy to 97.2% in the first nine months of 1998 from 97.5% in the
first nine months of 1997. The 11 multifamily Same Store Properties located in
the Pacific Northwest accounted for the next largest regional component of the
Same Store Properties rental income increase. The rental income of these
properties increased by $860,000 or 6.0% to $15,104,000 in the first nine months
of 1998 from $14,244,000 in the first nine months of 1997. This $860,000
increase is attributable to rental rate increases as offset by a decrease in
financial occupancy to 95.2% in the first nine months of 1998 from 96.7% in the
first nine months of 1997. The three multifamily Same Store Properties located
in Southern California also contributed towards the Same Store Properties rental
income increase. The rental income of these properties increased by $300,000 or
5.1% to $6,212,000 in the first nine months of 1998 from $5,912,000 in the first
nine months of 1997. The $300,000 increase is attributable to rental rate
increases and an increase in financial occupancy to 95.1% in the first nine
months of 1998 from 94.8% in the first nine months of 1997.
The increases in total revenue also reflected an increase of $261,000 in other
property income attributable to the Same Store Properties, an increase of
$582,000 in other income attributable to the Acquisition Properties, and a
decrease of $53,000 in interest and other income.
Total Expenses increased by $22,956,000 or approximately 58.0% to $62,513,000 in
the first nine months of 1998 from $39,557,000 in the first nine months of 1997.
Interest expense increased by $4,911,000 or
Page 16
<PAGE> 17
52.5% to $14,259,000 in the first nine months of 1998 from $9,348,000 in the
first nine months of 1997. Such interest expense increase was primarily due to
the net addition of outstanding mortgage debt in connection with property and
investment acquisitions. Property operating expenses, exclusive of depreciation
and amortization, increased by $9,773,000 or 53.5% to $28,054,000 in the first
nine months of 1998 from $18,281,000 in the first nine months of 1997. Of such
increase, $9,898,000 was attributable to the Acquisition Properties and the
Disposition Properties. General and administrative expenses represents the costs
of the Operating Partnership's various acquisition and administrative
departments as well as partnership administration and non-operating expenses.
Such expenses increased by $1,159,000 in the first nine months of 1998 from the
amount for the first nine months of 1997. This increase is largely due to
additional staffing requirements resulting from the growth of the Operating
Partnership.
Net income increased by $3,280,000 to $28,527,000 in the first nine months of
1998 from $25,247,000 in the first nine months of 1997. The increase in net
income was primarily a result of the net contribution of the Acquisition
Properties and an increase in net operating income from the Same Store
Properties, as offset by a decrease in operating income attributable to the
Disposition Properties. Net income for the first nine months of 1997 also
included a gain on the sales of real estate of $5,127,000 compared to $9,000 for
the first nine months of 1998. Furthermore, net income for the nine months ended
September 30, 1998 included a loss on early debt extinguishment of $806,000
compared to $104,000 for the first nine months of 1997 and a provision for
litigation loss of $930,000 in the first nine months of 1998 and $0 in the first
nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Operating Partnership had $3,071,000 of unrestricted
cash and cash equivalents. The Operating Partnership expects to meet its
short-term liquidity requirements by using its working capital, cash generated
from operations and amounts available under lines of credit. The Operating
Partnership believes that its future net cash flows will be adequate to meet
operating requirements and to provide for payment of dividends by the Company in
accordance with REIT requirements. The Operating Partnership has credit
facilities in the committed amount of approximately $110,000,000. At September
30, 1998 the Operating Partnership had $63,000,000 outstanding on its lines of
credit, with interest rates during the third quarter of 1998 ranging from 6.9%
to 7.3%. The Operating Partnership expects to meet its long-term liquidity
requirements relating to property acquisition and development (beyond the next
12 months) by using working capital, amounts available on lines of credit, net
proceeds from public and private debt and equity issuances, and proceeds from
the disposition of properties that may be sold from time to time. There can,
however, be no assurance that the Operating Partnership will have access to the
debt and equity markets in a timely fashion to meet long-term liquidity
requirements or that future working capital, and borrowings under the lines of
credit will be available, or if available, will be sufficient to meet the
Operating Partnership's requirements or that the Operating Partnership will be
able to dispose of properties in a timely manner and under terms and conditions
that the Operating Partnership deems acceptable.
The Operating Partnership's unrestricted cash balance decreased by $1,211,000
from $4,282,000 as of December 31, 1997 to $3,071,000 as of September 30, 1998.
This decrease was primarily a result of $109,407,000 of net cash provided by
financing activities and $48,725,000 of net cash provided by operating
activities, which were reduced by $159,343,000 of net cash used in investing
activities. Of the $159,343,000 net cash used in investing activities,
$152,660,000 was used to purchase and upgrade rental properties, $24,018,000 was
used to fund real estate under development, and $9,112,000 was used to fund an
increase in the Operating Partnership's restricted cash; these expenditures were
offset by $26,354,000 of proceeds received from the disposition of two
multifamily and three retail properties. The $109,407,000 net cash provided by
financing activities was primarily a result of $199,347,000 of proceeds from
mortgage and other notes payable and lines of credit and $77,775,000 net
proceeds from the Perpetual Preferred Units sales (as discussed below) as offset
by $133,879,000 of repayments of mortgages and other notes payable and lines of
credit, and $31,524,000 of dividends/distributions paid.
As of September 30, 1998, the total amount of the Operating Partnership's
outstanding debt was $360,508,000. Such indebtedness consisted of $213,867,000
in fixed rate debt, $87,821,000 of variable
Page 17
<PAGE> 18
rate debt and $58,820,000 of debt represented by tax exempt variable rate demand
bonds, of which $29,220,000 is capped at a maximum interest rate of 7.2%.
As of September 30, 1998, 35 of the Operating Partnership's Properties were
encumbered by debt. The agreements underlying these encumbrances contain
customary restrictive covenants which the Operating Partnership believes do not
have a material adverse effect on the Operating Partnership's operations. As of
September 30, 1998, the Operating Partnership was in compliance with such
covenants. Also, of the Operating Partnership's 35 Properties encumbered by
debt, 18 were secured by deeds of trust relating solely to those Properties.
With respect to the remaining 17 Properties, three cross collaterized mortgages
were secured by eight Properties, three Properties and three Properties,
respectively, and a separate line of credit was secured by three Properties.
The Operating Partnership expects to incur approximately $300 per weighted
average occupancy unit in non-revenue generating capital expenditures for the
year ended December 31, 1998. These expenditures do not include the improvements
required in connection with the origination of mortgage loans, expenditures for
Acquisition Properties renovations and improvements, which are expected to
generate additional revenue, and renovation expenditures required pursuant to
tax-exempt bond financings. The Operating Partnership 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 or funded during
1998 will not be significantly different than the Operating Partnership's
current expectations.
The Operating Partnership is developing eight multifamily residential projects,
which are anticipated to have an aggregate of approximately 1,578 multifamily
units. The Operating Partnership expects that such projects will be completed
during the next two years (1998 and 1999). Such projects involve certain risks
inherent in real estate development. See "Other Matters - Development
Activities; Risks That Developments Will Be Delayed or Not Completed" in Item 1
of the Company's Annual Report on Form 10-K for the year ended December 31,
1997. As of September 30, 1998, the Operating Partnership is committed to fund
approximately $111,700,000 relating to these projects. The Operating Partnership
expects to fund such commitments with a combination of its working capital,
amounts available on its lines of credit, net proceeds from public and private
equity and debt issuances, and proceeds from the disposition of properties,
which may be sold from time to time.
The Operating Partnership pays quarterly dividends from cash available for
distribution. Until it is distributed, cash available for distribution is
invested by the Operating Partnership primarily in short-term investment grade
securities or is used by the Operating Partnership to reduce balances
outstanding under its lines of credit.
On March 31, 1997, the Company completed the sale of 2,000,000 shares of its
Common Stock to Cohen & Steers at a price of $29.125 per share.
On June 20, 1997, the Company completed the sale of an additional $20,000,000 of
its convertible preferred stock to Tiger/Westbrook.
On September 10, 1997, the Company completed a public offering of 1,495,000
shares of its Common Stock at a net price of $31.00 per share.
On December 8, 1997, the Company completed a public offering of 1,500,000 shares
of its Common Stock at a price of $35.50 per share.
On February 6, 1998, the Operating Partnership sold 1,200,000 units of its
7.875% Series B Cumulative Redeemable Preferred Units ("Perpetual Preferred
Units") to an institutional investor at a price of $50.00 per unit.
On April 20, 1998, The Operating Partnership sold 400,000 units of its Perpetual
Preferred Units at a $50.00 per unit price to the same institutional investor
who purchased the 1,200,000 units in February 1998.
Page 18
<PAGE> 19
The proceeds from these offerings and sales were used primarily to reduce
balances under the Operating Partnership's lines of credit and to fund
acquisitions and development of multifamily properties.
In the second quarter of 1998, the Company and the Operating Partnership filed a
registration statement (the "1998 Shelf Registration Statement") with the
Securities and Exchange Commission (the "SEC") to register $300,000,000 of
equity securities of the Company and $250,000,000 of debt securities of the
Operating Partnership. The 1998 Shelf Registration Statement was declared
effective by the SEC in July 1998. Prior to the filing of the 1998 Shelf
Registration Statement, the Company had approximately $42,000,000 of capacity
remaining on a previously filed registration statement which registered equity
securities of the Company. Thus, combined with the prior shelf registration
statement and the 1998 Shelf Registration Statement, the Company has the
capacity to issue up to $342,000,000 of equity securities and the Operating
Partnership has the capacity to issue up to $250,000,000 of debt securities.
YEAR 2000 COMPLIANCE
The Operating Partnership's State of Readiness. The Operating Partnership
utilizes a number of computer software programs and operating systems across its
entire organization, including applications used in financial business systems
and various administrative functions. To the extent that the Operating
Partnership's software applications contains source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification or replacement of such applications will be necessary. The
Operating Partnership currently believes that its "Year 2000" issues are limited
to information technology ("IT") systems (i.e., software programs and computer
operating systems). There are no non-IT systems (i.e., devices used to control,
monitor or assist the operation of equipment and machinery), the failure of
which would have a material effect on the Operating Partnership's operations.
The Operating Partnership has also completed its assessment of the Year 2000
compliance issues presented by its hardware components.
The Operating Partnership, employing a team made up of internal personnel has
completed its identification of IT systems that are not yet Year 2000 compliant
and has commenced modification or replacement of such systems as necessary. The
Operating Partnership has communicated with third parties with whom it does
significant business, such as financial institutions and vendors to determine
their readiness for Year 2000 compliance. Based on position statements received
by the Operating Partnership, it appears as though the preparation being made by
these third parties with whom the Operating Partnership does significant
business is sufficient regarding Year 2000 compliance. However, no assurance can
be given regarding the cost of their failure to comply. The Operating
Partnership is in the process of developing contingency plans should third
parties with whom the Operating Partnership does significant business fail to
be Year 2000 compliant.
Costs of Addressing the Operating Partnership's Year 2000 issues. Given the
information known at this time about the Operating Partnership's systems that
are non-compliant, coupled with the Operating Partnership's ongoing, normal
course-of-business efforts to upgrade or replace critical systems, as necessary,
management does not expect Year 2000 compliance costs to have any material
adverse impact on the Operating Partnership's liquidity or ongoing results of
operation. The costs of such assessment and remediation will be paid out of the
Operating Partnerships general and administrative expenses.
Risks of the Operating Partnership's Year 2000 issues. In light of the Operating
Partnership's assessment and remediation efforts to date, and the planned,
normal course-of-business upgrades, management believes that any residual Year
2000 risk is limited to non-critical business applications and support hardware.
No assurance can be given, however, that all of the Operating Partnership's
systems will be year 2000 compliant or that compliance will not have a material
adverse effect on the Operating Partnership's future liquidity or results of
operations or ability to service debt.
Page 19
<PAGE> 20
FUNDS FROM OPERATIONS
Industry analysts generally consider funds from operations, ("Funds From
Operations"), an appropriate measure of performance of an equity REIT. The
Company, the sole general partner in the Operating Partnership, has elected to
be treated as a REIT under the Code. Generally, Funds From Operations adjusts
the net income of equity REITs for non-cash charges such as depreciation and
amortization of rental properties and non-recurring gains or losses. Management
generally considers Funds from Operations to be a useful financial performance
measurement of an equity REIT because, together with net income and cash flows,
Funds from Operations provides investors with an additional basis to evaluate
the ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. Funds From Operations does not represent net income
or cash flows from operations as defined by GAAP and is not intended to indicate
whether cash flows will be sufficient to fund cash needs. It should not be
considered as an alternative to net income as an indicator of the REIT's
operating performance or to cash flows as a measure of liquidity. Funds From
Operations does not measure whether cash flow is sufficient to fund all cash
needs including principal amortization, capital improvements and distributions
to shareholders. Funds From Operations also does not represent cash flows
generated from operating, investing or financing activities as defined under
GAAP. Further, Funds from Operations as disclosed by other REITs may not be
comparable to the Operating Partnership's calculation of Funds From Operations.
The following table sets forth the Operating Partnership's calculation of Funds
from Operations for the three and nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ---------------------------------
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------ ------------ ------------ ------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income before gain on the
sale of real estate, minority
interests and extraordinary item $ 9,998,000 $ 7,899,000 $ 29,658,000 $ 20,549,000
Adjustments:
Depreciation & amortization 5,575,000 3,555,000 15,876,000 9,863,000
Adjustment for unconsolidated
joint ventures 365,000 242,000 1,027,000 690,000
Non-recurring items:
provision for litigation loss 930,000 -- 930,000 --
Perpetual preferred distribution
and minority interests(1) (1,754,000) (161,000) (4,353,000) (441,000)
------------ ------------ ------------ ------------
Funds from Operations $ 15,114,000 $ 11,535,000 $ 43,138,000 $ 30,661,000
============ ============ ============ ============
Weighted average number
units outstanding diluted(1) 20,523,466 17,835,400 20,516,925 17,603,384
============ ============ ============ ============
</TABLE>
(1) Includes all outstanding shares of the Company's common stock and assumes
conversion of all outstanding operating partnership interests in the Operating
Partnership and Convertible Preferred Stock into shares of the Company's Common
Stock. Also includes common stock equivalents. Minority interests have been
adjusted to reflect such conversion.
The National Association of Real Estate Investment Trusts ("NAREIT"), a leading
industry trade group, has approved a revised interpretation of Funds from
Operations, which provides, in part, that the amortization of deferred financing
costs is no longer to be added back to net income in the calculation of Funds
from Operations. Consistent with the NAREIT recommendation, the Operating
Partnership has adopted this new definition beginning in 1996.
Page 20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 $100,000,000 Promissory Note between Essex Portfolio, L.P. and Essex
Morgan Funding Corp.
11.1 Statement regarding Computation of Earnings per Unit
12.1 Schedule of Computation of Ratio of Earnings to Fixed Charges
and Preferred Unit Distributions
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
</TABLE>
Page 21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESSEX PORTFOLIO, L.P.
A California Limited Partnership
By: Essex Property Trust, Inc.
Its: General Partner
/s/ Mark J. Mikl
-----------------------------------------
Mark J. Mikl, Controller
(Authorized Officer and
Principal Accounting Officer)
November 13, 1998
-----------------------------------------
Date
Page 22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 $100,000,000 Promissory Note between Essex Portfolio, L.P. and Essex
Morgan Funding Corp.
11.1 Statement regarding Computation of Earnings per Unit
12.1 Schedule of Computation of Ratio of Earnings to Fixed Charges
and Preferred Unit Distributions
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
</TABLE>
Page 23
<PAGE> 1
EXHIBIT 10.1
PROMISSORY NOTE
$100,000,000 New York, New York
October 9, 1998
FOR VALUE RECEIVED, ESSEX PORTFOLIO, L.P., a California limited
partnership, having an office at c/o Essex Property Trust, Inc., 925 East Meadow
Drive, Palo Alto, California 94303-4233 ("BORROWER"), promises to pay to the
order of ESSEX MORGAN FUNDING CORP. ("LENDER") having an address c/o Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036,
or at such other place as may be designated in writing by the holder of this
Note, in legal tender of the United States of America in immediately available
funds, the principal sum of ONE HUNDRED MILLION DOLLARS ($100,000,000) or so
much thereof as shall at any time be outstanding (the "PRINCIPAL AMOUNT"),
together with interest on the Principal Amount to be computed from the date
hereof on the basis of a 360-day year consisting of twelve (12) thirty-day
months, at the rate of Six and Sixty-Two Hundredths percent (6.62%) per annum
(the "INTEREST RATE") (provided, however, for periods of less than one full
calendar month, the interest on the Principal Amount shall be computed on the
basis of actual days elapsed divided by the actual number of days in the year
such period occurs).
1. Certain Definitions. The following capitalized terms used in this
Note shall have meanings defined or referenced below.
"business day" shall mean any day of the year other than (a) a
Saturday or Sunday, (b) a day on which banks located in New York City,
New York are required or are authorized by law to remain closed, or (c)
a day on which the New York Stock Exchange is closed.
"Deed of Trust" or "Deeds of Trust" shall mean individually each
Deed of Trust, Security Agreement, Assignment of Leases and Rents and
Fixture Filing listed on Exhibit "A" annexed hereto and made a part
hereof, and collectively all such documents listed on Exhibit "A"
hereto, as the same may be amended, supplemented or otherwise modified
from time to time.
"Environmental Indemnities" shall mean those certain
Environmental Indemnity Agreements, dated as of the date hereof, made by
the Essex Parties in favor of Lender, as the same may be amended,
supplemented or otherwise modified from time to time.
"EP" shall mean Essex-Palisades Facilitator, a California
limited partnership.
"EPTI" shall mean Essex Property Trust, Inc., a Maryland
corporation.
"ES" shall mean Essex Sunpointe Ltd., a California limited
partnership.
<PAGE> 2
"Essex Parties" shall mean collectively, and jointly and
severally, Borrower, EP and ES.
"Guarantees" shall mean collectively those certain Guarantees,
dated as of the date hereof, made by each of EP and ES in favor of
Lender, as the same may be amended, supplemented or otherwise modified
from time to time.
"Loan Documents" shall have the meaning ascribed to such term in
the Deeds of Trust.
"Property" shall have the meaning ascribed to such term in each
Deed of Trust.
"Obligation" or "Obligations" shall have the meaning ascribed to
such terms in the Deeds of Trust.
"Unsecured Debt Conversion" shall have the meaning ascribed to
such term in the Unsecured Debt Conversion Agreement, dated as of the
date hereof, by and between Borrower and Lender, as the same may be
amended, supplemented or otherwise modified from time to time (the
"Unsecured Debt Conversion Agreement").
To the extent defined terms are used herein which are not
defined herein, such defined terms shall have the meaning ascribed to
such terms in the other Loan Documents.
2. Maturity Date. As used herein, "MATURITY DATE" means the earliest to
occur of (i) October 8, 2008 (the "SCHEDULED MATURITY DATE"), (ii) the date of
the occurrence of any Event of Default under this Note, the Deeds of Trust, the
Guarantees or under any of the other Loan Documents, or (iii) the date of any
other event or occurrence which, pursuant to the terms of this Note, the Deeds
of Trust, the Guarantees or any of the other Loan Documents, causes the
outstanding Principal Amount of this Note to become due and payable.
3. Defaults. This Note is secured by the Deeds of Trust, as the same may
be amended, modified, supplemented, restated, consolidated, spread, split,
extended, replaced or renewed, from time to time, and all of the other Loan
Documents (other than the Environmental Indemnities). The Obligations shall
become immediately due and payable, at the option of Lender, upon the occurrence
of any default in payment under this Note (and the expiration of any applicable
cure period, if any), or any other event which would constitute an Event of
Default under the Deeds of Trust, the Guarantees or any of the other Loan
Documents.
4. Reference. This Note is referred to in, and is entitled to the
benefits of, the Loan Documents. Reference to the Loan Documents is hereby made
for a statement of the rights of Lender and duties and obligations of the Essex
Parties, but neither this reference to the Loan Documents nor any provision
thereof shall affect or impair the absolute and unconditional obligation of
Borrower to pay the Principal Amount, interest and other amounts payable with
respect to this Note when due.
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<PAGE> 3
5. Payments. (a) On the date hereof, Borrower shall pay to Lender an
installment of interest only computed on the Principal Amount at the Interest
Rate for the number of days to elapse from and including the date hereof through
and including October 31, 1998. Borrower shall pay to Lender on December 1, 1998
(the "FIRST MONTHLY PAYMENT DATE") and on the first day of each and every
calendar month thereafter through the third (3rd) anniversary of the First
Monthly Payment Date, a monthly installment of interest due on the Principal
Amount at the Interest Rate in the amount of Five Hundred Fifty-One Thousand Six
Hundred Sixty-Six and 67/100 Dollars ($551,666.67) (such monthly installment
being referred to herein as an "INTEREST ONLY PERIODIC INSTALLMENT"). From and
after the third (3rd) anniversary of the First Monthly Payment Date until the
earlier of the Maturity Date or the Unsecured Debt Conversion, Borrower shall
pay to Lender a monthly installment of interest and principal equal to Six
Hundred Sixty-Three Thousand Two Hundred Thirty-Five and 58/100 Dollars
($663,235.58) ("INTEREST AND PRINCIPAL PERIODIC INSTALLMENTS"), each of which
Interest and Principal Periodic Installments shall be applied first to interest
on the Principal Amount computed at the Interest Rate and then to amortization
of the Principal Amount on the basis of a 27-year amortization schedule (the
Interest Only Periodic Installments and the Interest and Principal Periodic
Installments shall be collectively referred to herein as the "PERIODIC
INSTALLMENTS"). The remaining balance of the Principal Amount, all accrued
interest, and all other portions of the Obligations remaining unpaid on the
Maturity Date shall be due and payable in full on the Maturity Date. In the case
of an Unsecured Debt Conversion, payments on the Loan shall be modified as
described in the Unsecured Debt Conversion Agreement. All payments, whether of
principal, interest or otherwise, due hereunder and under any of the other Loan
Documents shall be paid by wire transfer of immediately available federal funds
to the following account of Lender, unless otherwise directed by Lender in
writing:
Bank of New York
ABA # 021-000-018 BNF: IOC566
Att: P&I Dept/for further credit to
A/C: 188967 - Re: Essex Portfolio
Any wire transfer received by Lender after 1:00 p.m. New York City time
shall be deemed received on the next succeeding business day. If any payment on
this Note becomes due and payable on a day which is not a business day, the due
date thereof shall, unless otherwise provided herein, be extended to the next
succeeding business day.
(b) (i) Each payment received by Lender with respect to this Note
shall be applied: first, to the payment of any Make-Whole Amounts payable to
Lender; second, to the payment of any late charges due and payable hereunder,
under the Deeds of Trust or under any of the other Loan Documents; third, to the
repayment of any amounts advanced by Lender in accordance with the Deeds of
Trust or the other Loan Documents for insurance premiums, taxes, assessments, or
for preservation or protection of the collateral covered by those documents and
to the payment of all costs and expenses incurred by Lender in connection with
the collection of this Note or the Guarantees (including, without limitation,
all reasonable attorneys' fees and expenses); fourth, to the payment of accrued
interest due and payable hereunder; and fifth, to
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<PAGE> 4
reduction of the Principal Amount, or in such other order or proportion as
Lender, in Lender's sole discretion, may determine.
(ii) BORROWER UNDERSTANDS THAT THIS NOTE IS NOT FULLY
SELF-AMORTIZING AND THAT A SUBSTANTIAL BALLOON PAYMENT WILL BE DUE ON THE
MATURITY DATE.
6. Prepayment Rights and Charges.
A. The Principal Amount shall not be prepayable, in whole or in
part. Notwithstanding the foregoing, at any time following the first (1st)
anniversary of the date hereof, Borrower shall have the right to prepay the
entire unpaid Principal Amount evidenced by this Note, in full, but not in part,
with accrued and unpaid interest thereon and all other sums due and owing under
the Deeds of Trust and the other Loan Documents by paying to Lender (x) the then
remaining unpaid Principal Amount and all accrued and unpaid interest thereon
and all other sums then due and owing under this Note, the Deeds of Trust and
the other Loan Documents, plus (y) an amount equal to the Make-Whole Amount
(hereinafter defined). The "MAKE-WHOLE AMOUNT" shall mean an amount, not less
than zero, equal to the amount by which:
(1) the sum of (i) the Present Value (as hereinafter
defined) of each installment of principal and interest which
would have been payable under this Note had this Note not been
prepaid (including, without limitation, each Interest Only
Periodic Installment and each Interest and Principal Periodic
Installment), plus (ii) the Present Value of the portion of the
Principal Amount which would have been due and payable on the
Scheduled Maturity Date had this Note not been prepaid; exceeds
(2) the then outstanding Principal Amount of this Note.
For purposes of the definition of Make-Whole Amount, "PRESENT VALUE" shall be
computed in accordance with generally accepted accounting principles at a
discount rate equal to the Treasury Yield (as hereinafter defined) plus
twenty-five (25) basis points; and the "TREASURY YIELD" shall be determined by
reference to the most recent Federal Reserve Statistical Release H.15 (519) (or
any successor or substitute publication of the Federal Reserve Board) (the
"STATISTICAL RELEASE") that has become publicly available at least two (2)
business days prior to the date fixed for prepayment, and shall be the most
recent weekly average yield to maturity (expressed as a rate per annum) opposite
the caption "Treasury Constant Maturities" for the year corresponding to the
then Remaining Life (as hereinafter defined) of this Note, converted to a
mortgage equivalent yield; provided, however, that if the Remaining Life of this
Note does not correspond directly to any of the "Treasury Constant Maturities"
shown on the Statistical Release, the Treasury Yield shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the most
recent weekly average yield of the two "Treasury Constant Maturities" shown on
the Statistical Release and which are for maturities as close as possible to the
Remaining Life. The "Remaining Life" of this Note shall equal, at the date of
prepayment or acceleration (as the case may be), the number of years obtained by
dividing (x) the Principal Amount of this Note, as of such date, into (y) the
sum of the products obtained by multiplying (A) the amount of each then
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<PAGE> 5
remaining principal payment, including the payment due at the Scheduled Maturity
Date, under this Note by (B) the number of years (calculated to the nearest
one-twelfth) that will elapse between the date of such prepayment or
acceleration and the date on which such payment is to be made (assuming for
purposes of clauses (A) and (B) above that the optional prepayment of this Note
pursuant hereto or any acceleration of maturity of this Note, as applicable, in
respect of which the Make-Whole Amount is then being determined, and any
Unsecured Debt Conversion, had not occurred). The Treasury Yield shall be
computed to the fifth decimal place (one thousandth of a percentage point) and
then rounded to the fourth decimal point (one hundredth of a percentage point).
Any prepayment of this Note permitted hereunder shall be made on not less than
thirty (30) days prior written notice from Borrower to Lender, which notice
shall be irrevocable once given and shall set forth the intended prepayment
date, which shall in all instances coincide with the date a Periodic Installment
shall be due.
B. Borrower hereby acknowledges that Lender would not make the
loan evidenced by this Note without full and complete assurance by Borrower of
its agreement to pay the Periodic Installments as hereinabove provided, and
Borrower's further agreement not to prepay all or any part of the Principal
Amount prior to the Scheduled Maturity Date, except on the terms expressly set
forth in this Note. In consideration of the foregoing, if, as a result of an
Event of Default hereunder, Lender shall declare the Obligations due and
payable, in whole or in part, prior to the Scheduled Maturity Date in accordance
with Lender's rights under this Note, the Guarantees, the Deeds of Trust or any
of the other Loan Documents, then, Borrower shall pay to Lender on the date of
such acceleration, in addition to all other amounts due Lender, an amount equal
to the Make-Whole Amount which would have been due and payable in accordance
with the foregoing provisions of this Note had a voluntary prepayment occurred
on the date of such acceleration. Borrower hereby waives any rights Borrower may
have to prepay the indebtedness evidenced by this Note without charge and agrees
to pay the Make-Whole Amount, if applicable, upon any prepayment, whether
voluntary, pursuant to any such acceleration or otherwise. Borrower hereby
acknowledges that if such acceleration shall result from an Event of Default, it
shall be presumed, for purposes of imposing the Make-Whole Amount only, and
conclusively deemed to be a willful and deliberate attempt by Borrower to avoid
the payment of the Make-Whole Amount or the limitations on prepayment herein
contained and the Make-Whole Amount shall constitute liquidated damages, and not
a penalty, as a reasonable estimate of Lender's loss as a consequence of the
breach of the Borrower's covenant not to prepay the Obligations other than as
specifically permitted herein, the exact amount of which damages would be
impossible to ascertain.
C. Any such Make-Whole Amount (whether voluntary, pursuant to any
acceleration or otherwise) shall constitute a portion of the Obligations
evidenced hereby and secured by the Deeds of Trust, the Guarantees and the other
Loan Documents (other than the Environmental Indemnities). Nothing herein shall
constitute a waiver by Lender of any right it may have to specifically enforce
the terms of repayment of the Obligations set forth herein, in the Deeds of
Trust, the Guarantees and in the other Loan Documents. The foregoing provisions
shall be deemed to apply, without limitation, to any prepayment of the
Obligations in connection with (i) any reinstatement of any or all of the Loan
Documents under any foreclosure proceedings, (ii) any right of redemption, or
(iii) the consummation of any foreclosure sale, whether or not such
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<PAGE> 6
prepayment is made by or on behalf of Borrower or otherwise and whether or not
any such prepayment is made pursuant to rights granted at law or in equity.
D. Notwithstanding anything to the contrary contained in this
Paragraph 6, the Borrower may prepay the loan evidenced by this Note in whole,
but not in part, without paying a Make-Whole Amount if such prepayment is made
subsequent to August 10, 2008. Such prepayment shall be made upon not less than
ten (10) days irrevocable prior written notice to Lender and shall include the
payment of the then outstanding Principal Amount, interest and other amounts due
under the Deeds of Trust, the Guarantees and the other Loan Documents
(including, without limitation, any amounts (e.g., late charges and interest at
the Default Rate) due in connection with or arising from any default which may
then exist under any the Deeds of Trust, the Guarantees or any of the other Loan
Documents).
E. BORROWER HEREBY EXPRESSLY (i) WAIVES ANY RIGHTS IT MAY HAVE
UNDER LAW TO PREPAY THIS NOTE, IN WHOLE OR IN PART, WITHOUT PENALTY, UPON
ACCELERATION OF THE SCHEDULED MATURITY DATE, AND (ii) AGREES THAT IF, FOR ANY
REASON, A PREPAYMENT OF ALL OR ANY PORTION OF THE PRINCIPAL AMOUNT OF THIS NOTE
IS MADE, INCLUDING, WITHOUT LIMITATION, UPON OR FOLLOWING ANY ACCELERATION OF
THE SCHEDULED MATURITY DATE BY LENDER ON ACCOUNT OF ANY DEFAULT BY BORROWER
INCLUDING, WITHOUT LIMITATION, ANY TRANSFER, DISPOSITION, OR FURTHER ENCUMBRANCE
PROHIBITED OR RESTRICTED BY THE DEEDS OF TRUST, THEN BORROWER SHALL BE OBLIGATED
TO PAY CONCURRENTLY WITH SUCH PREPAYMENT THE MAKE-WHOLE AMOUNT SPECIFIED ABOVE.
BY INITIALING THIS PROVISION IN THE SPACE PROVIDED BELOW, BORROWER HEREBY
DECLARES THAT (1) EACH OF THE FACTUAL MATTERS SET FORTH IN THIS PARAGRAPH IS
TRUE AND CORRECT, (2) LENDER'S AGREEMENT TO MAKE THE LOAN EVIDENCED BY THIS NOTE
AT THE INTEREST RATE AND FOR THE TERM SET FORTH IN THIS NOTE CONSTITUTES
ADEQUATE CONSIDERATION FOR THIS WAIVER AND AGREEMENT, AND HAS BEEN GIVEN
INDIVIDUAL WEIGHT BY BORROWER AND LENDER, (3) BORROWER IS A SOPHISTICATED AND
KNOWLEDGEABLE REAL ESTATE INVESTOR WITH COMPETENT AND INDEPENDENT LEGAL COUNSEL
AND (4) BORROWER FULLY UNDERSTANDS THE EFFECT OF THIS WAIVER AND AGREEMENT.
-------------------
BORROWER'S INITIALS
7. Late Charge. In the event that any payment due under this Note or any
of the other Loan Documents shall become overdue for a period of five (5) days
or more, then, in addition to any other amounts due Lender hereunder and
notwithstanding any applicable notice and/or cure period, if any, a late charge
(the "LATE CHARGE") of four cents (.04) for each dollar of the amount so overdue
shall become immediately due to Lender as liquidated damages, and not as a
penalty, as a reasonable estimate of Lender's additional administrative expenses
occasioned by such overdue payment, the exact amount of which would be
impossible to
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<PAGE> 7
ascertain, and such sum shall be part of the Obligations evidenced hereby and
secured by the Deeds of Trust, the Guarantees and the other Loan Documents. Such
Late Charge shall be due and payable with the next payment of a Periodic
Installment, whether or not Lender shall have billed Borrower for such charges,
or upon demand if there shall be no succeeding Periodic Installments due
thereafter. Application of a late charge shall not be construed as a consent by
Lender to an extension of time for any payment, as a waiver of any default that
may be related to such or any other overdue payment or of any other default or
as a waiver of any other right or remedy of Lender hereunder, at law or in
equity. Notwithstanding the foregoing, the Late Charge with respect to any
overdue Periodic Installment (other than any Periodic Installment due on the
Maturity Date) shall not accrue until the second (2nd) day after Lender shall
have given notice (i) by telephone to Keith Guericke, President and CEO of EPTI
at (650) 849-1634 (or his successor), (ii) at Lender's election, by telecopier
to (650) 858-0139, or (iii) otherwise to Keith Guericke, President and CEO (or
his successor) (without the need for any additional copies of notices to others
of the existence of such payment default) (the "LATE CHARGE NOTICE"); provided,
however, that Lender shall not be required to deliver any such Late Charge
Notice in the event that there has been any other such payment default during
the immediately preceding twelve (12) month period or more than three (3) such
payment defaults during the term of this Note.
8. Default Rate Applied Upon Non-Payment. From and after the occurrence
and during the continuation of (a) any monetary default under the Loan Documents
(as well as any monetary Event of Default), and notwithstanding any applicable
notice and/or cure period, if any, and/or (b) any non-monetary Event of Default,
the Principal Amount and all other unpaid Obligations (including, to the extent
permitted by applicable law, any portion thereof which constitutes accrued and
unpaid interest) shall accrue interest at a rate of interest equal to the lesser
of (i) five percent (5%) above the Interest Rate and (ii) the highest lawful
rate of interest per annum allowable under applicable law (such lesser rate of
interest being herein referred to as the "DEFAULT RATE"), whether or not an
action against Borrower shall have been commenced, and if commenced, whether or
not a judgment against Borrower shall have been obtained; it being understood
and agreed that nothing set forth in this Paragraph 8 shall be deemed or
construed to grant Borrower any right to cure an Event of Default or otherwise
increase or expand any notice and/or cure periods (if any) set forth in the Loan
Documents with respect to any default or Event of Default.
9. Set off. Upon the occurrence of any default under the terms of this
Note, the Deeds of Trust, the Guarantees or any of the other Loan Documents,
then, notwithstanding any applicable notice and/or cure period, if any, Lender
is hereby authorized, at any time or from time to time, without notice to
Borrower or to any other person, any such notice being hereby expressly waived,
to immediately set off and appropriate and apply any and all deposits (general
or special) and any other indebtedness at any time held or owing by Lender to or
for the credit or the account of Borrower against and on account of the
Obligations and liabilities of Borrower hereunder.
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<PAGE> 8
10. Miscellaneous.
A. All parties now and hereafter liable with respect to this
Note, whether as borrower, maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentation for payment, demand, notice of nonpayment
or dishonor, protest and notice of protest. No delay or omission on the part of
Lender in exercising any right under this Note, the Deeds of Trust, the
Guarantees or any other Loan Documents shall operate as a waiver of such right
or of any other right of Lender, nor shall any waiver by Lender of any such
right or rights on any one occasion be deemed a bar to exercise or waiver of the
same right or rights on any future occasion.
B. All agreements in this Note and in the other Loan Documents
are expressly limited so that in no contingency or event whatsoever, whether by
reason of advancement or acceleration of maturity of the Obligations, or
otherwise, shall the amount paid or agreed to be paid hereunder or thereunder
for the use, forbearance or detention of money exceed the highest lawful rate
permitted under applicable usury laws. If, from any circumstance whatsoever,
fulfillment of any provision of this Note or any of the Loan Documents, at the
time performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law which a court of competent jurisdiction may
deem applicable hereto, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity and if, from any circumstance
whatsoever, Lender shall ever receive as interest an amount which would exceed
the highest lawful rate, the receipt of such excess shall, at the option of
Lender, be deemed a mistake and such excess shall be rebated to Borrower or held
in trust by Lender for the benefit of Borrower and shall be credited against the
principal amount of the Obligations to which the same may lawfully be credited,
and any portion of such excess not capable of being so credited shall be rebated
to Borrower.
C. Each and every right, remedy and power hereby granted to
Lender or allowed it by law or other agreement shall be cumulative and not
exclusive and may be exercised by Lender from time to time.
D. Borrower agrees to promptly pay all taxes which may be imposed
on this Note or any of the Obligations (other than income or franchise taxes
imposed on Lender). Any such sums shall be added to the amount due under this
Note and be paid herewith.
E. Borrower hereby agrees to pay all costs of collection when
incurred, including, without limitation, attorneys' fees and expenses, whether
or not suit is brought (which costs may be added to the amount due under this
Note and shall be paid promptly upon demand with interest thereon at the Default
Rate) and to perform and comply with each of the terms, covenants and provisions
contained in this Note, the Deeds of Trust, the Guarantees or any of the other
Loan Documents on the part of Borrower to be observed or performed.
F. No release of any security for the Principal Amount due under
this Note, or extension of time for the payment of this Note, or any installment
hereof, and no alteration, amendment or waiver of any provision of this Note,
the Deeds of Trust, the Guarantees or any of the other Loan Documents, shall
release, discharge, modify, change or affect the liability of
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<PAGE> 9
Borrower or any indemnitor or any guarantor under this Note, the Deeds of Trust,
the Guarantees or any of the other Loan Documents.
G. In the event that any provision of this Note or the
application thereof to Borrower shall, to any extent, be invalid or
unenforceable under any applicable statute, regulation, or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform to such statute, regulation or
rule of law, and the remainder of this Note and the application of any such
invalid or unenforceable provision to parties, jurisdictions, or circumstances
other than to whom or to which it shall be held invalid or unenforceable, shall
not be affected thereby nor shall same affect the validity or enforceability of
any other provision of this Note.
H. The headings in this Note are for the convenience of reference
only, are not to be considered a part hereof and shall not limit or otherwise
affect any of the terms hereof.
I. THIS NOTE IS MADE AND DELIVERED IN NEW YORK, NEW YORK AND
SHALL BE GOVERNED BY, AND CONSTRUED ACCORDING TO, THE LAWS OF THE STATE OF NEW
YORK. BORROWER HEREBY IRREVOCABLY: (A) SUBMITS IN ANY LEGAL PROCEEDING RELATING
TO THIS NOTE TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF ANY STATE OR
UNITED STATES COURT OF COMPETENT JURISDICTION SITTING IN THE CITY AND STATE OF
NEW YORK AND AGREES TO SUIT BEING BROUGHT IN SUCH COURTS, AS LENDER MAY ELECT;
(B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF SUCH
PROCEEDING IN ANY SUCH COURT OR THAT SUCH PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT; (C) AGREES TO SERVICE OF PROCESS IN ANY LEGAL PROCEEDING BY
MAILING OF COPIES THEREOF (BY REGISTERED OR CERTIFIED MAIL) POSTAGE PREPAID TO
ITS ADDRESS SET FORTH ABOVE OR SUCH OTHER ADDRESS OF WHICH LENDER SHALL HAVE
BEEN NOTIFIED IN WRITING; AND (D) AGREES THAT NOTHING HEREIN SHALL AFFECT
LENDER'S RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW, AND THAT LENDER SHALL HAVE THE RIGHT TO BRING ANY LEGAL PROCEEDINGS
(INCLUDING A PROCEEDING FOR ENFORCEMENT OF A JUDGMENT ENTERED BY ANY OF THE
AFOREMENTIONED COURTS) AGAINST BORROWER IN ANY OTHER COURT OR JURISDICTION IN
ACCORDANCE WITH APPLICABLE LAW. BORROWER AFTER CONSULTING OR HAVING HAD THE
OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION BROUGHT WITH
RESPECT TO ANY OF THE LOAN DOCUMENTS OR RELATED INSTRUMENT OR AGREEMENT OR ANY
OF THE TRANSACTIONS CONTEMPLATED BY THIS NOTE OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY TO THIS NOTE, THE
DEEDS OF TRUST, THE GUARANTEES OR ANY OF THE OTHER LOAN DOCUMENTS. BORROWER
SHALL NOT SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN
WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL
CANNOT BE
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<PAGE> 10
OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY LENDER EXCEPT BY A WRITTEN INSTRUMENT
EXECUTED BY LENDER.
J. This Note cannot be altered, amended, modified, terminated or
discharged, except in a writing signed by the party against whom enforcement of
such alteration, amendment, modification, termination or discharge is sought. No
waiver, release or other forbearance by Lender will be effective against Lender
and no waiver, release or other forbearance by Borrower will be effective
against Borrower unless it is in a writing signed by Lender or Borrower, as
applicable, and then only to the extent expressly stated. It is expressly
understood and agreed that neither this Note nor any of the other Loan Documents
can be modified orally and no oral modifications or other agreements with
respect to this Note or any other Loan Document shall be valid or enforceable.
K. Any notice, demand, consent, approval, direction, agreement or
other communication (any "NOTICE") required or permitted hereunder or under any
other documents in connection herewith shall be in writing and shall be directed
as follows:
If to Borrower:
Essex Portfolio, L.P.
c/o Essex Property Trust, Inc.
925 East Meadow Drive
Palo Alto, California 94303-4233
Attention: Michael Schall
Facsimile: (650) 858-0139
and
Attention: Jordan Ritter, Esq.
Facsimile: (650) 424-1851
If to Lender:
Essex Morgan Funding Corp.
c/o Morgan Guaranty Trust Company of New York
522 Fifth Avenue
New York, New York 10036
Attention: J. Daniel Adkinson
Facsimile: (212) 837-2646
and
Attention: Steven M. Greenspan, Esq.
Facsimile: (212) 837-2933
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<PAGE> 11
and a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue, 48th Floor
New York, New York 10166-0193
Attention: David J. Furman, Esq.
Facsimile: (212) 351-4035
or to such changed address or facsimile number as a party hereto shall designate
to the other party hereto from time to time in writing. Any counsel designated
above or replacement counsel which may be designated respectively by each party
by written notice to the other party hereto is hereby authorized to give notices
hereunder on behalf of its respective client.
Notices shall be (i) personally delivered to the offices set
forth above, in which case they shall be deemed delivered on the date of
delivery or first (1st) business day thereafter if delivered other than on a
business day (or after 5:00 p.m. New York City time) to said offices; (ii) sent
by registered or certified mail, postage prepaid, return receipt requested, in
which case they shall be deemed delivered on the date shown on the receipt
unless delivery is refused or delayed by the addressee in which event they shall
be deemed delivered on the earliest to occur of the first (1st) business day on
or after the date of delivery or the third (3rd) business day after such notice
has been deposited in the U.S. Mail in accordance with the terms hereof; (iii)
sent by a nationally recognized overnight courier, in which case they shall be
deemed delivered on the first (1st) business day on or after the date following
the date such notice was delivered to or picked up by the courier; or (iv) sent
by means of a facsimile transmittal machine, in which case they shall be deemed
delivered at the time and on the date of receipt with receipt thereof confirmed
by telephonic acknowledgment or on the first (1st) business day thereafter if
receipted other than on a business day or after 5:00 p.m. New York City time.
L. Borrower agrees that Lender shall have the right to assign,
sell, participate, "securitize" or otherwise transfer its interest in the
Obligations, this Note, the Deeds of Trust, the Guarantees, the Environmental
Indemnities and the other Loan Documents to (i) an entity wholly-owned by Lender
and/or (ii) any commercial bank, savings and loan association, savings bank,
insurance company, pension fund or other financial institution or any other
person or entity whatsoever, and upon such assignment, sale, participation,
"securitization" or other transfer Lender shall automatically be released from
liability hereunder. Borrower further agrees that Lender may disseminate to any
such actual or potential assignee(s), participant(s) or transferee(s) all
documents and information (including, without limitation, all financial
information) which has been or is hereafter provided to or known to Lender with
respect to: (a) any Property and its operation; (b) any party connected with the
Loan (including, without limitation, any Essex Party, any partner of any Essex
Party or any constituent partner of any of the foregoing, any other guarantor
and any non-borrower Trustor); and/or (c) any lending relationship other than
the Loan which Lender may have with any party connected with the Loan. In
connection with any such assignment, sale, participation, "securitization" or
other transfer, Borrower further agrees that the Note shall be sufficient
evidence of the obligations of Borrower to each assignee, participant or
transferee and upon written request by Lender, Borrower shall consent to such
amendments or
11
<PAGE> 12
modifications to the Loan Documents as may be reasonably required in order to
evidence any such assignment, sale, participation, "securitization" or other
transfer; provided that such amendments or modifications shall not decrease any
of Borrower's rights or increase any of Borrower's obligations hereunder or
under any other Loan Document in any material respect.
M. Time is of the essence for the performance of each and every
covenant of Borrower hereunder. No excuse, delay, act of God, or other reason,
whether or not within the control of Borrower, shall operate to defer, reduce or
waive Borrower's performance of any such payment covenants or obligations.
N. Whenever used in this Note, the singular number shall include
the plural, the plural the singular, and the terms "Borrower" and the "Lender"
shall include their respective successors, assigns, heirs, executors and/or
administrators; provided, however, that except as expressly provided in the Loan
Documents (including, without limitation, the Deeds of Trust), Borrower shall in
no event or under any circumstances have the right, without obtaining the prior
written consent of Lender (which may be granted or withheld in the sole and
absolute discretion of Lender), to assign or transfer its obligations under this
Note, the Guarantees, or the Environmental Indemnities, the Deeds of Trust or
the other Loan Documents, in whole or in part, to any other person, party or
entity.
11. Limited Recourse.
(a) Subject to the further limitations and conditions of this
clause (a) and of clause (b) below, Lender agrees that it will look solely to
each of the Properties and such other collateral, if any, as may now or
hereafter be given to secure the repayment of the Obligations and no other
property or assets of the Essex Parties, or any partner, member, shareholder or
principal of any Essex Party shall be subject to levy, execution or other
enforcement procedure for the satisfaction of the remedies of the Lender or for
any payment required to be made under this Note, the Guarantees or any of the
other Loan Documents or for the performance of any of the covenants or
warranties contained in the Loan Documents; provided that the foregoing
provisions of this Paragraph 11(a) shall not (i) constitute a waiver of the
Obligations secured by the Deeds of Trust, the Guarantees or the other Loan
Documents enforceable in accordance with the terms of this Paragraph 11(a), (ii)
limit the right of the Lender to name any Essex Party and/or the partners,
member, shareholders or principals of any Essex Party, as parties defendant in
any action or suit for judicial or non-judicial foreclosure and sale under any
Deed of Trust or the other Loan Documents so long as no monetary judgment shall
be enforced against any Essex Party, or any partner, member, shareholder or
principal of any Essex Party except to the extent of each of the Properties or
such other collateral as may now or hereafter be given to secure repayment of
the obligations under the Loan Documents, (iii) release or impair this Note, or
the Guarantees, or the lien of the Deeds of Trust or any other Loan Document,
(iv) prevent or in any way hinder Lender from exercising any remedy available to
Lender under this Note, the Guarantees or any of the other Loan Documents or to
name any Essex Party or any person owning an interest in any Essex Party in any
action, suit or proceeding in connection with the exercise of any such remedy,
as long as no judgment in the nature of a deficiency shall be enforced against
any assets of any Essex Party or any person owning an interest in any Essex
12
<PAGE> 13
Party, other than each of the Properties or other collateral, or (v) release or
limit the liability of any Essex Party or affect in any way the validity or
enforceability (in accordance with the terms thereof) of the Environmental
Indemnities or any guaranty or indemnity (if any) given in connection with this
Note or any of the other Loan Documents.
(b) Notwithstanding the foregoing to the contrary, the
obligations under the Loan Documents shall be fully recourse to each of the
Essex Parties (i) in the event that any Essex Party commits waste, fraud or
material misrepresentation, willfully misrepresents any facts in connection with
this Note, the Guarantees, the Environmental Indemnities or any of the other
Loan Documents, misappropriates condemnation or insurance proceeds or rental
payments or other sums attributable to any Property or other collateral, or
fails to pay any real estate taxes and assessments and/or insurance premiums to
the extent there is sufficient net cash flow generated by the Property in
question to pay the same, (ii) with respect to any environmental liability at
any Property pursuant to the terms of the Environmental Indemnities, (iii) if
any Essex Party files any petition or commences any proceeding pursuant to any
reorganization, bankruptcy, insolvency or similar laws or any such petition or
proceeding is filed or commenced against any Essex Party by a third-party or any
Essex Party otherwise becomes the subject of any petition or proceeding pursuant
to any reorganization, bankruptcy, insolvency or similar laws (including,
without limitation, by reason of substantive consolidation with any other
person), and, in any such event, the same is not dismissed (with prejudice)
within sixty (60) days, or (iv) if any Essex Party (or any of its affiliates)
(x) challenges or disputes the validity, enforceability or priority of the liens
and security interests securing payment of amounts owing or payable under the
terms of the Loan Documents, (y) challenges or disputes the Loan Documents as a
whole, or (z) asserts that there fails to exist under the Loan Documents legally
adequate remedies for realization of the principal benefits intended to be
provided thereby (including, without limitation, foreclosure and/or the exercise
of the power of sale under the Loan Documents).
IN WITNESS WHEREOF, Borrower has executed this Note as of the date first
forth above.
ESSEX PORTFOLIO, L.P.
By: Essex Property Trust, Inc.,
as General Partner
By:
--------------------------------------
Name:
Title:
13
<PAGE> 14
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the _____ day of October in the year 1998, before me, the
undersigned, a Notary Public in and for said state, personally appeared
______________________ personally known to me or proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is (are) subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their capacity(ies), and that by his/her/their signature(s) on the
instrument, the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
----------------------------------------
Notary Public
<PAGE> 15
EXHIBIT "A"
Deeds of Trust
1. DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS,
AND FIXTURE FILING, made as of the 9th day of October 1998, by ESSEX PORTFOLIO,
L.P., a California limited partnership, in favor of FIRST AMERICAN TITLE
INSURANCE COMPANY, for the benefit of ESSEX MORGAN FUNDING CORP.
Property Address: Oak Pointe
450 N. Matilda Avenue
Sunnyvale, California*
2. DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS,
AND FIXTURE FILING, made as of the 9th day of October 1998, by ESSEX PORTFOLIO,
L.P., a California limited partnership, in favor of FIRST AMERICAN TITLE
INSURANCE COMPANY, for the benefit of ESSEX MORGAN FUNDING CORP.
Property Address: Summerhill Commons
36626 Cherry Street
Newark, California
3. DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS,
AND FIXTURE FILING, made as of the 9th day of October 1998, by ESSEX PORTFOLIO,
L.P., a California limited partnership, in favor of FIRST AMERICAN TITLE
INSURANCE COMPANY, for the benefit of ESSEX MORGAN FUNDING CORP.
Property Address: Summerhill Park
972 Corte Madera Avenue
Sunnyvale, California
4. DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS,
AND FIXTURE FILING, made as of the 9th day of October 1998, by ESSEX PORTFOLIO,
L.P., a California limited partnership, in favor of FIRST AMERICAN TITLE
INSURANCE COMPANY, for the benefit of ESSEX MORGAN FUNDING CORP.
Property Address: Stevenson Place
4141 Stevenson Boulevard
Fremont, California
- --------
* The property addresses set forth on this Exhibit are for identification
purposes only; each Property may have multiple addresses. For the exact
location of each Property, reference should be made to the legal
description attached to each of the Deeds of Trust.
A-1
<PAGE> 16
5. DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS,
AND FIXTURE FILING, made as of the 9th day of October 1998, by ESSEX PORTFOLIO,
L.P., a California limited partnership, in favor of FIRST AMERICAN TITLE
INSURANCE COMPANY, for the benefit of ESSEX MORGAN FUNDING CORP.
Property Address: Villa Rio Vista
175-225 S. Rio Vista
Anaheim, California
6. DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS,
AND FIXTURE FILING, made as of the 9th day of October 1998, by ESSEX SUNPOINTE
LTD., a California limited partnership, in favor of FIRST AMERICAN TITLE
INSURANCE COMPANY, for the benefit of ESSEX MORGAN FUNDING CORP.
Property Address: Foothill Commons
13800 NE 9th Place
Bellevue, Washington
7. DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS,
AND FIXTURE FILING, made as of the 9th day of October 1998, by ESSEX-PALISADES
FACILITATOR, a California limited partnership, in favor of FIRST AMERICAN TITLE
INSURANCE COMPANY, for the benefit of ESSEX MORGAN FUNDING CORP.
Property Address: The Palisades
13808 NE 12th Place
Bellevue, Washington
8. DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS,
AND FIXTURE FILING, made as of the 9th day of October 1998, by ESSEX SUNPOINTE
LTD., a California limited partnership, in favor of FIRST AMERICAN TITLE
INSURANCE COMPANY, for the benefit of ESSEX MORGAN FUNDING CORP.
Property Address: Woodland Commons
13700 NE 10th Place
Bellevue, Washington
A-2
<PAGE> 1
EXHIBIT 11.1
ESSEX PORTFOLIO, L.P.
STATEMENT OF COMPUTATION OF EARNINGS PER UNIT
(Dollars in thousands except per unit amounts)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------- ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BASIC:
Net income $ 9,096 $ 12,485 $ 28,527 $ 25,247
Less:
Distributions on Preferred Interest for 8.75%
Series 1996A Convertible Preferred Stock (875) (875) (2,625) (1,805)
Distributions on 7.875% Series B Cumulative Redeemable
Preferred Units (1,575) -- (3,789) --
------------ ------------ ------------ ------------
Net income applicable to general and limited partners $ 6,646 $ 11,610 $ 22,113 $ 23,442
============ ============ ============ ============
Weighted average number of units outstanding
during the period 18,508,701 15,789,263 18,502,194 14,885,921
============ ============ ============ ============
Net income per partnership unit $ 0.36 $ 0.74 $ 1.20 $ 1.57
============ ============ ============ ============
DILUTED:
Adjusted units - basic, from above 18,508,701 15,789,263 18,502,194 14,885,921
Additional weighted average units of dilutive stock options
using the average stock price under the treasury stock
method 186,193 217,565 186,159 205,689
Additional weighted average units issuable upon
conversion of 8.75% Convertible Preferred Stock,
Series 1996A(1) - 1,828,572 - 1,255,887
------------ ------------ ------------ ------------
Weighted average number of units outstanding
during the period 18,694,894 17,835,400 18,688,353 16,347,497
============ ============ ============ ============
Net income per partnership unit(2) $ 0.36 $ 0.70 $ 1.18 $ 1.54
============ ============ ============ ============
</TABLE>
- -------------------
(1) In accordance with Statement of Accounting Standards Board No. 128, the
additional weighted average units issuable upon conversion of the 8.75%
Convertible Preferred Stock, Series 1996A is not included for the three
and nine months ended September 30, 1998 as the effect would be
anti-dilutive.
(2) In accordance with Statement of Accounting Standards Board No. 128,
preferred distributions were included in the numerator of net income per
unit for the three and nine months ended September 30, 1997 as the
additional weighted average units issuable upon conversion of the 8.75%
Convertible Preferred Stock, Series 1996A was dilutive.
<PAGE> 1
EXHIBIT 12.1
ESSEX PORTFOLIO, L.P.
SCHEDULE OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED UNIT DISTRIBUTIONS
(In thousands, except ratios)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
EARNINGS:
Income before minority interests and
extraordinary item $29,667 $34,146 $14,970 $14,244
Interest expense 14,259 12,659 11,442 10,928
Amortization of deferred financing costs 553 509 639 1,355
------- ------- ------- -------
TOTAL EARNINGS $44,479 $47,314 $27,051 $26,527
------- ------- ------- -------
FIXED CHARGES:
Interest expense $14,259 $12,659 $11,442 $10,928
Convertible preferred unit distributions 2,625 2,681 635 --
Perpetual preferred unit distributions 3,789 -- -- --
Amortization of deferred financing costs 553 509 639 1,355
Capitalized interest 2,575 1,276 115 92
------- ------- ------- -------
TOTAL FIXED CHARGES AND PREFERRED
UNIT DISTRIBUTIONS $23,801 $17,125 $12,831 $12,375
RATIO OF EARNINGS TO FIXED CHARGES
(EXCLUDING PREFERRED UNIT DISTRIBUTIONS) 2.51X 3.28X 2.22X 2.14X
======= ======= ======= =======
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS 1.83X 2.76X 2.11X 2.14X
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ESSEX
PORTFOLIO, L.P. REPORT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 18,276
<SECURITIES> 0
<RECEIVABLES> 20,634
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,312
<PP&E> 927,498
<DEPRECIATION> 71,734
<TOTAL-ASSETS> 920,234
<CURRENT-LIABILITIES> 53,877
<BONDS> 360,508
0
0
<COMMON> 0
<OTHER-SE> 497,867
<TOTAL-LIABILITY-AND-EQUITY> 920,234
<SALES> 0
<TOTAL-REVENUES> 92,171
<CGS> 0
<TOTAL-COSTS> 43,930
<OTHER-EXPENSES> 3,728
<LOSS-PROVISION> 930
<INTEREST-EXPENSE> 14,259
<INCOME-PRETAX> 29,333
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,333
<DISCONTINUED> 0
<EXTRAORDINARY> 806
<CHANGES> 0
<NET-INCOME> 28,527
<EPS-PRIMARY> 1.20<F1>
<EPS-DILUTED> 1.18
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT PRIMARY MEANS BASIC.
</FN>
</TABLE>
