ESSEX PROPERTY TRUST INC
10-Q, 1997-05-13
REAL ESTATE INVESTMENT TRUSTS
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<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 March 31, 1997

                                      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. 1-13106

                          ESSEX PROPERTY TRUST, INC.
            (Exact name of Registrant as specified in its Charter)

          Maryland                                    77-0369576
  (State or other jurisdiction                     (I.R.S.Employer
of incorporation or organization)                 Identification No.)


              777 CALIFORNIA AVENUE, PALO ALTO, CALIFORNIA 94304
                   (Address of principal executive offices)
                                  (Zip code)

                                (415) 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 
                                       ---     ---


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:


                        13,599,616 shares of Common Stock
                              as of April 30, 1997


                                  Page 1 of 77
<PAGE>
 
                                     INDEX

Exhibit
Number   Description                                                Page Number
- -------  -----------                                                -----------

PART I:  FINANCIAL INFORMATION
- ------   ---------------------

Item 1:  Financial Statements (Unaudited)                                3

         Condensed Consolidated Balance Sheets
         as of March 31, 1997 and December 31, 1996                      4
      
         Condensed Consolidated Statements of Operations
         for the three months ended March 31, 1997 and 1996              5

         Condensed Consolidated Statements of Stockholders'
         Equity for the three months ended March 31, 1997                6
         and the year ended December 31, 1996
     
         Condensed Consolidated Statements of Cash Flows
         for the three months ended March 31, 1997 and 1996              7
     
         Notes to Condensed Consolidated Financial Statements            8

Item 2:  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                            10

PART II: OTHER INFORMATION
- -------  -----------------

Item 6:  Exhibits and Reports on Form 8-K                               16

         Signatures                                                     17


                                  Page 2 of 77
<PAGE>
 
PART I        FINANCIAL INFORMATION
- ------        ---------------------

ITEM 1:       FINANCIAL STATEMENTS (UNAUDITED)
              --------------------------------

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

              The information furnished in the accompanying condensed
              consolidated balance sheets, condensed consolidated statements of
              operations, stockholders' equity and cash flows of Essex reflect
              all adjustments which are, in the opinion of management, necessary
              for a fair presentation of the aforementioned financial statements
              for the interim periods.

              The accompanying unaudited financial statements should be read in
              conjunction with the notes to such financial statements and
              Management's Discussion and Analysis of Financial Condition and
              Results of Operations.


                                  Page 3 of 77
<PAGE>
 
                          ESSEX PROPERTY TRUST, INC.
                     Condensed Consolidated Balance Sheets
                                  (Unaudited)
                            (Dollars in thousands)
<TABLE>
<CAPTION>


                                                                        March 31,          December 31,
                                  Assets                                  1997                1996
                                  ------                           -----------------   -----------------
<S>                                                                <C>                 <C>
Real estate:
     Rental properties:
        Land and land improvements                                 $        116,929    $         90,557
        Buildings and improvements                                          364,089             303,252
                                                                   -----------------   -----------------
                                                                            481,018             393,809
        Less accumulated depreciation                                       (50,703)            (47,631)
                                                                   -----------------   -----------------
                                                                            430,315             346,178
     Investments                                                              3,244               8,537
                                                                   -----------------   -----------------
                                                                            433,559             354,715

Cash and cash equivalents-unrestricted                                        8,298              42,705
Cash and cash equivalents-restricted                                          4,618               4,194
Notes and other related party receivables                                    23,806               2,362
Notes and other receivables                                                  64,449               5,293
Prepaid expenses and other assets                                             4,000               3,745
Deferred charges, net                                                         4,299               4,160
                                                                   -----------------   -----------------
                                                                   $        543,029    $        417,174
                                                                   =================   =================

                   Liabilities and Stockholders' Equity
                   ------------------------------------

Mortgage notes payable                                             $        183,358    $        153,205
Lines of credit                                                              34,420                   0
Accounts payable and accrued liabilities                                     10,528               7,346
Dividends payable                                                             6,289               6,286
Other liabilities                                                             2,819               2,249
                                                                   -----------------   -----------------
                            Total liabilities                               237,414             169,086

Minority interest                                                            25,211              25,281

Stockholders' equity:
     8.75% Convetible Preferred Stock, Series 1996A: $.0001
       par value, 1,600,000 authorized and 800,000 issued and
       outstanding                                                                1                   1
     Common stock, $.0001 par value, per share, 668,400,000
       and 668,400,000 authorized, 13,596,566 and 11,591,650
       issued and outstanding                                                     1                   1
     Excess stock, $.0001 par value per share, 330,000,000
       shares authorized, no shares issued or outstanding
     Additional paid-in capital                                             314,324             256,106
     Accumulated deficit                                                    (33,922)            (33,301)
                                                                   -----------------   -----------------
                            Total stockholders' equity                      280,404             222,807
                                                                   -----------------   -----------------
                                                                   $        543,029    $        417,174
                                                                   =================   =================
</TABLE>

         See accompanying notes to the unaudited financial statements.

                                 Page 4 of 77
<PAGE>
 
                          ESSEX PROPERTY TRUST, INC.
                Condensed Consolidated Statements of Operations
                                  (Unaudited)
               (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                               Three months ended
                                                       ---------------------------------
                                                        March 31,             March 31,
                                                           1997                 1996
                                                       ------------           ----------
<S>                                                    <C>                    <C> 
Revenues:
     Rental                                            $    17,356            $  10,951
     Interest and other income                               1,195                  603
                                                       ------------           ----------
                                                            18,551               11,554
                                                       ------------           ----------
Expenses:
     Property operating expenses
        Maintenance and repairs                              1,494                1,007
        Real estate taxes                                    1,422                  886
        Utilities                                            1,138                  756
        Administrative                                       1,152                  656
        Advertising                                            270                  151
        Insurance                                              238                  146
        Depreciation and amortization                        3,088                2,190
                                                       ------------           ----------
                                                             8,802                5,792
                                                       ------------           ----------

     Interest                                                3,363                2,901
     Amortization of deferred financing costs                  127                  245
     General and administrative                                516                  397
     Loss from hedge termination                                 0                   21
                                                       ------------           ----------
        Total expenses                                      12,808                9,356
                                                       ------------           ----------

        Net income before minority interest and
           extraordinary item                                5,743                2,198

     Minority interest                                        (875)                 (75)
                                                       ------------           ----------
        Income before extraordinary item                     4,868                2,123

     Extraordinary item:
        Loss on early extinguishment of debt                     0               (2,180)
                                                       ------------           ----------
            Net income/(loss)                         $      4,868           $      (57)
                                                       ============           ==========

Per share data:
     Net income per share from operations before
        extraordinary item                            $       0.38           $     0.34
     Extraordinary item -  debt extinguishment                0.00                (0.35)
                                                       ------------           ----------
            Net income/(loss) per share               $       0.38           $    (0.01)
                                                       ============           ==========

     Weighted average number of shares used in net
        income/(loss) per share calculation             11,784,952            6,275,000
                                                       ============           ==========

     Dividend per share                               $      0.435           $    0.425
                                                       ============           ==========
</TABLE>
         See accompanying notes to the unaudited financial statements.

                                 Page 5 of 77
<PAGE>
 
                          ESSEX PROPERTY TRUST, INC.

           Condensed Consolidated Statements of Stockholders' Equity

               For the three months ended March 31, 1997 and the
                         year ended December 31, 1996
                                  (Unaudited)
                       (Dollars and shares in thousands)

<TABLE>
<CAPTION>

                                                                                                     Retained
                                         Preferred stock           Common stock       Additional     earnings/
                                      ----------------------- -----------------------  paid - in    (Accumulated
                                       Shares       Amount     Shares       Amount      capital      deficit)         Total
                                      --------- ------------- --------- ------------- ------------  ------------ -----------------
<S>                                   <C>       <C>           <C>        <C>          <C>           <C>          <C>
Balances at December 31, 1995                                    6,275  $          1  $   112,070   $  (27,342)  $         84,729

Net proceeds from preferred
  stock offering                           800  $          1         -             -       17,504           -              17,505
Net proceeds from follow-on
  public offerings                           -             -     5,313             -      126,464           -             126,464
Net proceeds from options exercised          -             -         4             -           68           -                  68
Net income                                   -             -         -             -            -        8,881              8,881
Dividends declared                           -             -         -             -            -      (14,840)           (14,840)
                                      ---------    ---------- ---------    ----------   ----------    ----------    --------------
Balances at December 31, 1996              800             1    11,592             1      256,106      (33,301)           222,807

Net proceeds from options exercised          -             -         5             -           99            -                 99
Net proceeds from offering                                       2,000                     58,119                          58,119
Net income                                                                                               4,868              4,868
Dividends declared                                                                                      (5,489)            (5,489)
                                      ---------    ---------- ---------    ----------   ----------    ----------    --------------
Balances at March 31, 1997                 800  $          1    13,597  $          1  $   314,324   $  (33,922)  $        280,404
                                      ========= ============= ========= ============= ============  ============ =================
</TABLE>
         See accompanying notes to the unaudited financial statements

                                 Page 6 of 77
<PAGE>

                          ESSEX PROPERTY TRUST, INC.

               Condensed Consolidated Statements of Cash Flows 
                                  (Unaudited)
                            (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                      Three months ended
                                                                                   -----------------------
                                                                                    March 31,     March 31,
                                                                                      1997          1996
                                                                                   ---------      --------
<S>                                                                                <C>            <C>
Net cash provided by operating activities                                          $  12,674      $  5,695
                                                                                   ---------      --------
Cash flows from investing activities:
     Additions to rental properties                                                  (51,032)      (12,748)
     Additions to notes receivable                                                      (785)            -
     Investments in corporations and joint ventures                                      (64)          154
                                                                                   ---------      --------

          Net cash used in investing activities                                      (51,881)      (12,594)
                                                                                   ---------      --------
Cash flows from financing activities:
     Proceeds from mortgage and other notes payable
          and lines of credit                                                         34,420        45,271
     Repayment of mortgage and other notes payable
          and lines of credit                                                           (665)      (34,568)
     Additions to deferred charges                                                      (267)         (225)
     Additions to notes and other related party
          receivables/payables                                                       (22,805)        2,166
     Repayment of notes and other related party
          receivables/payables                                                         1,361        (3,622)
     Decrease in offering related accounts payable                                      (630)
                                                                                                         -
     Net proceeds from stock options exercised                                            99
                                                                                                         -
     Distributions to minority interest/partners                                        (807)         (778)
     Dividends paid                                                                   (5,482)       (2,677)
                                                                                   ---------      --------
          Net cash provided by financing activities                                    5,224         5,567
                                                                                   ---------      --------

Net decrease in cash and cash equivalents                                            (33,983)       (1,332)
Cash and cash equivalents at beginning of period                                      46,899         3,983
                                                                                   ---------      --------

Cash and cash equivalents at end of period                                          $ 12,916      $  2,651
                                                                                    ========      ========
Supplemental disclosure of cash flow information:
          Cash paid for interest                                                    $  3,126      $  2,910
                                                                                    ========      ========
Supplemental disclosure of non-cash investing and
     Financing activities:
               Mortgage note payable assumed in connection
                    with purchase of real estate                                    $ 30,818      $      -
                                                                                    ========      ========

               Dividends payable                                                    $  6,289      $  3,455
                                                                                    ========      ========
</TABLE>

           See accompanying notes to unaudited financial statements.

                                  Page 7 of 77
<PAGE>
 
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            MARCH 31, 1997 AND 1996
                                  (UNAUDITED)
               (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


(1)    ORGANIZATION AND BASIS OF PRESENTATION
       --------------------------------------

       The unaudited condensed consolidated financial statements of Essex
       Property Trust, Inc. ("Essex" or the "Company") are prepared in
       accordance with generally accepted accounting principles for interim
       financial information and 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 condensed consolidated financial statements
       should be read in conjunction with the audited consolidated financial
       statements included in the Company's annual report on Form 10-K for the
       year ended December 31, 1996.

       The consolidated financial statements for the three months ended March
       31, 1997 and 1996 include the accounts of the Company and Essex
       Portfolio, L.P. (the "Operating Partnership", which holds the operating
       assets of the Company). The Company is the sole general partner in the
       Operating Partnership, owning an 88.0% and 77.2% general partnership
       interest in it as of March 31, 1997 and 1996, respectively.

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

(2)    SIGNIFICANT TRANSACTIONS
       ------------------------     

       (A)  Equity Transaction
       -----------------------
 
       On March 31, 1997 the Company completed the sale of 2,000,000 shares of
       Common Stock to Cohen & Steers Capital Management. The 2,000,000 shares
       are newly issued and registered under a shelf registration statement
       previously filed by Essex. This privately negotiated transaction
       generated gross proceeds of approximately $58,250, and such proceeds will
       be used to reduce debt and acquire additional multifamily properties in
       the Company's targeted West Coast markets. Proceeds from this offering
       were received April 3, 1997.

       (B) Acquisitions
       ----------------

       (i) On January 3, 1997, the Company acquired Wilshire Promenade
       Apartments, a 128 unit apartment community in Fullerton, California, for
       a contract price of $10,250. The community features a swimming pool, spa
       and exercise room.

       (ii) On January 28, 1997, the Company acquired Tara Village Apartments, a
       168 unit apartment community in Tarzana, California, for a contract price
       of $10,300. The community features a playground, sauna, swimming pool and
       recreation room.

       (iii) On January 30, 1997, Essex purchased the ownership interest of its
       joint venture partner, Acacia Capital Corporation, in The Shores and
       Bristol Commons properties, and is now the sole owner of these
       properties. Essex acquired Acacia's approximate 55% ownership interest in
       these properties for $7,900. The $7,900 represents a return of Acacia's
       original investment, plus approximately $1,400. Using the original
       acquisition capitalization rates for these properties, Essex estimates
       that The Shores and Bristol Commons have appreciated to over $9,000 since
       their time of acquisition. Concurrent with the purchase of Acacia's
       ownership interest, these properties, their underlying debt and their
       operations have been consolidated into the Company's financial
       statements. The debt consolidated into the balance sheet consists of an
       $18,520, 7.25% fixed


                                 Page 8 of 77
<PAGE>
 
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            MARCH 31, 1997 AND 1996
                                  (UNAUDITED)
             (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)


       rate loan secured by The Shores, due in December 2000, and a $12,298,
       7.54% fixed rate loan, with interest fixed pursuant to an interest rate
       swap agreement, secured by Bristol Commons and due in June 2002.
       Subsequent to March 31, 1997, the Company repaid the loan secured by the
       Bristol Commons property with a portion of the proceeds from its sale of
       2,000,000 shares of Common Stock to Cohen & Steers.

       (iv) On February 27, 1997, the Company acquired Foothill Apartments and
       Twin Creek Apartments, adding 176 units to the Company's portfolio. These
       properties are located in San Ramon, California, and were purchased
       together for an aggregate contract price of $19,166. These communities
       each feature a swimming pool and spa.

       These first quarter 1997 acquisitions were funded with proceeds from
       the Company's December 1996 follow-on Common Stock offering.

(3)    RELATED PARTY TRANSACTIONS
       --------------------------
     
       All general and administrative expenses of the Company and Essex
       Management Corporation ("EMC") are initially borne by the Company, with a
       portion subsequently allocated to EMC. Expenses allocated to EMC for the
       three months ended March 31, 1997 totaled $293 and are reflected as a
       reduction in general and administrative expenses in the accompanying
       consolidated statements of operations.

       Rental income in the accompanying consolidated statements of operations
       includes related party rents earned from space leased to The Marcus &
       Millichap Company ("M&M"), including operating expense reimbursement, of
       $171 and $170 for the three months ended March 31, 1997 and 1996,
       respectively.

       Other income for the three months ended March 31, 1997 includes interest
       income of $393 which was earned principally under notes receivable from
       Essex Fidelity I Corporation, the partnerships which collectively own
       Anchor Village, a 301 unit multifamily property located in Mukilteo,
       Washington ("Anchor Village"), the partnerships which collectively own
       Highridge Apartments, a 255 unit multifamily property located in Rancho
       Palos Verde, California ("Highridge") and the partnerships which
       collectively own an approximate 30.7% minority interest in Pathways
       Apartments, a 296 unit multifamily property located in Long Beach,
       California ("Pathways"). For the three months ended March 31, 1997 the
       Company earned $29 of dividend income from EMC. In addition, Essex earned
       management fee income of $88 for the three months ended March 31, 1997,
       from Anchor Village, Highridge and Pathways.

       EMC provided property management services to the Company's neighborhood
       shopping centers. The fees paid by the Company for such services for the
       three months ended March 31, 1997 was $30, and is included in
       administrative expense in the accompanying consolidated statements of
       operations.


                                 Page 9 of 77
<PAGE>
 
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            MARCH 31, 1997 AND 1996
                                  (UNAUDITED)
             (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

Notes and other related party receivables as of March 31, 1997 and December 31,
1996 consist of the following:

                                                       March 31,   December 31,
                                                          1997        1996
                                                        --------    --------
  Notes receivable from Fidelity I and Sacramento,
   secured, bearing interest at 9%, due on demand       $      -    $    718
                                                             
  Notes receivable from Fidelity I and JSV,                  
   secured, bearing interest at 9.5%-10%, due 2015           726         726
                                                             
  Note receivable from Anchor Village, secured,              
    bearing interest at 8%, due January 14, 1998           9,650           -
                                                             
  Note receivable from Highridge, secured,                   
    bearing interest at 9.375%, due August 1, 1997        12,489           -
                                                             
  Other related party receivables, substantially             
    due on demand                                            941         918
                                                        --------    --------
                                                        $ 23,806    $  2,362
                                                        ========    ========

Other related party receivables consist primarily of unreimbursed expenses due
from EMC and accrued interest income on related party notes receivables.

(4)      EARNINGS PER SHARE
         ------------------

         The Company will adopt the provisions of The Statement of Financial
         Accounting Standard No. 128 (SFAS128), Earnings Per Share, for
                                                ------------------
         financial statements with periods ending after December 15, 1997.
         Earlier application is not permitted. After the effective date, all
         prior period earnings per share data presented will be restated to
         conform with the provisions of SFAS128. Had the Company applied the
         provisions of SFAS128 to the unaudited financial statements for the
         period ending March 31, 1997, the effect on earnings per share data
         would have been immaterial.


ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         ---------------------------------------------------------------
         RESULTS OF OPERATION
         --------------------

The following discussion is based primarily on the consolidated financial
statements of Essex Property Trust, Inc. ("Essex" or the "Company") as of March
31, 1997 and 1996 and for the three months ended March 31, 1997 and 1996.

This information should be read in conjunction with the accompanying condensed
consolidated financial statements and notes thereto. These financial statements
include all adjustments which are, in the opinion of management, necessary to
reflect a fair statement of the results and all such adjustments are of a normal
recurring nature.



                                 Page 10 of 77
<PAGE>
 
Substantially all of the assets of Essex are held by, and substantially all
operations conducted through, Essex Portfolio, L.P. (the "Operating
Partnership"). Essex is the sole general partner of the Operating Partnership
and, as of March 31, 1997 and 1996, owned 88.0% and 77.2% general partnership
interest in the Operating Partnership, respectively. The Company qualifies as a
real estate investment trust (a "REIT") for Federal income tax purposes.

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 the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors including, but not limited to, those risks and
special consideration set forth in Essex's other filings with the Securities and
Exchange Commission (the "SEC") which may cause the actual results, performance
or achievements of Essex to be materially different from any further results,
performance or achievements expressed or implied by such forward-looking
statements.

GENERAL BACKGROUND

Essex's revenues are generated primarily from multifamily residential, retail
and commercial property operations, which accounted for 95% and 97% of its
revenues for the three months ended March 31, 1997 and 1996, respectively.
Essex's Properties (the "Properties") are located in California, Oregon and
Washington. Occupancy levels of Essex's multifamily residential properties in
these markets have generally remained high (averaging over 95% for the last five
years).

Essex elects to be treated as a real estate investment trust ("REIT")for Federal
income tax purposes, commencing with the year ending December 31, 1994. In order
to maintain compliance with REIT tax rules, Essex provides fee-based asset
management and disposition services as well as third-party property management
and leasing services through Essex Management Corporation ("EMC"). Essex owns
100% of EMC's 19,000 shares of non-voting Preferred Stock. Executives of Essex
own 100% of EMC's 1,000 shares of Common Stock. Essex has been actively engaged
in the business of acquiring and managing portfolios of non-performing assets
along with institutional investors. Asset management services resulting from
these portfolios are provided by EMC, typically for the term that is required to
acquire, reposition and dispose of the portfolio. Asset management agreements
usually provide for a base management fee calculated as a percentage of the
gross asset value of the portfolio under management, and an incentive fee based
upon the overall financial performance of the portfolio. Accordingly, the fees
earned as a result of these contracts fluctuate as assets are acquired and
disposed of. Essex benefits from such fees indirectly through receipt of
preferred stock dividend and by allocation of related expenses to EMC. In
general, Essex believes, however, that there will be limited opportunities to
acquire portfolios of non-performing assets in the future.

Since the Company's IPO in June 1994, the Company has acquired ownership
interest in twenty multifamily residential properties, twelve in California,
seven in Washington and one in Oregon, consisting of a total of 3,947 units for
an aggregate total capitalized cost of approximately $261.1 million. As part of
its active portfolio management strategy, the Company has sold, since its IPO,
four multifamily residential properties in Northern California consisting of a
total of 442 units, at an aggregate gross sales price of approximately $26.9
million resulting in a net aggregate gain of approximately $8.7 million.


                                 Page 11 of 77
<PAGE>
 
Average financial occupancy rates of the Company's multifamily properties
on a same-property basis increased to 97.0% from 96.9%, for the three months
ended March 31, 1997 and 1996, respectively. The regional breakdown is as
follows:

                                       March 31,               March 31,
                                         1997                     1996
                                       ---------               ---------
Northern California                      96.9%                    98.6%
Seattle Metropolitan                     97.6%                    95.0%
Southern California                      95.3%                    96.9%

The Company's retail and commercial properties were 98% occupied (based on
square footage) as of March 31, 1997.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 1997 to the Three Months Ended
- ----------------------------------------------------------------------------- 
March 31, 1996.
- --------------

Total Revenues increased by $6,997,000 or 60.6% to $18,551,000 in the first
- --------------
quarter of 1997 from $11,554,000 in the first quarter of 1996. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to properties that Essex for all of both the quarters ended March
31, 1997 and 1996 ("Same Store Properties") owned.

                                             Three Months
                                                 Ended   
                                                March 31, 
                                            ---------------   Dollar  Percentage
                                             1997      1996   Change    Change
                                            ------    ------  ------  ----------
                              Number of  
                              Properties 
Rental income                 ----------
  Same Store Properties
    Northern California              8      $ 4,834   $ 4,304   $  530     12.3%
    Seattle Metropolitan             9        3,807     3,530      277      7.9
    Southern California              2        1,199     1,187       12      1.0
    Retail and commercial            7        1,257     1,199       58      4.8
                              --------      -------   -------   ------    -----
 Total Same Store Properties        26       11,097    10,220      877      8.6
                              ========

  Properties acquired/
    disposed of subsequent
    to January 1, 1996                        6,259       731    5,528    757.0
                                            -------   -------   ------    ----- 
  Total rental income                        17,356    10,951    6,405     58.5
  Other income                                1,195       603      592     98.2
                                            -------   -------   ------    -----
  Total revenues                            $18,551   $11,554   $6,997     60.6%
                                            =======   =======   ======    =====

As set forth in the above table, $5,528,000 of the $6,997,000 increase in total
revenues is attributable to properties acquired or disposed of subsequent to
January 1, 1996. During this period, Essex acquired 13 multifamily properties
(the "Acquisition Properties"), and disposed of 2 multifamily properties (the
"Disposition Properties").

Of the increase in total revenues, $877,000 is attributable to increases in
rental income from the Same Store Properties. Rental income from the Same Store
Properties increased by approximately 8.6% to $11,097,000 in the first quarter
of 1997 from $10,220,000 in the first quarter of 1996. A significant portion of
this increase was attributable to the eight multifamily Same Store Properties
located in Northern California, the rental income of which increased by $530,000
or 12.3% to $4,834,000 in the first quarter of 1997 from $4,304,000 in the first
quarter of 1996. The $530,000 increase, is primarily attributable to rental rate
increases as offset by a decrease in financial occupancy to 96.9% from 98.6% for
the quarter ended March 31, 1997 and 1996, respectively. In addition the nine
multifamily residential properties located in

                                  Page 12 of 77
<PAGE>
 
Seattle, significantly contributed towards this Same Store Properties rental
income increase. The rental income of these properties increased by $277,000 or
7.9% to $3,807,000 in the first quarter of 1997 from $3,530,000 in the first
quarter of 1996. Of the $277,000 increase, $187,000 is attributable to rental
rate increases with the remainder primarily attributable to an increase in
financial occupancy to 97.6% from 95% for the quarter ended March 31, 1997 and
1996, respectively.

The increases in total revenue also reflected an increase of $592,000
attributable to other income, which includes an increase in interest income of
$449,000.

Total Expenses increased by $3,452,000 or approximately 36.9% to $12,808,000 in
- -------------- 
the first quarter of 1997 from $9,356,000 in the first quarter of 1996. Interest
expense increased by $462,000 or 15.9% to $3,363,000 in the first quarter of
1997 from $2,901,000 in the first quarter of 1996. Such interest expense
increase was primarily due to the net addition of outstanding mortgage debt in
connection with property and investment acquisitions. Property operating
expenses, exclusive of depreciation and amortizations increased by $2,112,000 or
58.6% to $5,714,000 in the first quarter of 1997 from $3,602,000 in the first
quarter of 1996. Of such increase, $2,017,000 was attributable to Properties
acquired or disposed of in 1996 and 1997. General and administrative expenses
represents the costs of Essex's various acquisition and administrative
departments as well as partnership administration and non-operating expenses.
Such expenses increased by $119,000 in the first quarter of 1997 from the amount
for the first quarter of 1996. This increase is largely due to additional
staffing requirements resulting from the growth of Essex.

Net income increased by $4,925,000 to $4,868,000 in the first quarter of 1997
- ----------
from ($57,000) in the first quarter of 1996. The first quarter 1996 results
included a charge for extraordinary item of $2,180,000. The remaining increase
in net income was primarily a result of the net contribution of the Acquisition
Properties as offset by the Disposition Properties, and increase in net
operating income from the Same Store Properties.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1997, Essex had $8,298,000 of unrestricted cash and cash
equivalents. On March 31, 1997 Essex recorded a receivable for the sale of
Common Stock to Cohen & Steers of $58,250,000. These proceeds were received on
April 3, 1997. The Company expects to meet its short-term liquidity requirements
by using this working capital, the proceeds from the above mentioned sale of
Common Stock, the proceeds from the anticipated sale of Convertible Preferred
Stock, amounts available on lines of credit, and any portion of net cash flow
from operations not currently distributed. The Company believes that its future
net cash flows will be adequate to meet operating requirements and to provide
for payment of dividends by the Company in accordance with REIT requirements.
Essex has credit facilities in the committed amount of approximately
$63,820,000. At March 31, 1997 Essex had $34,420,000 outstanding on its lines of
credit, with interest rates during the first quarter of 1997 ranging from 7.2%
to 7.5%. Subsequent to the quarter ended March 31, 1997, the Company repaid its
outstanding lines of credit balance with a portions of the proceeds from the
sale of 2,000,000 shares to Cohen & Steers.

Essex's total cash balances decreased $33,983,000 from $46,899,000 as of
December 31, 1996 to $12,916,000 as of March 31, 1997. This decrease was a
result of $51,881,000 of cash used in investing activities, which was offset by
$12,674,000 of cash provided by operating activities, and $5,224,000 of cash
provided by financing activities. Of the $51,881,000 net cash used in investing
activities, $51,032,000 was used to purchase and upgrade rental properties. The
$5,224,000 net cash provided by financing activities was primarily a result of
$34,420,000 of proceeds from lines of credit and other notes payable as offset
by $665,000 of repayments of mortgages, other notes payable and lines of credit,
$22,805,000 issued in notes receivable and $6,289,000 of dividends/distributions
paid.

As of March 31, 1997, Essex's combined outstanding indebtedness under mortgages
and lines of credit consisted of $140,538,000 in fixed rate debt, $42,820,000 of
debt represented by tax exempt variable rate demand bonds, of which $29,220,000
is capped at a maximum interest rate of 7.2%, and $34,420,000 of debt which has
an interest rate based on The Internal Banking Offshore Rate ("IBOR").

                                  Page 13 of 77
<PAGE>
 
Essex expects to incur approximately $300 per weighted average occupancy unit in
non-revenue generating capital expenditures for the year ended December 31,
1997. These expenditures do not include the improvements required in connection
with Northwestern Mutual and John Hancock mortgage loans and renovation
expenditures required pursuant to tax-exempt bond financings. Essex expects that
cash from operations and/or the lines of credit will fund such expenditures.

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

On August 20, 1996, Essex completed the sale of 2,530,000 shares of its Common
Stock through an underwritten public offering at a price of $22.75 per share.
The net proceeds were used primarily to fund property acquisitions.

In September 1996, Essex completed the sale of $20 million of its 8.75%
Convertible Preferred Stock, Series 1996A (the "Convertible Preferred Stock") to
Tiger/Westbrook Real Estate Fund, L.P., and Tiger/Westbrook Real Estate
Co-Investment Partnership, L.P. (collectively "Tiger/Westbrook"). Essex may
require Tiger/Westbrook to purchase up to an additional $20 million of
Convertible Preferred Stock at any time prior to June 20, 1997.

On December 24, 1996, Essex completed the sale of 2,783,000 shares of its Common
Stock through an underwritten public offering at a price of $27.75 per share.
The net proceeds were used primarily to fund property acquisitions.

On March 31, 1997, pursuant to its existing shelf registration statement, Essex
completed the sale of 2,000,000 shares of its Common Stock to Cohen & Steers at
a price of $29.125 per share. The net proceeds will be used primarily to reduce
debt and acquire additional multifamily properties. After the completion of this
sale, Essex has the capacity pursuant to its shelf registration statement to
issue up to approximately $144 million of equity securities.

The Company will utilize the proceeds from public offerings of shares of Common
Stock, availability under its lines of credit, and cash balances to fund its
future property acquisition and development activities. Essex expects to meet
certain long-term liquidity requirements such as scheduled debt maturities and
repayment of short-term financing of acquisition and development activities
through the issuance of long-term secured and unsecured debt and offerings by
Essex of additional equity securities (or limited partnership interests in the
Operating Partnership).

FUNDS FROM OPERATIONS

Industry analysts generally consider Funds from Operations an appropriate
measure of performance of an equity REIT. Generally, Funds from Operations
adjusts the net income of equity REITs for non-cash charges such as depreciation
and amortization and non-recurring gains or losses. Management generally
considers Funds from Operations to be a useful financial performance measurement
of an equity REIT because, together with net income and cash flows, Funds from
Operations provides investors with an additional basis to evaluate the ability
of a REIT to incur and service debt and to fund acquisitions and other capital
expenditures. Funds from Operations does not represent net income or cash flows
from operations as defined by GAAP and does not necessarily indicate that 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 Operating Partnership'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 Company's calculation of Funds from Operations.

                                 Page 14 of 77
<PAGE>
 
The following table sets forth Essex's calculation of Funds from Operations for
the quarters ended March 31, 1997 and 1996.

<TABLE> 
<CAPTION> 
                                                                Three months ended
                                                     ----------------------------------------
                                                        March 31, 1997         March 31, 1996
                                                     -----------------      -----------------
<S>                                                  <C>                    <C> 
Net Income before minority interest                                     
 and extraordinary item                                    $ 5,743,000            $ 2,198,000
Adjustments:                                                            
   Depreciation & Amortization                               3,088,000              2,190,000
   Adjustment for Unconsolidated Joint Venture                       -                119,000
   Non-recurring Items, loss from hedge termination                  -                 21,000
   Minority Interest - Pathways                               (138,000)              (140,000)
                                                           -----------            -----------
   Funds from Operations                                   $ 8,693,000            $ 4,388,000
                                                           ===========            ===========
   Weighted average number of                                           
   shares outstanding-fully diluted (1)                     14,557,019              8,130,000
                                                            ==========            ===========
</TABLE> 

(1) Assumes conversion of all outstanding shares of Convertible Preferred Stock
    and operating partnership interests in the Operating Partnership into shares
    of Essex's common stock.

The National Association of Real Estate Investment Trust ("NAREIT"), a leading
industry trade group, has approved a revised definition of Funds from
Operations, which provides that the amortization of deferred financing costs is
no longer added back to net income to calculate Funds from Operations. Essex
adopted the revised NAREIT definition of Funds from Operations as of January 1,
1996.


                                 Page 15 of 77
<PAGE>
 
ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K

         A. EXHIBITS
            --------                                                     Page
                                                                         ----

         10.1     Phantom Stock Unit Agreement for Mr. Guericke           18

         10.2     Phantom Stock Unit Agreement for Mr. Schall             25

         10.3     Replacement Promissory Note (April 15, 1996) and
                  Pledge Agreement for Mr. Guericke                       32

         10.4     Promissory Note (December 31, 1996)  and Pledge
                  Agreement for Mr. Guericke                              43

         10.5     Replacement Promissory Note (April 30, 1996) and
                  Pledge Agreement for Mr. Schall                         54

         10.6     Promissory Note (December 31, 1996) and
                  Pledge Agreement for Mr. Schall                         65

         11.1     Statements regarding Computation of Earnings per Share  76
  
         12.1     Schedule of Computation of Ratio of  Earnings to 
                  Fixed Charges                                           77

         27.1     Article 5 Financial Data Schedule (EDGAR Filing Only).  --


         B. REPORTS ON FORM 8-K
            -------------------
         On April 3, 1997, Essex filed a current report on Form 8-K, regarding
         its sale of 2,000,000 shares Common Stock pursuant to its Shelf
         Registration Statement.


                                 Page 16 of 77
<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 PROPERTY TRUST, INC.


                                      /s/ Mark J. Mikl
                                      ----------------------------
                                      Mark J. Mikl, Controller
                                      (Principal Accounting Officer)


                                               May 13, 1997
                                      ----------------------------
                                      Date



                                  Page 17 of 77

<PAGE>
 
                                                                    EXHIBIT 10.1

                          ESSEX PROPERTY TRUST, INC.
                          PHANTOM STOCK UNIT AGREEMENT

          THIS AGREEMENT is entered into as of January 1, 1997 between the
Company and Recipient.

                              WI T N E S S E T H:

          WHEREAS, the Company has determined that it would be to the advantage
and in the interests of the Company and its stockholders to grant to Recipient
the Phantom Stock Units provided for in this agreement;

          NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this agreement hereby agree as follows:

          1.  Definitions.  Capitalized terms in this agreement shall have the
              -----------                                                     
following defined meanings:

              (a)  "Affiliate" shall have the meaning ascribed to such term in
                    ---------                                                 
     Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as
     amended.

              (b)  "Board" means the Board of Directors of the Company.
                    -----                                              

              (c)  "Change in Control" means (i) the acquisition by stockholders
                    -----------------                                           
     acting as a group (other than an acquisition from the Company or by the
     Company, the management of the Company or a Company-sponsored employee
     benefit plan) of twenty percent (20%) or more of the outstanding Stock;
     (ii) during any calendar year individuals who at the beginning of the year
     constitute the Board (together with any new director whose election by the
     Board or whose nomination for election by the Company's stockholders was
     approved by a vote of the majority of the directors then still in office
     who either were directors at the beginning of the calendar year or whose
     election or nomination was previously so approved) cease for any reason to
     constitute at least a majority thereof; (iii) the approval by the Company's
     stockholders of a reorganization, merger, consolidation, sale or
     disposition of all or substantially all of the assets of the Company; or
     (iv) the approval by the Company's stockholders of a complete liquidation
     or dissolution of the Company.

              (d)  "Committee" means any committee appointed by the Board to
                    ---------                                               
     administer this agreement and if no committee is so appointed then each
     reference herein to the Committee shall refer to the Board.

              (e)  "Company" means Essex Property Trust, Inc.
                    -------                                  

              (f)  "Disability" means the Recipient's inability to properly
                    ----------                                             
     perform his employment or consulting duties by reason of any medically
     determinable physical or 

                                 Page 18 of 77
<PAGE>
 
     mental impairment which can be expected to result in death or which has
     lasted or can be expected to last for a continuous period of not less than
     twelve (12) months.

              (g)  "Fair Market Value" means, as of any date, the value of the
                    -----------------                                         
     Stock determined as follows:

                   (i)  Where there exists a public market for the Stock, the
               Fair Market Value shall be (A) the closing sales price for a
               share of Stock for the last market trading day prior to the time
               of the determination (or, if no sales were reported on that date,
               on the last trading date on which sales were reported) on the New
               York Stock Exchange, the Nasdaq National Market or the principal
               securities exchange on which the Stock is listed for trading,
               whichever is applicable or (B) if the Stock is not traded on any
               such exchange or national market system, the average of the
               closing bid and asked prices of a share of Stock on the Nasdaq
               Small Cap Market, in each case, as reported in The Wall Street
               Journal or such other source as the Committee deems reliable; or

                   (ii)  In the absence of an established market of the type
               described in (i), above, for the Stock, the Fair Market Value
               thereof shall be determined by the Committee in good faith, and
               such determination shall be conclusive and binding on all
               persons.

              (h)  "Recipient" means Keith R. Guericke.
                    ---------                          

              (i)  "Stock" means common stock of the Company.
                    -----                                    

              (j)  "Termination Date" means January 1, 2002, the fifth (5th)
                    ----------------                                        
     anniversary of Vesting Commencement Date.

              (k)  "Vesting Commencement Date" means January 1, 1997.
                    -------------------------                        

          2.  Phantom Stock Unit Award.  The Company hereby awards Recipient
              ------------------------                                      
seven thousand six hundred sixty (7,660) Phantom Stock Units, which shall be
credited to a Phantom Stock Unit Account maintained for Recipient.  Subject to
Section 10, each Phantom Stock Unit shall be deemed to be equivalent in value to
one share of Stock.

          3.  Dividends.  Effective as of the payment date for each cash
              ---------                                                 
dividend on the Stock, the Company shall pay to Recipient cash equal to the
product of (i) the number of Phantom Stock Units, and fractions thereof, held in
Recipient's Phantom Stock Unit Account on the record date for such dividend, and
(ii) the dollar value of the dividend paid upon a single share of Stock.

          4.  Stock Dividends.  Effective as of the payment date (following the
              ---------------
Vesting Commencement Date) for each stock dividend on the Stock, additional
Phantom Stock Units shall be credited to Recipient's Phantom Stock Account as of
the record date for such dividend.  

                                 Page 19 of 77
<PAGE>
 
The number of additional Phantom Stock Units that shall be credited to
Recipient's Phantom Stock Unit Account shall equal the number of shares of
Stock, and fractions thereof, that Recipient would have received as Stock
dividends had he been the owner on the record date for such Stock dividend of
the number of shares of Stock equal to the number of Phantom Stock Units held in
Recipient's Phantom Stock Unit Account on such record date.

          5.  Vesting.  The Phantom Stock Units credited from time to time to
              -------
Recipient's Phantom Stock Unit Account shall vest in accordance with the
following schedule:

              (a)  10% of the number of Phantom Stock Units then credited to
     Recipient's Phantom Stock Unit Account will vest on January 1, 1999.

              (b)  50% of the number of Phantom Stock Units then credited to
     Recipient's Phantom Stock Unit Account (inclusive of previously vested
     Phantom Stock Units) will vest on January 1, 2000.

              (c)  80% of the number of Phantom Stock Units then credited to
     Recipient's Phantom Stock Unit Account (inclusive of previously vested
     Phantom Stock Units) will vest on January 1, 2001.

              (d)  All remaining Phantom Stock Units credited to Recipient's
     Phantom Stock Unit Account will vest on January 1, 2002.

          6.  Redemption of Vested Phantom Stock Units.  As soon as practicable
              ----------------------------------------
following the Termination Date, the Company shall issue to Recipient the number
of shares of Stock that equals the number of Phantom Stock Units, and fractions
thereof, credited to Recipient's Phantom Stock Unit Account as of the
Termination Date, or at the option of the Committee, the Company shall pay cash
to Recipient equivalent to the Fair Market Value, determined as of the
Termination Date, of all or a portion of the number of shares of Stock
represented by the number of Phantom Stock Units, and fractions thereof,
credited to Recipient's Phantom Stock Unit Account as of the Termination Date.

          7.  Redemption upon Change in Control.  Notwithstanding the foregoing,
              ---------------------------------
in the event of a Change in Control, all Phantom Stock Units credited to
Recipient's Phantom Stock Unit Account immediately prior to the specified
effective date of the Change in Control shall be fully vested and
nonforfeitable.  Immediately prior to the specified effective date of a Change
in Control, the Company shall issue to Recipient the number of shares of Stock
that equals the number of Phantom Stock Units, and fractions thereof, credited
to Recipient's Phantom Stock Unit Account as of that date, or at the option of
the Committee, the Company shall pay cash to Recipient equivalent to the Fair
Market Value, determined as of that date, of all or a portion of the number of
shares of Stock represented by the number of Phantom Stock Units, and fractions
thereof, credited to Recipient's Phantom Stock Unit Account as of that date.

                                 Page 20 of 77
<PAGE>
 
          8.  Limits on Phantom Stock Unit Vesting.  The vesting of the Phantom
              ------------------------------------
Stock Units awarded hereunder may end before the Termination Date, as follows:

              (a)  If Recipient voluntarily ceases to be an employee or
     consultant of the Company or an Affiliate during the term of this
     agreement, all Phantom Stock Units credited to Recipient's Phantom Stock
     Unit Account which have not vested in accordance with Section 5, above,
     shall be forfeited and Recipient shall not thereafter receive any of the
     benefits provided for in this agreement attributable to those forfeited
     Phantom Stock Units.  Recipient shall not be deemed to have voluntarily
     ceased to be an employee or consultant of the Company or an Affiliate in
     the event Recipient terminates such employment or consulting relationship
     due to (i) death, (ii) Disability, (iii) a reduction in Recipient's
     compensation then in effect, other than a reduction comparable to
     reductions generally applicable to similarly situated employees or
     consultants of the Company or an Affiliate, as the case may be, or (iv) a
     material and adverse change in Recipient's position, duties,
     responsibilities or status with the Company or an Affiliate.

              (b)  If during the term of this agreement, Recipient ceases to be
     a bona fide employee or consultant of the Company or an Affiliate for any
     reason other than Recipient's voluntary termination of such employment or
     consulting relationship, Recipient shall continue to vest in the Phantom
     Stock Units in accordance with Section 5, above, and shall be entitled to
     receive on the Termination Date all of the cash and/or shares of Stock
     attributable to the Phantom Stock Units credited to Recipient's Phantom
     Stock Unit Account as of the Termination Date.

              (c)  If during the term of this agreement, Recipient dies while
     serving as an employee or consultant of the Company or an Affiliate,
     Recipient's estate or the person or persons to whom Recipient's rights
     under this agreement shall pass by will or the applicable laws of descent
     and distribution shall be entitled to receive on the Termination Date all
     of the cash and/or shares of Stock attributable to the Phantom Stock Units
     credited to Recipient's Phantom Stock Unit Account as of the Termination
     Date.  Following Recipient's death, the Phantom Stock Units credited to
     Recipient's Phantom Stock Unit Account from time to time shall continue to
     vest in accordance with Section 5, above.

              (d)  If Recipient is on a leave of absence from the Company or an
     Affiliate because of his or her Disability, or for the purpose of serving
     the government of the country in which the principal place of employment of
     Recipient is located, either in a military or civilian capacity, or for
     such other purpose or reason as the Committee may approve, Recipient shall
     not be deemed during the period of such absence, by virtue of such absence
     alone, to have terminated employment or a consulting relationship with the
     Company or an Affiliate except as the Committee may otherwise expressly
     provide.  During Recipient's leave of absence, the Phantom Stock Units
     credited to Recipient's Phantom Stock Unit Account from time to time shall
     continue to vest in accordance with Section 5, above.

                                 Page 21 of 77
<PAGE>
 
          9.  Issuance of Stock Certificates.  As soon as practicable following
              ------------------------------
redemption of any Phantom Stock Units for shares of Stock, the Company shall,
without transfer or issue tax and without other incidental expense to Recipient,
deliver to Recipient at the office of the Company, attention of the Secretary,
or such other place as may be mutually acceptable to the Company and Recipient,
a certificate or certificates of such shares of Stock; provided; however, that
such delivery may be postponed by the Company for such period as may be required
for it with reasonable diligence to comply with applicable registration
requirements under the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, any applicable listing requirements of any
national securities exchange, and requirements under any other law or regulation
applicable to the issuance or transfer of such shares.  Recipient (and
Recipient's spouse, if any) shall be required, as a condition precedent to
acquiring such shares, to execute one or more agreements relating to obligations
in connection with ownership of the Stock or restrictions on transfer of the
Stock no less restrictive than the obligations and restrictions to which other
stockholders of the Company are subject at the time of such redemption.

          10.  Adjustments.  If there should be any change in a class of Stock,
               -----------
through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, or other change in the corporate structure of the
Company, the Company may make appropriate adjustments in order to preserve, but
not to increase, the benefits to Recipient, including adjustments of the number
of Phantom Stock Units subject to this agreement.

          11.  Limitations on Transfer.  The proceeds upon redemption of Phantom
               -----------------------
Stock Units awarded hereunder shall, during Recipient's lifetime, be payable
only to Recipient, and neither this agreement nor any right hereunder shall be
transferable by Recipient by operation of law or otherwise other than by will or
the laws of descent and distribution.  In the event of any attempt by Recipient
to alienate, assign, pledge, hypothecate, or otherwise dispose of any right
hereunder, except as provided for in this agreement, or in the event of the levy
of any attachment, execution, or similar process upon the rights or interest
hereby conferred, the Company at its election may terminate this agreement by
notice to Recipient and this agreement and the Phantom Stock Units issued
hereunder shall thereupon become null and void.

          12.  No Stockholder Rights.  Neither Recipient nor any person entitled
               ---------------------
to exercise Recipient's rights in the event of his death shall have any of the
rights of a stockholder with respect to the Phantom Stock Units subject to this
agreement, including without limitation, any dividend or voting rights (except
as provided in Sections 3 and 4, above), except to the extent any certificates
for Stock shall have been issued upon redemption of the Phantom Stock Units.

          13.  No Funding.  This agreement constitutes a mere promise by the
               ----------
Company to make payments and issue Stock in the future in accordance with its
terms.  Recipient has the status of a general unsecured creditor of the Company.
Any cash payment will be paid from the general assets of the Company and nothing
in this agreement will be construed to give Recipient or any other person rights
to any specific assets of the Company.  In all events, it is the intention of
the Company and Recipient that the agreement be treated as unfunded for tax
purposes and for purposes of Title I of the Employee Retirement Income Security
Act of 1974, as amended.

                                 Page 22 of 77
<PAGE>
 
          14.  No Effect On Terms Of Employment or Consulting Relationship.
               -----------------------------------------------------------
SUBJECT TO THE TERMS OF ANY WRITTEN EMPLOYMENT OR CONSULTING CONTRACT TO THE
CONTRARY, THE COMPANY OR AN AFFILIATE SHALL HAVE THE RIGHT TO TERMINATE OR
CHANGE THE TERMS OF EMPLOYMENT OR CONSULTING RELATIONSHIP OF RECIPIENT AT ANY
TIME AND FOR ANY REASON WHATSOEVER, WITH OR WITHOUT CAUSE.

          15.  Notice.  Any notice required to be given under the terms of this
               ------
agreement shall be addressed to the Company in care of its Secretary at the
Office of the Company at 777 California Avenue, Palo Alto, California 94304, and
any notice to be given to Recipient shall be addressed to him at the address
given by him beneath his signature to this agreement, or such other address as
either party to this agreement may hereafter designate in writing to the other.
Any such notice shall be deemed to have been duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, registered or
certified and deposited (postage or registration or certification fee prepaid)
in a post office or branch post office regularly maintained by the United
States.

          16.  Committee Decisions Conclusive.  All decisions of the Committee
               ------------------------------
upon any question arising under this agreement shall be conclusive.

          17.  Successors.  This agreement shall be binding upon and inure to
               ----------
the benefit of any successor or successors of the Company.  Where the context
permits, "Recipient " as used in this agreement shall include Recipient's
executor, administrator, personal representative or other legal representative
or the person or persons to whom Recipient's rights pass by will or the
applicable laws of descent and distribution.

          18.  Withholding.  Recipient agrees to satisfy in cash, a certified
               -----------
check, bank draft, or postal or express money order payable to the order of the
Company in lawful money of the United States at the time of redemption of
Phantom Stock Units awarded hereunder any applicable federal, foreign, state or
local income tax or employment tax withholding obligation of the Company or
Recipient's employer.  The Committee, in its discretion, may permit the Company
or Recipient's employer to satisfy its withholding obligations by withholding
from Recipient cash or shares of Stock payable hereunder having a Fair Market
Value sufficient to satisfy any applicable federal, foreign, state or local
income or employment tax withholding obligation.

                                 Page 23 of 77
<PAGE>
 
          19.  California Law.  The interpretation, performance and enforcement
               --------------
of this agreement shall be governed by the laws of the State of California.

          IN WITNESS WHEREOF, the Company and Recipient have executed this
agreement as of the day and year first above written.


                                  Essex Property Trust, Inc.

                                  By:    /s/ Michael J. Schall
                                     ------------------------------------------
                                     Michael J. Schall, Chief Financial Officer


                                               /s/ Keith R. Guericke
                                     ------------------------------------------
                                                  Keith R. Guericke

                                     c/o Essex Property Trust, Inc.
                                     777 California Avenue
                                     Palo Alto, CA 94304




                                 Page 24 of 77

<PAGE>
 
                                                                    EXHIBIT 10.2

                          ESSEX PROPERTY TRUST, INC.
                         PHANTOM STOCK UNIT AGREEMENT

          THIS AGREEMENT is entered into as of January 1, 1997 between the
Company and Recipient.

                              WI T N E S S E T H:

          WHEREAS, the Company has determined that it would be to the advantage
and in the interests of the Company and its stockholders to grant to Recipient
the Phantom Stock Units provided for in this agreement;

          NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this agreement hereby agree as follows:

          1.  Definitions.  Capitalized terms in this agreement shall have the
              -----------                                                     
following defined meanings:

              (a)  "Affiliate" shall have the meaning ascribed to such term in
                    ---------                                                 
     Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as
     amended.

              (b)  "Board" means the Board of Directors of the Company.
                    -----                                              

              (c)  "Change in Control" means (i) the acquisition by stockholders
                    -----------------                                           
     acting as a group (other than an acquisition from the Company or by the
     Company, the management of the Company or a Company-sponsored employee
     benefit plan) of twenty percent (20%) or more of the outstanding Stock;
     (ii) during any calendar year individuals who at the beginning of the year
     constitute the Board (together with any new director whose election by the
     Board or whose nomination for election by the Company's stockholders was
     approved by a vote of the majority of the directors then still in office
     who either were directors at the beginning of the calendar year or whose
     election or nomination was previously so approved) cease for any reason to
     constitute at least a majority thereof; (iii) the approval by the Company's
     stockholders of a reorganization, merger, consolidation, sale or
     disposition of all or substantially all of the assets of the Company; or
     (iv) the approval by the Company's stockholders of a complete liquidation
     or dissolution of the Company.

              (d)  "Committee" means any committee appointed by the Board to
                    ---------                                               
     administer this agreement and if no committee is so appointed then each
     reference herein to the Committee shall refer to the Board.

              (e)  "Company" means Essex Property Trust, Inc.
                    -------                                  

              (f)  "Disability" means the Recipient's inability to properly
                    ----------                                             
     perform his employment or consulting duties by reason of any medically
     determinable physical or 

                                 Page 25 of 77
<PAGE>
 
     mental impairment which can be expected to result in death or which has
     lasted or can be expected to last for a continuous period of not less than
     twelve (12) months.

              (g)  "Fair Market Value" means, as of any date, the value of the
                    -----------------                                         
     Stock determined as follows:

                   (i)  Where there exists a public market for the Stock, the
               Fair Market Value shall be (A) the closing sales price for a
               share of Stock for the last market trading day prior to the time
               of the determination (or, if no sales were reported on that date,
               on the last trading date on which sales were reported) on the New
               York Stock Exchange, the Nasdaq National Market or the principal
               securities exchange on which the Stock is listed for trading,
               whichever is applicable or (B) if the Stock is not traded on any
               such exchange or national market system, the average of the
               closing bid and asked prices of a share of Stock on the Nasdaq
               Small Cap Market, in each case, as reported in The Wall Street
               Journal or such other source as the Committee deems reliable; or

                   (ii)  In the absence of an established market of the type
               described in (i), above, for the Stock, the Fair Market Value
               thereof shall be determined by the Committee in good faith, and
               such determination shall be conclusive and binding on all
               persons.

              (h)  "Recipient" means Michael J. Schall.
                    ---------                          

              (i)  "Stock" means common stock of the Company.
                    -----                                    

              (j)  "Termination Date" means January 1, 2002, the fifth (5th)
                    ----------------                                        
     anniversary of Vesting Commencement Date.

              (k)  "Vesting Commencement Date" means January 1, 1997.
                    -------------------------                        

          2.  Phantom Stock Unit Award.  The Company hereby awards Recipient
              ------------------------                                      
five thousand six hundred seventeen (5,617) Phantom Stock Units, which shall be
credited to a Phantom Stock Unit Account maintained for Recipient.  Subject to
Section 10, each Phantom Stock Unit shall be deemed to be equivalent in value to
one share of Stock.

          3.  Dividends.  Effective as of the payment date for each cash
              ---------                                                 
dividend on the Stock, the Company shall pay to Recipient cash equal to the
product of (i) the number of Phantom Stock Units, and fractions thereof, held in
Recipient's Phantom Stock Unit Account on the record date for such dividend, and
(ii) the dollar value of the dividend paid upon a single share of Stock.

          4.  Stock Dividends.  Effective as of the payment date (following the
              ---------------
Vesting Commencement Date) for each stock dividend on the Stock, additional
Phantom Stock Units shall be credited to Recipient's Phantom Stock Account as of
the record date for such dividend.  

                                 Page 26 of 77
<PAGE>
 
The number of additional Phantom Stock Units that shall be credited to
Recipient's Phantom Stock Unit Account shall equal the number of shares of
Stock, and fractions thereof, that Recipient would have received as Stock
dividends had he been the owner on the record date for such Stock dividend of
the number of shares of Stock equal to the number of Phantom Stock Units held in
Recipient's Phantom Stock Unit Account on such record date.

          5.  Vesting.  The Phantom Stock Units credited from time to time to
              -------
Recipient's Phantom Stock Unit Account shall vest in accordance with the
following schedule:

              (a)  10% of the number of Phantom Stock Units then credited to
     Recipient's Phantom Stock Unit Account will vest on January 1, 1999.

              (b)  50% of the number of Phantom Stock Units then credited to
     Recipient's Phantom Stock Unit Account (inclusive of previously vested
     Phantom Stock Units) will vest on January 1, 2000.

              (c)  80% of the number of Phantom Stock Units then credited to
     Recipient's Phantom Stock Unit Account (inclusive of previously vested
     Phantom Stock Units) will vest on January 1, 2001.

              (d)  All remaining Phantom Stock Units credited to Recipient's
     Phantom Stock Unit Account will vest on January 1, 2002.

          6.  Redemption of Vested Phantom Stock Units.  As soon as practicable
              ----------------------------------------
following the Termination Date, the Company shall issue to Recipient the number
of shares of Stock that equals the number of Phantom Stock Units, and fractions
thereof, credited to Recipient's Phantom Stock Unit Account as of the
Termination Date, or at the option of the Committee, the Company shall pay cash
to Recipient equivalent to the Fair Market Value, determined as of the
Termination Date, of all or a portion of the number of shares of Stock
represented by the number of Phantom Stock Units, and fractions thereof,
credited to Recipient's Phantom Stock Unit Account as of the Termination Date.

          7.  Redemption upon Change in Control.  Notwithstanding the foregoing,
              ---------------------------------
in the event of a Change in Control, all Phantom Stock Units credited to
Recipient's Phantom Stock Unit Account immediately prior to the specified
effective date of the Change in Control shall be fully vested and
nonforfeitable.  Immediately prior to the specified effective date of a Change
in Control, the Company shall issue to Recipient the number of shares of Stock
that equals the number of Phantom Stock Units, and fractions thereof, credited
to Recipient's Phantom Stock Unit Account as of that date, or at the option of
the Committee, the Company shall pay cash to Recipient equivalent to the Fair
Market Value, determined as of that date, of all or a portion of the number of
shares of Stock represented by the number of Phantom Stock Units, and fractions
thereof, credited to Recipient's Phantom Stock Unit Account as of that date.

                                 Page 27 of 77
<PAGE>
 
          8.  Limits on Phantom Stock Unit Vesting.  The vesting of the Phantom
              ------------------------------------
Stock Units awarded hereunder may end before the Termination Date, as follows:

              (a)  If Recipient voluntarily ceases to be an employee or
     consultant of the Company or an Affiliate during the term of this
     agreement, all Phantom Stock Units credited to Recipient's Phantom Stock
     Unit Account which have not vested in accordance with Section 5, above,
     shall be forfeited and Recipient shall not thereafter receive any of the
     benefits provided for in this agreement attributable to those forfeited
     Phantom Stock Units.  Recipient shall not be deemed to have voluntarily
     ceased to be an employee or consultant of the Company or an Affiliate in
     the event Recipient terminates such employment or consulting relationship
     due to (i) death, (ii) Disability, (iii) a reduction in Recipient's
     compensation then in effect, other than a reduction comparable to
     reductions generally applicable to similarly situated employees or
     consultants of the Company or an Affiliate, as the case may be, or (iv) a
     material and adverse change in Recipient's position, duties,
     responsibilities or status with the Company or an Affiliate.

              (b)  If during the term of this agreement, Recipient ceases to be
     a bona fide employee or consultant of the Company or an Affiliate for any
     reason other than Recipient's voluntary termination of such employment or
     consulting relationship, Recipient shall continue to vest in the Phantom
     Stock Units in accordance with Section 5, above, and shall be entitled to
     receive on the Termination Date all of the cash and/or shares of Stock
     attributable to the Phantom Stock Units credited to Recipient's Phantom
     Stock Unit Account as of the Termination Date.

              (c)  If during the term of this agreement, Recipient dies while
     serving as an employee or consultant of the Company or an Affiliate,
     Recipient's estate or the person or persons to whom Recipient's rights
     under this agreement shall pass by will or the applicable laws of descent
     and distribution shall be entitled to receive on the Termination Date all
     of the cash and/or shares of Stock attributable to the Phantom Stock Units
     credited to Recipient's Phantom Stock Unit Account as of the Termination
     Date.  Following Recipient's death, the Phantom Stock Units credited to
     Recipient's Phantom Stock Unit Account from time to time shall continue to
     vest in accordance with Section 5, above.

              (d)  If Recipient is on a leave of absence from the Company or an
     Affiliate because of his or her Disability, or for the purpose of serving
     the government of the country in which the principal place of employment of
     Recipient is located, either in a military or civilian capacity, or for
     such other purpose or reason as the Committee may approve, Recipient shall
     not be deemed during the period of such absence, by virtue of such absence
     alone, to have terminated employment or a consulting relationship with the
     Company or an Affiliate except as the Committee may otherwise expressly
     provide.  During Recipient's leave of absence, the Phantom Stock Units
     credited to Recipient's Phantom Stock Unit Account from time to time shall
     continue to vest in accordance with Section 5, above.

                                 Page 28 of 77
<PAGE>
 
          9.  Issuance of Stock Certificates.  As soon as practicable following
              ------------------------------
redemption of any Phantom Stock Units for shares of Stock, the Company shall,
without transfer or issue tax and without other incidental expense to Recipient,
deliver to Recipient at the office of the Company, attention of the Secretary,
or such other place as may be mutually acceptable to the Company and Recipient,
a certificate or certificates of such shares of Stock; provided; however, that
such delivery may be postponed by the Company for such period as may be required
for it with reasonable diligence to comply with applicable registration
requirements under the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, any applicable listing requirements of any
national securities exchange, and requirements under any other law or regulation
applicable to the issuance or transfer of such shares.  Recipient (and
Recipient's spouse, if any) shall be required, as a condition precedent to
acquiring such shares, to execute one or more agreements relating to obligations
in connection with ownership of the Stock or restrictions on transfer of the
Stock no less restrictive than the obligations and restrictions to which other
stockholders of the Company are subject at the time of such redemption.

          10.  Adjustments.  If there should be any change in a class of Stock,
               -----------
through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, or other change in the corporate structure of the
Company, the Company may make appropriate adjustments in order to preserve, but
not to increase, the benefits to Recipient, including adjustments of the number
of Phantom Stock Units subject to this agreement.

          11.  Limitations on Transfer.  The proceeds upon redemption of Phantom
               -----------------------
Stock Units awarded hereunder shall, during Recipient's lifetime, be payable
only to Recipient, and neither this agreement nor any right hereunder shall be
transferable by Recipient by operation of law or otherwise other than by will or
the laws of descent and distribution.  In the event of any attempt by Recipient
to alienate, assign, pledge, hypothecate, or otherwise dispose of any right
hereunder, except as provided for in this agreement, or in the event of the levy
of any attachment, execution, or similar process upon the rights or interest
hereby conferred, the Company at its election may terminate this agreement by
notice to Recipient and this agreement and the Phantom Stock Units issued
hereunder shall thereupon become null and void.

          12.  No Stockholder Rights.  Neither Recipient nor any person entitled
               ---------------------
to exercise Recipient's rights in the event of his death shall have any of the
rights of a stockholder with respect to the Phantom Stock Units subject to this
agreement, including without limitation, any dividend or voting rights (except
as provided in Sections 3 and 4, above), except to the extent any certificates
for Stock shall have been issued upon redemption of the Phantom Stock Units.

          13.  No Funding.  This agreement constitutes a mere promise by the
               ----------
Company to make payments and issue Stock in the future in accordance with its
terms.  Recipient has the status of a general unsecured creditor of the Company.
Any cash payment will be paid from the general assets of the Company and nothing
in this agreement will be construed to give Recipient or any other person rights
to any specific assets of the Company.  In all events, it is the intention 

                                 Page 29 of 77
<PAGE>
 
of the Company and Recipient that the agreement be treated as unfunded for tax
purposes and for purposes of Title I of the Employee Retirement Income Security
Act of 1974, as amended.

          14.  No Effect On Terms Of Employment or Consulting Relationship.
               -----------------------------------------------------------
SUBJECT TO THE TERMS OF ANY WRITTEN EMPLOYMENT OR CONSULTING CONTRACT TO THE
CONTRARY, THE COMPANY OR AN AFFILIATE SHALL HAVE THE RIGHT TO TERMINATE OR
CHANGE THE TERMS OF EMPLOYMENT OR CONSULTING RELATIONSHIP OF RECIPIENT AT ANY
TIME AND FOR ANY REASON WHATSOEVER, WITH OR WITHOUT CAUSE.

          15.  Notice.  Any notice required to be given under the terms of this
               ------
agreement shall be addressed to the Company in care of its Secretary at the
Office of the Company at 777 California Avenue, Palo Alto, California 94304, and
any notice to be given to Recipient shall be addressed to him at the address
given by him beneath his signature to this agreement, or such other address as
either party to this agreement may hereafter designate in writing to the other.
Any such notice shall be deemed to have been duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, registered or
certified and deposited (postage or registration or certification fee prepaid)
in a post office or branch post office regularly maintained by the United
States.

          16.  Committee Decisions Conclusive.  All decisions of the Committee
               ------------------------------
upon any question arising under this agreement shall be conclusive.

          17.  Successors.  This agreement shall be binding upon and inure to
               ----------
the benefit of any successor or successors of the Company.  Where the context
permits, "Recipient " as used in this agreement shall include Recipient's
executor, administrator, personal representative or other legal representative
or the person or persons to whom Recipient's rights pass by will or the
applicable laws of descent and distribution.

          18.  Withholding.  Recipient agrees to satisfy in cash, a certified
               -----------
check, bank draft, or postal or express money order payable to the order of the
Company in lawful money of the United States at the time of redemption of
Phantom Stock Units awarded hereunder any applicable federal, foreign, state or
local income tax or employment tax withholding obligation of the Company or
Recipient's employer.  The Committee, in its discretion, may permit the Company
or Recipient's employer to satisfy its withholding obligations by withholding
from Recipient cash or shares of Stock payable hereunder having a Fair Market
Value sufficient to satisfy any applicable federal, foreign, state or local
income or employment tax withholding obligation.

                                 Page 30 of 77
<PAGE>
 
          19.  California Law.  The interpretation, performance and enforcement
               --------------
of this agreement shall be governed by the laws of the State of California.

          IN WITNESS WHEREOF, the Company and Recipient have executed this
agreement as of the day and year first above written.


                                  Essex Property Trust, Inc.

                                  By:  /s/ Keith R. Guericke
                                      ---------------------------------------
                                      Keith R. Guericke, 
                                      Chief Executive Officer

                                              /s/ Michael J. Schall
                                      ---------------------------------------
                                                 Michael J. Schall

                                      c/o Essex Property Trust, Inc.
                                      777 California Avenue
                                      Palo Alto, CA 94304

                                 Page 31 of 77

<PAGE>
 
                                                                    EXHIBIT 10.3

                          REPLACEMENT PROMISSORY NOTE
$75,000                                                           April 15, 1996
                                                           Palo Alto, California

     FOR VALUE RECEIVED, the undersigned, KEITH R. GUERICKE, an individual (the
"Maker"), promises to pay on April 15, 2006 to ESSEX PORTFOLIO, L.P., a
California limited partnership ("Lender"), or order, at such place as the holder
hereof may from time to time designate, the principal sum of SEVENTY-FIVE
THOUSAND DOLLARS ($75,000), together with interest thereon from the date hereof
(the "Effective Date") until paid at the rate of eight percent (8%) per annum,
non-compounded.  Interest will be computed on a three hundred sixty-five (365)
day (or, where appropriate, three hundred sixty-six (366) day) basis and the
actual number of days elapsed.  By acceptance of this Replacement Note, Lender
hereby acknowledges and agrees that this Replacement Note replaces and
supersedes in its entirety the Strait Note (Balloon Payment), dated April 15,
1996, and such note shall be deemed canceled and of no further force and effect.

     The Maker reserves the right to prepay this Replacement Note in whole or in
part at any time, without penalty provided, however, that with each such
prepayment, Maker shall also pay the interest accrued on the principal amount
being prepaid to the date of such prepayment.

     This Replacement Note is secured by a Pledge Agreement, dated April 15,
1996 (the "Pledge Agreement"), from the Maker to Lender, granting a security
interest to Lender in a portion of the Maker's partnership interest in Lender.
Reference is made to such document for a description of the nature and extent of
the security afforded thereby, the rights of the holder hereof in respect of
such security, the acceleration of the maturity of the obligations hereunder
upon the happening of certain events and the terms and conditions upon which
this Replacement Note is secured.  The holder of this Replacement Note is
entitled to the benefits of the Pledge Agreement and may enforce the agreements
of the Maker contained therein and exercise the remedies provided therein or
otherwise in respect thereof, all in accordance with the terms thereof.

     The Maker, and any endorsers or guarantors hereof, jointly and severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayment of this Replacement Note, and expressly agree
that this Replacement Note, or any payment hereunder, may be extended from time
to time by the holder hereof without notice to or consent of the Maker or any
endorser or guarantor hereof, and hereby consent to the acceptance by the holder
hereof of further security or the release by the holder hereof of or change in
any security for this Replacement Note without any need for any further consent
by or notice to, and without in any way affecting the liability of, the Maker
and any endorsers or guarantors hereof.  No extension of time for the payment of
this Replacement Note made by agreement by the holder hereof with any person now
or hereafter liable for the payment of this Replacement Note shall affect the
original liability under this Replacement Note of the Maker, even if the Maker
is not a party to such agreement.  The pleading of any statute of limitations as
a defense to any demand 

                                 Page 32 of 77
<PAGE>
 
against the Maker or any endorsers or guarantors hereof, is expressly waived by
each and all of said parties to the full extent permitted by law.

     The Maker agrees to pay all collection expenses, court costs and reasonable
attorneys' fees and disbursements (whether or not litigation is commenced) which
may be incurred in connection with the collection or enforcement of this
Replacement Note.

     This Replacement Note shall be governed by and construed in accordance with
the laws of the State of California.

     IN WITNESS WHEREOF, the Maker has caused this Replacement Note to be
executed as of the Effective Date.

 
                               /s/ Keith R. Guericke
                               ----------------------------
                               Keith R. Guericke







                                 Page 33 of 77
<PAGE>
 
                               PLEDGE AGREEMENT

     THIS PLEDGE AGREEMENT (this "Agreement") is made as of April 15, 1996, by
and between KEITH R. GUERICKE, an individual ("Pledgor"), and ESSEX PORTFOLIO,
L.P., a California limited partnership ("Secured Party").

                                    RECITALS
                                    --------

     A.  Pledgor and Secured Party have entered into a Replacement Promissory
Note dated April 15, 1996 (the "Note"), pursuant to which Secured Party has
agreed to extend credit to Pledgor on the terms and subject to the conditions
set forth therein.

     B.  As additional security for the payment and performance of Pledgor's
obligations to Secured Party under the Note, it is the intent of Pledgor to
grant to Secured Party, and to create, a security interest in certain property
of Pledgor, as hereinafter provided.


                                   AGREEMENT
                                   ---------

     NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgor hereby agrees as follows:

     1.  Grant of Assignment and Security Interest.  Pledgor hereby transfers,
         -----------------------------------------                            
assigns, pledges and confirms, and grants to Secured Party a security interest
(the "Security Interest") in all of Pledgor's right, title and interest in and
to the following pledged collateral, whether now owned or hereafter acquired
(the "Pledged Collateral"):

         (a)  the limited partnership interests in Essex Portfolio, L.P., a
California limited partnership (formerly known as ESX Partners. L.P) (the
"Partnership") owned by Pledgor as of the date hereof (the "Partnership
Interests") that is equivalent to three thousand seven hundred fifty (3,750)
shares of Essex Property Trust, Inc., any certificates or other instruments
evidencing the Partnership Interests, all of Pledgor's right, title and interest
in, to and under the Agreement of Limited Partnership dated March 15, 1994 (the
"Partnership Agreement"), all of Pledgor's right to receive dividends,
distributions, profits, cash, securities, instruments and other payments and
property from time to time paid, payable or otherwise distributed in respect of
or in exchange for all or any part of the Partnership Interests and all proceeds
thereof; and

         (b)  all partnership interests (general or limited) and securities
issued by the Partnership, or any successor thereto, from time to time acquired
by Pledgor in substitution of the foregoing, including, without limitation, all
partnership interests or securities convertible into or exchangeable for such
interests and all options, warrants and other rights to purchase such interests,
all certificates and instruments evidencing such interests or securities,
together with the interest coupons (if any) attached thereto, and all dividends,
distributions, profits, cash, securities, instruments and other payments and
property from time to time paid, payable or 


                                 Page 34 of 77
<PAGE>
 
otherwise distributed in respect of or in exchange for any or all of such
interests or securities and all proceeds thereof.

As used herein, the term "proceeds" shall be construed in its broadest sense and
shall include whatever is receivable or received when any of the Pledged
Collateral, or any proceeds thereof, is sold, collected, exchanged or otherwise
disposed of, whether voluntarily or involuntarily, and shall include, without
limitation, all rights to payment, including interest and premiums, with respect
to any of the Pledged Collateral or any proceeds thereof.

     2.  Obligations.  The obligations secured by this Agreement (collectively,
         -----------                                                           
the "Obligations") shall consist of:

         (a) The prompt payment in full when due (whether at stated maturity,
by acceleration, or otherwise) of all indebtedness of Pledgor evidenced by the
Note and all amendments, extensions and renewals thereof;

         (b)  payment of all sums advanced in accordance herewith by or on 
behalf of the Secured Party to protect the Pledged Collateral following an Event
of Default (as defined in Section 13); and

         (c)  payment of all sums that may become due and payable to or for the 
benefit of the Secured Party pursuant to the terms of this Agreement and the 
Note;

in each case, whether now existing or hereafter arising, voluntary or
involuntary, absolute or contingent, liquidated or unliquidated, and whether or
not from time to time decreased or extinguished and later increased, created, or
incurred.

     3.  Voting Rights, Distributions.
         ----------------------------

         (a)  So long as no Event of Default shall have occurred and be 
continuing, Pledgor shall be entitled to (i) exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral belonging to
Pledgor, or any part thereof, for any purpose not inconsistent with the terms of
this Agreement or the Note, and (ii) receive and retain any dividends,
distributions, profits, cash and other payments and property from time to time
paid, payable or otherwise distributed in respect of the Pledged Collateral,
provided, however, that any and all (A) dividends, profits, and other payments
- --------  ------- 
and distributions paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise distributed in
respect of, or in exchange for, any Pledged Collateral, (B) dividends, profits
and other payments and distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, and (C) cash paid,
payable or otherwise distributed in redemption of or in exchange for any Pledged
Collateral shall be, and shall forthwith be delivered to Secured Party to hold
as, Pledged Collateral and shall if received by Pledgor, be received in trust
for the benefit of Secured Party, be segregated from other property or funds of
Pledgor and be forthwith delivered to Secured Party as Collateral in the same
form as so received (with all necessary endorsements).

                                 Page 35 of 77
<PAGE>
 
         (b)  Upon the occurrence and continuance of any Event of Default and 
written notice from Secured Party to Pledgor, all rights of Pledgor to exercise
voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 3(a)(i) shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the sole right
to exercise such voting and other consensual rights. Pledgor hereby irrevocably
appoints the Secured Party as Pledgor's proxyholder with respect to the
Partnership Interests and any other voting interests or other securities of
Pledgor forming a part of the Pledged Collateral with full power and authority
to vote such Partnership Interests and other voting interests or securities and
to otherwise act with respect to such Partnership Interests or other voting
interests or securities on behalf of Pledgor, provided that this proxy shall
only be operative upon the occurrence of an Event of Default and only for so
long as such default continues. This proxy shall be irrevocable for so long as
any of the Obligations remains in existence. Pledgor shall execute and deliver
(or cause to be executed and delivered) to Secured Party all proxies and other
instruments as Secured Party may reasonably request for the purpose of enabling
Secured Party to exercise the voting and other rights with respect to the
Pledged Collateral which it is entitled to exercise pursuant to this Section
3(b).

         (c)  Upon the occurrence and continuance of any Event of Default and 
written notice from Secured Party to Pledgor, all rights to receive any and all
payments and other distributions with respect to the Pledged Collateral which
Pledgor would otherwise be authorized to receive and retain pursuant to Section
3(a) (ii) shall cease and all such rights shall thereupon become vested in
Secured Party who shall thereupon have the sole right to receive and hold such
payments as Pledged Collateral for application against any of the Obligations.
All payments which are received by Pledgor contrary to the provisions of this
Section 3(c) shall be received in trust for the benefit of Secured Party, shall
be segregated from other funds of Pledgor and shall be forthwith paid over to
Secured Party as Pledged Collateral in the same form as so received (with any
necessary endorsements).

     4.  Perfection of Security Interest.  Concurrently with the execution of 
         -------------------------------
this Agreement, Pledgor shall execute and deliver to Secured Party Uniform
Commercial Code financing statements covering the Pledged Collateral. Pledgor
agrees that Secured Party may file such financing statements with any and all
governmental authorities that Secured Party deems appropriate for the purpose of
perfecting the Security Interest in the Pledged Collateral. In the event any
such financing statement is for any reason not acceptable to a governmental
authority to which it is submitted for filing, Pledgor shall execute and deliver
to Secured Party promptly upon Secured Party's request another financing
statement in the form required by the governmental authority. In addition, upon
request by Secured Party, Pledgor, at its own expense, shall deliver to the
Partnership an order, satisfactory in form and substance to Secured Party,
requesting that the pledge of Pledgor's interest as a limited partner in the
Partnership be registered on the books of the Partnership.

     5.  Further Assurances.  Pledgor agrees that at any time and from time to 
         ------------------
time, at the expense of Pledgor, it will promptly execute and deliver all
further instruments and documents, and take all further actions, that Secured
Party may reasonably request, in order to perfect and protect the Security
Interest in the Pledged Collateral granted or purported to be granted hereby 

                                 Page 36 of 77
<PAGE>
 
or to enable Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.

     6.  Delivery of Pledged Collateral; Issuance of Additional Interests.
         ----------------------------------------------------------------

         (a)  All certificates, instruments or documents, if any, representing 
or evidencing the Partnership Interests shall be delivered to Secured Party on
the date hereof, and shall be held by Secured Party pursuant hereto at all times
hereafter, and all certificates, instruments or documents representing or
evidencing interests or securities in or issued by the Partnership and acquired
by Pledgor after the date hereof and constituting collateral hereunder shall be
delivered to Secured Party immediately upon, and held by Secured Party at all
times after the acquisition thereof by Pledgor. All such certificates,
instruments or documents, if any, shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party.

         (b)  Pledgor agrees that it shall take all actions available to 
Pledgor to cause the Partnership and, in the event of a merger or consolidation
of the Partnership with any other entity, such other entity, not to issue any
interests or other securities whether in addition to, by dividend or other
distribution upon, or in substitution or exchange for, the Partnership Interests
or otherwise, except for such interests or other securities issued to Pledgor in
which Secured Party has a valid and perfected first-priority security interest
free and clear of all other liens and encumbrances.

     7.  Secured Party Appointed Attorney in Fact, No Assumption.
         -------------------------------------------------------

         (a)  Pledgor hereby irrevocably appoints Secured Party as Pledgor's 
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and taking any action and executing such instruments which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement, to preserve the validity, perfection and priority of the Security
Interests granted hereunder and, following any Event of Default, to exercise its
rights, remedies, powers and privileges under this Agreement, including, without
limitation, (i) to ask, demand, collect, sue for, recover, receive and give
receipt and discharge for amounts due or to become due under or in respect of
all or any part of the Pledged Collateral, (ii) to receive, endorse and collect
all instruments made payable to Pledgor representing payment of dividends,
profits or any other distribution in respect of all or any part of the Pledged
Collateral, (iii) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise enforce the rights of
Secured Party with respect to any of the Pledged Collateral, and (iv) to
execute, in connection with any sale or disposition of the Pledged Collateral
under Section 13, any endorsements, assignments, bills of sale or other
instruments of conveyance or transfer with respect to all or any part of the
Pledged Collateral.

         (b)  Anything to the contrary notwithstanding, Pledgor shall remain 
liable under the Partnership Agreement to the extent set forth therein and shall
perform all of its duties and obligations under such Partnership Agreement to
the same extent as if this Agreement had

                                 Page 37 of 77
<PAGE>
 
not been executed. Secured Party shall not have any obligation or liability
under the Partnership Agreement by reason of this Agreement, nor shall Secured
Party be obligated to perform any of the obligations or duties of Pledgor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.

     8.  Dispositions and Release of Pledged Collateral.  Pledgor covenants 
         ----------------------------------------------
that it shall not enter into or perform any agreement to sell, assign, lease,
transfer or otherwise dispose of all or any part of the Pledged Collateral
without the prior written consent of Secured Party, unless the Security Interest
in such Pledged Collateral shall have been released prior to the time such
agreement is entered into.

     9.  Ratable Release of Security Interest.  The Security Interest in the 
         ------------------------------------
Pledged Collateral shall automatically be released upon and concurrent with any
repayment of the principal balance of the Note in proportion to the percentage
repayment of the principal balance of the Note (e.g., if the original principal
balance is $100 and a principal repayment of $25 is made, 25% of the Pledged
Collateral shall be released from the Security Interest; if an additional $15
principal repayment is made, 20% of the remaining Pledged Collateral shall be
released (i.e., 15% of the original Pledged Collateral) such that the Security
Interest would remain in effect with respect to 60% of the original Pledged
Collateral). Secured Party shall execute, acknowledge and deliver to Pledgor
such instruments as may be reasonably requested by Pledgor to evidence the
release of the Security Interest pursuant to this Section 9.

     10.  Termination of Security Interest.  The Security Interest shall 
          --------------------------------
terminate upon payment and performance in full of the Obligations. Promptly
following such payment and performance in full, Secured Party shall execute,
acknowledge and deliver to Pledgor such instruments of discharge and release of
the Security Interest as may be reasonably requested by Pledgor.

     11.  Representations and Warranties.  Pledgor hereby represents and 
          ------------------------------
warrants to Secured Party, as of the date hereof and, where relevant, until the 
Obligations are paid in full, that:

          (a)  Pledgor has full power and authority to enter into and perform 
this Agreement and the Note;

          (b)  all authorizations, consents, approvals, registrations, 
exemptions, permits and licenses with or from governmental authorities which are
necessary for the execution and delivery by Pledgor of this Agreement and the
Note, and the performance by it of its obligations hereunder and thereunder as
already obtained have been effected or obtained and are in full force and
effect, are final and are not subject to any pending or threatened judicial or
administrative proceeding.

          (c)  this Agreement and the Note constitute the valid and legally 
binding obligation of Pledgor, enforceable in accordance with their respective
terms; and

                                 Page 38 of 77
<PAGE>
 
          (d)  Pledgor is the legal and beneficial owner of the Pledged 
Collateral and no other person has any right, title, claim or interest (by way
of security interest or other lien or charge or otherwise) in, against or to the
Pledged Collateral, except as disclosed in writing to Secured Party prior to the
date hereof.

     12.  Covenants of Pledgor.  From the date hereof until the Obligations are 
          --------------------
paid in full, Pledgor covenants and agrees that:

          (a)  it shall do all acts that may reasonably be necessary to 
maintain, preserve and protect the Pledged Collateral and Secured Party's
Security Interest therein;

          (b)  it shall not create, incur, assume or suffer to exist any 
further assignment, encumbrance, or lien upon the Pledged Collateral without the
prior written consent of Secured Party;

          (c)  it shall not assign any of its rights or obligations hereunder 
or under the Note without the prior written consent of Secured Party; and

          (d)  it shall appear in and defend any action or proceeding that may 
affect its title to or Secured Party's interest in the Pledged Collateral.

     13.  Default and Remedies.  An Event of Default shall be deemed to have 
          --------------------
occurred hereunder upon the occurrence of any of the following:

          (a)  Pledgor shall default in the payment of principal or interest on 
the Note when due and shall remain in default for fifteen (15) days after
receipt of notice of such default from Secured Party;

          (b)  Any of the representations or warranties made by Pledgor herein 
shall be false or misleading in any material respect at the time made; or

          (c)  Pledgor shall fail to perform or observe any other covenant, 
term, provision, condition, agreement or obligation of this Agreement or the
Note and such failure shall continue unremedied for a period of thirty (30) days
after receipt of notice of such failure, provided, that such failure shall not
                                         --------
be deemed an Event of Default if such failure cannot reasonably be cured within
such thirty (30) day period, Pledgor promptly institutes and diligently pursues
actions to cure such failure and Pledgor cures such failure within such period
reasonably necessary; or

          (d)  Pledgor shall admit in writing its inability to pay its debts as 
they mature; or make an assignment for the benefit of creditors, or apply for or
consent to the appointment of or taking possession by a trustee, liquidator,
assignee, custodian, sequestrator or receiver (or similar official) for it or
for a substantial part of its property; or

          (e)  A trustee, liquidator, assignee, custodian, sequestrator or 
receiver (or similar official) shall be appointed for Pledgor or for a
substantial part of its property without its 

                                 Page 39 of 77
<PAGE>
 
consent and shall not be discharged within one hundred twenty (120) days after
such appointment; or

          (f)  A bankruptcy, reorganization, insolvency, or liquidation case or 
other case for relief under any bankruptcy law or any law for the relief of
debtors shall be commenced by or against Pledgor and, if instituted against
Pledgor, shall not be dismissed within one hundred twenty (120) days after such
institution.

Upon the occurrence of any such Event of Default, the outstanding principal
balance on the Note, together with all accrued interest thereon shall, at the
option of Secured Party (or, in the case of an Event of Default under clauses
(d), (e) and (f), automatically) become immediately due and payable.  Upon the
occurrence of such Event of Default and acceleration by Secured Party of the
Obligations secured hereby, Secured Party may, at its option, and without notice
to or demand upon Pledgor and in addition to all rights and remedies available
to Secured Party provided for herein or under the Note or otherwise available to
it, exercise in respect of the Pledged Collateral, all rights and remedies of a
secured party after default under the Uniform Commercial Code as in effect in
any relevant jurisdiction at that time, including, without limitation, the right
to reduce Secured Party's claim to a judgment, to foreclose upon the Pledged
Collateral or any portion thereof at public or private sale, and otherwise to
enforce Secured Party's Security Interest in any manner permitted by law.

     14.  Application of Proceeds.  The proceeds of any sale of the Pledged 
          -----------------------
Collateral shall be applied as follows:

          (a)  To the payment of the reasonable costs and expenses (including 
legal fees and expenses) incurred by Secured Party in connection with the
exercise of its rights or remedies, including costs and expenses incurred in
retaking, holding and preparing for the sale and the selling of the Pledged
Collateral and the discharge of all assessments, encumbrances, charges or liens,
if any, on the Pledged Collateral prior to the lien hereof (except any taxes,
assessments, encumbrances, charges or liens subject to which such sale shall
have been made);

          (b)  To the payment of all or any part of the Obligations (including 
principal and interest under the Note); and

          (c)  The surplus, if any, shall be paid to such persons as are 
lawfully entitled to receive the same or shall be paid to whomsoever a court of
competent jurisdiction may direct.

     15.  Cumulative Rights.  The rights, powers and remedies of Secured Party 
          -----------------
under this Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any statute or rule of law, the Note or any
other agreement, all of which rights, powers and remedies shall be cumulative
and may be exercised successively or concurrently without impairing Secured
Party's security interest in the Pledged Collateral.

     16.  Waiver.  Any forbearance or failure to delay by Secured Party in 
          ------
exercising any right, power or remedy hereunder or under the Note shall not
preclude the further exercise thereof, and every right, power or remedy of
Secured Party hereunder or under the Note shall

                                 Page 40 of 77
<PAGE>
 
continue in full force and effect until such right, power or remedy is
specifically waived in a writing executed by Secured Party. Pledgor waives any
right to require Secured Party to proceed against any person or to exhaust any
Pledged Collateral or to pursue any remedy in Secured Party's power.

     17.  Binding Upon Successors.  All rights of Secured Party under this 
          -----------------------
Agreement shall inure to the benefit of its successors and assigns, and all
obligations of Pledgor shall bind its heirs, executors, administrators,
permitted successors and assigns.

     18.  Entire Agreement; Severability.  This Agreement contains the entire 
          ------------------------------
security agreement between Secured Party and Pledgor. If any of the provisions
of this Agreement shall be held invalid or unenforceable, this Agreement shall
be construed as if not containing those provisions and the rights and
obligations of the parties hereto shall be construed and enforced accordingly.

     19.  References.  The singular includes the plural. If more than one 
          ----------
executes this Agreement, the term Pledgor shall be deemed to refer to each of
the undersigned as well as to all of them, and their obligations and agreements
hereunder shall be joint and several.

     20.  Choice of Law.  This Agreement shall be construed in accordance with 
          -------------
and governed by the laws of the State of California, and, where applicable and
except as otherwise defined herein, terms used herein shall have the meanings
given them in the California Uniform Commercial Code.

     21.  Notice.  Any notice, consent or other communication provided for in 
          ------
this Agreement shall be in writing and shall be delivered, telecopied or sent by
courier service or registered U.S. mail, with postage prepaid, to the following
addresses:


          Secured Party:  Essex Portfolio, L.P.
                          777 California Avenue
                          Palo Alto, CA 94304

                Pledgor:  Keith R. Guericke
                          c/o Essex Property Trust, Inc.
                          777 California Avenue
                          Palo Alto, CA 94304

Any such notice, consent or other communication shall be deemed to have been
duly given when delivered in person or by courier service, upon receipt of
telecopy or 4 business days after

                                 Page 41 of 77
<PAGE>
 
deposit in registered U.S. mail, with postage prepaid and properly addressed.
Such addresses may be changed by written notice given as provided herein.

     IN WITNESS WHEREOF, the parties hereto have executed this Pledge Agreement 
as of the date first written above.


                               PLEDGOR:       /s/ Keith R. Guericke
                                       ----------------------------------
                                                 Keith R. Guericke


                         SECURED PARTY:  Essex Portfolio, L.P.,
                                         a California limited partnership


                                         By: ESSEX PROPERTY TRUST, INC.,
                                             a Maryland corporation
                                         Its:  General Partner



                                         By:    /s/ Michael J. Schall
                                            -----------------------------
                                                   Michael J. Schall
                                            Its:  Chief Financial Officer

                                 Page 42 of 77

<PAGE>

                                                                    EXHIBIT 10.4
 
                                PROMISSORY NOTE
$75,000                                                        December 31, 1996
                                                           Palo Alto, California

     FOR VALUE RECEIVED, the undersigned, KEITH R. GUERICKE, an individual (the
"Maker"), promises to pay on December 31, 2006 to ESSEX PORTFOLIO, L.P., a
California limited partnership ("Lender"), or order, at such place as the holder
hereof may from time to time designate, the principal sum of SEVENTY-FIVE
THOUSAND DOLLARS ($75,000), together with interest thereon from the date hereof
(the "Effective Date") until paid at the rate of eight percent (8%) per annum,
non-compounded.  Interest will be computed on a three hundred sixty-five (365)
day (or, where appropriate, three hundred sixty-six (366) day) basis and the
actual number of days elapsed.

     The Maker reserves the right to prepay this Note in whole or in part at any
time, without penalty provided, however, that with each such prepayment, Maker
shall also pay the interest accrued on the principal amount being prepaid to the
date of such prepayment.

     This Note is secured by a Pledge Agreement, dated December 31, 1996 (the
"Pledge Agreement"), from the Maker to Lender, granting a security interest to
Lender in a portion of the Maker's partnership interest in Lender.  Reference is
made to such document for a description of the nature and extent of the security
afforded thereby, the rights of the holder hereof in respect of such security,
the acceleration of the maturity of the obligations hereunder upon the happening
of certain events and the terms and conditions upon which this Note is secured.
The holder of this Note is entitled to the benefits of the Pledge Agreement and
may enforce the agreements of the Maker contained therein and exercise the
remedies provided therein or otherwise in respect thereof, all in accordance
with the terms thereof.

     The Maker, and any endorsers or guarantors hereof, jointly and severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayment of this Note, and expressly agree that this
Note, or any payment hereunder, may be extended from time to time by the holder
hereof without notice to or consent of the Maker or any endorser or guarantor
hereof, and hereby consent to the acceptance by the holder hereof of further
security or the release by the holder hereof of or change in any security for
this Note without any need for any further consent by or notice to, and without
in any way affecting the liability of, the Maker and any endorsers or guarantors
hereof.  No extension of time for the payment of this Note made by agreement by
the holder hereof with any person now or hereafter liable for the payment of
this Note shall affect the original liability under this Note of the Maker, even
if the Maker is not a party to such agreement.  The pleading of any statute of
limitations as a defense to any demand against the Maker or any endorsers or
guarantors hereof, is expressly waived by each and all of said parties to the
full extent permitted by law.


                                 Page 43 of 77
<PAGE>
 
     The Maker agrees to pay all collection expenses, court costs and reasonable
attorneys' fees and disbursements (whether or not litigation is commenced) which
may be incurred in connection with the collection or enforcement of this Note.

     This Note shall be governed by and construed in accordance with the laws of
the State of California.

     IN WITNESS WHEREOF, the Maker has caused this Note to be executed as of the
Effective Date.

 
                               /s/ Keith R. Guericke
                               -------------------------
                               Keith R. Guericke






                                 Page 44 of 77
<PAGE>
 
                               PLEDGE AGREEMENT

     THIS PLEDGE AGREEMENT (this "Agreement") is made as of December 31, 1996,
by and between KEITH R. GUERICKE, an individual ("Pledgor"), and ESSEX
PORTFOLIO, L.P., a California limited partnership ("Secured Party").

                                    RECITALS
                                    --------

     A.  Pledgor and Secured Party have entered into a Promissory Note dated
December 31, 1996 (the "Note"), pursuant to which Secured Party has agreed to
extend credit to Pledgor on the terms and subject to the conditions set forth
therein.

     B.  As additional security for the payment and performance of Pledgor's
obligations to Secured Party under the Note, it is the intent of Pledgor to
grant to Secured Party, and to create, a security interest in certain property
of Pledgor, as hereinafter provided.



                                   AGREEMENT
                                   ---------

     NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgor hereby agrees as follows:

     1.  Grant of Assignment and Security Interest.  Pledgor hereby transfers,
         -----------------------------------------                            
assigns, pledges and confirms, and grants to Secured Party a security interest
(the "Security Interest") in all of Pledgor's right, title and interest in and
to the following pledged collateral, whether now owned or hereafter acquired
(the "Pledged Collateral"):

         (a)  the limited partnership interests in Essex Portfolio, L.P., a
California limited partnership (formerly known as ESX Partners. L.P) (the
"Partnership") owned by Pledgor as of the date hereof (the "Partnership
Interests") that is equivalent to two thousand five hundred fifty-three (2,553)
shares of Essex Property Trust, Inc., any certificates or other instruments
evidencing the Partnership Interests, all of Pledgor's right, title and interest
in, to and under the Agreement of Limited Partnership dated March 15, 1994 (the
"Partnership Agreement"), all of Pledgor's right to receive dividends,
distributions, profits, cash, securities, instruments and other payments and
property from time to time paid, payable or otherwise distributed in respect of
or in exchange for all or any part of the Partnership Interests and all proceeds
thereof; and

         (b)  all partnership interests (general or limited) and securities
issued by the Partnership, or any successor thereto, from time to time acquired
by Pledgor in substitution of the foregoing, including, without limitation, all
partnership interests or securities convertible into or exchangeable for such
interests and all options, warrants and other rights to purchase such interests,
all certificates and instruments evidencing such interests or securities,
together with the interest coupons (if any) attached thereto, and all dividends,
distributions, profits, cash, securities, instruments and other payments and
property from time to time paid, payable 

                                 Page 45 of 77
<PAGE>
 
or otherwise distributed in respect of or in exchange for any or all of such
interests or securities and all proceeds thereof.

As used herein, the term "proceeds" shall be construed in its broadest sense and
shall include whatever is receivable or received when any of the Pledged
Collateral, or any proceeds thereof, is sold, collected, exchanged or otherwise
disposed of, whether voluntarily or involuntarily, and shall include, without
limitation, all rights to payment, including interest and premiums, with respect
to any of the Pledged Collateral or any proceeds thereof.

     2.  Obligations.  The obligations secured by this Agreement (collectively,
         -----------                                                           
the "Obligations") shall consist of:

         (a)  The prompt payment in full when due (whether at stated maturity,
by acceleration, or otherwise) of all indebtedness of Pledgor evidenced by the
Note and all amendments, extensions and renewals thereof;

         (b)  payment of all sums advanced in accordance herewith by or on 
behalf of the Secured Party to protect the Pledged Collateral following an Event
of Default (as defined in Section 13); and

         (c)  payment of all sums that may become due and payable to or for the 
benefit of the Secured Party pursuant to the terms of this Agreement and the 
Note;

in each case, whether now existing or hereafter arising, voluntary or
involuntary, absolute or contingent, liquidated or unliquidated, and whether or
not from time to time decreased or extinguished and later increased, created, or
incurred.

     3.  Voting Rights, Distributions.
         ----------------------------

         (a)  So long as no Event of Default shall have occurred and be 
continuing, Pledgor shall be entitled to (i) exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral belonging to
Pledgor, or any part thereof, for any purpose not inconsistent with the terms of
this Agreement or the Note, and (ii) receive and retain any dividends,
distributions, profits, cash and other payments and property from time to time
paid, payable or otherwise distributed in respect of the Pledged Collateral,
provided, however, that any and all (A) dividends, profits, and other payments
- -----------------
and distributions paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise distributed in
respect of, or in exchange for, any Pledged Collateral, (B) dividends, profits
and other payments and distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, and (C) cash paid,
payable or otherwise distributed in redemption of or in exchange for any Pledged
Collateral shall be, and shall forthwith be delivered to Secured Party to hold
as, Pledged Collateral and shall if received by Pledgor, be received in trust
for the benefit of Secured Party, be segregated from other property or funds of
Pledgor and be forthwith delivered to Secured Party as Collateral in the same
form as so received (with all necessary endorsements).

                                 Page 46 of 77
<PAGE>
 
         (b)  Upon the occurrence and continuance of any Event of Default and 
written notice from Secured Party to Pledgor, all rights of Pledgor to exercise
voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 3(a)(i) shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the sole right
to exercise such voting and other consensual rights. Pledgor hereby irrevocably
appoints the Secured Party as Pledgor's proxyholder with respect to the
Partnership Interests and any other voting interests or other securities of
Pledgor forming a part of the Pledged Collateral with full power and authority
to vote such Partnership Interests and other voting interests or securities and
to otherwise act with respect to such Partnership Interests or other voting
interests or securities on behalf of Pledgor, provided that this proxy shall
only be operative upon the occurrence of an Event of Default and only for so
long as such default continues. This proxy shall be irrevocable for so long as
any of the Obligations remains in existence. Pledgor shall execute and deliver
(or cause to be executed and delivered) to Secured Party all proxies and other
instruments as Secured Party may reasonably request for the purpose of enabling
Secured Party to exercise the voting and other rights with respect to the
Pledged Collateral which it is entitled to exercise pursuant to this Section
3(b).

         (c)  Upon the occurrence and continuance of any Event of Default and 
written notice from Secured Party to Pledgor, all rights to receive any and all
payments and other distributions with respect to the Pledged Collateral which
Pledgor would otherwise be authorized to receive and retain pursuant to Section
3(a) (ii) shall cease and all such rights shall thereupon become vested in
Secured Party who shall thereupon have the sole right to receive and hold such
payments as Pledged Collateral for application against any of the Obligations.
All payments which are received by Pledgor contrary to the provisions of this
Section 3(c) shall be received in trust for the benefit of Secured Party, shall
be segregated from other funds of Pledgor and shall be forthwith paid over to
Secured Party as Pledged Collateral in the same form as so received (with any
necessary endorsements).

     4.  Perfection of Security Interest.  Concurrently with the execution of 
         -------------------------------
this Agreement, Pledgor shall execute and deliver to Secured Party Uniform
Commercial Code financing statements covering the Pledged Collateral. Pledgor
agrees that Secured Party may file such financing statements with any and all
governmental authorities that Secured Party deems appropriate for the purpose of
perfecting the Security Interest in the Pledged Collateral. In the event any
such financing statement is for any reason not acceptable to a governmental
authority to which it is submitted for filing, Pledgor shall execute and deliver
to Secured Party promptly upon Secured Party's request another financing
statement in the form required by the governmental authority. In addition, upon
request by Secured Party, Pledgor, at its own expense, shall deliver to the
Partnership an order, satisfactory in form and substance to Secured Party,
requesting that the pledge of Pledgor's interest as a limited partner in the
Partnership be registered on the books of the Partnership.

     5.  Further Assurances.  Pledgor agrees that at any time and from time to 
         ------------------
time, at the expense of Pledgor, it will promptly execute and deliver all
further instruments and documents, and take all further actions, that Secured
Party may reasonably request, in order to perfect and protect the Security
Interest in the Pledged Collateral granted or purported to be granted hereby 

                                 Page 47 of 77
<PAGE>
 
or to enable Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.

     6.  Delivery of Pledged Collateral; Issuance of Additional Interests.
         ----------------------------------------------------------------

         (a)  All certificates, instruments or documents, if any, representing 
or evidencing the Partnership Interests shall be delivered to Secured Party on
the date hereof, and shall be held by Secured Party pursuant hereto at all times
hereafter, and all certificates, instruments or documents representing or
evidencing interests or securities in or issued by the Partnership and acquired
by Pledgor after the date hereof and constituting collateral hereunder shall be
delivered to Secured Party immediately upon, and held by Secured Party at all
times after the acquisition thereof by Pledgor. All such certificates,
instruments or documents, if any, shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party.

         (b)  Pledgor agrees that it shall take all actions available to 
Pledgor to cause the Partnership and, in the event of a merger or consolidation
of the Partnership with any other entity, such other entity, not to issue any
interests or other securities whether in addition to, by dividend or other
distribution upon, or in substitution or exchange for, the Partnership Interests
or otherwise, except for such interests or other securities issued to Pledgor in
which Secured Party has a valid and perfected first-priority security interest
free and clear of all other liens and encumbrances.

     7.  Secured Party Appointed Attorney in Fact, No Assumption.
         -------------------------------------------------------

         (a)  Pledgor hereby irrevocably appoints Secured Party as Pledgor's 
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and taking any action and executing such instruments which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement, to preserve the validity, perfection and priority of the Security
Interests granted hereunder and, following any Event of Default, to exercise its
rights, remedies, powers and privileges under this Agreement, including, without
limitation, (i) to ask, demand, collect, sue for, recover, receive and give
receipt and discharge for amounts due or to become due under or in respect of
all or any part of the Pledged Collateral, (ii) to receive, endorse and collect
all instruments made payable to Pledgor representing payment of dividends,
profits or any other distribution in respect of all or any part of the Pledged
Collateral, (iii) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise enforce the rights of
Secured Party with respect to any of the Pledged Collateral, and (iv) to
execute, in connection with any sale or disposition of the Pledged Collateral
under Section 13, any endorsements, assignments, bills of sale or other
instruments of conveyance or transfer with respect to all or any part of the
Pledged Collateral.

         (b)  Anything to the contrary notwithstanding, Pledgor shall remain 
liable under the Partnership Agreement to the extent set forth therein and shall
perform all of its duties and obligations under such Partnership Agreement to
the same extent as if this Agreement had

                                 Page 48 of 77
<PAGE>
 
not been executed. Secured Party shall not have any obligation or liability
under the Partnership Agreement by reason of this Agreement, nor shall Secured
Party be obligated to perform any of the obligations or duties of Pledgor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.

     8.  Dispositions and Release of Pledged Collateral.  Pledgor covenants 
         ----------------------------------------------
that it shall not enter into or perform any agreement to sell, assign, lease,
transfer or otherwise dispose of all or any part of the Pledged Collateral
without the prior written consent of Secured Party, unless the Security Interest
in such Pledged Collateral shall have been released prior to the time such
agreement is entered into.

     9.  Ratable Release of Security Interest.  The Security Interest in the 
         ------------------------------------
Pledged Collateral shall automatically be released upon and concurrent with any
repayment of the principal balance of the Note in proportion to the percentage
repayment of the principal balance of the Note (e.g., if the original principal
balance is $100 and a principal repayment of $25 is made, 25% of the Pledged
Collateral shall be released from the Security Interest; if an additional $15
principal repayment is made, 20% of the remaining Pledged Collateral shall be
released (i.e., 15% of the original Pledged Collateral) such that the Security
Interest would remain in effect with respect to 60% of the original Pledged
Collateral). Secured Party shall execute, acknowledge and deliver to Pledgor
such instruments as may be reasonably requested by Pledgor to evidence the
release of the Security Interest pursuant to this Section 9.

     10.  Termination of Security Interest.  The Security Interest shall 
          --------------------------------
terminate upon payment and performance in full of the Obligations. Promptly
following such payment and performance in full, Secured Party shall execute,
acknowledge and deliver to Pledgor such instruments of discharge and release of
the Security Interest as may be reasonably requested by Pledgor.

     11.  Representations and Warranties.  Pledgor hereby represents and 
          ------------------------------
warrants to Secured Party, as of the date hereof and, where relevant, until the
Obligations are paid in full, that:

          (a)  Pledgor has full power and authority to enter into and perform 
this Agreement and the Note;

          (b)  all authorizations, consents, approvals, registrations, 
exemptions, permits and licenses with or from governmental authorities which are
necessary for the execution and delivery by Pledgor of this Agreement and the
Note, and the performance by it of its obligations hereunder and thereunder as
already obtained have been effected or obtained and are in full force and
effect, are final and are not subject to any pending or threatened judicial or
administrative proceeding.

          (c)  this Agreement and the Note constitute the valid and legally 
binding obligation of Pledgor, enforceable in accordance with their respective 
terms; and

                                 Page 49 of 77
<PAGE>
 
          (d)  Pledgor is the legal and beneficial owner of the Pledged 
Collateral and no other person has any right, title, claim or interest (by way
of security interest or other lien or charge or otherwise) in, against or to the
Pledged Collateral, except as disclosed in writing to Secured Party prior to the
date hereof.

     12.  Covenants of Pledgor.  From the date hereof until the Obligations are 
          --------------------
paid in full, Pledgor covenants and agrees that:

          (a)  it shall do all acts that may reasonably be necessary to 
maintain, preserve and protect the Pledged Collateral and Secured Party's 
Security Interest therein;

          (b)  it shall not create, incur, assume or suffer to exist any 
further assignment, encumbrance, or lien upon the Pledged Collateral without the
prior written consent of Secured Party;

          (c)  it shall not assign any of its rights or obligations hereunder 
or under the Note without the prior written consent of Secured Party; and

          (d)  it shall appear in and defend any action or proceeding that may 
affect its title to or Secured Party's interest in the Pledged Collateral.

     13.  Default and Remedies.  An Event of Default shall be deemed to have 
          --------------------
occurred hereunder upon the occurrence of any of the following:

          (a)  Pledgor shall default in the payment of principal or interest on 
the Note when due and shall remain in default for fifteen (15) days after
receipt of notice of such default from Secured Party;

          (b)  Any of the representations or warranties made by Pledgor herein 
shall be false or misleading in any material respect at the time made; or

          (c)  Pledgor shall fail to perform or observe any other covenant, 
term, provision, condition, agreement or obligation of this Agreement or the
Note and such failure shall continue unremedied for a period of thirty (30) days
after receipt of notice of such failure, provided, that such failure shall not
be deemed an Event of Default if such failure cannot reasonably be cured within
such thirty (30) day period, Pledgor promptly institutes and diligently pursues
actions to cure such failure and Pledgor cures such failure within such period
reasonably necessary; or

          (d)  Pledgor shall admit in writing its inability to pay its debts as 
they mature; or make an assignment for the benefit of creditors, or apply for or
consent to the appointment of or taking possession by a trustee, liquidator,
assignee, custodian, sequestrator or receiver (or similar official) for it or
for a substantial part of its property; or

          (e)  A trustee, liquidator, assignee, custodian, sequestrator or 
receiver (or similar official) shall be appointed for Pledgor or for a
substantial part of its property without its 

                                 Page 50 of 77
<PAGE>
 
consent and shall not be discharged within one hundred twenty (120) days after
such appointment; or

          (f)  A bankruptcy, reorganization, insolvency, or liquidation case or 
other case for relief under any bankruptcy law or any law for the relief of
debtors shall be commenced by or against Pledgor and, if instituted against
Pledgor, shall not be dismissed within one hundred twenty (120) days after such
institution.

Upon the occurrence of any such Event of Default, the outstanding principal
balance on the Note, together with all accrued interest thereon shall, at the
option of Secured Party (or, in the case of an Event of Default under clauses
(d), (e) and (f), automatically) become immediately due and payable.  Upon the
occurrence of such Event of Default and acceleration by Secured Party of the
Obligations secured hereby, Secured Party may, at its option, and without notice
to or demand upon Pledgor and in addition to all rights and remedies available
to Secured Party provided for herein or under the Note or otherwise available to
it, exercise in respect of the Pledged Collateral, all rights and remedies of a
secured party after default under the Uniform Commercial Code as in effect in
any relevant jurisdiction at that time, including, without limitation, the right
to reduce Secured Party's claim to a judgment, to foreclose upon the Pledged
Collateral or any portion thereof at public or private sale, and otherwise to
enforce Secured Party's Security Interest in any manner permitted by law.

     14.  Application of Proceeds.  The proceeds of any sale of the Pledged 
          -----------------------
Collateral shall be applied as follows:

          (a)  To the payment of the reasonable costs and expenses (including 
legal fees and expenses) incurred by Secured Party in connection with the
exercise of its rights or remedies, including costs and expenses incurred in
retaking, holding and preparing for the sale and the selling of the Pledged
Collateral and the discharge of all assessments, encumbrances, charges or liens,
if any, on the Pledged Collateral prior to the lien hereof (except any taxes,
assessments, encumbrances, charges or liens subject to which such sale shall
have been made);

          (b)  To the payment of all or any part of the Obligations (including 
principal and interest under the Note); and

          (c)  The surplus, if any, shall be paid to such persons as are 
lawfully entitled to receive the same or shall be paid to whomsoever a court of
competent jurisdiction may direct.

     15.  Cumulative Rights.  The rights, powers and remedies of Secured Party 
          -----------------
under this Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any statute or rule of law, the Note or any
other agreement, all of which rights, powers and remedies shall be cumulative
and may be exercised successively or concurrently without impairing Secured
Party's security interest in the Pledged Collateral.

     16.  Waiver.  Any forbearance or failure to delay by Secured Party in 
          ------
exercising any right, power or remedy hereunder or under the Note shall not
preclude the further exercise thereof, and every right, power or remedy of
Secured Party hereunder or under the Note shall 

                                 Page 51 of 77
<PAGE>
 
continue in full force and effect until such right, power or remedy is
specifically waived in a writing executed by Secured Party. Pledgor waives any
right to require Secured Party to proceed against any person or to exhaust any
Pledged Collateral or to pursue any remedy in Secured Party's power.

     17.  Binding Upon Successors.  All rights of Secured Party under this 
          -----------------------
Agreement shall inure to the benefit of its successors and assigns, and all
obligations of Pledgor shall bind its heirs, executors, administrators,
permitted successors and assigns.

     18.  Entire Agreement; Severability.  This Agreement contains the entire 
          ------------------------------
security agreement between Secured Party and Pledgor. If any of the provisions
of this Agreement shall be held invalid or unenforceable, this Agreement shall
be construed as if not containing those provisions and the rights and
obligations of the parties hereto shall be construed and enforced
accordingly.

     19.  References.  The singular includes the plural. If more than one 
          ----------
executes this Agreement, the term Pledgor shall be deemed to refer to each of
the undersigned as well as to all of them, and their obligations and agreements
hereunder shall be joint and several.

     20.  Choice of Law.  This Agreement shall be construed in accordance with 
          -------------
and governed by the laws of the State of California, and, where applicable and
except as otherwise defined herein, terms used herein shall have the meanings
given them in the California Uniform Commercial Code.

     21.  Notice.  Any notice, consent or other communication provided for in 
          ------
this Agreement shall be in writing and shall be delivered, telecopied or sent by
courier service or registered U.S. mail, with postage prepaid, to the following
addresses: 

          Secured Party:  Essex Portfolio, L.P.
                          777 California Avenue
                          Palo Alto, CA 94304

                Pledgor:  Keith R. Guericke
                          c/o Essex Property Trust, Inc.
                          777 California Avenue
                          Palo Alto, CA 94304

Any such notice, consent or other communication shall be deemed to have been
duly given when delivered in person or by courier service, upon receipt of
telecopy or 4 business days after

                                 Page 52 of 77
<PAGE>
 
deposit in registered U.S. mail, with postage prepaid and properly addressed.
Such addresses may be changed by written notice given as provided herein.

     IN WITNESS WHEREOF, the parties hereto have executed this Pledge Agreement 
as of the date first written above.


                                  PLEDGOR:       /s/ Keith R. Guericke
                                            ----------------------------------
                                                    Keith R. Guericke

                            SECURED PARTY: Essex Portfolio, L.P.,
                                           a California limited partnership


                                           By: ESSEX PROPERTY TRUST, INC.,
                                               a Maryland corporation
                                           Its: General Partner


                                           By:      /s/ Michael J. Schall
                                                ------------------------------
                                                      Michael J. Schall
                                           Its: Chief Financial Officer

                                 Page 53 of 77

<PAGE>
 
                                                                    EXHIBIT 10.5

                          REPLACEMENT PROMISSORY NOTE

$50,000                                                           April 30, 1996
                                                           Palo Alto, California

     FOR VALUE RECEIVED, the undersigned, MICHAEL J. SCHALL, an individual (the
"Maker"), promises to pay on April 30, 2006 to ESSEX PORTFOLIO, L.P., a
California limited partnership ("Lender"), or order, at such place as the holder
hereof may from time to time designate, the principal sum of FIFTY THOUSAND
DOLLARS ($50,000), together with interest thereon from the date hereof (the
"Effective Date") until paid at the rate of eight percent (8%) per annum, non-
compounded.  Interest will be computed on a three hundred sixty-five (365) day
(or, where appropriate, three hundred sixty-six (366) day) basis and the actual
number of days elapsed.  By acceptance of this Replacement Note, Lender hereby
acknowledges and agrees that this Replacement Note replaces and supersedes in
its entirety the Strait Note (Balloon Payment), dated April 30, 1996, and such
note shall be deemed canceled and of no further force and effect.

     The Maker reserves the right to prepay this Replacement Note in whole or in
part at any time, without penalty provided, however, that with each such
prepayment, Maker shall also pay the interest accrued on the principal amount
being prepaid to the date of such prepayment.

     This Replacement Note is secured by a Pledge Agreement, dated April 30,
1996 (the "Pledge Agreement"), from the Maker to Lender, granting a security
interest to Lender in a portion of the Maker's partnership interest in Lender.
Reference is made to such document for a description of the nature and extent of
the security afforded thereby, the rights of the holder hereof in respect of
such security, the acceleration of the maturity of the obligations hereunder
upon the happening of certain events and the terms and conditions upon which
this Replacement Note is secured.  The holder of this Replacement Note is
entitled to the benefits of the Pledge Agreement and may enforce the agreements
of the Maker contained therein and exercise the remedies provided therein or
otherwise in respect thereof, all in accordance with the terms thereof.

     The Maker, and any endorsers or guarantors hereof, jointly and severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayment of this Replacement Note, and expressly agree
that this Replacement Note, or any payment hereunder, may be extended from time
to time by the holder hereof without notice to or consent of the Maker or any
endorser or guarantor hereof, and hereby consent to the acceptance by the holder
hereof of further security or the release by the holder hereof of or change in
any security for this Replacement Note without any need for any further consent
by or notice to, and without in any way affecting the liability of, the Maker
and any endorsers or guarantors hereof.  No extension of time for the payment of
this Replacement Note made by agreement by the holder hereof with any person now
or hereafter liable for the payment of this Replacement Note shall affect the
original liability under this Replacement Note of the Maker, even if the Maker
is not a party to such agreement.  The pleading of any statute of limitations as
a defense to any demand 

                                 Page 54 of 77
<PAGE>
 
against the Maker or any endorsers or guarantors hereof, is expressly waived by
each and all of said parties to the full extent permitted by law.

     The Maker agrees to pay all collection expenses, court costs and reasonable
attorneys' fees and disbursements (whether or not litigation is commenced) which
may be incurred in connection with the collection or enforcement of this
Replacement Note.

     This Replacement Note shall be governed by and construed in accordance with
the laws of the State of California.

     IN WITNESS WHEREOF, the Maker has caused this Replacement Note to be
executed as of the Effective Date.

 
                                 /s/ Michael J. Schall
                               -----------------------------
                                    Michael J. Schall






                                 Page 55 of 77
<PAGE>
 
                               PLEDGE AGREEMENT

     THIS PLEDGE AGREEMENT (this "Agreement") is made as of April 30, 1996, by
and between MICHAEL J. SCHALL, an individual ("Pledgor"), and ESSEX PORTFOLIO,
L.P., a California limited partnership ("Secured Party").


                                    RECITALS
                                    --------

     A.  Pledgor and Secured Party have entered into a Replacement Promissory
Note dated April 30, 1996 (the "Note"), pursuant to which Secured Party has
agreed to extend credit to Pledgor on the terms and subject to the conditions
set forth therein.

     B.  As additional security for the payment and performance of Pledgor's
obligations to Secured Party under the Note, it is the intent of Pledgor to
grant to Secured Party, and to create, a security interest in certain property
of Pledgor, as hereinafter provided.


                                   AGREEMENT
                                   ---------

     NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgor hereby agrees as follows:

     1.  Grant of Assignment and Security Interest.  Pledgor hereby transfers,
         -----------------------------------------                            
assigns, pledges and confirms, and grants to Secured Party a security interest
(the "Security Interest") in all of Pledgor's right, title and interest in and
to the following pledged collateral, whether now owned or hereafter acquired
(the "Pledged Collateral"):

         (a)  the limited partnership interests in Essex Portfolio, L.P., a
California limited partnership (formerly known as ESX Partners. L.P) (the
"Partnership") owned by Pledgor as of the date hereof (the "Partnership
Interests") that is equivalent to two thousand five hundred (2,500) shares of
Essex Property Trust, Inc., any certificates or other instruments evidencing the
Partnership Interests, all of Pledgor's right, title and interest in, to and
under the Agreement of Limited Partnership dated March 15, 1994 (the
"Partnership Agreement"), all of Pledgor's right to receive dividends,
distributions, profits, cash, securities, instruments and other payments and
property from time to time paid, payable or otherwise distributed in respect of
or in exchange for all or any part of the Partnership Interests and all proceeds
thereof; and

         (b)  all partnership interests (general or limited) and securities
issued by the Partnership, or any successor thereto, from time to time acquired
by Pledgor in substitution of the foregoing, including, without limitation, all
partnership interests or securities convertible into or exchangeable for such
interests and all options, warrants and other rights to purchase such interests,
all certificates and instruments evidencing such interests or securities,
together with the interest coupons (if any) attached thereto, and all dividends,
distributions, profits, cash, securities, instruments and other payments and
property from time to time paid, payable or 

                                 Page 56 of 77
<PAGE>
 
otherwise distributed in respect of or in exchange for any or all of such
interests or securities and all proceeds thereof.

As used herein, the term "proceeds" shall be construed in its broadest sense and
shall include whatever is receivable or received when any of the Pledged
Collateral, or any proceeds thereof, is sold, collected, exchanged or otherwise
disposed of, whether voluntarily or involuntarily, and shall include, without
limitation, all rights to payment, including interest and premiums, with respect
to any of the Pledged Collateral or any proceeds thereof.

     2.  Obligations.  The obligations secured by this Agreement (collectively,
         -----------                                                           
the "Obligations") shall consist of:

         (a)  The prompt payment in full when due (whether at stated maturity,
by acceleration, or otherwise) of all indebtedness of Pledgor evidenced by the
Note and all amendments, extensions and renewals thereof;

         (b)  payment of all sums advanced in accordance herewith by or on 
behalf of the Secured Party to protect the Pledged Collateral following an Event
of Default (as defined in Section 13); and

         (c)  payment of all sums that may become due and payable to or for the 
benefit of the Secured Party pursuant to the terms of this Agreement and the
Note;

in each case, whether now existing or hereafter arising, voluntary or
involuntary, absolute or contingent, liquidated or unliquidated, and whether or
not from time to time decreased or extinguished and later increased, created, or
incurred.

     3.  Voting Rights, Distributions.
         ----------------------------

         (a)  So long as no Event of Default shall have occurred and be 
continuing, Pledgor shall be entitled to (i) exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral belonging to
Pledgor, or any part thereof, for any purpose not inconsistent with the terms of
this Agreement or the Note, and (ii) receive and retain any dividends,
distributions, profits, cash and other payments and property from time to time
paid, payable or otherwise distributed in respect of the Pledged Collateral,
provided, however, that any and all (A) dividends, profits, and other payments
- -----------------
and distributions paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise distributed in
respect of, or in exchange for, any Pledged Collateral, (B) dividends, profits
and other payments and distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, and (C) cash paid,
payable or otherwise distributed in redemption of or in exchange for any Pledged
Collateral shall be, and shall forthwith be delivered to Secured Party to hold
as, Pledged Collateral and shall if received by Pledgor, be received in trust
for the benefit of Secured Party, be segregated from other property or funds of
Pledgor and be forthwith delivered to Secured Party as Collateral in the same
form as so received (with all necessary endorsements).

                                 Page 57 of 77
<PAGE>
 
         (b)  Upon the occurrence and continuance of any Event of Default and 
written notice from Secured Party to Pledgor, all rights of Pledgor to exercise
voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 3(a)(i) shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the sole right
to exercise such voting and other consensual rights. Pledgor hereby irrevocably
appoints the Secured Party as Pledgor's proxyholder with respect to the
Partnership Interests and any other voting interests or other securities of
Pledgor forming a part of the Pledged Collateral with full power and authority
to vote such Partnership Interests and other voting interests or securities and
to otherwise act with respect to such Partnership Interests or other voting
interests or securities on behalf of Pledgor, provided that this proxy shall
only be operative upon the occurrence of an Event of Default and only for so
long as such default continues. This proxy shall be irrevocable for so long as
any of the Obligations remains in existence. Pledgor shall execute and deliver
(or cause to be executed and delivered) to Secured Party all proxies and other
instruments as Secured Party may reasonably request for the purpose of enabling
Secured Party to exercise the voting and other rights with respect to the
Pledged Collateral which it is entitled to exercise pursuant to this Section
3(b).

         (c)  Upon the occurrence and continuance of any Event of Default and 
written notice from Secured Party to Pledgor, all rights to receive any and all
payments and other distributions with respect to the Pledged Collateral which
Pledgor would otherwise be authorized to receive and retain pursuant to Section
3(a) (ii) shall cease and all such rights shall thereupon become vested in
Secured Party who shall thereupon have the sole right to receive and hold such
payments as Pledged Collateral for application against any of the Obligations.
All payments which are received by Pledgor contrary to the provisions of this
Section 3(c) shall be received in trust for the benefit of Secured Party, shall
be segregated from other funds of Pledgor and shall be forthwith paid over to
Secured Party as Pledged Collateral in the same form as so received (with any
necessary endorsements).

     4.  Perfection of Security Interest.  Concurrently with the execution of 
         -------------------------------
this Agreement, Pledgor shall execute and deliver to Secured Party Uniform
Commercial Code financing statements covering the Pledged Collateral. Pledgor
agrees that Secured Party may file such financing statements with any and all
governmental authorities that Secured Party deems appropriate for the purpose of
perfecting the Security Interest in the Pledged Collateral. In the event any
such financing statement is for any reason not acceptable to a governmental
authority to which it is submitted for filing, Pledgor shall execute and deliver
to Secured Party promptly upon Secured Party's request another financing
statement in the form required by the governmental authority. In addition, upon
request by Secured Party, Pledgor, at its own expense, shall deliver to the
Partnership an order, satisfactory in form and substance to Secured Party,
requesting that the pledge of Pledgor's interest as a limited partner in the
Partnership be registered on the books of the Partnership.

     5.  Further Assurances.  Pledgor agrees that at any time and from time to 
         ------------------
time, at the expense of Pledgor, it will promptly execute and deliver all
further instruments and documents, and take all further actions, that Secured
Party may reasonably request, in order to perfect and protect the Security
Interest in the Pledged Collateral granted or purported to be granted hereby

                                 Page 58 of 77
<PAGE>
 
or to enable Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.

     6.  Delivery of Pledged Collateral; Issuance of Additional Interests.
         ----------------------------------------------------------------

         (a)  All certificates, instruments or documents, if any, representing 
or evidencing the Partnership Interests shall be delivered to Secured Party on
the date hereof, and shall be held by Secured Party pursuant hereto at all times
hereafter, and all certificates, instruments or documents representing or
evidencing interests or securities in or issued by the Partnership and acquired
by Pledgor after the date hereof and constituting collateral hereunder shall be
delivered to Secured Party immediately upon, and held by Secured Party at all
times after the acquisition thereof by Pledgor. All such certificates,
instruments or documents, if any, shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party.

         (b)  Pledgor agrees that it shall take all actions available to 
Pledgor to cause the Partnership and, in the event of a merger or consolidation
of the Partnership with any other entity, such other entity, not to issue any
interests or other securities whether in addition to, by dividend or other
distribution upon, or in substitution or exchange for, the Partnership Interests
or otherwise, except for such interests or other securities issued to Pledgor in
which Secured Party has a valid and perfected first-priority security interest
free and clear of all other liens and encumbrances.

     7.  Secured Party Appointed Attorney in Fact, No Assumption.
         -------------------------------------------------------

         (a)  Pledgor hereby irrevocably appoints Secured Party as Pledgor's 
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and taking any action and executing such instruments which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement, to preserve the validity, perfection and priority of the Security
Interests granted hereunder and, following any Event of Default, to exercise its
rights, remedies, powers and privileges under this Agreement, including, without
limitation, (i) to ask, demand, collect, sue for, recover, receive and give
receipt and discharge for amounts due or to become due under or in respect of
all or any part of the Pledged Collateral, (ii) to receive, endorse and collect
all instruments made payable to Pledgor representing payment of dividends,
profits or any other distribution in respect of all or any part of the Pledged
Collateral, (iii) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise enforce the rights of
Secured Party with respect to any of the Pledged Collateral, and (iv) to
execute, in connection with any sale or disposition of the Pledged Collateral
under Section 13, any endorsements, assignments, bills of sale or other
instruments of conveyance or transfer with respect to all or any part of the
Pledged Collateral.

         (b)  Anything to the contrary notwithstanding, Pledgor shall remain 
liable under the Partnership Agreement to the extent set forth therein and shall
perform all of its duties and obligations under such Partnership Agreement to
the same extent as if this Agreement had

                                 Page 59 of 77
<PAGE>
 
not been executed. Secured Party shall not have any obligation or liability
under the Partnership Agreement by reason of this Agreement, nor shall Secured
Party be obligated to perform any of the obligations or duties of Pledgor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.

     8.  Dispositions and Release of Pledged Collateral.  Pledgor covenants 
         ----------------------------------------------
that it shall not enter into or perform any agreement to sell, assign, lease,
transfer or otherwise dispose of all or any part of the Pledged Collateral
without the prior written consent of Secured Party, unless the Security Interest
in such Pledged Collateral shall have been released prior to the time such
agreement is entered into.

     9.  Ratable Release of Security Interest.  The Security Interest in the 
         ------------------------------------
Pledged Collateral shall automatically be released upon and concurrent with any
repayment of the principal balance of the Note in proportion to the percentage
repayment of the principal balance of the Note (e.g., if the original principal
balance is $100 and a principal repayment of $25 is made, 25% of the Pledged
Collateral shall be released from the Security Interest; if an additional $15
principal repayment is made, 20% of the remaining Pledged Collateral shall be
released (i.e., 15% of the original Pledged Collateral) such that the Security
Interest would remain in effect with respect to 60% of the original Pledged
Collateral). Secured Party shall execute, acknowledge and deliver to Pledgor
such instruments as may be reasonably requested by Pledgor to evidence the
release of the Security Interest pursuant to this Section 9.

     10.  Termination of Security Interest.  The Security Interest shall 
          --------------------------------
terminate upon payment and performance in full of the Obligations. Promptly
following such payment and performance in full, Secured Party shall execute,
acknowledge and deliver to Pledgor such instruments of discharge and release of
the Security Interest as may be reasonably requested by Pledgor.

     11.  Representations and Warranties.  Pledgor hereby represents and 
          ------------------------------
warrants to Secured Party, as of the date hereof and, where relevant, until the
Obligations are paid in full, that:

          (a)  Pledgor has full power and authority to enter into and perform 
this Agreement and the Note;

          (b)  all authorizations, consents, approvals, registrations, 
exemptions, permits and licenses with or from governmental authorities which are
necessary for the execution and delivery by Pledgor of this Agreement and the
Note, and the performance by it of its obligations hereunder and thereunder as
already obtained have been effected or obtained and are in full force and
effect, are final and are not subject to any pending or threatened judicial or
administrative proceeding.

          (c)  this Agreement and the Note constitute the valid and legally 
binding obligation of Pledgor, enforceable in accordance with their respective 
terms; and

                                 Page 60 of 77
<PAGE>
 
          (d)  Pledgor is the legal and beneficial owner of the Pledged 
Collateral and no other person has any right, title, claim or interest (by way
of security interest or other lien or charge or otherwise) in, against or to the
Pledged Collateral, except as disclosed in writing to Secured Party prior to the
date hereof.

     12.  Covenants of Pledgor.  From the date hereof until the Obligations are 
          --------------------
paid in full, Pledgor covenants and agrees that:

          (a)  it shall do all acts that may reasonably be necessary to 
maintain, preserve and protect the Pledged Collateral and Secured Party's
Security Interest therein;

          (b)  it shall not create, incur, assume or suffer to exist any 
further assignment, encumbrance, or lien upon the Pledged Collateral without the
prior written consent of Secured Party;

          (c)  it shall not assign any of its rights or obligations hereunder 
or under the Note without the prior written consent of Secured Party; and

          (d)  it shall appear in and defend any action or proceeding that may 
affect its title to or Secured Party's interest in the Pledged Collateral.

     13.  Default and Remedies.  An Event of Default shall be deemed to have 
          --------------------
occurred hereunder upon the occurrence of any of the following:

          (a)  Pledgor shall default in the payment of principal or interest on 
the Note when due and shall remain in default for fifteen (15) days after
receipt of notice of such default from Secured Party;

          (b)  Any of the representations or warranties made by Pledgor herein 
shall be false or misleading in any material respect at the time made; or

          (c)  Pledgor shall fail to perform or observe any other covenant, 
term, provision, condition, agreement or obligation of this Agreement or the
Note and such failure shall continue unremedied for a period of thirty (30) days
after receipt of notice of such failure, provided, that such failure shall not
                                         --------
be deemed an Event of Default if such failure cannot reasonably be cured within
such thirty (30) day period, Pledgor promptly institutes and diligently pursues
actions to cure such failure and Pledgor cures such failure within such period
reasonably necessary; or

          (d)  Pledgor shall admit in writing its inability to pay its debts as 
they mature; or make an assignment for the benefit of creditors, or apply for or
consent to the appointment of or taking possession by a trustee, liquidator,
assignee, custodian, sequestrator or receiver (or similar official) for it or
for a substantial part of its property; or

          (e)  A trustee, liquidator, assignee, custodian, sequestrator or 
receiver (or similar official) shall be appointed for Pledgor or for a
substantial part of its property without its

                                 Page 61 of 77
<PAGE>
 
consent and shall not be discharged within one hundred twenty (120) days after
such appointment; or

          (f)  A bankruptcy, reorganization, insolvency, or liquidation case or 
other case for relief under any bankruptcy law or any law for the relief of
debtors shall be commenced by or against Pledgor and, if instituted against
Pledgor, shall not be dismissed within one hundred twenty (120) days after such
institution.

Upon the occurrence of any such Event of Default, the outstanding principal
balance on the Note, together with all accrued interest thereon shall, at the
option of Secured Party (or, in the case of an Event of Default under clauses
(d), (e) and (f), automatically) become immediately due and payable.  Upon the
occurrence of such Event of Default and acceleration by Secured Party of the
Obligations secured hereby, Secured Party may, at its option, and without notice
to or demand upon Pledgor and in addition to all rights and remedies available
to Secured Party provided for herein or under the Note or otherwise available to
it, exercise in respect of the Pledged Collateral, all rights and remedies of a
secured party after default under the Uniform Commercial Code as in effect in
any relevant jurisdiction at that time, including, without limitation, the right
to reduce Secured Party's claim to a judgment, to foreclose upon the Pledged
Collateral or any portion thereof at public or private sale, and otherwise to
enforce Secured Party's Security Interest in any manner permitted by law.

     14.  Application of Proceeds.  The proceeds of any sale of the Pledged 
          -----------------------
Collateral shall be applied as follows:

          (a)  To the payment of the reasonable costs and expenses (including 
legal fees and expenses) incurred by Secured Party in connection with the
exercise of its rights or remedies, including costs and expenses incurred in
retaking, holding and preparing for the sale and the selling of the Pledged
Collateral and the discharge of all assessments, encumbrances, charges or liens,
if any, on the Pledged Collateral prior to the lien hereof (except any taxes,
assessments, encumbrances, charges or liens subject to which such sale shall
have been made);

          (b)  To the payment of all or any part of the Obligations (including
principal and interest under the Note); and

          (c)  The surplus, if any, shall be paid to such persons as are 
lawfully entitled to receive the same or shall be paid to whomsoever a court of
competent jurisdiction may direct.

     15.  Cumulative Rights.  The rights, powers and remedies of Secured Party 
          -----------------
under this Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any statute or rule of law, the Note or any
other agreement, all of which rights, powers and remedies shall be cumulative
and may be exercised successively or concurrently without impairing Secured
Party's security interest in the Pledged Collateral.

     16.  Waiver.  Any forbearance or failure to delay by Secured Party in 
          ------
exercising any right, power or remedy hereunder or under the Note shall not
preclude the further exercise thereof, and every right, power or remedy of
Secured Party hereunder or under the Note shall

                                 Page 62 of 77
<PAGE>
 
continue in full force and effect until such right, power or remedy is
specifically waived in a writing executed by Secured Party. Pledgor waives any
right to require Secured Party to proceed against any person or to exhaust any
Pledged Collateral or to pursue any remedy in Secured Party's power.

     17.  Binding Upon Successors.  All rights of Secured Party under this 
          -----------------------
Agreement shall inure to the benefit of its successors and assigns, and all
obligations of Pledgor shall bind its heirs, executors, administrators,
permitted successors and assigns.

     18.  Entire Agreement; Severability.  This Agreement contains the entire 
          ------------------------------
security agreement between Secured Party and Pledgor. If any of the provisions
of this Agreement shall be held invalid or unenforceable, this Agreement shall
be construed as if not containing those provisions and the rights and
obligations of the parties hereto shall be construed and enforced
accordingly.

     19.  References.  The singular includes the plural. If more than one 
          ----------
executes this Agreement, the term Pledgor shall be deemed to refer to each of
the undersigned as well as to all of them, and their obligations and agreements
hereunder shall be joint and several.

     20.  Choice of Law.  This Agreement shall be construed in accordance with 
          -------------
and governed by the laws of the State of California, and, where applicable and
except as otherwise defined herein, terms used herein shall have the meanings
given them in the California Uniform Commercial Code.

     21.  Notice.  Any notice, consent or other communication provided for in 
          ------
this Agreement shall be in writing and shall be delivered, telecopied or sent by
courier service or registered U.S. mail, with postage prepaid, to the following
addresses: 

          Secured Party:  Essex Portfolio, L.P.
                          777 California Avenue
                          Palo Alto, CA 94304

                Pledgor:  Michael J. Schall
                          c/o Essex Property Trust, Inc.
                          777 California Avenue
                          Palo Alto, CA 94304

Any such notice, consent or other communication shall be deemed to have been
duly given when delivered in person or by courier service, upon receipt of
telecopy or 4 business days after


                                 Page 63 of 77
<PAGE>
 
deposit in registered U.S. mail, with postage prepaid and properly addressed.
Such addresses may be changed by written notice given as provided herein.

IN WITNESS WHEREOF, the parties hereto have executed this Pledge Agreement as of
the date first written above.

                                     PLEDGOR:    /s/ Michael J. Schall
                                             --------------------------------
                                                     Michael J. Schall


                               SECURED PARTY: Essex Portfolio, L.P.,
                                              a California limited partnership


                                              By:  ESSEX PROPERTY TRUST, INC.,
                                                   a Maryland corporation
                                              Its: General Partner



                                              By:   /s/ Keith R. Guericke 
                                                 -----------------------------
                                                        Keith R. Guericke
                                                 Its:  Chief Executive Officer

                                 Page 64 of 77

<PAGE>
 
                                                                    EXHIBIT 10.6

                                PROMISSORY NOTE

$50,000                                                        December 31, 1996
                                                           Palo Alto, California

     FOR VALUE RECEIVED, the undersigned, MICHAEL J. SCHALL, an individual (the
"Maker"), promises to pay on December 31, 2006 to ESSEX PORTFOLIO, L.P., a
California limited partnership ("Lender"), or order, at such place as the holder
hereof may from time to time designate, the principal sum of FIFTY THOUSAND
DOLLARS ($50,000), together with interest thereon from the date hereof (the
"Effective Date") until paid at the rate of eight percent (8%) per annum, non-
compounded.  Interest will be computed on a three hundred sixty-five (365) day
(or, where appropriate, three hundred sixty-six (366) day) basis and the actual
number of days elapsed.

     The Maker reserves the right to prepay this Note in whole or in part at any
time, without penalty provided, however, that with each such prepayment, Maker
shall also pay the interest accrued on the principal amount being prepaid to the
date of such prepayment.

     This Note is secured by a Pledge Agreement, dated December 31, 1996 (the
"Pledge Agreement"), from the Maker to Lender, granting a security interest to
Lender in a portion of the Maker's partnership interest in Lender.  Reference is
made to such document for a description of the nature and extent of the security
afforded thereby, the rights of the holder hereof in respect of such security,
the acceleration of the maturity of the obligations hereunder upon the happening
of certain events and the terms and conditions upon which this Note is secured.
The holder of this Note is entitled to the benefits of the Pledge Agreement and
may enforce the agreements of the Maker contained therein and exercise the
remedies provided therein or otherwise in respect thereof, all in accordance
with the terms thereof.

     The Maker, and any endorsers or guarantors hereof, jointly and severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayment of this Note, and expressly agree that this
Note, or any payment hereunder, may be extended from time to time by the holder
hereof without notice to or consent of the Maker or any endorser or guarantor
hereof, and hereby consent to the acceptance by the holder hereof of further
security or the release by the holder hereof of or change in any security for
this Note without any need for any further consent by or notice to, and without
in any way affecting the liability of, the Maker and any endorsers or guarantors
hereof.  No extension of time for the payment of this Note made by agreement by
the holder hereof with any person now or hereafter liable for the payment of
this Note shall affect the original liability under this Note of the Maker, even
if the Maker is not a party to such agreement.  The pleading of any statute of
limitations as a defense to any demand against the Maker or any endorsers or
guarantors hereof, is expressly waived by each and all of said parties to the
full extent permitted by law.

                                 Page 65 of 77
<PAGE>
 
     The Maker agrees to pay all collection expenses, court costs and reasonable
attorneys' fees and disbursements (whether or not litigation is commenced) which
may be incurred in connection with the collection or enforcement of this Note.

     This Note shall be governed by and construed in accordance with the laws of
the State of California.

     IN WITNESS WHEREOF, the Maker has caused this Note to be executed as of the
Effective Date.

 
                                  /s/ Michael J. Schall
                               -----------------------------
                                     Michael J. Schall





                                 Page 66 of 77
<PAGE>
 
                               PLEDGE AGREEMENT

     THIS PLEDGE AGREEMENT (this "Agreement") is made as of December 31, 1996,
by and between MICHAEL J. SCHALL, an individual ("Pledgor"), and ESSEX
PORTFOLIO, L.P., a California limited partnership ("Secured Party").

                                    RECITALS
                                    --------

     A.  Pledgor and Secured Party have entered into a Promissory Note dated
December 31, 1996 (the "Note"), pursuant to which Secured Party has agreed to
extend credit to Pledgor on the terms and subject to the conditions set forth
therein.

     B.  As additional security for the payment and performance of Pledgor's
obligations to Secured Party under the Note, it is the intent of Pledgor to
grant to Secured Party, and to create, a security interest in certain property
of Pledgor, as hereinafter provided.



                                   AGREEMENT
                                   ---------

     NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgor hereby agrees as follows:

     1.  Grant of Assignment and Security Interest.  Pledgor hereby transfers,
         -----------------------------------------                            
assigns, pledges and confirms, and grants to Secured Party a security interest
(the "Security Interest") in all of Pledgor's right, title and interest in and
to the following pledged collateral, whether now owned or hereafter acquired
(the "Pledged Collateral"):

         (a)  the limited partnership interests in Essex Portfolio, L.P., a
California limited partnership (formerly known as ESX Partners. L.P) (the
"Partnership") owned by Pledgor as of the date hereof (the "Partnership
Interests") that is equivalent to one thousand seven hundred two (1,702) shares
of Essex Property Trust, Inc., any certificates or other instruments evidencing
the Partnership Interests, all of Pledgor's right, title and interest in, to and
under the Agreement of Limited Partnership dated March 15, 1994 (the
"Partnership Agreement"), all of Pledgor's right to receive dividends,
distributions, profits, cash, securities, instruments and other payments and
property from time to time paid, payable or otherwise distributed in respect of
or in exchange for all or any part of the Partnership Interests and all proceeds
thereof; and

         (b)  all partnership interests (general or limited) and securities
issued by the Partnership, or any successor thereto, from time to time acquired
by Pledgor in substitution of the foregoing, including, without limitation, all
partnership interests or securities convertible into or exchangeable for such
interests and all options, warrants and other rights to purchase such interests,
all certificates and instruments evidencing such interests or securities,
together with the interest coupons (if any) attached thereto, and all dividends,
distributions, profits, cash, securities, instruments and other payments and
property from time to time paid, payable or 

                                 Page 67 of 77
<PAGE>
 
otherwise distributed in respect of or in exchange for any or all of such
interests or securities and all proceeds thereof.

As used herein, the term "proceeds" shall be construed in its broadest sense and
shall include whatever is receivable or received when any of the Pledged
Collateral, or any proceeds thereof, is sold, collected, exchanged or otherwise
disposed of, whether voluntarily or involuntarily, and shall include, without
limitation, all rights to payment, including interest and premiums, with respect
to any of the Pledged Collateral or any proceeds thereof.

     2.  Obligations.  The obligations secured by this Agreement (collectively,
         -----------                                                           
the "Obligations") shall consist of:

         (a)  The prompt payment in full when due (whether at stated maturity,
by acceleration, or otherwise) of all indebtedness of Pledgor evidenced by the
Note and all amendments, extensions and renewals thereof;

         (b)  payment of all sums advanced in accordance herewith by or on 
behalf of the Secured Party to protect the Pledged Collateral following an Event
of Default (as defined in Section 13); and

         (c)  payment of all sums that may become due and payable to or for the 
benefit of the Secured Party pursuant to the terms of this Agreement and the
Note;

in each case, whether now existing or hereafter arising, voluntary or
involuntary, absolute or contingent, liquidated or unliquidated, and whether or
not from time to time decreased or extinguished and later increased, created, or
incurred.

     3.  Voting Rights, Distributions.
         ----------------------------

         (a)  So long as no Event of Default shall have occurred and be 
continuing, Pledgor shall be entitled to (i) exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral belonging to
Pledgor, or any part thereof, for any purpose not inconsistent with the terms of
this Agreement or the Note, and (ii) receive and retain any dividends,
distributions, profits, cash and other payments and property from time to time
paid, payable or otherwise distributed in respect of the Pledged Collateral,
provided, however, that any and all (A) dividends, profits, and other payments
- -----------------
and distributions paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise distributed in
respect of, or in exchange for, any Pledged Collateral, (B) dividends, profits
and other payments and distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, and (C) cash paid,
payable or otherwise distributed in redemption of or in exchange for any Pledged
Collateral shall be, and shall forthwith be delivered to Secured Party to hold
as, Pledged Collateral and shall if received by Pledgor, be received in trust
for the benefit of Secured Party, be segregated from other property or funds of
Pledgor and be forthwith delivered to Secured Party as Collateral in the same
form as so received (with all necessary endorsements).

                                 Page 68 of 77
<PAGE>
 
         (b)  Upon the occurrence and continuance of any Event of Default and 
written notice from Secured Party to Pledgor, all rights of Pledgor to exercise
voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 3(a)(i) shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the sole right
to exercise such voting and other consensual rights. Pledgor hereby irrevocably
appoints the Secured Party as Pledgor's proxyholder with respect to the
Partnership Interests and any other voting interests or other securities of
Pledgor forming a part of the Pledged Collateral with full power and authority
to vote such Partnership Interests and other voting interests or securities and
to otherwise act with respect to such Partnership Interests or other voting
interests or securities on behalf of Pledgor, provided that this proxy shall
only be operative upon the occurrence of an Event of Default and only for so
long as such default continues. This proxy shall be irrevocable for so long as
any of the Obligations remains in existence. Pledgor shall execute and deliver
(or cause to be executed and delivered) to Secured Party all proxies and other
instruments as Secured Party may reasonably request for the purpose of enabling
Secured Party to exercise the voting and other rights with respect to the
Pledged Collateral which it is entitled to exercise pursuant to this Section
3(b).

         (c)  Upon the occurrence and continuance of any Event of Default and 
written notice from Secured Party to Pledgor, all rights to receive any and all
payments and other distributions with respect to the Pledged Collateral which
Pledgor would otherwise be authorized to receive and retain pursuant to Section
3(a) (ii) shall cease and all such rights shall thereupon become vested in
Secured Party who shall thereupon have the sole right to receive and hold such
payments as Pledged Collateral for application against any of the Obligations.
All payments which are received by Pledgor contrary to the provisions of this
Section 3(c) shall be received in trust for the benefit of Secured Party, shall
be segregated from other funds of Pledgor and shall be forthwith paid over to
Secured Party as Pledged Collateral in the same form as so received (with any
necessary endorsements).

     4.  Perfection of Security Interest.  Concurrently with the execution of 
         -------------------------------
this Agreement, Pledgor shall execute and deliver to Secured Party Uniform
Commercial Code financing statements covering the Pledged Collateral. Pledgor
agrees that Secured Party may file such financing statements with any and all
governmental authorities that Secured Party deems appropriate for the purpose of
perfecting the Security Interest in the Pledged Collateral. In the event any
such financing statement is for any reason not acceptable to a governmental
authority to which it is submitted for filing, Pledgor shall execute and deliver
to Secured Party promptly upon Secured Party's request another financing
statement in the form required by the governmental authority. In addition, upon
request by Secured Party, Pledgor, at its own expense, shall deliver to the
Partnership an order, satisfactory in form and substance to Secured Party,
requesting that the pledge of Pledgor's interest as a limited partner in the
Partnership be registered on the books of the Partnership.

     5.  Further Assurances.  Pledgor agrees that at any time and from time to 
         ------------------
time, at the expense of Pledgor, it will promptly execute and deliver all
further instruments and documents, and take all further actions, that Secured
Party may reasonably request, in order to perfect and protect the Security
Interest in the Pledged Collateral granted or purported to be granted hereby

                                 Page 69 of 77
<PAGE>
 
or to enable Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.

     6.  Delivery of Pledged Collateral; Issuance of Additional Interests.
         ----------------------------------------------------------------

         (a)  All certificates, instruments or documents, if any, representing 
or evidencing the Partnership Interests shall be delivered to Secured Party on
the date hereof, and shall be held by Secured Party pursuant hereto at all times
hereafter, and all certificates, instruments or documents representing or
evidencing interests or securities in or issued by the Partnership and acquired
by Pledgor after the date hereof and constituting collateral hereunder shall be
delivered to Secured Party immediately upon, and held by Secured Party at all
times after the acquisition thereof by Pledgor. All such certificates,
instruments or documents, if any, shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party.

         (b)  Pledgor agrees that it shall take all actions available to 
Pledgor to cause the Partnership and, in the event of a merger or consolidation
of the Partnership with any other entity, such other entity, not to issue any
interests or other securities whether in addition to, by dividend or other
distribution upon, or in substitution or exchange for, the Partnership Interests
or otherwise, except for such interests or other securities issued to Pledgor in
which Secured Party has a valid and perfected first-priority security interest
free and clear of all other liens and encumbrances.

     7.  Secured Party Appointed Attorney in Fact, No Assumption.
         -------------------------------------------------------

         (a)  Pledgor hereby irrevocably appoints Secured Party as Pledgor's 
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and taking any action and executing such instruments which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement, to preserve the validity, perfection and priority of the Security
Interests granted hereunder and, following any Event of Default, to exercise its
rights, remedies, powers and privileges under this Agreement, including, without
limitation, (i) to ask, demand, collect, sue for, recover, receive and give
receipt and discharge for amounts due or to become due under or in respect of
all or any part of the Pledged Collateral, (ii) to receive, endorse and collect
all instruments made payable to Pledgor representing payment of dividends,
profits or any other distribution in respect of all or any part of the Pledged
Collateral, (iii) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise enforce the rights of
Secured Party with respect to any of the Pledged Collateral, and (iv) to
execute, in connection with any sale or disposition of the Pledged Collateral
under Section 13, any endorsements, assignments, bills of sale or other
instruments of conveyance or transfer with respect to all or any part of the
Pledged Collateral.

         (b)  Anything to the contrary notwithstanding, Pledgor shall remain 
liable under the Partnership Agreement to the extent set forth therein and shall
perform all of its duties and obligations under such Partnership Agreement to
the same extent as if this Agreement had

                                 Page 70 of 77
<PAGE>
 
not been executed. Secured Party shall not have any obligation or liability
under the Partnership Agreement by reason of this Agreement, nor shall Secured
Party be obligated to perform any of the obligations or duties of Pledgor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.

     8.  Dispositions and Release of Pledged Collateral.  Pledgor covenants 
         ----------------------------------------------
that it shall not enter into or perform any agreement to sell, assign, lease,
transfer or otherwise dispose of all or any part of the Pledged Collateral
without the prior written consent of Secured Party, unless the Security Interest
in such Pledged Collateral shall have been released prior to the time such
agreement is entered into.

     9.  Ratable Release of Security Interest.  The Security Interest in the 
         ------------------------------------
Pledged Collateral shall automatically be released upon and concurrent with any
repayment of the principal balance of the Note in proportion to the percentage
repayment of the principal balance of the Note (e.g., if the original principal
                                                ----
balance is $100 and a principal repayment of $25 is made, 25% of the Pledged
Collateral shall be released from the Security Interest; if an additional $15
principal repayment is made, 20% of the remaining Pledged Collateral shall be
released (i.e., 15% of the original Pledged Collateral) such that the Security
          ----
Interest would remain in effect with respect to 60% of the original Pledged
Collateral). Secured Party shall execute, acknowledge and deliver to Pledgor
such instruments as may be reasonably requested by Pledgor to evidence the
release of the Security Interest pursuant to this Section 9.

     10.  Termination of Security Interest.  The Security Interest shall 
          --------------------------------
terminate upon payment and performance in full of the Obligations. Promptly
following such payment and performance in full, Secured Party shall execute,
acknowledge and deliver to Pledgor such instruments of discharge and release of
the Security Interest as may be reasonably requested by Pledgor.

     11.  Representations and Warranties.  Pledgor hereby represents and 
          ------------------------------
warrants to Secured Party, as of the date hereof and, where relevant, until the
Obligations are paid in full, that:

          (a)  Pledgor has full power and authority to enter into and perform 
this Agreement and the Note;

          (b)  all authorizations, consents, approvals, registrations, 
exemptions, permits and licenses with or from governmental authorities which are
necessary for the execution and delivery by Pledgor of this Agreement and the
Note, and the performance by it of its obligations hereunder and thereunder as
already obtained have been effected or obtained and are in full force and
effect, are final and are not subject to any pending or threatened judicial or
administrative proceeding.

          (c)  this Agreement and the Note constitute the valid and legally 
binding obligation of Pledgor, enforceable in accordance with their respective 
terms; and

                                 Page 71 of 77
<PAGE>
 
          (d)  Pledgor is the legal and beneficial owner of the Pledged 
Collateral and no other person has any right, title, claim or interest (by way
of security interest or other lien or charge or otherwise) in, against or to the
Pledged Collateral, except as disclosed in writing to Secured Party prior to the
date hereof.

     12.  Covenants of Pledgor.  From the date hereof until the Obligations are 
          --------------------
paid in full, Pledgor covenants and agrees that:

          (a)  it shall do all acts that may reasonably be necessary to 
maintain, preserve and protect the Pledged Collateral and Secured Party's
Security Interest therein;

          (b)  it shall not create, incur, assume or suffer to exist any 
further assignment, encumbrance, or lien upon the Pledged Collateral without the
prior written consent of Secured Party;

          (c)  it shall not assign any of its rights or obligations hereunder 
or under the Note without the prior written consent of Secured Party; and

          (d)  it shall appear in and defend any action or proceeding that may 
affect its title to or Secured Party's interest in the Pledged Collateral.

     13.  Default and Remedies.  An Event of Default shall be deemed to have 
          --------------------
occurred hereunder upon the occurrence of any of the following:

          (a)  Pledgor shall default in the payment of principal or interest on 
the Note when due and shall remain in default for fifteen (15) days after
receipt of notice of such default from Secured Party;

          (b)  Any of the representations or warranties made by Pledgor herein 
shall be false or misleading in any material respect at the time made; or

          (c)  Pledgor shall fail to perform or observe any other covenant, 
term, provision, condition, agreement or obligation of this Agreement or the
Note and such failure shall continue unremedied for a period of thirty (30) days
after receipt of notice of such failure, provided, that such failure shall not
be deemed an Event of Default if such failure cannot reasonably be cured within
such thirty (30) day period, Pledgor promptly institutes and diligently pursues
actions to cure such failure and Pledgor cures such failure within such period
reasonably necessary; or

          (d)  Pledgor shall admit in writing its inability to pay its debts 
as they mature; or make an assignment for the benefit of creditors, or apply for
or consent to the appointment of or taking possession by a trustee, liquidator,
assignee, custodian, sequestrator or receiver (or similar official) for it or
for a substantial part of its property; or

          (e)  A trustee, liquidator, assignee, custodian, sequestrator or 
receiver (or similar official) shall be appointed for Pledgor or for a
substantial part of its property without its

                                 Page 72 of 77
<PAGE>
 
consent and shall not be discharged within one hundred twenty (120) days after
such appointment; or

          (f)  A bankruptcy, reorganization, insolvency, or liquidation case or 
other case for relief under any bankruptcy law or any law for the relief of
debtors shall be commenced by or against Pledgor and, if instituted against
Pledgor, shall not be dismissed within one hundred twenty (120) days after such
institution.

Upon the occurrence of any such Event of Default, the outstanding principal
balance on the Note, together with all accrued interest thereon shall, at the
option of Secured Party (or, in the case of an Event of Default under clauses
(d), (e) and (f), automatically) become immediately due and payable.  Upon the
occurrence of such Event of Default and acceleration by Secured Party of the
Obligations secured hereby, Secured Party may, at its option, and without notice
to or demand upon Pledgor and in addition to all rights and remedies available
to Secured Party provided for herein or under the Note or otherwise available to
it, exercise in respect of the Pledged Collateral, all rights and remedies of a
secured party after default under the Uniform Commercial Code as in effect in
any relevant jurisdiction at that time, including, without limitation, the right
to reduce Secured Party's claim to a judgment, to foreclose upon the Pledged
Collateral or any portion thereof at public or private sale, and otherwise to
enforce Secured Party's Security Interest in any manner permitted by law.

     14.  Application of Proceeds.  The proceeds of any sale of the Pledged 
          -----------------------
Collateral shall be applied as follows:

          (a)  To the payment of the reasonable costs and expenses (including
legal fees and expenses) incurred by Secured Party in connection with the
exercise of its rights or remedies, including costs and expenses incurred in
retaking, holding and preparing for the sale and the selling of the Pledged
Collateral and the discharge of all assessments, encumbrances, charges or liens,
if any, on the Pledged Collateral prior to the lien hereof (except any taxes,
assessments, encumbrances, charges or liens subject to which such sale shall
have been made);

          (b)  To the payment of all or any part of the Obligations (including 
principal and interest under the Note); and

          (c)  The surplus, if any, shall be paid to such persons as are 
lawfully entitled to receive the same or shall be paid to whomsoever a court of
competent jurisdiction may direct.

     15.  Cumulative Rights.  The rights, powers and remedies of Secured Party 
          -----------------
under this Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any statute or rule of law, the Note or any
other agreement, all of which rights, powers and remedies shall be cumulative
and may be exercised successively or concurrently without impairing Secured
Party's security interest in the Pledged Collateral.

     16.  Waiver.  Any forbearance or failure to delay by Secured Party in 
          ------
exercising any right, power or remedy hereunder or under the Note shall not
preclude the further exercise thereof, and every right, power or remedy of
Secured Party hereunder or under the Note shall 

                                 Page 73 of 77
<PAGE>
 
continue in full force and effect until such right, power or remedy is
specifically waived in a writing executed by Secured Party. Pledgor waives any
right to require Secured Party to proceed against any person or to exhaust any
Pledged Collateral or to pursue any remedy in Secured Party's power.

     17.  Binding Upon Successors.  All rights of Secured Party under this 
          -----------------------
Agreement shall inure to the benefit of its successors and assigns, and all
obligations of Pledgor shall bind its heirs, executors, administrators,
permitted successors and assigns.

     18.  Entire Agreement; Severability.  This Agreement contains the entire 
          ------------------------------
security agreement between Secured Party and Pledgor. If any of the provisions
of this Agreement shall be held invalid or unenforceable, this Agreement shall
be construed as if not containing those provisions and the rights and
obligations of the parties hereto shall be construed and enforced
accordingly.

     19.  References.  The singular includes the plural. If more than one 
          ----------
executes this Agreement, the term Pledgor shall be deemed to refer to each of
the undersigned as well as to all of them, and their obligations and agreements
hereunder shall be joint and several.

     20.  Choice of Law.  This Agreement shall be construed in accordance with 
          -------------
and governed by the laws of the State of California, and, where applicable and
except as otherwise defined herein, terms used herein shall have the meanings
given them in the California Uniform Commercial Code.

     21.  Notice.  Any notice, consent or other communication provided for in 
          ------
this Agreement shall be in writing and shall be delivered, telecopied or sent by
courier service or registered U.S. mail, with postage prepaid, to the following
addresses:

          Secured Party:  Essex Portfolio, L.P.
                          777 California Avenue
                          Palo Alto, CA 94304

                Pledgor:  Michael J. Schall
                          c/o Essex Property Trust, Inc.
                          777 California Avenue
                          Palo Alto, CA 94304

Any such notice, consent or other communication shall be deemed to have been
duly given when delivered in person or by courier service, upon receipt of
telecopy or 4 business days after

                                 Page 74 of 77
<PAGE>
 
deposit in registered U.S. mail, with postage prepaid and properly addressed.
Such addresses may be changed by written notice given as provided herein.

IN WITNESS WHEREOF, the parties hereto have executed this Pledge Agreement as of
the date first written above.


                                  PLEDGOR:     /s/ Michael J. Schall
                                           ------------------------------------
                                                   Michael J. Schall

                            SECURED PARTY: Essex Portfolio, L.P.,
                                           a California limited partnership


                                           By:  ESSEX PROPERTY TRUST, INC.,
                                                a Maryland corporation
                                           Its: General Partner

                                                  By:  /s/ Keith R. Guericke
                                                      -------------------------
                                                         Keith R. Guericke
                                                  Its: Chief Executive Officer



                                 Page 75 of 77

<PAGE>
 
                                                                    EXHIBIT 11.1

                          ESSEX PROPERTY TRUST, INC.

                STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
                 (In thousands except share and share amounts)

<TABLE>
<CAPTION>
                                                                                          Quarter ended March 31,
                                                                                       ------------------------------
                                                                                          1997                1996
                                                                                       -----------         ----------
<S>                                                                                    <C>                 <C>
PRIMARY:
     Net income/(loss)                                                                 $     4,868         $      (57)
     Less:
        Dividends on 8.75% Convertible Preferred Stock, Series 1996A                           438                  0
                                                                                       -----------         ----------
     Net income/(loss) applicable to common stockholders                               $     4,430         $       (57)
                                                                                       ===========         ==========

     Weighted average shares outstanding                                                11,594,606          6,275,000
     Weighted average shares of dilutive stock options using
        average stock price under the treasury stock method                                190,346                  0
                                                                                       -----------         ----------
     Weighted average shares used in net income per share calculation                   11,784,952          6,275,000
                                                                                       ===========         ==========

     Net income per share/(loss)                                                       $      0.38         $    (0.01)
                                                                                       ===========         ==========
FULLY - DILUTED:
     Adjusted shares - primary, from above                                              11,784,952                 -
     Weighted average shares issuable upon conversion of the
        8.75% Convertible Preferred Stock, Series 1996A                                    914,286                 -
     Additional weighted average shares of dilutive stock options
        using end of period stock price under the treasury stock method                      2,781                 -
                                                                                       -----------         ----------
     Weighted average number of common shares - assuming full dilution                  12,702,019                N/A
                                                                                       ===========         ==========

     Earnings per common share - assuming full dilution                                $      0.38 (1)            N/A (2)
                                                                                       ===========         ==========
</TABLE>

(1)   For March 1997, the 8.75%  Convertible  Preferred  Stock,  Series
      1996A  were  antidilutive  and  accordingly,  the  results of the
      primary  earnings  per share is reported  for earnings per common
      share - assuming full dilution.

(2)   The 8.75% Convertible Preferred Stock, Series 1996A was issued in July, 
      1996.


                                 Page 76 of 77

<PAGE>
 
                                                                    EXHIBIT 12.1


                           ESSEX PROPERTY TRUST, INC.
 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
                          (in thousands, except ratios)
<TABLE>
<CAPTION>

                                                                                                                    Essex Partners
                                                                   Essex Property Trust, Inc.                         Properties
                                                 ----------------------------------------------------------------   ---------------
                                                                                                      Period of        Period of
                                                                                                       June 13,        January 1,
                                                                                                        1994             1994   
                                                   Quarter ended     Year ended       Year ended         to               to    
                                                     March 31,      December 31,     December 31,    December 31,      June 12,  
                                                        1997            1996             1995          1994             1994
                                                       -------         --------        --------       -------          -------
<S>                                                    <C>             <C>             <C>            <C>              <C>
Earnings:
  Income before provision for income taxes,
    extraordinary items and minority interest          $ 5,743         $ 14,970        $ 14,244       $ 4,397          $   332
  Interest expense                                       3,363           11,442          10,928         4,304            5,924
  Amortization of deferred financing costs                 127              639           1,355           773               96
  Capitalized interest                                      61              115              92             -                -
                                                       -------         --------        --------       -------          -------
  Total earnings                                       $ 9,294         $ 27,166        $ 26,619       $ 9,474          $ 6,352
                                                       =======         ========        ========       =======          =======
Fixed charges:
  Interest expense                                     $ 3,363         $ 11,442        $ 10,928       $ 4,304          $ 5,924
  Convertible preferred stock dividends                    438              635               -             -                -
  Amortization of deferred financing costs                 127              639           1,355           773               96
  Capitalized interest                                      61              115              92             -                -
                                                       -------         --------        --------       -------          -------
  Total fixed charges and preferred
    stock dividends                                      3,989           12,831          12,375         5,077            6,020
                                                       -------         --------        --------       -------          -------
Ratio of earnings to fixed charges
  (excluding preferred stock dividends)                   2.62             2.23            2.15          1.87             1.06
                                                       =======         ========        ========       =======          =======

Ratio of earnings to combined fixed
  charges and preferred dividends                         2.33             2.12            2.15          1.87             1.06
                                                       =======         ========        ========       =======          =======
</TABLE>




                                 Page 77 of 77

<TABLE> <S> <C>

<PAGE>

<ARTICLE> 5
<MULTIPLIER>                                     1,000
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             JAN-01-1997
<PERIOD-END>                               MAR-31-1997
<CASH>                                          12,916
<SECURITIES>                                         0
<RECEIVABLES>                                   88,255
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                46,921
<PP&E>                                         481,018
<DEPRECIATION>                                  50,703
<TOTAL-ASSETS>                                 543,029
<CURRENT-LIABILITIES>                           19,636
<BONDS>                                        217,778
                                0
                                          1
<COMMON>                                             1
<OTHER-SE>                                     280,404
<TOTAL-LIABILITY-AND-EQUITY>                   543,029
<SALES>                                              0
<TOTAL-REVENUES>                                18,551
<CGS>                                                0
<TOTAL-COSTS>                                    8,802
<OTHER-EXPENSES>                                 1,391
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               3,363
<INCOME-PRETAX>                                  5,743
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                              5,743
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     4,868
<EPS-PRIMARY>                                     0.38
<EPS-DILUTED>                                     0.38
        

</TABLE>


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