<PAGE>
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 June 30, 1999
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 PORFOLIO, 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 East 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 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>
TABLE OF CONTENTS
FORM 10-Q
<TABLE>
<CAPTION>
Part I Page No.
--------
<C> <S> <C>
Item 1 Financial Statements (Unaudited) 3
Consolidated Balance Sheets
as of June 30, 1999 and December 31, 1998 4
Consolidated Statements of Operations
for the three months ended June 30, 1999 and 1998 5
Consolidated Statements of Operations
for the six months ended June 30, 1999 and 1998 6
Consolidated Statements of Stockholders' Equity
for the six months ended June 30, 1999
and the year ended December 31, 1998 7
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998 8
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3 Quantitative and Qualitative Disclosure About Market Risk 22
Part II
Item 2 Changes in Securities and Use of Proceeds 24
Item 6 Exhibits and Reports on Form 8-K 24
Signatures 25
</TABLE>
2
<PAGE>
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, stockholders' equity 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.
3
<PAGE>
ESSEX PORTFOLIO, L.P.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1999 1998
------ ------------ ------------
<S> <C> <C>
Real estate:
Rental properties:
Land and land improvements $ 233,060 $ 219,115
Buildings and improvements 716,517 670,849
----------- -----------
949,577 889,964
Less accumulated depreciation (90,030) (77,789)
----------- -----------
859,547 812,175
Investments 11,895 10,590
Real estate under development 93,335 53,213
----------- -----------
964,777 875,978
Cash and cash equivalents-unrestricted 1,795 2,548
Restricted cash 16,601 15,532
Notes and other related party receivables 14,811 10,450
Notes and other receivables 10,414 18,809
Prepaid expenses and other assets 2,726 3,444
Deferred charges, net 5,701 5,035
----------- -----------
$ 1,016,825 $ 931,796
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Mortgage notes payable $ 380,035 $ 325,822
Lines of credit 60,450 35,693
Accounts payable and accrued liabilities 36,181 28,601
Distributions payable 12,346 11,145
Deferred gain 5,002 5,002
Other liabilities 5,773 5,301
----------- -----------
Total liabilities 499,787 411,564
Minority interests 2,598 2,951
Partners' capital:
General Partner:
Common equity 376,642 352,295
Preferred equity 4,327 37,505
----------- -----------
380,969 389,800
Limited Partners:
Common equity 31,321 25,331
Preferred equity 102,150 102,150
----------- -----------
133,471 127,481
----------- -----------
Total partners' capital 514,440 517,281
----------- -----------
Total liabilities and partners' capital $ 1,016,825 $ 931,796
=========== ===========
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
4
<PAGE>
ESSEX PORTFOLIO, L.P.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Three months ended
---------------------------------
June 30, June 30,
1999 1998
------------- ------------
<S> <C> <C>
Revenues:
Rental $ 33,074 $ 30,273
Other property 789 667
------------ ------------
Total property 33,863 30,940
Interest and other 1,035 744
------------ ------------
Total revenues 34,898 31,684
------------ ------------
Expenses:
Property operating expenses
Maintenance and repairs 2,292 2,460
Real estate taxes 2,443 2,231
Utilities 2,013 1,891
Administrative 2,356 2,230
Advertising 492 470
Insurance 221 335
Depreciation and amortization 6,247 5,632
------------ ------------
16,064 15,249
------------ ------------
Interest 5,250 5,217
Amortization of deferred financing costs 138 197
General and administrative 1,111 1,016
------------ ------------
Total expenses 22,563 21,679
------------ ------------
Income before minority interests and
extraordinary item 12,335 10,005
Minority interests (169) (121)
------------ ------------
Income before extraordinary item 12,166 9,884
Extraordinary item:
Loss on early extinguishment of debt (90) --
------------ ------------
Net income 12,076 9,884
Dividends on preferred units-general partner (236) (875)
Dividends on preferred units-limited partner (2,145) (1,492)
------------ ------------
Net income available to common units $ 9,695 $ 7,517
============ ============
Per operating partnership unit data:
Basic:
Income before extraordinary item $ 0.51 $ 0.41
Extraordinary item - debt extinguishment -- --
------------ ------------
Net income $ 0.51 $ 0.41
============ ============
Weighted average number of partnership
units outstanding during the period 19,267,292 18,506,034
============ ============
Diluted:
Income before extraordinary item $ 0.50 $ 0.40
Extraordinary item - debt extinguishment -- --
------------ ------------
Net income $ 0.50 $ 0.40
============ ============
Weighted average number of partnership
units outstanding during the period 19,464,608 18,721,303
============ ============
Distributions per Operating Partnership common unit $ 0.55 $ 0.50
============ ============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
5
<PAGE>
ESSEX PORTFOLIO, L.P.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Six months ended
---------------------------------
June 30, June 30,
1999 1998
-------------- ------------
<S> <C> <C>
Revenues:
Rental $ 64,976 $ 56,803
Other property 1,485 1,189
------------ ------------
Total property 66,461 57,992
Interest and other 2,328 1,528
------------ ------------
Total revenues 68,789 59,520
------------ ------------
Expenses:
Property operating expenses
Maintenance and repairs 4,386 4,728
Real estate taxes 4,960 4,418
Utilities 4,008 3,608
Administrative 5,099 4,133
Advertising 1,001 848
Insurance 443 635
Depreciation and amortization 12,292 10,301
------------ ------------
32,189 28,671
------------ ------------
Interest 10,184 9,014
Amortization of deferred financing costs 268 341
General and administrative 2,122 1,834
------------ ------------
Total expenses 44,763 39,860
------------ ------------
Income before minority interests and
extraordinary item 24,026 19,660
Minority interests (316) (230)
------------ ------------
Income before extraordinary item 23,710 19,430
Extraordinary item:
Loss on early extinguishment of debt (90) --
------------ ------------
Net income 23,620 19,430
Dividends on preferred units-general partner (1,067) (1,750)
Dividends on preferred units-limited partner (4,291) (2,214)
------------ ------------
Net income available to common stockholders $ 18,262 $ 15,466
============ ============
Per operating partnership unit data:
Basic:
Income before extraordinary item $ 0.97 $ 0.84
Extraordinary item - debt extinguishment -- --
------------ ------------
Net income $ 0.97 $ 0.84
============ ============
Weighted average number of partnership
units outstanding during the period 18,939,532 18,498,886
============ ============
Diluted:
Income before extraordinary item $ 0.96 $ 0.83
Extraordinary item - debt extinguishment -- --
------------ ------------
Net income $ 0.96 $ 0.83
============ ============
Weighted average number of partnership
units outstanding during the period 19,107,134 18,726,460
============ ============
Distributions per Operating Partnership common unit $ 1.05 $ 0.95
============ ============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
6
<PAGE>
ESSEX PORTFOLIO, L.P.
Consolidated Statements of Partners' Capital
For the three months ended March 31, 1999 and the
year ended December 31, 1998
(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, 1997 16,615 $ 361,410 $ 37,505 1,873 $ 25,487 $ -- $ 424,402
Contribution-net proceeds
from perpetual preferred
units -- -- -- -- -- 102,150 102,150
Contribution-net proceeds
from options exercised 24 464 -- -- -- -- 464
Contribution-net proceeds
from dividend reinvest-
ment plan 2 10 -- -- -- -- 10
Net income -- 22,829 3,500 -- 3,496 5,595 35,420
Partners' distributions -- (32,418) (3,500) -- (3,652) (5,595) (45,165)
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 1998 16,641 $ 352,295 $ 37,505 1,873 $ 25,331 $ 102,150 $ 517,281
Common units issued from
conversion of Convertible
Preferred Stock 1,618 33,178 (33,178) -- -- -- --
Redemption of limited
partner common units -- -- -- (46) (1,438) -- (1,438)
Common units purchased
by Operating Partnership (257) (6,991) -- -- -- -- (6,991)
Issuance of limited
partner common units -- -- -- 274 7,469 -- 7,469
Contribution-net proceeds
from options exercised 20 362 -- -- -- -- 362
Net income -- 16,262 1,067 -- 2,000 4,291 23,620
Partners' distributions -- (18,464) (1,067) -- (2,041) (4,291) (25,863)
--------- --------- --------- --------- --------- --------- ---------
Balances at June 30, 1999 18,022 $ 376,642 $ 4,327 2,101 $ 31,321 $ 102,150 $ 514,440
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
7
<PAGE>
ESSEX PORTFOLIO, L.P.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
--------------------------
June 30, June 30,
1999 1998
---------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 37,825 $ 28,223
--------- ---------
Cash flows from investing activities:
Additions to real estate (29,557) (126,632)
Increase in restricted cash (1,069) (8,886)
Dispositions of real estate -- 15,842
Additions to related party notes and other receivables (4,361) (2,696)
Repayment of related party notes and other receivables 8,493 1,147
Additions to real estate under development (41,370) (10,987)
Distributions from investments in corporations
and limited partnerships 762 461
--------- ---------
Net cash used in investing activities (67,102) (131,751)
--------- ---------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit 117,650 150,347
Repayment of mortgage and other notes payable
and lines of credit (54,480) (102,848)
Additions to deferred charges (934) (1,882)
Payment of offering related costs (314) (110)
Net proceeds from preferred units sales -- 77,775
Contribution from stock options exercised and shares
issued through dividend reinvestment plan-general partner 362 339
General partner common shares purchased by
limited partners (6,991) --
Distributions to minority interest and limited partners (6,776) (2,806)
Redemption of operating partnership units-limited partner (1,438) --
Distributions to general partner (18,555) (16,596)
--------- ---------
Net cash provided by financing activities 28,524 104,219
--------- ---------
Net decrease (increase) in cash and cash equivalents (753) 691
Cash and cash equivalents at beginning of period 2,548 4,282
--------- ---------
Cash and cash equivalents at end of period $ 1,795 $ 4,973
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of $2,682 and
$1,775 capitalized $ 7,193 $ 8,236
========= =========
Supplemental disclosure of non-cash investing and
Financing activities:
Mortgage notes payable assumed in connection
with purchase of real estate $ 15,800 $ 18,443
========= =========
Contribution of Operating Partnership Units in
connection with the purchase of real estate $ 7,469 $ --
========= =========
Distributions payable $ 12,346 $ 11,799
========= =========
</TABLE>
See accompanying notes to consolidated unaudited financial statements.
8
<PAGE>
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(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. These unaudited consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements included in the Operating Partnership's
annual report on Form 10-K for the year ended December 31, 1998.
The Company is the sole general partner in the Operating Partnership,
owning an 89.6%, 89.9% and 89.9% general partnership interest as of June
30, 1999, December 31, 1998 and June 30, 1998, respectively.
Currently, the Operating Partnership operates and has ownership interests
in 64 multifamily properties (containing 12,974 units) and five
commercial properties (with approximately 290,000 square feet)
(collectively, the "Properties"). The Properties are located in Northern
California (the San Francisco Bay Area), Southern California (Los
Angeles, Ventura, Orange and San Diego counties), and the Pacific
Northwest (the Seattle, Washington and Portland, Oregon metropolitan
areas).
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
(2) Significant Transactions
------------------------
(A) Acquisition Activities
- --- ----------------------
On April 30, 1999, the Operating Partnership purchased Glenbrook and Euclid
Apartments, together a 169-unit apartment community located in Pasadena,
California for an aggregate contract price of $13,600. These communities
feature secure parking garages, controlled security access, and pool areas.
In connection with this transaction, the Operating Partnership obtained a
$4,400, 7.0% fixed rate, secured loan which matures in April 2009. Also,
the Operating Partnership assumed a $2,900, 7.6% fixed rate, secured loan
which matures in July 2007. A portion of the amount paid for the properties
was funded through the issuance of units of limited partnership interest
("Units") in the Operating Partnership. Any time after one year from the
date of issuance of the Units, the holders of the Units can require the
Operating Partnership to redeem the Units for either cash, or at the
Company's option an aggregate of 273,912 shares of the Company's common
stock. This private placement of Units was completed pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act
of 1933, as amended.
On June 4, 1999, the Operating Partnership purchased a leasehold interest
in Fairways Apartments, with a remaining term of 28 years. Fairways
Apartments is a 74-unit apartment community, located in Newport Beach,
California and was purchased for a contract price of $7,500. This
community features vaulted ceilings, two-car garages, spa and pool areas.
On June 11, 1999, the Operating Partnership purchased Columbus and
Loraine Apartments, together a 215-unit apartment community located in
Glendale, California for an aggregate contract price of $21,100. In
connection with this transaction, the Operating Partnership assumed a
$4,500, 7.3%
9
<PAGE>
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
fixed rate, secured loan which matures in December 2007. Also, the
Operating Partnership assumed a $8,400, 7.8% fixed rate, secured loan
which matures in August 2007. These communities feature fitness centers,
pool and spa areas and fireplaces.
These second quarter 1999 acquisitions were funded with the proceeds from
the mortgage loans, assumed loans and Operating Partnership interests as
indicated above, and the Operating Partnership's line of credit.
(B) Development Activities
- --- ----------------------
The Operating Partnership is developing seven multifamily residential
projects, which are anticipated to contain an aggregate of 1,333
multifamily units. As of June 30, 1999, construction is complete on 100%
of the units on two of these development projects. The remaining five
projects are anticipated to be substantially completed by the year ended
December 31, 1999. In connection with these projects, the Operating
Partnership has directly, or in some cases through its joint venture
partners, entered into contractual construction related commitments with
unrelated third parties. As of June 30, 1999, the Operating Partnership
is committed to fund approximately $71,000, representing the estimated
cost to complete these projects.
One project which was previously reported as a development project
achieved stabilized occupancy in the third quarter of 1999. The 245-unit
apartment community, Park Hill @ Issaquah, located in Issaquah,
Washington, is owned by a joint venture in which the Operating
Partnership owns a 45% interest and will receive a 12% preferred return
on the equity it has invested. In addition, the Operating Partnership has
an option to purchase the property five years subsequent to completion.
The community is located amid wooded hillsides and has convenient freeway
access. The community also features spacious units, direct access
garages, and other amenities including a video theatre, pool and spa, and
exercise room. The Operating Partnership's interest in the joint venture
is reported as a component of investments in the accompanying
consolidated balance sheets as of June 30, 1999.
(C) Equity Transactions
- --- -------------------
In the first six months of 1999, WBP I Holding Corp. (formerly known as
Tiger/Westbrook Real Estate Fund, L.P.), and WBP II Holding Corp.
(formerly known as Tiger/Westbrook Real Estate Co-Investment Partnership,
L.P.) (collectively, Tiger/Westbrook) converted 1,415,313 shares of its
ownership in the Company's 8.75% Convertible Preferred Stock, Series
1996A (the "Convertible Preferred Stock") into 1,617,501 shares of Common
Stock. As of June 30, 1999, Tiger Westbrook owned 184,687 shares of
Convertible Preferred Stock.
In March 1999, the Company's Board of Directors authorized the Operating
Partnership to purchase up to 500,000 shares of the Company's Common Stock,
or approximately 3% of the issued and outstanding Common Stock of the
Company, at a total price per share not to exceed $29.00 in the open market
or through negotiated or block transactions. In April 1999, the Operating
Partnership purchased 257,000 shares of the Company's outstanding Common
Stock. The weighted average price paid for the shares was $27.14. The
amount paid for the shares is reflected as a reduction of the issued
general partner common equity in the accompanying consolidated balance
sheets as of June 30, 1999.
(D) Debt Related Transactions
- --- -------------------------
On June 18, 1999, the Operating Partnership replaced its credit enhancement
agreement on $16,000 of its variable rate secured multifamily housing
mortgage revenue bonds. In connection with this transaction, the Operating
Partnership obtained an $7,500, 7.7% fixed rate, secured loan which matures
in June 2009. The Operating Partnership wrote-off $90 of costs related to
the previous credit enhancement agreement which is presented as a loss on
early extinguishment of debt in the accompanying
10
<PAGE>
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
consolidated statements of operations. The effective variable interest rate
of the $16,000 bonds was reduced from 6.9% to 4.8%.
(E) Other- Earthquake Insurance
- --- ---------------------------
On June 13, 1999, the Operating Partnership renewed its earthquake
insurance policy. The insurance coverage is unchanged from the prior year
and provides for an aggregate limit of $40,000, payable upon a covered
loss in excess of a $7,500 self-insured retention amount. The insurance
also provides for a per building deductible of 5% in California and 2% in
Oregon and Washington.
(F) Subsequent Event
- --- ----------------
On July 28, 1999, the Operating Partnership completed the sale of
2,000,000 units of its 9.30% Series D Cumulative Redeemable Preferred
Units to two related institutional investors in a private placement, at a
price of $25.00 per unit. The net proceeds from this sale were
approximately $49,000.
(3) Related Party Transactions
--------------------------
All general and administrative expenses of the Company, the Operating
Partnership and Essex Management Corporation, an unconsolidated preferred
stock subsidiary of the Company ("EMC") are initially borne by the
Operating Partnership, with a portion subsequently allocated to EMC.
Expenses allocated to EMC for the three months ended June 30, 1999 and
1998 totaled $110 and $61, respectively, and $212 and $137 for the six
months ended June 30, 1999 and 1998, respectively. The expenses are
reflected as a reduction in general and administrative expenses in the
accompanying consolidated statements of operations.
Included in rental revenue in the accompanying consolidated statements of
operations are rents earned from space leased to Marcus & Millichap
("M&M"), including operating expense reimbursements of $247 and $229 for
the three months ended June 30, 1999 and 1998, respectively, and $412 and
$430 for the six months ending June 30, 1999 and 1998, respectively.
Other income includes interest income of $86 and $330 for the three
months ended June 30, 1999 and 1998, respectively, and $172 and $535 for
the six months ended June 30, 1999 and 1998, respectively. This interest
income was earned principally on the notes receivable from related party
partnerships in which the Operating Partnership owns an ownership
interest ("Joint Ventures"). Other income also includes management fee
income and investment income earned by the Operating Partnership from its
Joint Ventures of $150 and $100 for the three months ended June 30, 1999
and 1998, respectively and $310 and $205 for the six months ended June
30, 1999 and 1998, respectively. Also included in other income is income
earned from operations of the Operating Partnership's Joint Venture
development projects of $234 and $419 for the three and six months ended
June 30, 1999, respectively. No income was earned from operations of the
Operating Partnership's Joint Venture development projects in 1998.
11
<PAGE>
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
Notes and other related party receivables as of June 30, 1999 and December 31,
1998 consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
Notes receivable from Joint Ventures: 1999 1998
---- ----
<S> <C> <C>
Note receivable from Highridge Apartments
secured, bearing interest at 9.4%, due March 2008 $ 1,047 $ 1,047
Note receivable from Fidelity I, secured,
bearing interest at 8%, due on demand 4,843 1,358
Note receivable from Fidelity I and JSV, secured,
bearing interest at 9.5-10%, due 2015 800 800
Note receivable from Highridge,
non-interest bearing, due on demand 3,199 2,928
Note receivable from Portland Shopping Centers,
non-interest bearing, due on demand 1,209 1,209
Note receivable from Anchor Village,
non-interest bearing, due on demand 1,147 933
Other related party receivables:
Loans to officers, bearing interest at 8%, due April 2006 500 500
Other related party receivables, substantially due on demand 2,066 1,675
------- -------
$14,811 $10,450
======= =======
</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 investees and unreimbursed
expenses due from EMC.
(4) Forward Treasury Contracts:
---------------------------
The Operating Partnership has 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
multifamily development projects 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 June 30, 1999, the Operating Partnership would
be obligated to pay approximately $899.
(5) New Accounting Pronouncements:
------------------------------
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
2001, the effective date of SFAS 133, as amended. Had SFAS 133 been
implemented in 1999, a charge to earnings of $899 relating to treasury
contracts that do not qualify as anticipatory hedges under SFAS 133 would
have been recorded for the six months ended June 30, 1999. Such charge
would be considered a non-recurring item and therefore would not effect the
Operating Partnership's calculation of funds from operations.
(6) Segment Information:
--------------------
The Operating Partnership defines its reportable operating segments as the
three geographical regions in which its multifamily residential properties
are located, Northern California, Southern California, and the Pacific
Northwest. Non-segment property revenues and net operating income included
in the following schedule consists of revenue generated from the Operating
Partnership's commercial properties. Excluded from segment revenues is
interest and other corporate income. Other non-segment assets include
investments, real estate under development, cash, receivables and
12
<PAGE>
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
other assets. The revenues, net operating income, and assets for each of
the reportable operating segments are summarized as follows for the periods
presented.
<TABLE>
<CAPTION>
Three months ended
June 30, 1999 June 30, 1998
----------------- --------------
<S> <C> <C>
Revenues
Northern California $ 11,617 $ 10,509
Southern California 13,301 11,717
Pacific Northwest 8,373 8,096
-------- --------
Total segment revenues 33,291 30,322
Non-segment property revenues 572 618
Interest and other income 1,035 744
-------- --------
Total revenues $ 34,898 $ 31,684
======== ========
Net operating income:
Northern California $ 8,957 $ 7,898
Southern California 9,130 7,626
Pacific Northwest 5,695 5,357
-------- --------
Total segment net operating income 23,782 20,881
Non-segment net operating income 264 442
Interest and other income 1,035 744
Depreciation and amortization (6,247) (5,632)
Interest (5,250) (5,217)
Amortization of deferred financing costs (138) (197)
General and administrative (1,111) (1,016)
-------- --------
Income before minority interests
and extraordinary item $ 12,335 $ 10,005
======== ========
Six months ended
June 30, 1999 June 30, 1998
---------------- -------------
Revenues
Northern California $ 22,905 $ 19,751
Southern California 25,810 20,860
Pacific Northwest 16,489 15,863
-------- --------
Total segment revenues 65,204 56,474
Non-segment property revenues 1,257 1,518
Interest and other income 2,328 1,528
-------- --------
Total revenues $ 68,789 $ 59,520
======== ========
Net operating income:
Northern California $ 17,520 $ 14,726
Southern California 17,462 13,541
Pacific Northwest 11,070 10,282
-------- --------
Total segment net operating income 46,052 38,549
Non-segment net operating income 512 1,073
Interest and other income 2,328 1,528
Depreciation and amortization (12,292) (10,301)
Interest (10,184) (9,014)
Amortization of deferred financing costs (268) (341)
General and administrative (2,122) (1,834)
-------- --------
Income before minority interests
and extraordinary item $ 24,026 $ 19,660
======== ========
</TABLE>
13
<PAGE>
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
(6) Segment Information (continued):
--------------------------------
June 30, 1999 December 31, 1998
------------- -----------------
Assets:
Northern California $ 239,452 $241,676
Southern California 405,763 355,077
Pacific Northwest 196,679 198,761
---------- --------
Total segment net real estate assets 841,894 795,514
Non-segment net real estate assets 17,653 16,661
---------- --------
Net real estate assets 859,547 812,175
Non-segment assets 157,278 119,621
---------- --------
Total assets $1,016,825 $931,796
========== ========
14
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
The following discussion is based primarily on the consolidated unaudited
financial statements of Essex Portfolio, L.P. (the "Operating Partnership") for
the three months ended June 30, 1999 and 1998 and for the six months ended June
30, 1999 and 1998. This information should be read in conjunction with the
accompanying consolidated unaudited 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 Operating Partnership'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 June 30, 1999, December 31, 1998 and June 30, 1998, owned
an 89.6%, 89.9% and 89.9% 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, and to provide
for dividend payments in accordance with REIT requirements and expectations as
to the amount of non-revenue generating capital expenditures for the year ended
December 31, 1999, 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 and/or will be insufficient to provide for dividend
payments in accordance with REIT requirements, that the actual non-revenue
generating capital expenditures will exceed the Operating Partnership's current
expectations, as well as those risks, special considerations, and other factors
discussed under the caption "Other Matters/Risk Factors" in Item 1 of the
Operating Partnership's Annual Report on Form 10-K for the year ended December
31, 1998, and those other risk factors and special considerations set forth in
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 property revenues are generated primarily from
multifamily property operations, which accounted for 98% of its property
revenues for the three months ended June 30, 1999 and 1998 and 98% and 97% of
its property revenues for the six months ended June 30, 1999 and 1998,
respectively. The Operating Partnership's multifamily properties (the
"Properties") are located in Northern California (the San Francisco Bay Area),
Southern California (Los Angeles, Ventura, Orange and San Diego counties) and
the Pacific Northwest (the Seattle, Washington and Portland, Oregon metropolitan
areas). The average occupancy levels of the Operating Partnership's portfolio
has exceeded 95% for the last five years.
Since the Operating Partnership began operations in June 1994, the Operating
Partnership has acquired ownership interests in 54 multifamily residential
properties and its headquarters building. Of the multifamily properties
acquired since the Operating Partnership began operations, 10 are located in
Northern California, 26 are located in Southern California, 17 are located in
the Seattle, Washington metropolitan area and one is located in the Portland,
Oregon metropolitan area. In total, these acquisitions consist of 10,206
multifamily units with total capitalized acquisition costs of approximately
$765.3 million. As part of its active portfolio management strategy, the
Operating Partnership has sold, since it began
15
<PAGE>
operations, six multifamily residential properties (five in Northern California
and one in the Pacific Northwest) consisting of a total of 819 units and
disposed of six retail shopping centers in the Portland, Oregon metropolitan
area at an aggregate gross sales price of approximately $71.1 million resulting
in a total net realized gain of approximately $13.6 million and a deferred gain
of $5.0 million.
The Operating Partnership has committed approximately $162.0 million relating to
seven development projects which are expected to contain an aggregate of 1,333
multifamily units. At June 30, 1999, the Operating Partnership's remaining
commitment to fund the estimated total cost of such projects is approximately
$71.0 million.
Results of Operations
Comparison of the Three Months Ended June 30, 1999 to the Three Months Ended
- ----------------------------------------------------------------------------
June 30, 1998.
- --------------
Average financial occupancy rates of the Operating Partnership's multifamily
Quarterly Same Store Properties (properties owned by the Operating Partnership
for the three months ended June 30, 1999 and 1998) increased to 96.6% for the
three months ended June 30, 1999 from 95.7%, for the three months ended June 30,
1998. "Financial Occupancy" is defined as the percentage resulting from dividing
actual rental income by total possible rental income. Total possible rental
income is determined by valuing occupied units at contractual rents and vacant
units at market rents. The regional breakdown of financial occupancy for the
multifamily Quarterly Same Store Properties for the three months ended June 30,
1999 and 1998 are as follows:
June 30, June 30,
1999 1998
--------- ---------
Northern California 97.5% 97.3%
Southern California 96.5% 95.5%
Pacific Northwest 95.6% 93.8%
The Operating Partnership's commercial properties were 100% occupied (based on
square footage) as of June 30, 1999.
16
<PAGE>
Total Revenues increased by $3,214,000 or 10.1% to $34,898,000 in the second
quarter of 1999 from $31,684,000 in the second quarter of 1998. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to the Quarterly Same Store Properties.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
Number of -------- Dollar Percentage
Properties 1999 1998 Change Change
---------- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues
Property revenues Quarterly Same
Store Properties
Northern California 13 $10,973 $10,509 $ 464 4.4%
Southern California 16 10,513 9,729 784 8.1
Pacific Northwest 18 7,768 7,330 438 6.0
Commercial 2 687 689 (2) (0.3)
-- ------- ------- ----- ---
Total property revenues
Quarterly Same Store
Properties 49 29,941 28,257 1,684 6.0
==
Property revenues properties
acquired/disposed of
subsequent to March 31, 1998 3,922 2,683 1,239 46.2
------- ------- ------ ----
Total property revenues 33,863 30,940 2,923 9.4
------- ------- ------ ----
Interest and other income 1,035 744 291 39.1
------- ------- ------ ----
Total revenues $34,898 $31,684 $3,214 10.1%
======= ======= ====== ====
</TABLE>
As set forth in the above table, $1,239,000 of the $3,214,000 increase in total
revenues is attributable to properties acquired or disposed of subsequent to
March 31, 1998. During this period, the Operating Partnership acquired
interests in eight multifamily properties (the "Acquisition Properties"), and
disposed of one multifamily property (the "Disposition Property").
Of the increase in total revenues, $1,684,000 is attributable to increases in
property revenues from the Quarterly Same Store Properties. Property revenues
from the Quarterly Same Store Properties increased by approximately 6.0% to
$29,941,000 in the second quarter of 1999 from $28,257,000 in the second quarter
of 1998. The majority of this increase was attributable to the 16 multifamily
Quarterly Same Store Properties located in Southern California. The property
revenues of the Quarterly Same Store Properties in Southern California increased
by $784,000 or 8.1% to $10,513,000 in the second quarter of 1999 from $9,729,000
in the second quarter of 1998. This $784,000 increase is primarily attributable
to rental rate increases and the increase in financial occupancy to 96.5% in the
second quarter of 1999 from 95.5% in the second quarter of 1998. The 13
Quarterly Same Store Properties located in Northern California accounted for the
next largest regional component of the Quarterly Same Store Properties property
revenues increase. The property revenues of these properties increased by
$464,000 or 4.4% to $10,973,000 in second quarter of 1999 from $10,509,000 in
the second quarter of 1998. The $464,000 increase is attributable to rental
rate increases and the increase in financial occupancy to 97.5% in the second
quarter of 1999 from 97.3% in the second quarter of 1998. The 18 multifamily
residential properties located in the Pacific Northwest also contributed to the
Quarterly Same Store Properties property revenues increase. The property
revenues of these properties increased by $438,000 or 6.0% to $7,768,000 in the
second quarter of 1999 from $7,330,000 in the second quarter of 1998. The
$438,000 increase is primarily attributable to rental rate increases and an
increase in financial occupancy to 95.6% in the second quarter of 1999 from
93.8% in the second quarter of 1998. The increase in total revenue also
reflected an increase of $291,000 attributable to other income, which primarily
relates to interest income on outstanding notes receivables and income earned on
the Operating Partnership's investments in joint venture development projects.
Total Expenses increased by $884,000 or approximately 4.1% to $22,563,000 in the
second quarter of 1999 from $21,679,000 in the second quarter of 1998. Interest
expense increased by $33,000 or 0.6% to $5,250,000 in the second quarter from
$5,217,000 in the second quarter of 1998. Such increase was primarily due to
the net addition of outstanding mortgage debt in connection with property and
investment acquisitions which was offset by lower average interest rates
incurred on outstanding debt balances. Property operating expenses, exclusive
of depreciation and amortization, increased by $200,000 or 2.1% to $9,817,000 in
the second quarter of 1999 from $9,617,000 in the second quarter of 1998. Of
such increase, $390,000 was attributable to the Acquisition Properties and the
Disposition Property. General
17
<PAGE>
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 $95,000 in
the second quarter of 1999 from the amount for the second quarter of 1998. This
increase is largely due to additional staffing requirements resulting from the
growth of the Operating Partnership.
Net income increased by $2,192,000 to $12,076,000 in the second quarter of 1999
from $9,884,000 in the second quarter of 1998. A significant component of the
increase in net income was primarily a result of the net contribution of the
Acquisition Properties and the increase in net operating income from the
Quarterly Same Store Properties.
Comparison of the Six Months Ended June 30, 1999 to the Six Months Ended June
- -----------------------------------------------------------------------------
30, 1998.
- ---------
Average financial occupancy rates of the Operating Partnership's multifamily
Same Store Properties (properties owned by the Operating Partnership for the six
months ended June 30, 1999 and 1998) increased to 96.5% for the six months ended
June 30, 1999 from 95.7% for the six months ended June 30, 1998. The regional
breakdown of financial occupancy for the multifamily Same Store Properties for
the six months ended June 30, 1999 and 1998 are as follows:
June 30, June 30,
1999 1998
--------- ---------
Northern California 97.4% 97.1%
Southern California 97.0% 95.8%
Pacific Northwest 95.0% 93.9%
The Operating Partnership's commercial properties were 100% occupied (based on
square footage) as of June 30, 1999.
Total Revenues increased by $9,269,000 or 15.6% to $68,789,000 for the first six
months of 1999 from $59,520,000 for the first six months of 1998. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to the Same Store Properties.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
Number of -------- Dollar Percentage
Properties 1999 1998 Change Change
---------- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues
Property revenues Same Store
Properties
Northern California 12 $18,470 $17,702 $ 768 4.3%
Southern California 14 16,898 15,590 1,308 8.4
Pacific Northwest 18 15,329 14,504 825 5.7
Commercial 2 1,485 1,199 286 23.9
-- ------- ------- ------ ----
Total property revenues
Same Store Properties 46 52,182 48,995 3,187 6.5%
==
Property revenues properties
acquired/disposed of
subsequent to December 31, 1997 14,279 8,997 5,282 58.7
------- ------- ------ ----
Total property revenues 66,461 57,992 8,469 14.6
------- ------- ------ ----
Interest and other income 2,328 1,528 800 52.4
------- ------- ------ ----
Total revenues $68,789 $59,520 $9,269 15.6%
======= ======= ====== ====
</TABLE>
As set forth in the above table, $5,282,000 of the $9,269,000 increase in total
revenues is attributable to properties acquired or disposed of subsequent to
December 31, 1997. During this period, the Operating Partnership acquired
interests in ten multifamily properties (the "Post-1997 Acquisition
Properties"), and disposed of one multifamily property and three retail shopping
centers (the "Post-1997 Disposition Properties").
18
<PAGE>
Of the increase in total revenues, $3,187,000 is attributable to increases in
property revenues from the Same Store Properties. Property revenues from the
Same Store Properties increased by approximately 6.5% to $52,182,000 in the
first six months of 1999 from $48,995,000 in the first six months of 1998. The
majority of this increase was attributable to the 14 Same Store Properties
located in Southern California. The property revenues of these properties
increased by $1,308,000 or 8.4% to $16,898,000 in first six months of 1999 from
$15,590,000 in the first six months of 1998. The $1,308,000 increase is
attributable to rental rate increases and the increase in financial occupancy to
97.0% in the first six months of 1999 from 95.8% in the first six months of
1998. The 18 multifamily Same Store Properties located in the Pacific Northwest
accounted for the next largest regional component of the Same Store Properties
property revenues increase. The property revenues of these properties increased
by $825,000 or 5.7% to $15,329,000 in the first six months of 1999 from
$14,504,000 in the first six months of 1998. The $825,000 increase is primarily
attributable to rental rate increases and an increase in financial occupancy to
95.0% in the first six months of 1999 from 93.9% in first six months of 1998.
The 12 multifamily residential properties located in Northern California also
contributed to the Same Store Properties property revenues increase. The
property revenues of the Same Store Properties in Northern California increased
by $768,000 or 4.3% to $18,470,000 in the first six months of 1999 from
$17,702,000 in the first six months of 1998. This $768,000 increase is
primarily attributable to rental rate increases and the effect of the increase
in financial occupancy to 97.4% in the first six months of 1999 from 97.1% in
the first six months of 1998. The increase in total revenue also reflected an
increase of $800,000 attributable to other income, which primarily relates to
interest income on outstanding notes receivables and income earned on the
Operating Partnership's investments in joint venture development projects.
Total Expenses increased by $4,903,000 or approximately 12.3% to $44,763,000 in
the first six months of 1999 from $39,860,000 in the first six months of 1998.
Interest expense increased by $1,170,000 or 13.0% to $10,184,000 in the first
six months from $9,014,000 in the first six months of 1998. 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 $1,527,000 or 8.3% to
$19,897,000 in the first six months of 1999 from $18,370,000 in the first six
months of 1998. Of such increase, $1,829,000 was attributable to the Post-1997
Acquisition Properties and the Post-1997 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 $288,000
in the first six months of 1999 from the amount for the first six months of
1998. This increase is largely due to additional staffing requirements
resulting from the growth of the Operating Partnership.
Net income increased by $4,190,000 to $23,620,000 in the first six months of
1999 from $19,430,000 in the first six months of 1998. A significant component
of the increase in net income was primarily a result of the net contribution of
the Acquisition Properties and the increase in net operating income from the
Same Store Properties.
Liquidity and Capital Resources
At June 30, 1999, the Operating Partnership had $1,795,000 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 Operating
Partnership in accordance with REIT requirements. The Operating Partnership
expects to meet its long-term funding requirements relating to property
acquisition and development (beyond the next 12 months) by using working
capital, amounts available from 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 such future funding 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.
19
<PAGE>
The Operating Partnership has a $100,000,000 unsecured line of credit.
Outstanding balances under the line of credit bear interest at the bank's
reference rate or at the Operating Partnership's option, 1.15% over the LIBOR
rate. The line of credit matures in June 2000. At June 30, 1999 the Operating
Partnership had $60,450,000 outstanding on its line of credit, with interest
rates during the second quarter of 1999 ranging from 6.0% to 6.2%.
In addition to the unsecured line of credit, the Operating Partnership had
$380,035,000 of secured indebtedness at June 30, 1999. Such indebtedness
consisted of $321,215,000 in fixed rate debt with interest rates varying from
6.5% to 8.8% and maturity dates ranging from 2000 to 2026. The indebtedness
also includes $58,820,000 of debt represented by tax exempt variable rate demand
bonds with interest rates paid during the first six months of 1999 of 5.5% and
maturity dates ranging from 2020 to 2026. A portion of the tax exempt variable
rate demand bonds, $29,220,000, is capped at a maximum interest rate of 7.3%.
The Operating Partnership's unrestricted cash balance decreased by $753,000 from
$2,548,000 as of December 31, 1998 to $1,795,000 as of June 30, 1999. This
decrease was primarily a result of $67,102,000 of net cash used in investing
activities, which was offset by $37,825,000 of net cash provided by operating
activities and $28,524,000 of net cash provided by financing activities. Of the
$67,102,000 net cash used in investing activities, $41,370,000 was used to fund
real estate under development and $29,557,000 was used to purchase and upgrade
rental properties. The $28,524,000 net cash provided by financing activities was
primarily a result of $117,650,000 of proceeds from mortgage and other notes
payable and lines of credit as offset by $54,480,000 of repayments of mortgages
and other notes payable and lines of credit and $25,331,000 of
dividends/distributions paid.
Non-revenue generating capital expenditures are improvements and upgrades that
extend the useful life of the property and are not related to preparing a
multifamily property unit to be rented to a tenant. The Operating Partnership
expects to incur approximately $315 per weighted average occupancy unit in non-
revenue generating capital expenditures for the year ended December 31, 1999.
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 during 1999 and/or the funding thereof will not be
significantly different than the Operating Partnership's current expectations.
The Operating Partnership is developing seven multifamily residential projects,
which are anticipated to contain an aggregate of 1,333 multifamily units.
Construction is complete on two of the projects, and leasing activities have
begun at five of the projects. The Operating Partnership expects that
construction on the remaining five projects will be substantially completed by
the year ended December 31, 1999, with leasing activities completed by the
second quarter of 2000. Such projects involve certain risks inherent in real
estate development. See "Other Matters/Risk Factors - Risks That Development
Activities Will Be Delayed or Not Completed" in Item 1 of the Operating
Partnership's Annual Report on Form 10-K for the year ended December 31, 1998.
In connection with these development projects, the Operating Partnership has
directly, or in some cases through its joint venture partners, entered into
contractual construction related commitments with unrelated third parties for
approximately $162,000,000. As of June 30, 1999, the Operating Partnership's
remaining commitment to fund the estimated cost to complete is approximately
$71,000,000. 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. One project
which was previously reported as a development project has achieved stabilized
occupancy subsequent to the second quarter of 1999. This project, Park Hill @
Issaquah, is owned by a joint venture in which the Operating Partnership owns a
45% interest.
On July 28, 1999, The Operating Partnership completed the sale of 2,000,000
units of its 9.30% Series D Cumulative Redeemable Preferred Units to two related
institutional investors at a price of $25.00 per unit. The net proceeds from
this sale were approximately $49,000,000. The net proceeds were used primarily
to reduce outstanding balances under the Operating Partnership's line of credit.
20
<PAGE>
Pursuant to existing shelf registration statements, the Operating Partnership
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.
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.
Year 2000 Compliance
The Operating Partnership's State of Readiness. Employing a team made up of
internal personnel, the Operating Partnership has identified IT systems that are
not Year 2000 compliant and has substantially modified or replaced such systems
as necessary. However, because the full ramifications of the Year 2000 issue
will not be fully realized until after the Year 2000 date change, the Operating
Partnership can provide no assurances that its internal systems will not be
adversely affected by the Year 2000 date change.
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 that the Year 2000 compliance effort
being made by third parties with which the Operating Partnership does
significant business is sufficient to avoid a material adverse impact on the
Operating Partnership's liquidity or ongoing results of operations. However, no
assurance can be given regarding the cost of their failure to comply.
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
operations. As of June 30, 1999, no compliance costs have been incurred by the
Operating Partnership. The costs of any future assessment and remediation will
be paid out of the Operating Partnership's general and administrative expenses.
Risks of the Operating Partnership's Year 2000 issues. The Operating
Partnership believes that it is taking appropriate steps to assess and address
its Year 2000 issues and currently does not expect that its business will be
adversely affected by the Year 2000 issue in any material respect.
Nevertheless, achieving Year 2000 readiness is dependent on many factors, some
of which are not completely within the Operating Partnership's control. Should
either the Operating Partnership's internal systems and devices or the internal
systems and devices of one or more critical vendors fail to achieve Year 2000
readiness, the Operating Partnership's business and its results of operations
could be adversely affected.
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 Internal Revenue Code of 1986 (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 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 generally
accepted accounting principles (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
21
<PAGE>
Operating Partnership's presentation of Funds From Operations. The following
table sets forth Operating Partnership's calculation of Funds from Operations
for the three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
June 30 June 30 June 30 June 30
------------ ------------ ------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before
minority interests and
extraordinary item $12,335,000 $10,005,000 $24,026,000 $19,660,000
Adjustments:
Depreciation & amortization 6,247,000 5,632,000 12,292,000 10,301,000
Adjustment for unconsolidated
joint ventures 366,000 366,000 732,000 662,000
Minority interests (1) (2,397,000) (1,692,000) (4,760,000) (2,599,000)
----------- ----------- ----------- -----------
Funds from Operations $16,551,000 $14,311,000 $32,290,000 $28,024,000
=========== =========== =========== ===========
Weighted average number
shares outstanding diluted (1) 20,476,092 20,549,875 20,478,496 20,555,032
=========== =========== =========== ===========
</TABLE>
(1) Includes all outstanding shares of the general partner common equity and
preferred equity and assumes conversion of all limited partner common equity
into shares of the Company's Common Stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Operating Partnership is exposed to interest rate changes primarily as a
result of its line of credit and long-term debt used to maintain liquidity and
fund capital expenditures and expansion of the Operating Partnership's real
estate investment portfolio and operations. The Operating Partnership's
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. To
achieve its objectives the Operating Partnership borrows primarily at fixed
rates and may enter into derivative financial instruments such as interest rate
swaps, caps and treasury locks in order to mitigate its interest rate risk on a
related financial instrument. The Operating Partnership does not enter into
derivative or interest rate transactions for speculative purposes.
The Operating Partnership's interest rate risk is monitored using a variety of
techniques. The table below presents the principal amounts and weighted average
interest rates by year of expected maturity to evaluate the expected cash flows
and sensitivity to interest rate changes. The Operating Partnership believes
that the principal amounts of the Operating Partnership's mortgage notes payable
and line of credit approximate fair value as of June 30, 1999 as interest rates
are consistent with yields currently available to the Operating Partnership for
similar instruments.
<TABLE>
<CAPTION>
For Year Ended: 1999 2000 2001 2002 2003 Thereafter Total
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt (In thousands)
$ 1,354 21,034 3,114 25,206 30,870 239,637 $321,215
Average interest rate 7.06% 7.06% 6.56% 6.56% 5.71% 5.71%
Variable rate LIBOR debt (In thousands)
$ -- $60,450 -- -- -- 58,820(1) $119,270
Average interest rate -- 6.20% -- -- -- 5.50%
</TABLE>
(1) $29,220,000 is capped at 7.3%
The Operating Partnership has four forward treasury contracts for an aggregate
notional amount of $60,000,000, locking the 10 year treasury rate at between
6.14%-6.26% which limit interest rate exposure on certain future debt financing
and which will be settled in 2000. The fair value of these contracts as of
22
<PAGE>
June 30, 1999 is approximately $899,000. The fair value represents the estimated
payments that would be made to terminate the agreement at June 30, 1999.
The four forward treasury contracts represent the exposures that exist as of
June 30, 1999. As firm commitments do not exist as of June 30, 1999, the
information presented herein has limited predictive value. As a result, the
Operating Partnership's ultimate realized gain or loss with respect to interest
rate fluctuations will depend on the exposures that may arise during the period,
the Operating Partnership's hedging strategies at that time, and interest rates.
23
<PAGE>
Part II Other Information
- ------- -----------------
Item 2: Changes in Securities and Use of Proceeds
-----------------------------------------
(c) Recent Sales of Unregistered Securities
On July 28, 1999, Essex Portfolio, L.P., a California limited
partnership (the "Operating Partnership") as to which the Company
is the sole general partner, completed the private placement of
2,000,000 9.30% Series D Cumulative Redeemable Preferred Units (the
"Perpetual Preferred Units"), representing a limited partnership
interest of the Operating Partnership, to two related institutional
investors in return for contributions to the Operating Partnership
totaling $50 million. The Perpetual Preferred Units will become
exchangeable, on a one for one basis, in whole or in part at any
time on or after the tenth anniversary of the date of this private
placement (or earlier under certain circumstances) for shares of
the Company's 9.30% Series D Cumulative Redeemable Preferred Stock,
par value $.0001 per share (the "Series D Preferred Stock").
Pursuant to the terms of a registration rights agreement, entered
into in connection with this private placement, the holders of
Series D Preferred Stock will have certain rights to cause the
Company to register such shares of Series D Preferred Stock. On
July 30, 1999, the Company filed Articles Supplementary
reclassifying 2,000,000 shares of its Common Stock, par value
$.0001 per share, as 2,000,000 shares of Series D Preferred Stock
and setting forth the rights, preference and privileges of the
Series D Preferred Stock.
The net proceeds from the above private placement were used to
reduce outstanding balances on the Operating Partnership's line of
credit.
The above private Placement was completed pursuant to the exemption
from registration contained in Section 4(2) the Securities Act of
1933, as amended.
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
--------
3.1 Articles Supplementary reclassifying 2,000,000 shares of
Common Stock as 2,000,000 shares of 9.30% Series D Cumulative
Redeemable Preferred Stock, filed with the State of Maryland
on July 30, 1999.
10.1 Fourth Amendment to the First Amended and Restated Agreement
of Limited Partnership of Essex Portfolio, L.P., dated July
28, 1999.
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
B. Reports on Form 8-K
-------------------
None
24
<PAGE>
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)
August 12, 1999
---------------
Date
25
<PAGE>
ESSEX PROPERTY TRUST, INC.
-------------------------
ARTICLES SUPPLEMENTARY
Reclassifying 2,000,000 shares of Common Stock
as 2,000,000 shares of
9.30% SERIES D CUMULATIVE REDEEMABLE PREFERRED STOCK
Essex Property Trust, Inc., a corporation organized and existing under
the laws of Maryland (the "Corporation"), does hereby certify to the State
Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority conferred upon the Board of Directors of
-----
the Corporation by Article FIFTH of its Charter (the "Charter") in accordance
with Section 2-105 of the Maryland General Corporation Law (the "MGCL"), the
Board of Directors of the Corporation (the "Board"), at a teleconference meeting
held on July 27, 1999, duly adopted a resolution reclassifying 2,000,000
authorized but unissued shares of Common Stock (par value $.0001 per share) as
Preferred Stock (par value $.0001 per share), designating such newly
reclassified Preferred Stock as 9.30% Series D Cumulative Redeemable Preferred
Stock, the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption as set forth below and
authorizing the issuance of such series of Preferred Stock as set forth below.
Upon any restatement of the Charter, Sections 1 through 9 of Article THIRD shall
become subsection (h) of Article FIFTH of the Charter
SECOND: The reclassification increases the number of shares
------
classified as 9.30% Series D Cumulative Redeemable Preferred Stock from no
shares immediately prior to the reclassification to 2,000,000 shares immediately
after the reclassification. The reclassification decreases the number of shares
classified as Common Stock (par value $.0001 per share) from 659,282,178 shares
immediately prior to the reclassification to 657,282,178 shares immediately
after the reclassification.
THIRD: Subject in all cases to the provisions of Article EIGHTH of
-----
the Charter of the Corporation with respect to Excess Stock, the following is a
description of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of 9.30% Series D Cumulative Redeemable Preferred Stock
of the Corporation:
9.30% Series D Cumulative Redeemable Preferred Stock
----------------------------------------------------
Section 1. Designation and Amount.
----------------------
<PAGE>
Of the 659,282,178 authorized shares of Common Stock, 2,000,000 shares
are reclassified and designated "9.30% Series D Cumulative Redeemable Preferred
Stock (par value $.0001 per share)" (the "Series D Preferred Stock").
Section 2. Rank. The Series D Preferred Stock will, with respect to
----
distributions and rights upon voluntary or involuntary liquidation, winding-up
or dissolution of the Corporation, rank senior to all classes or series of
Common Stock (as defined in the Charter) and to all classes or series of equity
securities of the Corporation now or hereafter authorized, issued or
outstanding, other than the 8.75% Convertible Preferred Stock, Series 1996A (the
"Series A Preferred Stock"), the 7.875% Series B Cumulative Redeemable Preferred
Stock (the "Series B Preferred Stock") and the 9% Series C Cumulative
Redeemable Preferred Stock (the "Series C Preferred Stock") with which it shall
be on a parity and any other class or series of equity securities of the
Corporation expressly designated as ranking on a parity with or senior to the
Series D Preferred Stock as to distributions and rights upon voluntary or
involuntary liquidation, winding-up or dissolution of the Corporation. For
purposes of these terms of the Series D Preferred Stock, the term "Parity
Preferred Stock" shall be used to refer to the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and any other class or
series of equity securities of the Corporation now or hereafter authorized,
issued or outstanding expressly designated by the Corporation to rank on a
parity with Series D Preferred Stock with respect to distributions and rights
upon voluntary or involuntary liquidation, winding up or dissolution of the
Corporation.
Section 3. Distributions.
-------------
(a) Payment of Distributions. Subject to the rights of holders of
------------------------
Parity Preferred Stock as to the payment of distributions, holders of Series D
Preferred Stock will be entitled to receive, when, as and if declared by the
Corporation, out of funds legally available for the payment of distributions,
cumulative preferential cash distributions at the rate per annum of 9.30% of the
$25.00 liquidation preference per share of Series D Preferred Stock. Such
distributions shall be cumulative, shall accrue from the original date of
issuance and will be payable quarterly in arrears (such quarterly periods, for
purposes of payment and accrual shall be the quarterly periods ending on the
dates specified in this sentence and not calendar quarters), on or before the
15th of February, May, August and November of each year (each a "Preferred Stock
Distribution Payment Date"), commencing in each case on the first Preferred
Stock Distribution Payment Date after the original date of issuance. The amount
of the distribution payable for any period will be computed on the basis of a
360-day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed based on the ratio of the actual number of
days elapsed in such a period to ninety (90) days. If any date on which
distributions are to be made on the Series D Preferred Stock is not a Business
Day (as defined herein), then payment of the distribution to be made on such
date will be made on the next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if
2
<PAGE>
made on such date. Distributions on the Series D Preferred Stock will be made
to the holders of record of the Series D Preferred Stock on the relevant
record dates, which, unless otherwise provided by the Corporation (as a date
not more than thirty (30) days prior to the Preferred Stock Distribution Date)
with respect to any distribution, will be 15 Business Days prior to the
relevant Preferred Stock Distribution Payment Date (each a "Distribution
Record Date"). Notwithstanding anything to the contrary set forth herein, each
share of Series D Preferred Stock shall also continue to accrue all accrued
and unpaid distributions to the exchange date on any Series D Preferred Unit
(as defined in the Fourth Amendment to First Amended and Restated Agreement of
Limited Partnership of Essex Portfolio, L.P., dated as of July 28, 1999 (the
"Fourth Amendment")) validly exchanged into such share of Series D Preferred
Stock in accordance with the provisions of such Fourth Amendment.
The term "Business Day" shall mean each day, other than a Saturday or
a Sunday, which is not a day on which banking institutions in New York, New York
are authorized or required by law, regulation or executive order to close.
(b) Limitations on Distributions. No distributions on the Series D
----------------------------
Preferred Stock shall be declared or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation, including any agreement relating to its indebtedness, prohibits
such declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such declaration, payment or setting
apart for payment shall be restricted or prohibited by law.
(c) Distributions Cumulative. Notwithstanding the foregoing,
------------------------
distributions on the Series D Preferred Stock will accrue whether or not the
terms and provisions set forth in Section 3(b) hereof at any time prohibit the
current payment of distributions, whether or not the Corporation has earnings,
whether or not there are funds legally available for the payment of such
distributions and whether or not such distributions are authorized. Accrued but
unpaid distributions on the Series D Preferred Stock will accumulate as of the
Preferred Stock Distribution Payment Date on which they first become payable.
Accumulated and unpaid distributions will not bear interest.
(d) Priority as to Distributions.
----------------------------
(i) So long as any Series D Preferred Stock is outstanding, no
distribution of cash or other property shall be authorized, declared, paid or
set apart for payment on or with respect to any class or series of Common Stock
or any class or series of other stock of the Corporation ranking junior to the
Series D Preferred Stock as provided in this Section 3 (such Common Stock or
other junior stock, including, without limitation, the Series A Junior
Participating Preferred Stock) collectively, "Junior Stock"), nor shall any cash
or other property be set aside for or applied to the purchase, redemption or
other acquisition for consideration of any Series D Preferred Stock, any Parity
Preferred Stock with respect to distributions or any
3
<PAGE>
Junior Stock, unless, in each case, all distributions accumulated on all
Series D Preferred Stock and all classes and series of outstanding Parity
Preferred Stock as to payment of distributions have been paid in full. The
foregoing sentence will not prohibit (i) distributions payable solely in
Junior Stock, (ii) the conversion of Junior Stock or Parity Preferred Stock
into Junior Stock of the Corporation, (iii) the redemption, purchase or other
acquisition of Junior Stock made for purposes of and in compliance with
requirements of an employee incentive or benefit plan of the Corporation or
any subsidiary of the Corporation, and (iv) purchase by the Corporation of
such Series D Preferred Stock, Parity Preferred Stock with respect to
distributions or Junior Stock pursuant to Article EIGHTH of the Charter to the
extent required to preserve the Corporation's status as a real estate
investment trust.
(ii) So long as distributions have not been paid in full (or
a sum sufficient for such full payment is not irrevocably so set apart) upon
the Series D Preferred Stock, all distributions authorized and declared on the
Series D Preferred Stock and all classes or series of outstanding Parity
Preferred Stock with respect to distributions shall be authorized and declared
so that the amount of distributions authorized and declared per share of
Series D Preferred Stock and such other classes or series of Parity Preferred
Stock shall in all cases bear to each other the same ratio that accrued
distributions per share on the Series D Preferred Stock and such other classes
or series of Parity Preferred Stock (which shall not include any accumulation
in respect of unpaid distributions for prior distribution periods if such
class or series of Parity Preferred Stock do not have cumulative distribution
rights) bear to each other.
(e) No Further Rights. Holders of Series D Preferred Stock shall not
-----------------
be entitled to any distributions, whether payable in cash, other property or
otherwise, in excess of the full cumulative distributions described herein.
Section 4. Liquidation Preference.
----------------------
(a) Payment of Liquidating Distributions. Subject to the rights of
------------------------------------
holders of Parity Preferred Stock with respect to rights upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of Series D Preferred Stock shall be entitled to receive out of the
assets of the Corporation legally available for distribution or the proceeds
thereof, after payment or provision for debts and other liabilities of the
Corporation, but before any payment or distributions of the assets shall be made
to holders of Common Stock or any other class or series of shares of the
Corporation that ranks junior to the Series D Preferred Stock as to rights upon
liquidation, dissolution or winding-up of the Corporation, an amount equal to
the sum of (i) a liquidation preference of $25 per share of Series D Preferred
Stock, and (ii) an amount equal to any accumulated and unpaid distributions
thereon to the date of payment. In the event that, upon such voluntary or
involuntary liquidation, dissolution or winding-up, there are insufficient
assets to permit full payment of liquidating distributions to the holders of
Series D Preferred Stock and any Parity Preferred Stock as to rights upon
liquidation, dissolution or winding-up of the Corporation, all payments of
liquidating distributions on the Series D Preferred Stock and such Parity
Preferred Stock shall be made so that the payments on the Series
4
<PAGE>
D Preferred Stock and such Parity Preferred Stock shall in all cases bear to
each other the same ratio that the respective rights of the Series D Preferred
Stock and such other Parity Preferred Stock (which shall not include any
accumulation in respect of unpaid distributions for prior distribution periods
if such Parity Preferred Stock do not have cumulative distribution rights)
upon liquidation, dissolution or winding-up of the Corporation bear to each
other.
(b) Notice. Written notice of any such voluntary or involuntary
------
liquidation, dissolution or winding-up of the Corporation, stating the payment
date or dates when, and the place or places where, the amounts distributable in
such circumstances shall be payable, shall be given by (i) fax and (ii) by first
class mail, postage pre-paid, not less than 30 and not more than 60 days prior
to the payment date stated therein, to each record holder of the Series D
Preferred Stock at the respective addresses of such holders as the same shall
appear on the share transfer records of the Corporation.
(c) No Further Rights. After payment of the full amount of the
-----------------
liquidating distributions to which they are entitled, the holders of Series D
Preferred Stock will have no right or claim to any of the remaining assets of
the Corporation.
(d) Consolidation, Merger or Certain Other Transactions. Without
---------------------------------------------------
limiting Section 6(c) hereof, the consolidation or merger or other business
combination of the Corporation with or into any corporation, trust or other
entity (or of any corporation, trust or other entity with or into the
Corporation), or the effectuation by the Corporation of a transaction or series
of related transactions in which more than 50% of the voting power of the
Corporation is disposed of shall not be deemed to constitute a liquidation,
dissolution or winding-up of the Corporation.
Section 5. Optional Redemption.
-------------------
(a) Right of Optional Redemption. The Series D Preferred Stock may
----------------------------
not be redeemed prior to July 28, 2004. On or after such date, subject to the
terms and conditions of any Parity Preferred Stock, the Corporation shall have
the right to redeem the Series D Preferred Stock, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' written
notice, at a redemption price, payable in cash, equal to $25 per share of Series
D Preferred Stock plus accumulated and unpaid distributions to the date of
redemption. If fewer than all of the outstanding shares of Series D Preferred
Stock are to be redeemed, the shares of Series D Preferred Stock to be redeemed
shall be selected pro rata (as nearly as practicable without creating fractional
units). Further, in order to ensure that the Corporation remains a qualified
real estate investment trust for federal income tax purposes, the Series D
Preferred Stock will also be subject to the provisions of Article EIGHTH of the
Charter pursuant to which Series D Preferred Stock owned by a stockholder in
excess of the Ownership Limit (as defined in the Charter) will be automatically
transferred to a Trust (as defined in the Charter) and the Corporation shall
have the right to purchase such, shares, as provided in Article EIGHTH of the
Charter.
5
<PAGE>
(b) Limitation on Redemption.
------------------------
(i) The redemption price of the Series D Preferred Stock
(other than the portion thereof consisting of accumulated but unpaid
distributions) will be payable solely out of the sale proceeds of capital
stock of the Corporation and from no other source. For purposes of the
preceding sentence, "capital stock" means any equity securities (including
Common Stock and Preferred Stock of the Corporation and units of partnership
interest of Essex Portfolio, L.P., as to which the Corporation is the general
partner), shares, participation or other ownership interests (however
designated) and any rights (other than debt securities convertible into or
exchangeable for equity securities) or options to purchase any of the
foregoing.
(ii) The Corporation may not redeem fewer than all of the
outstanding shares of Series D Preferred Stock unless all accumulated and
unpaid distributions have been paid on all Series D Preferred Stock for all
quarterly distribution periods terminating on or prior to the date of
redemption; provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Series D Preferred Stock or Parity
Preferred Stock pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding shares of Series D Preferred Stock or
Parity Preferred Stock, as the case may be.
(c) Rights to Distributions on Stock Called for Redemption.
------------------------------------------------------
Immediately prior to any redemption of Series D Preferred Stock, the Corporation
shall pay, in cash, any accumulated and unpaid distributions through the
redemption date, unless a redemption date falls after a Distribution Record Date
and prior to the corresponding Preferred Stock Distribution Payment Date, in
which case each holder of Series D Preferred Stock at the close of business on
such Distribution Record Date shall be entitled to the distributions payable on
such shares on the corresponding Distribution Payment Date notwithstanding the
redemption of such shares before the Distribution Payment Date.
(d) Procedures for Redemption.
-------------------------
(i) Notice of redemption will be (i) faxed, and (ii) mailed by
the Corporation, postage prepaid, not less than 30 nor more than 60 days prior
to the redemption date, addressed to the respective holders of record of the
Series D Preferred Stock to be redeemed at their respective addresses as they
appear on the transfer records of the Corporation. No failure to give or
defect in such notice shall affect the validity of the proceedings for the
redemption of any Series D Preferred Stock except as to the holder to whom
such notice was defective or not given. In addition to any information
required by law or by the applicable rules of any exchange upon which the
Series D Preferred Stock may be listed or admitted to trading, each such
notice shall state: (i) the redemption date, (ii) the redemption price, (iii)
the number of shares of Series D Preferred Stock to be redeemed, (iv) the
place or places where such shares of Series D Preferred Stock are to be
surrendered for payment of the redemption price, (v) that distributions on the
Series D Preferred Stock to be redeemed will cease to accumulate on such
redemption
6
<PAGE>
date and (vi) that payment of the redemption price and any accumulated and
unpaid distributions will be made upon presentation and surrender of such
Series D Preferred Stock. If fewer than all of the shares of Series D
Preferred Stock held by any holder are to be redeemed, the notice mailed to
such holder shall also specify the number of shares of Series D Preferred
Stock held by such holder to be redeemed.
(ii) If the Corporation gives a notice of redemption in
respect of Series D Preferred Stock (which notice will be irrevocable) then,
by 12:00 noon, New York City time, on the redemption date, the Corporation
will deposit irrevocably in trust for the benefit of the Series D Preferred
Stock being redeemed funds sufficient to pay the applicable redemption price,
plus any accumulated and unpaid distributions, if any, on such shares to the
date fixed for redemption, without interest, and will give irrevocable
instructions and authority to pay such redemption price and any accumulated
and unpaid distributions, if any, on such shares to the holders of the Series
D Preferred Stock upon surrender of the Series D Preferred Stock by such
holders at the place designated in the notice of redemption. On and after the
date of redemption, distributions will cease to accumulate on the Series D
Preferred Stock or portions thereof called for redemption, unless the
Corporation defaults in the payment thereof. If any date fixed for redemption
of Series D Preferred Stock is not a Business Day, then payment of the
redemption price payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect
of any such delay) except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date fixed
for redemption. If payment of the redemption price or any accumulated or
unpaid distributions in respect of the Series D Preferred Stock is improperly
withheld or refused and not paid by the Corporation, distributions on such
Series D Preferred Stock will continue to accumulate from the original
redemption date to the date of payment, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating
the applicable redemption price and any accumulated and unpaid distributions.
(e) Status of Redeemed Stock. Any Series D Preferred Stock that
------------------------
shall at any time have been redeemed shall after such redemption have the status
of authorized but unissued Preferred Stock, without designation as to class or
series, until such shares are once more designated as part of a particular class
or series by the Board.
Section 6. Voting Rights.
-------------
(a) General. Holders of the Series D Preferred Stock will not have
-------
any voting rights, except as set forth below.
(b) Right to Elect Directors. If at any time full distributions
------------------------
shall not have been made on any Series D Preferred Stock with respect to any six
(6) prior quarterly distribution periods, whether or not consecutive, (a
"Preferred Distribution Default"), such that distributions for such six (6)
distribution periods have not been fully paid and are outstanding in whole or in
7
<PAGE>
part at the same time, the holders of such Series D Preferred Stock, voting
together as a single class with the holders of each class or series of Parity
Preferred Stock upon which like voting rights have been conferred and are
exercisable (other than holders of Parity Preferred Stock who are deemed to be
"affiliates" of the Corporation as such term is defined in Rule 144 of the
General Rules and Regulations Under the Securities Act of 1933), will have the
right to elect two additional directors to serve on the Corporation's Board (the
"Preferred Stock Directors"), which shall be in addition to the rights of
holders of Series A Preferred Stock to elect directors pursuant to the articles
supplementary pertaining to the Series A Preferred Stock, at a special meeting
called by the holders of record of at least 10% of the outstanding shares of
Series D Preferred Stock or any such class or series of Parity Preferred Stock
or at the next annual meeting of stockholders, and at each subsequent annual
meeting of stockholders or special meeting held in place thereof, until all such
distributions in arrears and distributions for the current quarterly period on
the Series D Preferred Stock and each such class or series of Parity Preferred
Stock have been paid in full. At any such annual or special meeting, the
holders of the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock and any subsequently issued series of Parity Preferred
Stock upon which like voting rights have been conferred and are exercisable,
will be entitled to cast votes for such Preferred Stock Directors on the basis
of one vote per $50.00 of liquidation preference to which such class of Parity
Preferred Stock is entitled by its terms (excluding amounts in respect of
accumulated and unpaid dividends) and not cumulatively. If and when all
accumulated distributions and the distribution for the current distribution
period on the Series D Preferred Stock shall have been paid in full or
irrevocably set aside for payment in full, the holders of the Series D Preferred
Stock shall be divested of the voting rights set forth in Section 6(b) herein
(subject to revesting in the event of each and every Preferred Distribution
Default) and, if all distributions in arrears and the distributions for the
current distribution period have been paid in full or irrevocably set aside for
payment in full on all other classes or series of Parity Preferred Stock upon
which like voting rights have been conferred and are exercisable, the term and
office of each Preferred Stock Director so elected shall immediately terminate.
Any Preferred Stock Director may be removed at any time with or without cause by
the vote of, and shall not be removed otherwise than by the vote of, the holders
of record of a majority of the outstanding Series D Preferred Stock when they
have the voting rights set forth in Section 6(b) (voting separately as a single
class with all other classes or series of Parity Preferred Stock upon which like
voting rights have been conferred and are exercisable). So long as a Preferred
Distribution Default shall continue, any vacancy in the office of a Preferred
Stock Director may be filled by written consent of the Preferred Stock Director
remaining in office, or if none remains in office, by a vote of the holders of
record of a majority of the outstanding Series D Preferred Stock when they have
the voting rights set forth in Section 6(b) (voting separately as a single class
with all other classes or series of Parity Preferred Stock upon which like
voting rights have been conferred and are exercisable). The Preferred Stock
Directors shall each be entitled to one vote per director on any matter.
(c) Certain Voting Rights. (i) While any shares of the Series D
---------------------
Preferred Stock are outstanding, the Corporation shall not, without the
affirmative vote of the holders of at least two-thirds (2/3) of the Series D
Preferred Stock outstanding at the time (i) authorize or create, or
8
<PAGE>
increase the authorized or issued amount of, any class or series of shares
ranking prior to the Series D Preferred Stock with respect to payment of
distributions or rights upon liquidation, dissolution or winding-up or
reclassify any authorized shares of the Corporation into any such shares, or
create, authorize or issue any obligations or security convertible into or
evidencing the right to purchase any such shares, (ii) either amend, alter or
repeal the provisions of the Corporation's Charter (including these Articles
Supplementary) or Bylaws, that would materially and adversely affect the
preferences, other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications, or terms and conditions of
redemption, of any outstanding shares of the Series D Preferred Stock;
provided that any increase in the amount of authorized Preferred Stock or the
creation or issuance of any other class or series of Preferred Stock, or any
increase in an amount of authorized shares of each class or series, in each
case ranking junior or on a parity to the Series D Preferred Stock with
respect to payment of distributions and the distribution of assets upon
liquidation, dissolution or winding-up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers
provided that, with respect to Parity Preferred Stock issued to any
"affiliate" of the Corporation (as such term is defined in Rule 144 of the
General Rules and Regulations Under the Securities Act of 1933), such Parity
Preferred Stock is issued with the consent of the majority of the independent
directors of the Board (i.e., directors who are not (i) officers or employees
of the Corporation or its affiliates or (ii) related to any such officer or
employee. While any shares of the Series D Preferred Stock are outstanding,
the Corporation shall not, without the affirmative vote of the holders of at
least two-thirds (2/3) of the Series D Preferred Stock outstanding at the time
consolidate, amalgamate, merge with or into, or convey, transfer or lease its
assets substantially as an entirety to, any corporation or other entity,
unless (a) the Corporation is the surviving entity and the shares of the
Series D Preferred Stock remain outstanding with the terms thereof unchanged,
(b) the resulting, surviving or transferee entity is a corporation or other
entity organized under the laws of any state and substitutes for the Series D
Preferred Stock other preferred stock having substantially the same terms and
same rights as the Series D Preferred Stock, including with respect to
distributions, voting rights and rights upon liquidation, dissolution or
winding-up, or (c) such merger, consolidation, amalgamation or asset transfer
does not adversely affect the powers, special rights, preferences and
privileges of the holders of the Series D Preferred Stock in any material
respect. However, the Corporation may create additional classes of Parity
Preferred Stock and Junior Stock, increase the authorized number of shares of
Parity Preferred Stock and Junior Stock and issue additional series of Parity
Preferred Stock and Junior Stock without the consent of any holder of Series D
Preferred Stock, provided that, with respect to Parity Preferred Stock issued
to any "affiliate" of the Corporation (as such term is defined in Rule 144 of
the General Rules and Regulations Under the Securities Act of 1933), such
Parity Preferred Stock is issued with the consent of the majority of the
independent directors of the Board (i.e., directors who are not (i) officers
or employees of the Corporation or its affiliates or (ii) related to any such
officer or employee.
Section 7. Transfer Restrictions. The Series D Preferred Stock shall
---------------------
be subject to the provisions of Article EIGHTH of the Charter.
9
<PAGE>
Section 8. No Conversion Rights. The holders of the Series D
--------------------
Preferred Stock shall not have any rights to convert such shares into shares of
any other class or series of stock, or into any other securities of, or interest
in, the Corporation,
Section 9. No Sinking Fund. No sinking fund shall be established for
---------------
the retirement or redemption of Series D Preferred Stock.
FOURTH: The Series D Preferred Stock have been classified and
------
designated by the Board under the authority contained in the Charter.
FIFTH: These Articles Supplementary have been approved by the Board
-----
in the manner and by the vote required by law.
SIXTH: The undersigned President of the Corporation acknowledges
-----
these Articles Supplementary to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
10
<PAGE>
IN WITNESS WHEREOF, these Articles Supplementary are executed on
behalf of the Corporation by its President and attested by its Assistant
Secretary this 28th day of July, 1999.
ESSEX PROPERTY TRUST, INC.
By: ___________________________________
Keith R. Guericke
President
[SEAL]
Attest:
Michael J. Schall
Executive Vice President,
Chief Financial Officer and
Assistant Secretary
THE UNDERSIGNED, President of ESSEX PROPERTY TRUST, INC., who executed on
behalf of the Corporation, the Articles Supplementary of which this certificate
is made a part, hereby acknowledges in the name and on behalf of said
Corporation the foregoing Articles Supplementary to be the corporate act of said
Corporation and hereby certifies that the matters and facts set forth herein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
By: ___________________________________
Keith R. Guericke
President
<PAGE>
FOURTH AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
ESSEX PORTFOLIO, L.P.
Dated as of July 28, 1999
This Fourth Amendment to the First Amended and Restated Agreement of
Limited Partnership of Essex Portfolio, L.P., as amended (as amended, the
"Partnership Agreement"), dated as of the date shown above (the "Amendment"), is
executed by Essex Property Trust, Inc. a Maryland Corporation (the "Company"),
as the General Partner and on behalf of the existing Limited Partners of Essex
Portfolio, L.P. (the "Partnership") and Belcrest Realty Corporation, a Delaware
corporation ("Belcrest") and Belair Real Estate Corporation, a Delaware
corporation ("Belair," and together with Belcrest, the "Contributors").
RECITALS
WHEREAS, the Partnership was formed pursuant to the Partnership
Agreement, which has been amended and restated as of September 30, 1997;
WHEREAS, on the date hereof, Contributors have made a Capital
Contribution of an aggregate of $50,000,000.00, in cash, to the Partnership in
exchange for which Contributors are entitled to receive an aggregate of
2,000,000 9.30% Series D Cumulative Redeemable Preferred Units (the "Series D
Preferred Units") of limited partnership interests in the Partnership with
rights, preferences, exchange and other rights, voting powers and restrictions,
limitations as to distributions, qualifications and terms and conditions as set
forth herein;
WHEREAS, pursuant to the authority granted to the General Partner
under the Partnership Agreement, the General Partner desires to amend the
Partnership Agreement to reflect (i) the issuance of the Series D Preferred
Units, (ii) the admission of the Contributors as Additional Limited Partners and
holders of a certain number of Series D Preferred Units and (iii) certain other
matters described herein;
WHEREAS, Contributors desire to become a party to the Partnership
Agreement as Limited Partners and to be bound by all terms, conditions and other
provisions of this Amendment and the Partnership Agreement.
1
<PAGE>
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement as
follows:
1. Definitions. Capitalized terms used herein, unless otherwise
-----------
defined herein, shall have the same meanings as set forth in the Partnership
Agreement.
2. Admission of Contributors. Contributors are hereby admitted as
-------------------------
Additional Limited Partners in accordance with Section 4.6 of the Partnership
Agreement holding such number of Series D Preferred Units as is set forth on
Exhibit A, as amended. Contributors each hereby agree to become a party to the
Partnership Agreement as a Limited Partner and to be bound by all the terms,
conditions and other provisions of the Partnership Agreement, as amended by this
Amendment. Pursuant to Section 4.6(b) of the Partnership Agreement, the General
Partner hereby consents to the admission of each Contributor as an Additional
Limited Partner of the Partnership. The admission of Contributors shall become
effective as of the date of this Amendment which shall also be the date on which
the name of each Contributor is recorded on the books and records of the
Partnership.
3. Percentage Interest. Section 1.1 of the Partnership Agreement is
-------------------
hereby amended to delete the definition of "Percentage Interest" in its entirety
and the following definition of "Percentage Interest" is hereby substituted in
its place:
"Percentage Interest" shall mean, with respect to any Partner other
than holders of Series B Preferred Units, Series C Preferred Units or
Series D Preferred Units, the undivided percentage ownership interest of
such Partner in the Partnership, as determined by dividing the number of
Partnership Units owned by such Partner by the total number of Partnership
Units then outstanding (excluding the Series A Preferred Interest, the
Series B Preferred Interest, the Series B Partnership Units, Series C
Preferred Interest, Series C Preferred Units, Series D Preferred Interest
and Series D Preferred Units).
4. Restatement of Exhibit A and Exhibit M. Exhibit A to the
--------------------------------------
Partnership Agreement is amended and restated by replacing such Exhibit A with
Exhibit A attached to this Amendment. Exhibit M to the Partnership Agreement is
amended and restated by replacing such Exhibit M with Exhibit M attached to this
Amendment.
5. Preferred Interest. Section 1.1 of the Partnership Agreement is
------------------
hereby amended to include the following definition of "Series D Preferred
Interest" after the "definition of "Series C Preferred Interest" and before the
definition of "Series A Preferred Stock."
"Series D Preferred Interest" shall mean the interest in the
Partnership received by the General Partner in connection with the issuance
of shares of Series D Preferred Stock, as and when issued, which Series D
Preferred Interest includes and shall include
2
<PAGE>
the right to receive preferential distributions and certain other rights
as set forth in this Agreement.
6. Series D Preferred Stock. Section 1.1 of the Partnership
------------------------
Agreement is hereby amended to include the following definitions of "Series D
Preferred Stock" and "Series D Preferred Units" which are hereby inserted after
the definition of "Series C Preferred Units" and before the definition of "Stock
Incentive Plans":
"Series D Preferred Stock" shall mean the preferred stock of the
General Partner described in Article THIRD of the Articles Supplementary,
reclassifying 2,000,000 shares of Common Stock as 2,000,000 shares of 9.30%
Series D Cumulative Redeemable Preferred Stock to be filed with the
Department on or about July 28, 1999.
"Series D Preferred Units" shall mean the 9.30% Series D Cumulative
Redeemable Preferred Units of limited partnership interests in the
Partnership with rights, preferences, exchange and other rights, voting
powers and restrictions, limitations as to distributions, qualifications
and terms and conditions as set forth in Exhibit P hereto.
7. Issuance of Additional Partnership Interests; Contributions of
--------------------------------------------------------------
Proceeds of Issuance of Shares.
- ------------------------------
(a) Section 4.3(c) of the Partnership Agreement is hereby deleted and
the following is hereby substituted in lieu thereof:
"(c) After the date hereof, the General Partner shall not issue
any additional shares of Common Stock or Preferred Stock (other than
shares of Common Stock or Preferred Stock issued pursuant to Article
XI hereof or any exchange right or redemption right applicable to any
Preferred Interest), rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock or Preferred Stock (collectively, "New
Securities") other than to all holders of the shares of Common Stock
(or, to the extent such New Securities relate to Preferred Stock, to
all holders of the shares of Preferred Stock) unless (i) the General
Partner shall cause the Partnership to issue to the General Partner
Partnership Interest or rights, options warrants or other rights, all
such that the economic interests are substantially similar to those of
the New Securities, and (ii) the General Partner contributes the
proceeds, if any (subject to actual or deemed reimbursement of any
expenses, including underwriting discount commission or fees by the
Partnership to the General Partner pursuant to Section 7.1 hereof)
from the issuance of such New Securities and from the exercise of
rights contained in such New Securities to the Partnership. Without
limiting the foregoing, the General Partner is expressly authorized to
issue New Securities for less than fair market value (so long as the
General Partner concludes in good faith that such issuance is
3
<PAGE>
in the best interests of the Partnership) and to cause the
Partnership to issue to the General Partner corresponding
Partnership Interests."
(b) Section 4.5 of the Partnership Agreement is hereby deleted and the
following is hereby substituted in lieu thereof:
"4.5 Contribution of Proceeds of Issuance of Shares of Common
Stock and Preferred Stock. In connection with the issuance of shares
of Common Stock or Preferred Stock pursuant to Section 4.3 hereof, the
General Partner shall make a Capital Contribution to the Partnership
of the proceeds raised in connection with such issuance, provided that
if the proceeds actually received by the General Partner are less than
the gross proceeds of such issuance as a result of any underwriter's
discount, commission or fee or other expenses paid or incurred in
connection with such issuance, then the General Partner shall be
deemed to have made a Capital Contribution to the Partnership in the
amount of the gross proceeds of such issuance and the Partnership
shall be deemed simultaneously to have reimbursed the General Partner
pursuant to Section 7.1 hereof for the amount of such underwriter's
discount, commission or fee or other expenses. A redemption of a
Partnership Unit, whether by the Partnership or the General Partner,
shall not constitute an issuance of shares of Common Stock or
Preferred Stock for purposes of this Section 4.5."
8. Distributions. Section 6.2(a) of the Partnership Agreement is
-------------
hereby deleted in its entirety, and the following is hereby substituted in the
place thereof:
"(a) Distributions shall be made in accordance with the following
order of priority:
(i) First, on a pro rata basis, (based upon the same ratio that
--------
accrued distributions per share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
and per unit of Series B Preferred Units, Series C Preferred Units and
Series D Preferred Units (which shall not include any accumulation in
respect of unpaid distributions for prior distribution periods if such
stock or units do not have cumulative distribution rights) bear to
each other) (w) to the General Partner, on account of the Series A
Preferred Interest, Series B Preferred Interest, Series C Preferred
Interest and Series D Preferred Interest until the total amount of
distributions made pursuant to this Section 6.2(a)(i)(w) equals the
total amount of accrued but unpaid dividends (if any) payable with
respect to the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock and the Series D Preferred Stock as of
the date of such distribution; (x) to the Limited Partners holding
Series B Preferred Units, on account of the Series B Preferred Units
until the total amount of distributions made pursuant to this Section
6.2(a)(i)(x) equals the total amount
4
<PAGE>
of accrued but unpaid dividends (if any) payable with respect to the
Series B Preferred Units, in accordance with Exhibit N of the
Partnership Agreement, as of the date of such distribution; (y) to
the Limited Partners holding Series C Preferred Units, on account of
the Series C Preferred Units until the total amount of distributions
made pursuant to this Section 6.2(a)(i)(y) equals the total amount
of accrued but unpaid, dividends (if any) payable with respect to
the Series C Preferred Units, in accordance with Exhibit O of the
Partnership Agreement, as of the date of such distribution; and (z)
to the Limited Partners holding Series D Preferred Units, on account
of the Series D Preferred Units until the distributions made
pursuant to this Section 6.2(a)(i)(z) equals the total amount of
accrued but unpaid dividends (if any) payable with respect to the
Series D Preferred Units, in accordance with Exhibit P of the
Partnership Agreement, as of the date of such distribution.
(ii) Next, to the Partners, pro rata in accordance with the
--------
Partners' then Percentage Interests.
Neither the Partnership nor the Limited Partners shall have any
obligation to see that any funds distributed to the General Partner
pursuant to subparagraph (a)(i) of this Section 6.2 are in turn used by the
General Partner to pay dividends on the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock or the Series D
Preferred Stock (or any other Preferred Stock) or that funds distributed to
the General Partner pursuant to subparagraph (a)(ii) of this Section 6.2
are in turn used by the General Partner to pay dividends on the Common
Stock or for any other purpose."
9. Distributions in Kind. Section 8.5 of the Partnership Agreement
---------------------
is hereby amended by adding the following sentence to the end of such section:
"Notwithstanding the foregoing, the Liquidating Trustee shall not
distribute to the holders of Series B Partnership Units, Series C
Partnership Units, Series D Partnership Units, Series A Preferred Interest,
Series B Preferred Interest, Series C Preferred Interest Partnership and
Series D Preferred Interest assets other than cash."
10. Exhibit E. Exhibit E to the Partnership Agreement is hereby
--------- ---------
deleted in its entirety, and the attached Exhibit E is hereby inserted in the
---------
place thereof.
11. Exhibit N. Exhibit N is hereby amended by (i) inserting the
--------- ---------
language set forth in the provisos at the end of Section 2.I(ii)(ii) and at the
end of Section 2.I(ii) of Exhibit P in the corresponding positions at the end of
---------
Section 2.I(ii)(ii) and 2.I(ii) of Exhibit N; (ii) by deleting clause (y) of
---------
Section 2.G.(i) and inserting the following in lieu thereof: "(y) if at any time
full distributions shall not have been timely made on any outstanding Series B
Preferred Units with respect to any six (6) prior quarterly distribution
periods, whether or not consecutive, provided, however, that a distribution in
respect of Series B Preferred Units shall be considered
5
<PAGE>
timely made if made within two (2) Business Days after the applicable
Distribution Payment Date if at the time of such payment there shall not be
any prior quarterly distribution periods in respect of which full
distributions were not timely made and (iii) deleting the last sentence at the
end of Section 2.G(i) and inserting the following sentence in lieu thereof:
"The Series B Preferred Units will become exchangeable at any time in
whole or in part at the option of the holders of the Series B
Preferred Units if, at any time (i) the Partnership is advised by
independent counsel that, based on the assets and income of the
Partnership for a taxable year after 1999, the Partnership would not
satisfy the income and assets tests of Section 856 of the Code for
such taxable year if the Partnership were a real estate investment
trust within the meaning of the Code; or (ii) any holder of the Series
B Preferred Units shall deliver to the Partnership and the General
Partner an opinion of independent counsel reasonably acceptable to the
General Partner to the effect that, based on the assets and income
of the Partnership for a taxable year after 1999, the Partnership
would not satisfy the income and assets tests of Section 856 of the
Code for such taxable year if the Partnership were a real estate
investment trust within the meaning of the Code and that such failure
would create a meaningful risk that a holder of the Series B Preferred
Units would fail to maintain qualification as a real estate investment
trust within the meaning of the Code."
12. Exhibit O. Exhibit O is hereby amended by (i) inserting the
--------- ---------
language set forth in the provisos at the end of Section 2.I(ii)(ii) and at the
end of Section 2.I(ii) of Exhibit P in the corresponding positions at the end of
---------
Section 2.I(ii)(ii) and 2.I(ii) of Exhibit O; (ii) by deleting clause (y) of
---------
Section 2.G.(i) and inserting the following in lieu thereof: "(y) if at any time
full distributions shall not have been timely made on any outstanding Series C
Preferred Units with respect to any six (6) prior quarterly distribution
periods, whether or not consecutive, provided, however, that a distribution in
respect of Series C Preferred Units shall be considered timely made if made
within two (2) Business Days after the applicable Distribution Payment Date if
at the time of such payment there shall not be any prior quarterly distribution
periods in respect of which full distributions were not timely made and (iii)
deleting the last sentence at the end of Section 2(G(i) and inserting the
following sentence in lieu thereof:
"The Series C Preferred Units will become exchangeable at any time in
whole or in part at the option of the holders of the Series C
Preferred Units if, at any time (i) the Partnership is advised by
independent counsel that, based on the assets and income of the
Partnership for a taxable year after 1999, the Partnership would not
satisfy the income and assets tests of Section 856 of the Code for
such taxable year if the Partnership were a real estate investment
trust within the meaning of the Code; or (ii) any holder of the Series
C Preferred Units shall deliver to the Partnership and the General
Partner an opinion of independent counsel reasonably acceptable to the
General Partner to the effect that, based on the assets and income of
the Partnership for a taxable year after 1999, the Partnership would
6
<PAGE>
not satisfy the income and assets tests of Section 856 of the Code for
such taxable year if the Partnership were a real estate investment
trust within the meaning of the Code and that such failure would
create a meaningful risk that a holder of the Series C Preferred Units
would fail to maintain qualification as a real estate investment trust
within the meaning of the Code."
13. Exhibit P. The Partnership Agreement is hereby amended by adding
---------
a new exhibit, Exhibit P, a copy of which is attached hereto. Exhibit P is
--------- ---------
hereby inserted into the Partnership Agreement following Exhibit O.
---------
14. Continuing Effect of Partnership Agreement. Except as modified
------------------------------------------
herein, the Partnership Agreement is hereby ratified and confirmed in its
entirety and shall remain and continue in full force and effect, provided,
however, that to the extent there shall be a conflict between the provisions of
the Partnership Agreement and this Amendment the provisions in this Amendment
will prevail. All references in any document to the Partnership Agreement shall
mean the Partnership Agreement, as amended hereby.
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same agreement. Facsimile signatures shall be
deemed effective execution of this Agreement and may be relied upon as such by
the other party. In the event facsimile signatures are delivered, originals of
such signatures shall be delivered to the other party within three (3) business
days after execution.
7
<PAGE>
IN WITNESS WHEREOF, the General Partner and the Contributor have
executed this Amendment as of the date indicated above.
GENERAL PARTNER
ESSEX PROPERTY TRUST, INC.,
a Maryland corporation as General Partner of Essex
Portfolio, L.P. and on behalf of the existing
Limited Partners
By:______________________________________________
Name: Keith R. Guericke
Title: Chief Executive Officer & President
8
<PAGE>
CONTRIBUTORS:
BELCREST REALTY CORPORATION,
a Delaware corporation
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
BELAIR REAL ESTATE CORPORATION
a Delaware Corporation
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
9
<PAGE>
EXHIBIT A
PARTNERSHIP UNITS
(As of July 28, 1999)
PARTNERSHIP UNITS
-----------------
<TABLE>
<CAPTION>
Units
-----
<S> <C>
General Partner:
- ---------------
Essex Property Trust, Inc. 16,615,924
Limited Partners:
- ----------------
1. Essex Portfolio Management Company 15,941
2. Essex Property Corporation 9,909
3. GMMS Partners 43,414
4. M & M Projects, Inc. 128,138
5. SummerHill Homes 163,447
6. Paula Amanda 1,785
7. Robert and Margaret Arnold 2,242
8. Randall I. Barkan 2,564
9. David Bernstein Revocable Trust 5,771
10. John D. and Robbin Eudy 7,457
11. Kenneth and Angeliki Frangadakis 2,675
12. George and Katherine Frangadakis, Trustees 4,697
Frangadakis Family Revocable Trust
13. Kenneth and Angeliki Frangadakis, Trustees 24,334
Frangadakis Family Revocable Trust
14. Harvey Friedman 4,042
15. Harvey and Margaret Green 16,735
16. Keith R. and Thelma Guericke 48,116
17. George P. Katsoulis 5,000
18. Gerald E. and Annette Kelly 5,643
19. Nancy Kukkola 11,637
20. George M. Marcus 1,136,227
21. Meistrich Family Trust UTA 12/6/90 4,042
22. Charles E. Martin 1,785
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
23. William A. and Sherrie Millichap 73,099
24. J. Peter and Cherie Otten 9,447
25. Milton Pagonis 10,267
26. Gary Pagonis Family Trust 10,267
27. G. Michael Roark 54,740
28. Michael and Ann Schall 26,388
29. J. Lawrence Schnadig 1,729
30. J.A. Shafran 2,889
31. Swanson Survivors Trust 7,687
32. Linwood C. Thompson 1,278
33. The Way 1994 Living Trust Dtd. 11/2/94 2,226
34. Gay A. Yamagiwa 10,720
35. Craig K. Zimmerman 15,849
36. 280 Euclid Properties, Ltd. 135,260
37. El Molino Properties, Ltd. 138,652
7.875% SERIES B PREFERRED UNITS*
--------------------------------
Limited Partner:
- ---------------
Belair Real Estate Corporation 977,000
Belcrest Realty Corporation 623,000
9 1/8% SERIES C PREFERRED UNITS
-------------------------------
Limited Partner:
- ---------------
Belcrest Realty Corporation 420,000
Belair Real Estate Corporation 80,000
9.30% SERIES D PREFERRED UNITS
-------------------------------
Limited Partner:
- ---------------
Belcrest Realty Corporation 1,000,000
Belair Real Estate Corporation 1,000,000
TOTAL PARTNERSHIP UNITS: 22,862,023
</TABLE>
11
<PAGE>
Units
-----
- ---------------
EXHIBIT E
ALLOCATIONS
1. Allocation of Net Income and Net Loss.
-------------------------------------
(a) Net Income. Except as otherwise provided herein, Net Income for
----------
any fiscal year or other applicable period shall be allocated in the following
order and priority:
(1) First, to the Partners, until the cumulative Net Income
allocated pursuant to this subparagraph (a)(1) for the current and all prior
periods equals the cumulative Net Loss allocated pursuant to subparagraph (b)(2)
hereof for all prior periods, among the Partners in the reverse order that such
Net Loss was allocated to the Partners pursuant to subparagraph (b)(2) hereof
(and, in the event of a shift of a Partner's interest in the Partnership, to the
Partners in a manner that most equitably reflects the successors in interest to
the Partners).
(2) Thereafter, the balance of the Net Income, if any, shall be
allocated to the Partners in accordance with their respective Percentage
Interests.
(b) Net Loss. Except as otherwise provided herein, Net Loss of the
--------
Partnership for each fiscal year or other applicable period shall be allocated
as follows:
(1) To the Partners in accordance with their respective
Percentage Interests.
(2) Notwithstanding subparagraph (b)(1) hereof, to the extent
any Net Loss allocated to a Partner under subparagraph (b)(1) hereof or this
subparagraph (b)(2) would cause such Partner (hereinafter, a "Restricted
Partner") to have an Adjusted Capital Account Deficit as of the end of the
fiscal year to which such Net Loss relates, such Net Loss shall not be allocated
to such Restricted Partner and instead shall be allocated to the other
Partner(s) (hereinafter, the "Permitted Partners") pro rata in accordance with
their relative Percentage Interests.
(c) Notwithstanding Sections 1(a) and (b) above, on any date on which
any Series A Preferred Stock, any Series B Preferred Stock, any Series C
Preferred Stock, any Series D Preferred Stock or any Series B Preferred Unit,
any Series C Preferred Unit or any Series D Preferred Unit (or other Preferred
Stock or other Preferred Units) is outstanding, Net Income and Net Loss shall be
allocated as follows:
12
<PAGE>
(1) Net Income for any fiscal year or other applicable period
shall be allocated in the following order and priority:
(i) First, to the Partners, until the cumulative Net
Income allocated pursuant to this subparagraph (c)(1)(i) for the current and all
prior periods equals the cumulative Net Loss allocated pursuant to subparagraphs
(c)(2)(iii) and (iv) hereof for all prior periods, among the Partners in the
reverse order that such Net Loss was allocated (and, in the event of a shift of
a Partner's interest in the Partnership, to the Partners in a manner that most
equitably reflects the successors in interest to such Partners);
(ii) Second, to the General Partner, until the cumulative
Net Income allocated pursuant to this subparagraph (c)(1)(ii) for the current
and all prior periods equals the cumulative Net Loss allocated pursuant to
subparagraph (c)(2)(ii) hereof for all prior periods;
(iii) Third, on a pari passu basis, to (A) the General
----------
Partner until the cumulative amount of Net Income allocated pursuant to this
subparagraph (c)(1)(iii) equals the total amount of dividends paid on the Series
A Preferred Stock, the Series B Preferred Stock the Series C Preferred Stock and
the Series D Preferred Stock (and other Preferred Stock) as of or prior to the
date of such allocation plus the total amount of accrued but unpaid dividends on
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock (and other Preferred Stock) as
of such date; (B) to the holders of Series B Preferred Units until the
cumulative amount of Net Income allocated pursuant to this subparagraph
(c)(i)(iii) equals the total amount of Priority Return paid on the Series B
Preferred Units as of or prior to the date of such allocation plus the total
amount of accrued but unpaid Priority Return on the Series B Preferred Units;
(C) to the holders of Series C Preferred Units until the cumulative amount of
Net Income allocated pursuant to this subparagraph (c)(i)(iii) equals the total
amount of Priority Return paid on the Series C Preferred Units as of or prior to
the date of such allocation plus the total amount of accrued but unpaid Priority
Return on the Series C Preferred Units; and (D) to the holders of Series D
Preferred Units until the cumulative amount of Net Income allocated pursuant to
this subparagraph (c)(i)(iii) equals the total amount of Priority Return paid on
the Series D Preferred Units as of or prior to the date of such allocation plus
the total amount of accrued but unpaid Priority Return on the Series D Preferred
Units
(iv) Thereafter, the balance of the Net Income, if any,
shall be allocated to the Partners in accordance with their respective
Percentage Interests.
(2) Net Loss of the Partnership for each fiscal year or other
applicable period shall be allocated as follows:
(i) First, to the Partners in accordance with their
respective Percentage Interests until the Capital Account balances of the
Limited Partners (not including the
13
<PAGE>
holders of the Series B Preferred Units, the Series C Preferred Units and the
Series D Preferred Units) are reduced to zero (for purpose of this calculation,
such Partners' share of Partnership Minimum Gain shall be added back to their
Capital Accounts);
(ii) Second, on a pari passu basis, to (A) the General
----------
Partner until its Capital Account balance has been reduced to zero (for purpose
of this calculation, such Partner's share of Partnership Minimum Gain shall be
added back to its Capital Account); (B) to the holders of Series B Preferred
Units until their Capital Account balances have been reduced to zero (for
purpose of this calculation, such Partners' share of Partnership Minimum Gain
shall be added back to their Capital Accounts); (C) to the holders of Series C
Preferred Units until their Capital Account balances have been reduced to zero
(for purposes of this calculation, such Partners' share of Partnership Minimum
Gain shall be added back to their Capital Accounts); and (D) to the holders of
Series D Preferred Units until their Capital Account balances have been reduced
to zero (for purposes of this calculation, such Partners' share of Partnership
Minimum Gain shall be added back to their Capital Accounts);
(iii) Thereafter, to the Partners in accordance with their
then Percentage Interests;
(iv) Notwithstanding subparagraph (c)(2)(iii) hereof, to
the extent any Net Loss allocated to a Partner under subparagraph (c)(2) would
cause such Partner (hereinafter, a "Restricted Partner") to have an Adjusted
Capital Account Deficit as of the end of the fiscal year to which such Net Loss
relates, such Net Loss shall not be allocated to such Restricted Partner and
instead shall be allocated to the other Partner(s) (hereinafter, the "Permitted
Partners") pro rata in accordance with their relative Percentage Interests.
(d) Book-Up and Capital Account Adjustments. On any day on which
---------------------------------------
Series A Preferred Stock (or other Preferred Stock) is redeemed or converted
into Common Stock, the Partnership shall adjust the Gross Asset Values of all
Partnership assets to equal their respective gross fair market values and shall
allocate the amount of such adjustment as Net Income or Net Loss pursuant to
Section 1(c) hereof, provided, however, that if no Series A Preferred Stock (or
other Preferred Stock) is outstanding after such redemption or conversion, such
Net Income or Net Loss shall be allocated in such a manner that after such
allocation the Capital Accounts of the Partners are in proportion to their
Percentage Interests.
(e) Adjustment of Percentage Interests Upon Conversion of Convertible
-----------------------------------------------------------------
Preferred Stock to Common Stock. Upon the conversion of any Series A Preferred
- -------------------------------
Stock to Common Stock of the General Partner, the Percentage Interests of the
Partners shall be adjusted in accordance with the provisions of Article 4 of the
Partnership Agreement as if, on the date of such conversion, the General Partner
had made an additional Capital Contribution to the Partnership in an amount
equal to the number of shares of Common Stock issued as a result of such
conversion multiplied by the fair market value of such shares on the date of
conversion, and provided that in calculating such adjustments, the General
Partner shall be deemed not to have
14
<PAGE>
incurred any expenses in connection with raising the funds used to make such
additional Capital Contribution.
2. Special Allocations.
-------------------
Notwithstanding any provisions of paragraph 1 of this Exhibit E, the
following special allocations shall be made in the following order:
(a) Minimum Gain Chargeback (Nonrecourse Liabilities). If there is a
-------------------------------------------------
net decrease in Partnership Minimum Gain for any Partnership fiscal year (except
as a result of conversion or refinancing of Partnership indebtedness, certain
capital contributions or revaluation of the Partnership property as further
outlined in Regulation Sections 1.704-2(d)(4), (f)(2) or (f)(3)), each Partner
shall be specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to that Partner's share
of the net decrease in Partnership Minimum Gain. The items to be so allocated
shall be determined in accordance with Regulation Section 1.7042(f). This
paragraph (a) is intended to comply with the minimum gain chargeback requirement
in said section of the Regulations and shall be interpreted consistently
therewith. Allocations pursuant to this paragraph (a) shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant hereto.
(b) Minimum Gain Attributable to Partner Nonrecourse Debt. If there
-----------------------------------------------------
is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt
during any fiscal year (other than due to the conversion, refinancing or other
change in the debt instrument causing it to become partially or wholly
nonrecourse, certain capital contributions, or certain revaluations of
Partnership property as further outlined in Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to that Partner's
share of the net decrease in the Minimum Gain Attributable to Partner
Nonrecourse Debt. The items to be so allocated shall be deter-mined in
accordance with Regulation Section 1.704-2(i)(4) and (j)(2). This paragraph (b)
is intended to comply with the minimum gain chargeback requirement with respect
to Partner Nonrecourse Debt contained in said section of the Regulations and
shall be interpreted consistently therewith. Allocations pursuant to this
paragraph (b) shall be made in proportion to the respective amounts required to
be allocated to each Partner pursuant hereto.
(c) Qualified Income Offset. In the event a Limited Partner
-----------------------
unexpectedly receives any adjustments, allocations or distributions described in
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such Limited
Partner has an Adjusted Capital Account Deficit, items of Partnership income and
gain shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate the Adjusted Capital Account Deficit as quickly as
possible. This paragraph (c) is intended to constitute a "qualified income
offset" under Regulation Section 1.704-l(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
15
<PAGE>
(d) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
----------------------
year or other applicable period shall be allocated to the Partners in accordance
with their respective Percentage Interests.
(e) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
------------------------------
for any fiscal year or other applicable period shall be specially allocated to
the Partner that bears the economic risk of loss for the debt (i.e., the Partner
Nonrecourse Debt) in respect of which such Partner Nonrecourse Deductions are
attributable (as determined under Regulation Section 1.704-2(b)(4) and (i)(1)).
(f) Curative Allocations. It is the intent of the Partnership that,
--------------------
to the extent possible, the Capital Account balances of the Partners be in
proportion to the Partners' Percentage Interests. Thus, items of "book" income,
gain, loss, and deduction shall be allocated among the Partners so that, to the
extent possible, the resulting Partners' Capital Account balances bear this
relationship. This subparagraph (f) is intended to minimize to the extent
possible and to the extent necessary any economic distortions which may result
from application of the Regulatory Allocations and shall be interpreted in a
manner consistent therewith. For purposes hereof, "Regulatory Allocations"
shall mean the allocations provided under paragraph 1(b)(2) and this paragraph 2
(save subparagraphs (d) and (f) hereof).
3. Tax Allocations.
---------------
(a) Generally. Subject to paragraphs (b) and (c) hereof, items of
---------
income, gain, loss, deduction and credit to be allocated for income tax purposes
(collectively, "Tax Items") shall be allocated among the Partners on the same
basis as their respective book items.
(b) Sections 1245/1250 Recapture. If any portion of gain from the
----------------------------
sale of property is treated as gain which is ordinary income by virtue of the
application of Code Section 1245 or 1250 ("Affected Gain"), then (A) such
Affected Gain shall be allocated among the Partners in the same proportion that
the depreciation and amortization deductions giving rise to the Affected Gain
were allocated and (B) other Tax Items of gain of the same character that would
have been recognized, but for the application of Code Sections 1245 and/or 1250,
shall be allocated away from those Partners who are allocated Affected Gain
pursuant to Clause (A) so that, to the extent possible, the other Partners are
allocated the same amount, and type, of capital gain that would have been
allocated to them had Code Sections 1245 and/or 1250 not applied; provided,
however, that the net amount of Tax Items allocated to each Partner shall be the
same as if this paragraph 3(a) did not exist. For purposes hereof, in order to
determine the proportionate allocations of depreciation and amortization
deductions for each fiscal year or other applicable period, such deductions
shall be deemed allocated on the same basis as Net Income and Net Loss for such
respective period.
(c) Allocations Respecting Section 704(c) and Revaluations. If any
------------------------------------------------------
Partnership property is subject to Code Section 704(c) or is reflected in the
Capital Accounts of
16
<PAGE>
the Partners and on the books of the Partnership at a book value that differs
from the adjusted tax basis of such property, then the tax items with respect to
such property shall, in accordance with the requirements of Regulations Section
1.704-1(b)(4)(i), be shared among the Partners in a manner that takes account of
the variation between the adjusted tax basis of the applicable property and its
book value in the same manner as variations between the adjusted tax basis and
fair market value of property contributed to the Partnership are taken into
account in determining the Partners' share of tax items under Code Section
704(c). The General Partner is authorized to choose any reasonable method
permitted by the Regulations pursuant to Code Section 704(c), including the
"remedial allocation" method, the "curative allocation" method and the
traditional method; provided that the General Partner agrees to use reasonable
efforts to minimize the amount of taxable income in excess of book income
allocated to the holders of the Series B Preferred Units, the Series C Preferred
Units and the Series D Preferred Units.
(d) Code Section 752 Specification. Pursuant to Regulations Section
------------------------------
1.752-3, the Partners' interest in Partnership profits for purposes of
determining the Partners' shares of excess nonrecourse liabilities shall be
their Percentage Interests.
17
<PAGE>
EXHIBIT M
ADDRESSES OF PARTNERS
PARTNERSHIP UNIT HOLDERS
------------------------
<TABLE>
<S> <C>
Essex Portfolio Management Company Essex Property Corporation
777 California Avenue 777 California Avenue
Palo Alto, CA 94304 Palo Alto, CA
GMMS Partners M & M Projects, Inc.
777 California Avenue 777 California Avenue
Palo Alto, CA 94304 Palo Alto, CA 94304
SummerHill Homes Paula Amanda
777 California Avenue 1001 Bridgeway #460
Palo Alto, CA 94304 Sausalito, CA 94965
Robert and Margaret Arnold Randall I. Barkan
460 Marlowe 777 California Avenue
Palo Alto, CA 94301 Palo Alto, CA 94304
Belair Capital Fund LLC David Bernstein, Trustee
c/o Eaton Vance Management David Bernstein Revocable Trust
24 Federal Street 8773 Midnight Pass Road #406
Boston, Massachusetts 02110 Sarasota, FL 34242
Attention: Mr. Alan Dynner
Fax: 617-338-8054
Kenneth and Angeliki Frangadakis John D. and Robbin Eudy
10383 Torre Avenue 777 California Avenue
Cupertino, CA 95014 Palo Alto, CA 94304
Kenneth and Angeliki Frangadakis, Trustees George and Katherine Frangadakis, Trustees
Frangadakis Family Revocable Trust Frangadakis Family Revocable Trust
10383 Torre Avenue 7408 Fallenleaf Lane
Cupertino, CA 95014 Cupertino, CA 95014
Keith R. and Thelma Guericke Harvey Friedman
14341 Lutheria Way 720 Rochedale Way
Saratoga, CA 95070 Los Angeles, CA 90049
Gerald E. and Annette Kelly Harvey and Margaret Green
1517 Kalmia Street 12243 Huston Street
San Mateo, CA 94402 N. Hollywood, CA 91607
- ---------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
Charles E. Martin George P. Katsoulis
1001 Bridgeway # 134 3300 Webster Street #612
Sausalito, CA 94965 Oakland, CA 94609
J. Peter and Cherie Otten Nancy Kukkola
250 El Bonito Way 123 Greenmeadow Way
Millbrae, CA 94030 Palo Alto, CA 94306
Gary and Elisa Pagonis, Trustees George M. Marcus
Gary Pagonis Family Trust 777 California Avenue
10383 Torre Avenue, Suite 1 Palo Alto, CA 94304
Cupertino, CA 95014
Michael and Ann Schall Herbert Meistrich
1544 Sioux Court 1320 W. Muirlands Drive
Fremont, CA 94539 La Jolla, CA 92037
William A. and Sherrie Millichap G. Michael Roark
2626 Hanover P.O. Box 2767
Palo Alto, CA 94304 Sausalito, CA 94966
Milton Pagonis Roger and Anita Swanson, Trustees
10383 Torre Avenue, Suite 1 Swanson Survivors Trust
Cupertino, CA 95014 889 Norfolk Pine Avenue
Sunnyvale, CA 94087
J.A. Shafran J. Lawrence Schnadig
30360 Morning View Drive 833 MOraga Drive #6
Malibu, CA 90265 Los Angeles, CA 90049
Linwood C. Thompson J.A. Shafran
Marcus & Millichap 30360 Morning View Drive
8750 W. Bryn Mawr #750 Malibu, CA 90265
Chicago, IL 60631
Gay A. Yamagiwa Stephen and Patricia Way, Trustees
341 Seville The Way 1994 Living Trust Dtd. 11/2/94
San Mateo, CA 94402 338 Georgetown Avenue
San Mateo, CA 94402
Belcrest Realty Corporation Craig K. Zimmerman
c/o Eaton Vance Management 409 Georgetown Avenue
The Eaton Vance Building San Mateo, CA 94402
255 State Street
Boston, MA 02109
Attn: Mr. Alan Dynner
- ---------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Belair Real Estate Corporation
c/o Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, MA 02109
Attn: Mr. Alan Dynner
El Molino Properties, Ltd.
c/o Richard J. Lauter & Company
11801 Washington Boulevard
Los Angeles, CA 90066
280 Euclid Properties, Ltd.
c/o Richard J. Lauter & Company
11801 Washington Boulevard
Los Angeles, CA 90066
20
<PAGE>
EXHIBIT P
DESCRIPTION OF PREFERENCES, OTHER RIGHTS, VOTING POWERS,
RESTRICTIONS, LIMITATIONS AS TO DISTRIBUTIONS, QUALIFICATIONS AND
TERMS AND CONDITIONS OF REDEMPTION
OF THE
SERIES D PREFERRED UNITS
1. Definitions.
In addition to those terms defined in the Agreement, the following
definitions shall be for all purposes, unless otherwise clearly indicated to the
contrary, applied to the terms used in the Agreement and this Exhibit P:
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York, New
York are not required to be open.
"Distribution Payment Date" shall have the meaning set forth in
Section 2(c) hereof.
"Parity Units" means (i) the Series A Preferred Interest, (ii) the
Series B Preferred Interest, (iii) the Series C Preferred Interest, (iv) the
Series D Preferred Interest and (v) any class or series of Partnership Interests
of the Partnership now or hereafter authorized, issued or outstanding expressly
designated by the Partnership to rank on a parity with Series D Preferred Units
with respect to distributions or rights upon voluntary or involuntary
liquidation, winding-up or dissolution of the Partnership, or both, as the
context may require.
"Priority Return" means, an amount equal to 9.30% per annum,
determined on the basis of a 360 day year of twelve 30 day months (and for any
period shorter than a full quarterly period for which distributions are
computed, the amount of distribution payable will be computed based on the ratio
of the actual number of days elapsed in such quarterly period to ninety (90)
days), cumulative to the extent not distributed for any given distribution
period pursuant to Section 6.2(a) of the Partnership Agreement, of the stated
value of $25 per Series D Preferred Unit, commencing on the date of issuance of
the Series D Preferred Units.
"Series D Preferred Stock" means the 9.30% Series D Cumulative
Redeemable Preferred Stock (liquidation preference $25.00 per share), $.0001 par
value, issued by the General Partner.
"Series D Preferred Unit" means a Partnership Unit issued by the
Partnership to certain Persons. The Series D Partnership Units shall constitute
a series of Partnership Units. The Series D Preferred Units shall have the
preferences, conversion and other rights, voting
21
<PAGE>
powers, restrictions, limitations as to distributions, qualifications and terms
and conditions of redemption as are set forth in this Exhibit P.
"set apart for payment" shall mean irrevocably placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
2. Terms of Series D Preferred Units.
A. Number. The number of authorized Series D Preferred Units shall be
------
2,000,000.
B. Ranking. The Series D Preferred Units will, with respect to
-------
distributions and rights upon voluntary or involuntary liquidation, winding-up
or dissolution of the Partnership, rank senior to all classes or series of
Partnership Interests (as defined in the Partnership Agreement) of the
Partnership now or hereafter authorized, issued or outstanding, other than (i)
the Series A Preferred Interest, the Series B Preferred Interest, the Series C
Preferred Interest and the Series D Preferred Interest, with which it shall rank
on a parity, and (ii) any class or series of Partnership Interests or
Partnership Units expressly designated as ranking on a parity with or senior to
the Series A Preferred Units, Series B Preferred Units, Series C Preferred Units
and Series D Preferred Units as to distributions and rights upon voluntary or
involuntary liquidation, winding-up or dissolution of the Partnership.
C. Distributions.
-------------
(i) Subject to the rights of the holders of the Parity Units as to the
payments of distributions, holders of Series D Preferred Units will be entitled
to receive, when, as and if declared by the Partnership, acting through the
Company as the sole general partner of the Partnership, cumulative preferential
cash distributions at the rate per annum of 9.30% of the original Capital
Contribution per Series D Preferred Unit. Distributions shall be cumulative,
shall accrue from the original date of issuance (the "Issue Date") and shall be
payable (A) quarterly in arrears (such quarterly periods, for purposes of
payment and accrual shall be the quarterly periods ending on the dates specified
in this sentence and not calendar quarters), on the 15th day of February, May,
August and November of each year and (B) in the event of (i) an exchange of
Series D Preferred Units into shares of Series D Preferred Stock, or (ii) upon a
redemption of Series D Preferred Units, on the exchange date or redemption date
(each a "Distribution Payment Date"), commencing on August 15, 1999. The amount
of distributions payable for any period will be computed on the basis of a 360-
day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed based on the ratio of the actual number of
days elapsed in such quarterly period to ninety (90) days. If any date on which
distributions are to be made on the Series D Preferred Units is not a Business
Day, then payment of the distribution to be made on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
22
<PAGE>
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. Distributions on the Series D Preferred Units will be
made to the holders of record of the Series D Preferred Units on the relevant
record dates, which, unless otherwise provided by the Company with respect to
any distribution, will be 15 Business Days prior to the relevant Distribution
Payment Date.
(ii) No distributions on the Series D Preferred Units shall be
declared or paid or set apart for payment by the Partnership at such time as the
terms and provisions of any agreement of the Partnership, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, of
if such declaration, payment or setting apart for payment shall be restricted or
prohibited by law.
(iii) Notwithstanding the foregoing, distributions on the Series D
Preferred Units will accrue whether or not the terms and provisions set forth in
Section 2.C(ii) hereof at any time prohibit the current payment of
distributions, whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such distributions and whether or not
such distributions are authorized. Accrued but unpaid distributions on the
Series D Preferred Units will accumulate as of the Distribution Payment Date on
which they first become payable. Accumulated and unpaid distributions will not
bear interest.
(iv) So long as any Series D Preferred Unit is outstanding, no
distribution of cash or other property shall be authorized, declared, paid or
set apart for payment on or with respect to any class or series of Partnership
Interests ranking junior to the Series D Preferred Units as provided in this
Section 2 (such Partnership Interests, collectively, "Junior Units"), nor shall
any cash or other property be set aside for or applied to the purchase,
redemption or other acquisition for consideration of any Series D Preferred
Units, any Parity Units with respect to distributions or any Junior Units,
unless, in each case, all distributions accumulated on all Series D Preferred
Units and all classes and series of outstanding Parity Units as to payment of
distributions have been paid in full. The foregoing sentence will not prohibit
(i) distributions payable solely in Junior Units, (ii) the conversion of Junior
Units or Parity Units into Common Stock or Preferred Stock of the Company in
accordance with the exchange rights of such Junior Units or Parity Units, or
(iii) the redemption, purchase or other acquisition of Junior Units made for
purposes of and in compliance with requirements of an employee incentive or
benefit plan of the Company or any subsidiary of the Partnership or the Company.
(v) So long as distributions have not been paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Series D
Preferred Units, all distributions authorized and declared on the Series D
Preferred Units and all classes or series of outstanding Parity Units shall be
authorized and declared so that the amount of distributions authorized and
declared per share of Series D Preferred Units and such other classes or series
of Parity Units shall in all cases bear to each other the same ratio that
accrued distributions per share on the Series D Preferred Units and such other
classes or series of Parity Units (which shall not include
23
<PAGE>
any accumulation in respect of unpaid distributions for prior distribution
periods if such class or series of Parity Units do not have cumulative
distribution rights) bear to each other.
(vi) Holders of Series D Preferred Units shall not be entitled to
any distributions, whether payable in cash, other property or otherwise, in
excess of the full cumulative distributions described herein.
D. Allocation of Net Income.
------------------------
With respect to the Series D Preferred Units, the net income of the
Partnership will be allocated as provided in Exhibit E to the Partnership
Agreement.
E. Liquidation.
-----------
Subject to the rights of holders of any series of Parity Units with
respect to rights upon any voluntary or involuntary liquidation dissolution or
winding-up of the Partnership, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Partnership, the holders of the Series D
Preferred Units will be entitled to receive out of the assets of the Partnership
legally available for distribution or the proceeds thereof, after payment or
provision for debts and other liabilities of the Partnership, an amount equal to
their respective Capital Account balances. Written notice of any such voluntary
or involuntary liquidation, dissolution or winding-up of the Partnership,
stating the payment date or dates when, and the place or places where, the
amounts distributable in such circumstances shall be payable, shall be given by
(i) fax and (ii) by first class mail, postage pre-paid, not less than 30 and not
more than 60 days prior to the payment date stated therein, to each record
holder of the Series D Preferred Units at the respective addresses of such
holders as the same shall appear on the transfer records of the Partnership.
Without limiting Section 2.I hereof, the consolidation or merger of the
Partnership with or into any corporation, trust or other entity (or of any
corporation, trust or other entity with or into the Partnership) shall not be
deemed to constitute a liquidation, dissolution, winding-up or termination of
the Partnership.
F. Optional Redemption.
-------------------
(i) The Series D Preferred Units may not be redeemed prior to July
28, 2004. On or after such date, subject to the terms and conditions of any
Parity Preferred Stock or any Parity Units, the Partnership shall have the right
to redeem the Series D Preferred Units, in whole or in part, from time to time,
upon not less than 30 nor more than 60 days' notice, at a redemption price,
payable in cash, equal to the Capital Account balance of such holders of Series
D Preferred Units (the "Redemption Price"); provided; however that such
redemption shall not be permitted if such Redemption Price shall be less than
the original Capital Contribution of such Partner and the cumulative Priority
Return to the redemption date to the extent not previously distributed.
24
<PAGE>
(ii) Except in connection with a liquidation, dissolution, winding-
up or termination of the Partnership as described under "Liquidation" above, the
Redemption Price of the Series D Preferred Units (other than the portion thereof
consisting of accumulated but unpaid distributions) will be payable solely out
of the sale proceeds of capital stock of the Company, which will be contributed
by the Company to the Partnership as an additional capital contribution, or out
of the sale proceeds of limited partner interests of the Partnership and from no
other source. Unless previously redeemed, the Series D Preferred Units will be
redeemed for cash upon termination of the Partnership. Unless sooner dissolved,
the Partnership will terminate on December 31, 2054. The Series D Preferred
Units will not be subject to any sinking fund.
(iii) If the Partnership gives a notice of redemption in respect of
Series D Preferred Units (which notice will be irrevocable) then, by 12:00 noon,
New York City time, on the redemption date, the Partnership will deposit
irrevocably in trust for the benefit of the Series D Preferred Units being
redeemed funds sufficient to pay the applicable Redemption Price and will give
irrevocable instructions and authority to pay such Redemption Price to the
holders of the Series D Preferred Units. On and after the date of redemption,
distributions will cease to accumulate on the Series D Preferred Units or
portions thereof called for redemption, unless the Partnership defaults in the
payment thereof. If any date fixed for redemption of Series D Preferred Units
is not a Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date fixed for redemption. If payment of the Redemption
Price in respect of the Series D Preferred Units is improperly withheld or
refused and not paid by the Partnership, distributions on such Series D
Preferred Units will continue to accumulate from the original redemption date to
the date of payment, in which case the actual payment date will be considered
the date fixed for redemption for purposes of calculating the applicable
Redemption Price. If fewer than all the Series D Preferred Units are to be
redeemed, the Series D Preferred Units to be redeemed shall be selected pro rata
(as nearly as practicable without creating fractional units).
(iv) The Partnership may not redeem fewer than all the outstanding
Series D Preferred Units unless all accumulated and unpaid distributions have
been paid on all Series D Preferred Units for all quarterly distribution periods
terminating on or prior to the date of redemption.
(v) Notice of redemption will be (i) faxed, and (ii) mailed by the
Partnership, postage prepaid, not less than 30 nor more than 60 days prior to
the redemption date, addressed to the respective holders of record of the Series
D Preferred Units to be redeemed at their respective addresses as they appear on
the transfer records of the Partnership. No failure to give or defect in such
notice shall affect the validity of the proceedings for the redemption of any
Series D Preferred Units except as to the holders to whom notice was defective
or not given. Each notice shall state: (i) the redemption date, (ii) the
Redemption Price, (iii) the number of
25
<PAGE>
Series D Preferred Units to be redeemed; (iv) the place or places where the
Series D Preferred Units are to be surrendered for payment of the Redemption
Price; (v) that distributions on the Series D Preferred Units to be redeemed
will cease to accumulate on such redemption date and (vi) that payment of the
Redemption Price will be made upon presentation and surrender of such Series D
Preferred Units. If fewer than all of the Series D Preferred Units held by any
holder are to be redeemed, the notice mailed to such holder shall also specify
then number of Series D Preferred Units to be redeemed from such holder.
G. Exchange Rights.
---------------
(i) Unless called for redemption as described above under "Optional
Redemption," Series D Preferred Units will be exchangeable in whole or in part
at anytime on or after the tenth anniversary of the Issue Date, at the option of
the holders thereof, for authorized but previously unissued shares of the
Company's Series D Preferred Stock at an exchange price of $25.00 per share of
Series D Preferred Stock (equivalent to an exchange rate of one share of Series
D Preferred Stock for each Series D Preferred Unit), subject to adjustment as
described below (the "Exchange Price"), provided that the Series D Preferred
Units will become immediately exchangeable at any time in whole or in part at
the option of the holders for Series D Preferred Units (y) if at any time full
distributions shall not have been timely made on any outstanding Series D
Preferred Units with respect to any six (6) prior quarterly distribution
periods, whether or not consecutive, provided, however, that a distribution in
respect of Series D Preferred Units shall be considered timely made if made
within two (2) Business Days after the applicable Distribution Payment Date if
at the time of such payment there shall not be any prior quarterly distribution
periods in respect of which full distributions were not timely made or (z) upon
receipt by holders of Series D Preferred Units of (A) notice from the General
Partner that the General Partner or a subsidiary of the General Partner has
taken the position that the Partnership is, or upon the occurrence of a defined
event in the immediate future will be a "publicly traded partnership" (a "PTP")
within the meaning of Section 7704 of the Internal Revenue Code of 1986, as
amended, and (B) an opinion rendered by independent counsel to the General
Partner familiar with such matter (or, in the event of a conflict, other
reputable independent counsel designated by such General Partner counsel),
addressed to a holder or holders of Series D Preferred Units, that the
Partnership is, or likely is, or upon the occurrence of a defined event in the
immediate future will be or likely will be, a PTP. Series D Preferred Units may
be exchanged for Series D Preferred Stock in whole or in part at the option of
any holder prior to the tenth anniversary of the Issue Date and after the third
anniversary thereof if such holder delivers to the Partnership and the Company
either (i) a private letter ruling addressed to a holder of Series D Preferred
Units or (ii) an opinion of independent counsel reasonably acceptable to the
Company based on the enactment of temporary or final Treasury Regulations or the
publication of a Revenue Ruling, in either case to the effect that an exchange
of the Series D Preferred Units at such earlier time would not cause the Series
D Preferred Units to be considered "stock and securities" within the meaning of
section 351(e) of the Code for purposes of determining whether the holder of
such Series D Preferred Units is an "investment company" under section 721(b) of
the Code if an exchange is permitted at such earlier date. The Series D
26
<PAGE>
Preferred Units will become exchangeable in whole or in part at the option of
the holders of the Series D Preferred Units if, at any time (i) the Partnership
is advised by independent counsel that, based on the assets and income of the
Partnership for a taxable year after 1999, the Partnership would not satisfy the
income and assets tests of Section 856 of the Code for such taxable year if the
Partnership were a real estate investment trust within the meaning of the Code;
or (ii) any holder of the Series D Preferred Units shall deliver to the
Partnership and the Company an opinion of independent counsel reasonably
acceptable to the Company to the effect that, based on the assets and income of
the Partnership for a taxable year after 1999, the Partnership would not satisfy
the income and assets tests of Section 856 of the Code for such taxable year if
the Partnership were a real estate investment trust within the meaning of the
Code and that such failure would create a meaningful risk that a holder of the
Series D Preferred Units would fail to maintain its qualification as a real
estate investment trust within the meaning of the Code.
(ii) Notwithstanding anything to the contrary set forth in 2.G(i),
if an Exchange Notice (as defined herein) has been delivered to the General
Partner, then the General Partner may, at its option, elect to redeem or cause
the Partnership to redeem all or a portion of the outstanding Series D Preferred
Units for cash in an amount equal to the original Capital Contribution per
Series D Preferred Unit and all accrued and unpaid distributions thereon to the
date of redemption. The General Partner may exercise its option to redeem the
Series D Preferred Units for cash pursuant to this 2.G(ii) by giving each holder
of record of Series D Preferred Units notice of its election to redeem for cash,
within fifteen (15) Business Days after receipt of the Exchange Notice, by (i)
fax, and (ii) registered mail, postage paid, at the address of each holder as it
may appear on the records of the Partnership stating (i) the redemption date,
which shall be no later than sixty (60) days following the receipt of the
Exchange Notice, (ii) the Redemption Price, (iii) the place or places where the
Series D Preferred Units are to be surrendered for payment of the Redemption
Price, (iv) that distributions on the Series D Preferred Units will cease to
accrue on such redemption date; (v) that payment of the Redemption Price will be
made upon presentation and surrender of the Series D Preferred Units and (vi)
the aggregate number of Series D Preferred Units to be redeemed, and if fewer
than all of the outstanding Series D Preferred Units are to be redeemed, the
number of Series D Preferred Units to be redeemed held by such holder, which
number shall equal such holder's pro rata share (based on the percentage of the
aggregate number of outstanding Series D Preferred Units the total number of
Series D Preferred Units held by such holder represents) of the aggregate number
of Series D Preferred Units being redeemed. The redemption of Series D Preferred
Units described in this Section 2.G(iii) shall be subject to the provisions of
Section 2.F.(ii) and (iii); provided, however, that the term "Redemption Price"
in such Sections shall be read to mean the original Capital Contribution per
Series D Preferred Unit being redeemed plus all accrued and unpaid distributions
to the redemption date.
(iii) In the event an exchange of all or a portion of the Series D
Preferred Units pursuant to Section 2.G(i) would violate the Ownership Limit of
the General Partner set forth in Article EIGHTH of the Charter, the General
Partner will give written notice thereof to each holder of record of Series D
Preferred Units exercising such exchange right, within fifteen (15)
27
<PAGE>
Business Days following receipt of the Exchange Notice, by (i) fax, and (ii)
mail, postage prepaid, at the address of each such holder set forth in the
records of the Partnership. In such event, each holder of Series D Preferred
Units exercising its exchange right, shall be entitled to exchange a number of
Series D Preferred Units which would comply with the Ownership Limit of the
General Partner set forth in Article EIGHTH of the Charter and any Series D
Preferred Units not so exchanged (the "Excess Units") shall be redeemed by the
Partnership for cash in an amount equal to the original Capital Contribution per
Excess Unit, plus any accrued and unpaid distributions thereon to the date of
redemption. The written notice of the General Partner shall state (i) the number
of Excess Units held by such holder, (ii) the Redemption Price of the Excess
Units, (iii) the date on which such Excess Units shall be redeemed, which date
shall be no later than ninety (90) days following the receipt of the Exchange
Notice, except as provided below, (iv) the place or places where such Excess
Units are to be surrendered for payment of the Redemption Price, (iv) that
distributions on the Excess Units will cease to accrue on such redemption date,
and (v) that payment of the Redemption Price will be made upon presentation and
surrender of such Excess Units. The redemption of Series D Preferred Units
described in this Section 2.G(iii) shall be subject to the provisions of Section
2.F(ii) and (iii); provided, however, that the term "Redemption Price" in such
Sections shall be read to mean the original Capital Contribution per Series D
Preferred Unit being redeemed plus all accrued and unpaid distributions to the
redemption date. The Partnership may at its option delay the payment of cash to
effect redemption of Series D Preferred Units pursuant to this Section 2.G(iii)
for up to two hundred seventy (270) days following the end of the 90 day period
set forth in clause (iii) above of this Section 2.G(iii), provided that during
such two hundred seventy (270) day period, the General Partner shall pay, in
addition to the Redemption Price of the Excess Units and any accrued and unpaid
distribution with respect to the Excess Units, to the holder of such Excess
Units an amount equal to 1 1/4% per annum of the original Capital Contribution
per such Excess Unit from the end of such 90 day period through the date of
redemption.
(iv) Any exchange shall be exercised pursuant to a notice of
exchange (the "Exchange Notice") delivered to the General Partner by the holder
who is exercising such exchange right, by (i) fax, and (ii) by mail, postage
prepaid. The exchange of Series D Preferred Units, or a specified portion
thereof, may be effected after the fifteenth (15th) Business Day following
receipt by the General Partner of the Exchange Notice by delivering
certificates, if any, representing such Series D Preferred Units to be exchanged
together with written notice of exchange and a proper assignment of such Series
D Preferred Units to the office of the Company maintained for such purpose.
Currently, such office is Essex Property Trust, Inc., 925 E. Meadow Drive, Palo
Alto, California 94303.
(v) Each exchange will be deemed to have been effected immediately
prior to the close of business on the date on which such Series D Preferred
Units to be exchanged (together with all required documentation) shall have been
surrendered and notice shall have been received by the Company as aforesaid and
the exchange shall be at the Exchange Price in effect at such time and on such
date. The right to exchange Series D Preferred Units called for
28
<PAGE>
redemption will terminate upon receipt by the holder of such Series D Preferred
Units of a notice of redemption from the Partnership that pertains to such
Series D Preferred Units.
(vi) In the event of an exchange of Series D Preferred Units into
shares of Series D Preferred Stock, an amount equal to the accrued and unpaid
distributions to the date of exchange on any Series D Preferred Units tendered
for exchange shall accrue on the shares of the Series D Preferred Stock into
which such Series D Preferred Units are exchanged and the Series D Preferred
Units so exchanged shall no longer be outstanding.
(vii) Fractional shares of Series D Preferred Stock are not to be
issued upon exchange but, in lieu thereof, the Company will pay a cash
adjustment based upon the fair market value of the Series D Preferred Stock on
the day prior to the exchange date as determined in good faith by the Board of
Directors of the Company.
H. Exchange Price Adjustments.
--------------------------
(i) The Exchange Price is subject to adjustment upon certain
events, including (i) subdivisions, combinations and reclassification of the
Series D Preferred Stock, and (ii) distributions to all holders of Series D
Preferred Stock of evidences of indebtedness of the Company or assets (including
securities, but excluding dividends and distributions paid in cash out of equity
applicable to the Series D Preferred Stock). In addition to the foregoing
adjustments, the Company will be permitted to make such reduction in the
Exchange Price as it considers to be advisable in order that any event treated
for Federal income tax purposes as a dividend of stock or stock rights will not
be taxable to the holders of the Common Stock.
(ii) In case the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, statutory share
exchange, tender offer for all or substantially all of the Company's capital
stock or sale of all or substantially all of the Company's assets), in each case
as a result of which the Series D Preferred Stock will be converted into the
right to receive shares of capital stock, other securities or other property
(including cash or any combination thereof), each Series D Preferred Unit, will
thereafter be exchangeable into the kind and amount of shares of capital stock
and other securities and property receivable (including cash or any combination
thereof) upon the consummation of such transaction by a holder of that number of
shares of Series D Preferred Stock or fraction thereof into which one Series D
Preferred Unit was exchangeable immediately prior to such transaction. The
Company may not become a party to any such transaction unless the terms thereof
are consistent with the foregoing.
(iii) No adjustment of the Exchange Price is required to be made in
any case until cumulative adjustments amount to 1% or more of the Exchange
Price. Any adjustments not so required to be made will be carried forward and
taken into subsequent adjustments.
29
<PAGE>
I. Voting Rights.
-------------
(i) Holders of the Series D Preferred Units will not have any voting
rights or rights to consent to any matters, except as set forth below.
(ii) So long as any Series D Preferred Units remains outstanding, the
Partnership shall not, without the affirmative vote of the holders of at least
two-thirds (2/3) of the Series D Preferred Units outstanding at the time (i)
authorize or create, or increase the authorized or issued amount of, any class
or series of Partnership Interests ranking prior to the Series D Preferred Units
with respect to payment of distributions or rights upon liquidation, dissolution
or winding-up or reclassify any Partnership Interests of the Partnership into
any such Partnership Interest, or create, authorize or issue any obligations or
security convertible into or evidencing the right to purchase any such
Partnership Interest (ii) amend, alter or repeal the provisions of the
Partnership Agreement, whether by merger, consolidation or otherwise, that would
materially and adversely affect the powers, special rights, preferences,
privileges or voting power of the Series D Preferred Units or the holders
thereof, provided that any increase in the amount of Partnership Interests or
the creation or issuance of any other class or series of Partnership Interests
ranking junior to or on a parity with the Series D Preferred Units with respect
to payment of distributions and the distribution of assets upon liquidation,
dissolution or winding up shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers; provided that, with
respect to Parity Preferred Units issued to any "affiliate" of the Partnership
(as such term is defined in Rule 144 of the General Rules and Regulations under
the Securities Act of 1933), such Parity Preferred Units are issued with the
consent of the majority of the independent directors of the General Partner's
board of directors (i.e., directors who are not (i) officers or employees of the
General Partner or its affiliates or (ii) related to any such officers or
employees), or (iii) consolidate, amalgamate, merge into or with, or convey,
transfer or lease its assets substantially as an entirety to, any General
Partner or other entity, unless (a) the Partnership is the surviving entity and
the Series D Preferred Units remain outstanding with the terms thereof
unchanged, (b) the resulting surviving or transferee entity is a partnership,
limited liability company or other pass-through entity organized under the laws
of any state and substitutes the Series D Preferred Units for other interests in
such entity having substantially the same terms and rights as the Series D
Preferred Units, including with respect to distributions, voting rights and
rights upon liquidation, dissolution or winding-up, or (c) such merger,
consolidation, amalgamation or asset transfer does not adversely affect the
powers, special rights, preferences and privileges of the holders of the Series
D Preferred Units in any material respect. However, the Partnership may create
additional classes and series of Parity Units and Junior Units, increase the
authorized number of Parity Units and Junior Units and issue additional classes
and series of Parity Units and Junior Units without the consent of any holders
of Series D Preferred Units; provided that, with respect to Parity Preferred
Units issued to any "affiliate" of the Partnership (as such term is defined in
Rule 144 of the General Rules and Regulations under the Securities Act of 1933),
such Parity Preferred Units are issued with the consent of the majority of the
independent directors of the General Partner's board of directors
30
<PAGE>
(i.e., directors who are not (i) officers or employees of the General Partner or
its affiliates or (ii) related to any such officers or employees).
J. Restrictions on Ownership and Transfer.
--------------------------------------
Each holder of the Series D Preferred Units shall be permitted to
transfer its Partnership Units if such transfer is in accordance with the
provisions and restrictions on Transfers of Limited Partnership Interests set
forth in Sections 9.2 and 9.3(b) of the Partnership Agreement; provided,
however, that upon any Transfer by a holder of Series D Preferred Units to any
Controlled Entity, such transferee shall, subject to compliance with Section 9.3
and clauses (A), (B) and (D) of Section 9.2 of the Partnership Agreement, be
admitted as a Substituted Limited Partner.
IN WITNESS WHEREOF, the General Partner and the Contributor have
executed this Amendment as of the date indicated above.
GENERAL PARTNER ESSEX PROPERTY TRUST, INC., a
Maryland corporation as General Partner of Essex
Portfolio, L.P. and on behalf of the existing
Limited Partners
By:_____________________________________________
Name: Keith R. Guericke
Title: Chief Executive Officer & President
CONTRIBUTOR:
BELCREST REALTY CORPORATION a
Delaware corporation
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
31
<PAGE>
BELAIR REAL ESTATE CORPORATION a
Delaware Corporation
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Essex
Portfolio, L.P. report for the six months ended June 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 18,396
<SECURITIES> 0
<RECEIVABLES> 25,225
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,347
<PP&E> 1,042,912
<DEPRECIATION> 90,030
<TOTAL-ASSETS> 1,016,825
<CURRENT-LIABILITIES> 54,300
<BONDS> 440,485
0
1
<COMMON> 2
<OTHER-SE> 380,966
<TOTAL-LIABILITY-AND-EQUITY> 1,016,825
<SALES> 0
<TOTAL-REVENUES> 68,789
<CGS> 0
<TOTAL-COSTS> 32,189
<OTHER-EXPENSES> 2,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,184
<INCOME-PRETAX> 23,710
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,710
<DISCONTINUED> 0
<EXTRAORDINARY> 90
<CHANGES> 0
<NET-INCOME> 23,620
<EPS-BASIC> 0.97
<EPS-DILUTED> 0.96
</TABLE>
