<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 September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 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.)
925 East Meadow Drive, Palo Alto, California 94303
(Address of principal executive offices)
(Zip code)
(650) 494-3700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months for such shorter period that the Registrant was required
to file such report, and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
-----
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:
18,054,851 shares of Common Stock
as of November 11, 1999
<PAGE>
TABLE OF CONTENTS
FORM 10-Q
<TABLE>
<CAPTION>
Part I Page No.
--------
<S> <C>
Item 1 Financial Statements (Unaudited) 3
Consolidated Balance Sheets
as of September 30, 1999 and December 31, 1998 4
Consolidated Statements of Operations
for the three months ended September 30, 1999 and 1998 5
Consolidated Statements of Operations
for the nine months ended September 30, 1999 and 1998 6
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1999
and the year ended December 31, 1998 7
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999 and 1998 8
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3 Quantitative and Qualitative Disclosure About Market Risk 22
Part II
Item 2 Changes in Securities and Use of Proceeds 24
Item 6 Exhibits and Reports on Form 8-K 24
Signatures 25
</TABLE>
2
<PAGE>
Part I Financial Information
- ------ ---------------------
Item 1: Financial Statements (Unaudited)
--------------------------------
"Essex" or the "Company" means Essex Property Trust, Inc., a real
estate investment trust incorporated in the State of Maryland, or
where the context otherwise requires, Essex Portfolio, L.P., a limited
partnership in which Essex Property Trust, Inc. is the sole general
partner.
The information furnished in the accompanying consolidated unaudited
balance sheets, statements of operations, stockholders' equity and
cash flows of the Company reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the
aforementioned financial statements for the interim periods.
The accompanying unaudited financial statements should be read in
conjunction with the notes to such financial statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
3
<PAGE>
ESSEX PROPERTY TRUST, INC.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
------ -------------- --------------
<S> <C> <C>
Real estate:
Rental properties:
Land and land improvements $ 268,516 $ 219,115
Buildings and improvements 794,665 670,849
-------------- --------------
1,063,181 889,964
Less accumulated depreciation (92,774) (77,789)
-------------- --------------
970,407 812,175
Investments 14,735 10,590
Real estate under development 83,148 53,213
-------------- --------------
1,068,290 875,978
Cash and cash equivalents-unrestricted 4,338 2,548
Restricted cash 16,822 15,532
Notes and other related party receivables 19,811 10,450
Notes and other receivables 11,160 18,809
Prepaid expenses and other assets 3,609 3,444
Deferred charges, net 5,496 5,035
-------------- --------------
$ 1,129,526 $ 931,796
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Mortgage notes payable $ 379,463 $ 325,822
Line of credit 57,200 35,693
Accounts payable and accrued liabilities 44,857 28,601
Dividends payable 13,378 11,145
Deferred gain 5,002 5,002
Other liabilities 6,227 5,301
-------------- --------------
Total liabilities 506,127 411,564
Minority interests 238,983 130,432
Stockholders' equity:
8.75% Convertible Preferred Stock, Series 1996A: $.0001
par value, 184,687 and 1,600,000 authorized, 184,687 1 1
and 1,600,000 issued and outstanding
Common stock, $.0001 par value, 656,497,491 and
659,282,178 authorized, 18,054,652 and 16,640,616
issued and outstanding 2 2
7.875% Series B cumulative redeemable preferred stock:
$.0001 par value, 2,000,000 shares authorized and no
shares issued and outstanding - -
9.125% Series C cumulative redeemable preferred stock:
$.0001 par value, 500,000 shares authorized
and no shares issued and outstanding - -
9.30% Series D cumulative redeemable preferred
stock: $.0001 par value, 2,000,000 shares
authorized and no shares issued and outstanding - -
9.25% Series E cumulative redeemable preferred
stock: $.0001 par value, 2,200,000 shares
authorized and no shares issued and outstanding - -
Excess stock, $.0001 par value, 330,000,000
shares authorized and no shares issued and outstanding - -
Additional paid-in capital 425,209 431,278
Accumulated deficit (40,796) (41,481)
-------------- --------------
Total stockholders' equity 384,416 389,800
-------------- --------------
$ 1,129,526 $ 931,796
============== ==============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
4
<PAGE>
ESSEX PROPERTY TRUST, INC.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
---------------------------------
September 30, September 30,
1999 1998
------------ -------------
<S> <C> <C>
Revenues:
Rental $ 35,699 $ 31,068
Other property 772 722
------------ -------------
Total property 36,471 31,790
Interest and other 1,274 861
------------ -------------
Total revenues 37,745 32,651
------------ -------------
Expenses:
Property operating expenses
Maintenance and repairs 2,210 1,858
Real estate taxes 2,686 2,349
Utilities 2,214 2,023
Administrative 2,581 2,888
Advertising 509 342
Insurance 232 224
Depreciation and amortization 7,084 5,575
------------ -------------
17,516 15,259
------------ -------------
Interest 5,560 5,245
Amortization of deferred financing costs 147 212
General and administrative 1,096 1,007
Provision for litigation loss - 930
------------ -------------
Total expenses 24,319 22,653
------------ -------------
Income before gain on the sale of real estate,
minority interests and extraordinary item 13,426 9,998
Gain on the sale of real estate 4,708 9
------------ -------------
Income before minority interests
and extraordinary item 18,134 10,007
Minority interests (5,061) (2,523)
------------ -------------
Income before extraordinary item 13,073 7,484
Extraordinary item:
Loss on early extinguishment of debt - (806)
------------ -------------
Net income 13,073 6,678
Preferred stock dividends (149) (875)
------------ -------------
Net income available to common stockholders $ 12,924 $ 5,803
============ =============
Per share data:
Basic:
Income before extraordinary item $ 0.72 $ 0.40
Extraordinary item - debt extinguishment - (0.05)
------------ -------------
Net income $ 0.72 $ 0.35
============ =============
Weighted average number of shares
outstanding during the period 18,036,066 16,635,228
============ =============
Diluted:
Income before extraordinary item $ 0.71 $ 0.39
Extraordinary item - debt extinguishment - (0.05)
------------ -------------
Net income $ 0.71 $ 0.34
============ =============
Weighted average number of shares
outstanding during the period 18,471,975 16,821,421
============ =============
Dividend per share $ 0.55 $ 0.50
============ =============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
5
<PAGE>
ESSEX PROPERTY TRUST, INC.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine months ended
-------------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenues:
Rental $ 100,675 $ 87,871
Other property 2,258 1,911
------------- -------------
Total property 102,933 89,782
Interest and other 3,602 2,389
------------- -------------
Total revenues 106,535 92,171
------------- -------------
Expenses:
Property operating expenses
Maintenance and repairs 6,595 6,585
Real estate taxes 7,646 6,767
Utilities 6,222 5,631
Administrative 7,680 7,022
Advertising 1,510 1,190
Insurance 675 859
Depreciation and amortization 19,376 15,876
------------- -------------
49,704 43,930
------------- -------------
Interest 15,744 14,259
Amortization of deferred financing costs 415 553
General and administrative 3,218 2,841
Provision for litigation loss - 930
------------- -------------
Total expenses 69,081 62,513
------------- -------------
Income before gain on the sale of real estate, 37,454 29,658
minority interests and extraordinary item
Gain on the sale of real estate 4,708 9
------------- -------------
Income before minority interests
and extraordinary item 42,162 29,667
Minority interests (11,667) (6,710)
------------- -------------
Income before extraordinary item 30,495 22,957
Extraordinary item:
Loss on early extinguishment of debt (90) (806)
------------- -------------
Net income 30,405 22,151
Preferred stock dividends (1,216) (2,625)
------------- -------------
Net income available to common stockholders $ 29,189 $ 19,526
============= =============
Per share data:
Basic:
Income before extraordinary item $ 1.69 $ 1.22
Extraordinary item - debt extinguishment (0.01) (0.05)
------------- -------------
Net income $ 1.68 $ 1.17
============= =============
Weighted average number of shares
outstanding during the period 17,341,636 16,628,721
============= =============
Diluted:
Income before extraordinary item $ 1.65 $ 1.21
Extraordinary item - debt extinguishment (0.01) (0.05)
------------- -------------
Net income $ 1.64 $ 1.16
============= =============
Weighted average number of shares
outstanding during the period 18,498,445 16,814,880
============= =============
Dividend per share $ 1.60 $ 1.45
============= =============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
6
<PAGE>
ESSEX PROPERTY TRUST, INC.
Consolidated Statements of Stockholders' Equity
For the nine months ended September 30, 1999 and the
year ended December 31, 1998
(Unaudited)
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Additional
Preferred stock Common stock paid - in Accumulated
------------------- -------------------
Shares Amount Shares Amount capital deficit Total
-------- --------- --------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 1,600 $ 1 16,615 $ 2 $ 430,804 $ (31,892) $ 398,915
Shares issued from Dividend
Reinvestment Plan - - 2 - 10 - 10
Net proceeds from options exercised - - 24 - 464 - 464
Net income - - - - - 26,328 26,328
Dividends declared - - - - - (35,917) (35,917)
-------- --------- --------- -------- ------------- ------------ ------------
Balances at December 31, 1998 1,600 1 16,641 2 431,278 (41,481) 389,800
Shares issued from conversion
of Convertible Preferred Stock (1,415) - 1,618 - - - -
Shares purchased by Operating
Partnership - - (257) - (6,991) - (6,991)
Net proceeds from options exercised - - 53 - 922 - 922
Net income - - - - - 30,405 30,405
Dividends declared - - - - - (29,720) (29,720)
======== ========= ========= ======== ============= ============ ============
Balances at September 30, 1999 185 $ 1 18,055 $ 2 $ 425,209 $ (40,796) $ 384,416
======== ========= ========= ======== ============= ============ ============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements
7
<PAGE>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
-------------------------------
September 30, September 30,
1999 1998
-------------- -------------
<S> <C> <C>
Net cash provided by operating activities: $ 61,328 $ 48,725
-------------- -------------
Cash flows from investing activities:
Additions to real estate (135,882) (152,660)
Proceeds received from the disposition of real estate 18,400 26,354
Increase in restricted cash (1,290) (9,112)
Additions to related party notes and other receivables (10,049) (3,888)
Repayment of related party notes and other receivables 9,299 2,850
Additions to real estate under development (51,636) (24,018)
Net (contribution to) / distributions from
investments in corporations and limited partnerships (2,806) 531
--------------- -----------
Net cash used in investing activities (173,964) (159,943)
-------------- -----------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit 216,650 199,347
Repayment of mortgage and other notes payable
and lines of credit (157,302) (133,879)
Additions to deferred charges (876) (1,823)
Increase in (payment of) offering related costs 95 (282)
Net proceeds from preferred units sales 103,215 77,775
Net proceeds from stock options exercised and shares
issued through dividend reinvestment plan 922 393
Shares purchased by Operating Partnership (6,991) -
Distributions to minority interest/partners (10,472) (5,624)
Redemption of operating partnership units (2,084) -
Dividends paid (28,731) (25,900)
-------------- -----------
Net cash provided by financing activities 114,426 110,007
-------------- -----------
Net increase (decrease) in cash and cash equivalents 1,790 (1,211)
Cash and cash equivalents at beginning of period 2,548 4,282
-------------- -----------
Cash and cash equivalents at end of period $ 4,338 $ 3,071
============== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of $3,963 and
$2,575 capitalized $ 10,579 $ 10,917
============== ===========
Supplemental disclosure of non-cash investing and Financing activities:
Real estate under development transferred to
rental properties $ 21,700 $ -
============== ===========
Mortgage notes payable assumed in connection
with purchase of real estate $ 15,800 $ 18,443
============== ===========
Issuance of Operating Partnership Units in
connection with the purchase of real estate $ 7,469 $ -
============== ===========
Dividends payable $ 13,378 $ 10,913
============== ===========
</TABLE>
See accompanying notes to consolidated unaudited financial statements.
8
<PAGE>
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
(1) Organization and Basis of Presentation
--------------------------------------
The unaudited consolidated financial statements of the Company are prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q.
In the opinion of management, all adjustments necessary for a fair
presentation of the financial position, results of operations and cash
flows for the periods presented have been included and are normal and
recurring in nature. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
The unaudited consolidated financial statements for the three and nine
months ended September 30, 1999 and 1998 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 89.6%, 89.9% and 89.9%
general partnership interest as of September 30, 1999, December 31, 1998
and September 30, 1998, respectively.
As of September 30, 1999, the Company operates and has ownership interests
in 68 multifamily properties (containing 14,486 units) and four commercial
properties (with approximately 250,000 square feet) (collectively, the
"Properties"). The Properties are located in Northern California (the San
Francisco Bay Area), Southern California (Los Angeles, Ventura, Orange and
San Diego counties), and the Pacific Northwest (the Seattle, Washington and
Portland, Oregon metropolitan areas).
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
(2) Significant Transactions
------------------------
(A) Acquisition Activities
---------------------------
On August 31, 1999, the Company purchased Coronado at Newport - North, a
732-unit apartment community located in Newport Beach, California for a
contract price of $62,000. This property was contributed to a joint venture
limited liability company, Newport Beach North LLC, subsequent to September
30, 1999 as discussed under footnote 2 (F).
On September 30, 1999, the Company purchased Avondale at Warner Center, a
446-unit apartment community located in Woodland Hills, California for a
contract price of $35,000. A portion of the purchase price was paid with
proceeds received from the sale of a commercial property, 777 California
(the former headquarters building) located in Palo Alto, California.
On September 30, 1999, the Company invested $1,996 for a 46% limited
partnership interest and Essex Management Corporation became the sole
general partner in Mt. Sutro Terrace Associates, L.P. Mt. Sutro Terrace
Associates, L.P. is a California limited partnership which acquired Mt.
Sutro Terrace Apartments, a 99-unit apartment community located in San
Francisco, California for an implied value of approximately $10,260. The
property has an approximate $5,800 variable rate non-recourse loan which
matures in 2027.
These third quarter 1999 acquisitions were funded with the proceeds from
the disposition of the commercial property as noted above, proceeds
received from the Operating Partnership's perpetual preferred units
offerings and the Company's line of credit.
9
<PAGE>
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
(B) Disposition Activities
---------------------------
On September 10, 1999, the Company sold one of its commercial properties,
777 California (the former headquarters building) located in Palo Alto,
California for a gross sales price of $18,400, resulting in a gain of
$4,708. The building was sold to an entity controlled by a member of the
Company's Board of Directors, following approval of the independent board
members. The proceeds from this sale were reinvested in the purchase of
Avondale at Warner Center. The transaction was an exchange transaction in
accordance with the Internal Revenue Code Section 1031.
(C) Development Activities
---------------------------
Development communities are defined by the Company as new construction of
apartment properties which are currently in a phase of construction or
lease-up and have not reached stabilized operations. As of September 30,
1999, the Company is developing eight multifamily residential communities,
with an aggregate of 1,500 multifamily units. In the third quarter of 1999,
the Company announced two new development communities and also reached
stabilized operations at two multifamily communities containing 480 units
that were previously reported as development communities. In connection
with the properties currently under development, the Company has directly,
or in some cases through its joint venture entities, entered into
contractual construction related commitments with unrelated third parties.
As of September 30, 1999, the Company is committed to fund approximately
$71,100.
Perry Creek is a 132-unit development community located in Bothell,
Washington. The estimated total capitalized cost for this community is
$14,700. Construction has begun in the third quarter of 1999 and initial
occupancy is expected in the second quarter of 2000.
The Essex at Lake Merritt is mid/high rise development community located in
Oakland, California with up to 270 units. The Company purchased a lakefront
site on Lake Merritt in downtown Oakland for a contract purchase price of
$5,500 on which the Company plans to construct a premier waterfront
project. No commitments have been entered into with third parties regarding
construction of this community as of September 30, 1999.
The two projects which were previously reported as development projects and
have achieved stabilized operations in the third quarter of 1999 are Park
Hill at Issaquah and Hillsborough Park.
Park Hill at Issaquah is a 245-unit multifamily property located in
Issaquah, Washington. The property is owned by a joint venture in which the
Company owns a 45% interest. The Company is entitled to a 12% preferred
return on the equity it has invested. In addition, the Company has an
option to purchase the property five years subsequent to completion. The
Company's investment in the joint venture is included in investments in the
accompanying consolidated balance sheets.
Hillsborough Park is a 235-unit multifamily property located in La Habra,
California. The property is wholly owned by the Company. The total
investment for the property of approximately $21,700 is included in rental
properties in the accompanying consolidated balance sheets.
(D) Redevelopment Activities
-----------------------------
Redevelopment communities are defined by the Company as existing properties
owned by the Company which have been targeted for additional investment
dollars from which the Company expects to achieve increased financial
returns. Redevelopment communities are currently under a phase of
construction and as a result, may have less than stabilized operations. As
of September 30, 1999, the Company has three redevelopment communities in
Southern California with an aggregate of 861 units for a total projected
investment of $13,700 in renovation expenditures.
10
<PAGE>
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
One redevelopment community, Monterra del Mar, a 96-unit apartment
community located in Pasadena, California was completed during the third
quarter of 1999 for a total investment of $1,300.
(E) Equity Transactions
------------------------
On July 28, 1999, the Operating Partnership completed the sale of 2,000,000
units of its 9.30% Series D Cumulative Redeemable Preferred Units to two
related institutional investors in a private placement, at a price of
$25.00 per unit. The net proceeds from this sale were approximately
$48,925. On September 3, 1999, the Operating Partnership completed the sale
of 2,200,000 units of its 9.25% Series E Cumulative Redeemable Preferred
Units to an institutional investor in a private placement, at a price of
$25.00 per unit. The net proceeds from this sale were approximately
$53,400. Preferred units and related dividends are included in minority
interest in the accompanying consolidated financial statements.
In September 1999, the Company formed a program in which directors and
management of the Company can participate indirectly in an investment in
the Company's common stock. The participants have entered into a swap
agreement with a securities broker whereby the securities broker has
acquired, in open market transactions, 223,475 shares of the Company's
common stock. The agreement terminates in five years at which time the
settlement amount is determined by comparing the original purchase price of
the stock plus interest at a rate of LIBOR plus 1.5% to the termination
date market value of the shares and all dividends received during the
investment period. In certain circumstances the participants may be
required to provide collateral to the securities broker. The Company has
guaranteed performance of the participants with respect to any obligations
relating to the swap agreement.
(F) Subsequent Event
---------------------
On October 29, 1999, the Company entered into two separate joint venture
entities with an approximate 49.9% equity interest. Together with the joint
venture partners, the Company formed two separate private REIT entities,
Newport Beach North, Inc. and Newport Beach South, Inc. Newport Beach
North, Inc. and Newport Beach South, Inc. own an approximate 99.65%
interest in Newport Beach North, LLC and Newport Beach South, LLC,
respectively. The Company contributed its investment of Coronado at
Newport - North, an acquisition made in the third quarter of 1999, to
Newport Beach North, LLC. At the same time, the partners in Newport Beach
South, LLC purchased Coronado at Newport - South, a 715-unit apartment
community located in Newport Beach, California for a contract price of
$64,500. The two entities have identical ownership structures and
generally, profit and loss are allocated to the partners in accordance with
their ownership interests.
In connection with formation of the two joint ventures, the entities
obtained non-recourse debt financing for $34,100 and $37,600 for Newport
Beach North, LLC and Newport Beach South, LLC, respectively. The loans bear
interest at LIBOR plus 2.25% and mature in 2002. The joint venture entities
plan to invest a total of approximately $28,000 additionally into the
properties for exterior and interior renovation and such investment is
intended to be funded through additional advances under the loans referred
to above. The Company is entitled to management and redevelopment fee
income from the joint venture and incentive payments based on the financial
success of the venture. The Company intends to account for its investment
in the joint venture under the equity method of accounting.
11
<PAGE>
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
(3) Related Party Transactions
--------------------------
All general and administrative expenses of the Company and Essex Management
Corporation, an unconsolidated preferred stock subsidiary of the Company
("EMC") are initially borne by the Company, with a portion subsequently
allocated to EMC. Expenses allocated to EMC for the three months ended
September 30, 1999 and 1998 totaled $112 and $37, respectively, and $324
and $174 for the nine months ended September 30, 1999 and 1998,
respectively. The expenses are reflected as a reduction in general and
administrative expenses in the accompanying consolidated statements of
operations.
Included in rental revenue in the accompanying consolidated statements of
operations are rents earned from space leased to Marcus & Millichap
("M&M"), including operating expense reimbursements of $221 and $133 for
the three months ended September 30, 1999 and 1998, respectively, and $693
and $563 for the nine months ending September 30, 1999 and 1998,
respectively.
Other income includes interest income of $84 and $249 for the three months
ended September 30, 1999 and 1998, respectively, and $256 and $784 for the
nine months ended September 30, 1999 and 1998, respectively. This interest
income was earned principally on the notes receivable from related party
partnerships in which the Company owns an ownership interest ("Joint
Ventures"). Other income also includes management fee income and investment
income earned by the Company from its Joint Ventures of $107 and $143 for
the three months ended September 30, 1999 and 1998, respectively and $416
and $348 for the nine months ended June 30, 1999 and 1998, respectively.
Notes and other related party receivables as of September 30, 1999 and
December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1999 1998
---- ----
<S> <C> <C>
Notes receivable from Joint Ventures:
Note receivable from Highridge Apartments
secured, bearing interest at 9.4%, due March 2008 $ 1,047 $ 1,047
Note receivable from Fidelity I, secured,
bearing interest at 8%, due on demand 1,358 1,358
Note receivable from Fidelity I and JSV, secured,
bearing interest at 9.5-10%, due 2015 800 800
Note receivable from Highridge,
bearing interest at 10%, due on demand 2,950 --
Note receivable from Fidelity I,
non-interest bearing, due on demand 5,411 --
Note receivable from Highridge,
non-interest bearing, due on demand 3,389 2,928
Note receivable from Portland Shopping Centers,
non-interest bearing, due on demand 2,127 1,209
Note receivable from Anchor Village,
non-interest bearing, due on demand 1,242 933
Other related party receivables:
Loans to officers, bearing interest at 8%, due April 2006 500 500
Other related party receivables, substantially due on demand 987 1,675
------- -------
$19,811 $10,450
======= =======
</TABLE>
Other related party receivables consist primarily of accrued interest
income on related party notes receivables and loans to officers, advances and
accrued management fees from joint venture investees and unreimbursed expenses
due from EMC.
12
<PAGE>
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
(4) Forward Treasury Contracts
--------------------------
The Company has four forward treasury contracts for an aggregate notional
amount of $60,000, locking the 10 year treasury rate at between 6.15% -
6.26%. These contracts are to limit the interest rate exposure on
identified future debt financing requirements relating to the multifamily
development projects and a maturity of an $18,160 fixed rate loan. These
contracts will be settled no later than June 2000. If the contracts were
settled as of September 30, 1999, the Company would be obligated to pay
approximately $635.
(5) New Accounting Pronouncements
-----------------------------
In June 1998, the FASB issued Financial Accounting Statement No. 133 (SFAS
133), Accounting for Derivative Instruments and Hedging Activities. The
Company will adopt SFAS 133 for interim periods beginning in 2001, the
effective date of SFAS 133, as amended. Had SFAS 133 been implemented in
1999, a charge to earnings of $635 relating to treasury contracts that do
not qualify as anticipatory hedges under SFAS 133 would have been recorded
for the nine months ended September 30, 1999.
(6) Segment Information
-------------------
The Company defines its reportable operating segments as the three
geographical regions in which its multifamily residential properties are
located, Northern California, Southern California, and the Pacific
Northwest. Non-segment property revenues and net operating income included
in the following schedule consists of revenue generated from the Company's
commercial properties. Excluded from segment revenues is interest and other
corporate income. Other non-segment assets include investments, real estate
under development, cash, receivables and other assets. The revenues, net
operating income, and assets for each of the reportable operating segments
are summarized as follows for the periods presented.
<TABLE>
<CAPTION>
Three months ended
September 30, 1999 September 30, 1998
------------------- -------------------
<S> <C> <C>
Revenues
Northern California $ 11,898 $ 11,117
Southern California 15,723 12,054
Pacific Northwest 8,366 8,121
---------- ----------
Total segment revenues 35,987 31,292
Non-segment property revenues 484 498
Interest and other income 1,274 861
---------- ----------
Total revenues $ 37,745 $ 32,651
========== ==========
Net operating income:
Northern California $ 9,214 $ 8,493
Southern California 11,161 8,130
Pacific Northwest 5,639 5,393
---------- ----------
Total segment net operating income 26,014 22,016
Non-segment net operating income 25 90
Interest and other income 1,274 861
Depreciation and amortization (7,084) (5,575)
Interest (5,560) (5,245)
Amortization of deferred financing costs (147) (212)
General and administrative (1,096) (1,007)
Provision for litigation loss -- (930)
---------- ----------
Income before gain on the sale of real
estate, minority interests and
extraordinary item $ 13,426 $ 9,998
========== ==========
</TABLE>
13
<PAGE>
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
(6) Segment Information (continued)
-------------------------------
<TABLE>
<CAPTION>
Nine months ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues
Northern California $ 34,803 $ 30,867
Southern California 41,533 32,915
Pacific Northwest 24,855 23,997
---------- -----------
Total segment revenues 101,191 87,779
Non-segment property revenues 1,742 2,003
Interest and other income 3,602 2,389
---------- -----------
Total revenues $ 106,535 $ 92,171
========== ===========
Net operating income:
Northern California $ 26,734 $ 23,221
Southern California 28,623 21,671
Pacific Northwest 16,710 15,676
---------- -----------
Total segment net operating income 72,067 60,568
Non-segment net operating income 538 1,160
Interest and other income 3,602 2,389
Depreciation and amortization (19,376) (15,876)
Interest (15,744) (14,259)
Amortization of deferred financing costs (415) (553)
General and administrative (3,218) (2,841)
Provision for litigation loss -- (930)
---------- -----------
Income before gain on the sale of real
estate, minority interests and
extraordinary item $ 37,454 $ 29,658
========== ===========
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Assets:
Northern California $ 239,283 $ 241,676
Southern California 529,907 355,077
Pacific Northwest 196,041 198,761
---------- -----------
Total segment net real estate assets 965,231 795,514
Non-segment net real estate assets 5,176 16,661
---------- -----------
Net real estate assets 970,407 812,175
Non-segment assets 159,119 119,621
---------- -----------
Total assets $1,129,526 $ 931,796
========== ===========
</TABLE>
14
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The following discussion is based primarily on the consolidated unaudited
financial statements of Essex Property Trust, Inc. ("Essex" or the "Company")
for the three months ended September 30, 1999 and 1998 and for the nine months
ended September 30, 1999 and 1998. This information should be read in
conjunction with the accompanying consolidated unaudited financial statements
and notes thereto. These consolidated financial statements include all
adjustments which are, in the opinion of management, necessary to reflect a fair
statement of the results and all such adjustments are of a normal recurring
nature.
Substantially all of the assets of the Company are held by, and substantially
all operations are conducted through, Essex Portfolio, L.P. (the "Operating
Partnership"). The Company is the sole general partner of the Operating
Partnership and, as of September 30, 1999, December 31, 1998 and September 30,
1998, owned an 89.6%, 89.9% and 89.9% general partnership interest in the
Operating Partnership, respectively. The Company has elected to be treated 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 Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
including statements regarding the Company's expectations, hopes, intentions,
beliefs and strategies regarding the future. Forward looking statements include
statements regarding the Company's expectation as to the timing of completion of
current development projects, beliefs as to the adequacy of future cash flows to
meet operating requirements, and to provide for dividend payments in accordance
with REIT requirements and expectations as to the amount of non-revenue
generating capital expenditures for the year ended December 31, 1999, potential
acquisitions and developments, the anticipated performance of existing
properties, future acquisitions and developments and statements regarding the
Company's financing activities. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors including, but not limited
to, that the actual completion of development projects will be subject to
delays, that such development projects will not be completed, that future cash
flows will be inadequate to meet operating requirements and/or will be
insufficient to provide for dividend payments in accordance with REIT
requirements, that the actual non-revenue generating capital expenditures will
exceed the Company's current expectations, as well as those risks, special
considerations, and other factors discussed under the caption "Other
Matters/Risk Factors" in Item 1 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, and those other risk factors and special
considerations set forth in the Company's other filings with the Securities and
Exchange Commission (the "SEC") which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements.
General Background
The Company's property revenues are generated primarily from multifamily
property operations, which accounted for greater than 97% of its property
revenues for the three and nine months ended September 30, 1999 and 1998. The
Company's multifamily properties (the "Properties") are located in Northern
California (the San Francisco Bay Area), Southern California (Los Angeles,
Ventura, Orange and San Diego counties) and the Pacific Northwest (the Seattle,
Washington and Portland, Oregon metropolitan areas). The average occupancy
levels of the Company's portfolio has exceeded 95% for the last five years.
The Company has elected to be treated as a real estate investment trust ("REIT")
for federal income tax purposes, commencing with the year ended December 31,
1994. The Company provides some of its fee-based asset management and
disposition services as well as third-party property management and leasing
services through Essex Management Corporation ("EMC"), in order to maintain
compliance with REIT tax rules. The Company owns 100% of EMC's 19,000 shares of
non-voting Preferred Stock. Executives of the Company own 100% of EMC's 1,000
shares of Common Stock.
Since the Company's initial public offering (the "IPO") in June 1994, the
Company has acquired ownership interests in 58 multifamily residential
properties and its current headquarters building. Of the
15
<PAGE>
multifamily properties acquired since the IPO, 11 are located in Northern
California, 29 are located in Southern California, 18 are located in the
Seattle, Washington metropolitan area and one is located in the Portland, Oregon
metropolitan area. In total, these acquisitions consist of 11,718 multifamily
units with total capitalized acquisition costs of approximately $875.4 million.
As part of its active portfolio management strategy, the Company has sold, since
its IPO, six multifamily residential properties (five in Northern California and
one in the Pacific Northwest) consisting of a total of 819 units and disposed of
six retail shopping centers in the Portland, Oregon metropolitan area and one
commercial property in Northern California at an aggregate gross sales price of
approximately $89.5 million resulting in a total net realized gain of
approximately $18.5 million and a deferred gain of $5.0 million. The Company has
also achieved stabilized operations at two multifamily communities which contain
an aggregate of 480 units.
The Company is developing eight multifamily residential communities, with an
aggregate of 1,500 multifamily units. In connection with these development
projects, the Company has directly, or in some cases through its joint venture
partners, entered into contractual construction related commitments with
unrelated third parties for approximately $161,800,000. As of September 30,
1999, the Company's remaining development commitment is approximately
$71,100,000.
Results of Operations
Comparison of the Three Months Ended September 30, 1999 to the Three Months
- ---------------------------------------------------------------------------
Ended September 30, 1998.
- -------------------------
Average financial occupancy rates of the Company's multifamily Quarterly Same
Store Properties (properties owned by the Company for each of the three months
ended September 30, 1999 and 1998) decreased to 96.5% for the three months ended
September 30, 1999 from 96.6%, for the three months ended September 30, 1998.
"Financial Occupancy" is defined as the percentage resulting from dividing
actual rental income by total possible rental income. Total possible rental
income is determined by valuing occupied units at contractual rents and vacant
units at market rents. The regional breakdown of financial occupancy for the
multifamily Quarterly Same Store Properties for the three months ended September
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Northern California 97.0% 97.4%
Southern California 97.0% 97.0%
Pacific Northwest 95.0% 95.1%
</TABLE>
The Company's commercial property was 100% occupied (based on square footage) as
of September 30, 1999.
16
<PAGE>
Total Revenues increased by $5,094,000 or 15.6% to $37,745,000 in the third
quarter of 1999 from $32,651,000 in the third quarter of 1998. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to the Quarterly Same Store Properties.
<TABLE>
<CAPTION>
Three Months Ended
Number of September 30, Dollar Percentage
-------------
Properties 1999 1998 Change Change
---------- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues
Property revenues Quarterly Same
Store Properties
Northern California 13 $11,133 $10,773 $ 360 3.3%
Southern California 16 10,770 10,051 719 7.2
Pacific Northwest 18 7,760 7,523 237 3.2
Commercial 1 22 22 -- --
-- ------- ------- ------ ------
Total property revenues
Quarterly Same Store
Properties 48 29,685 28,369 1,316 4.6
==
Property revenues properties
acquired/disposed of
subsequent to June 30, 1998 (1) 6,786 3,421 3,365 98.3
------- ------- ------ ------
Total property revenues 36,471 31,790 4,681 14.7
------- ------- ------ ------
Interest and other income 1,274 861 413 48.0
------- ------- ------ ------
Total revenues $37,745 $32,651 $5,094 15.6%
======= ======= ====== ======
</TABLE>
(1) Also includes redevelopment communities and development communities.
As set forth in the above table, $3,365,000 of the $5,094,000 net increase in
total revenues is attributable to properties acquired or disposed of subsequent
to June 30, 1998, redevelopment communities and development communities. During
this period, the Company acquired interests in eight multifamily properties and
reached stabilized operations at one development community (the "Acquisition
Properties"), and disposed of one multifamily property and one commercial
property (the "Disposition Properties").
Of the increase in total revenues, $1,316,000 is attributable to increases in
property revenues from the Quarterly Same Store Properties. Property revenues
from the Quarterly Same Store Properties increased by approximately 4.6% to
$29,685,000 in the third quarter of 1999 from $28,369,000 in the third quarter
of 1998. The majority of this increase was attributable to the 16 multifamily
Quarterly Same Store Properties located in Southern California. The property
revenues of the Quarterly Same Store Properties in Southern California increased
by $719,000 or 7.2% to $10,770,000 in the third quarter of 1999 from $10,051,000
in the third quarter of 1998. This $719,000 increase is primarily attributable
to rental rate increases. The 13 Quarterly Same Store Properties located in
Northern California accounted for the next largest regional component of the
Quarterly Same Store Properties property revenues increase. The property
revenues of these properties increased by $360,000 or 3.3% to $11,133,000 in
third quarter of 1999 from $10,773,000 in the third quarter of 1998. The
$360,000 increase is attributable to rental rate increases which was offset by a
decrease in financial occupancy to 97.0% in the third quarter of 1999 from 97.4%
in the third quarter of 1998. The 18 multifamily residential properties located
in the Pacific Northwest also contributed to the Quarterly Same Store Properties
property revenues increase. The property revenues of these properties increased
by $237,000 or 3.2% to $7,760,000 in the third quarter of 1999 from $7,523,000
in the third quarter of 1998. The $237,000 increase is primarily attributable to
rental rate increases which was offset by a decrease in financial occupancy to
95.0% in the third quarter of 1999 from 95.1% in the third quarter of 1998. The
increase in total revenue also reflected an increase of $413,000 attributable to
other income, which primarily relates to interest income on outstanding notes
receivables and income earned on the Company's investments in joint venture
development projects.
Total Expenses increased by $1,666,000 or approximately 7.4% to $24,319,000 in
the third quarter of 1999 from $22,653,000 in the third quarter of 1998.
Interest expense increased by $315,000 or 6.0% to $5,560,000 in the third
quarter from $5,245,000 in the third quarter of 1998. Such increase was
primarily due to the net addition of outstanding mortgage debt in connection
with property and investment acquisitions which was offset by capitalization of
interest charges on the Company's development and redevelopment communities.
Property operating expenses, exclusive of depreciation and amortization,
17
<PAGE>
increased by $748,000 or 7.7% to $10,432,000 in the third quarter of 1999 from
$9,684,000 in the third quarter of 1998. Of such increase, $925,000 was
attributable to the Acquisition Properties and the Disposition Properties.
General and administrative expenses represents the costs of the Company's
various acquisition and administrative departments as well as partnership
administration and non-operating expenses. Such expenses increased by $89,000 in
the third quarter of 1999 from the amount for the third quarter of 1998. This
increase is largely due to additional staffing requirements resulting from the
growth of the Company.
Net income increased by $6,395,000 to $13,073,000 in the third quarter of 1999
from $6,678,000 in the third quarter of 1998. Net income for the three months
ended September 30, 1999 included a gain on the sale of real estate of
$4,708,000. The remainder of the increase in net income was primarily a result
of the net contribution of the Acquisition Properties and the increase in net
operating income from the Quarterly Same Store Properties.
Comparison of the Nine Months Ended September 30, 1999 to the Nine Months Ended
- -------------------------------------------------------------------------------
September 30, 1998.
- -------------------
Average financial occupancy rates of the Company's multifamily Same Store
Properties (properties owned by the Company for each of the nine months ended
September 30, 1999 and 1998) increased to 96.6% for the nine months ended
September 30, 1999 from 96.0% for the nine months ended September 30, 1998. The
regional breakdown of financial occupancy for the multifamily Same Store
Properties for the nine months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Northern California 97.4% 97.1%
Southern California 97.2% 96.2%
Pacific Northwest 95.0% 94.3%
</TABLE>
The Company's commercial property was 100% occupied (based on square footage) as
of September 30, 1999.
Total Revenues increased by $14,364,000 or 15.6% to $106,535,000 for the first
nine months of 1999 from $92,171,000 for the first nine months of 1998. The
following table sets forth a breakdown of these revenue amounts, including the
revenues attributable to the Same Store Properties.
<TABLE>
<CAPTION>
Nine Months Ended
Number of September 30, Dollar Percentage
-----------------
Properties 1999 1998 Change Change
---------- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues
Property revenues Same Store
Properties
Northern California 12 $ 27,941 $26,848 $ 1,093 4.1%
Southern California 14 25,615 23,736 1,879 7.9
Pacific Northwest 18 23,089 22,028 1,061 4.8
Commercial 1 67 67 -- --
------ -------- ------- ------- ----------
Total property revenues
Same Store Properties 45 76,712 72,679 4,033 5.5%
======
Property revenues properties
acquired/disposed of
subsequent to December 31, 1997 (1) 26,221 17,103 9,118 53.3
-------- ------- ------- ----------
Total property revenues 102,933 89,782 13,151 14.6
-------- ------- ------- ----------
Interest and other income 3,602 2,389 1,213 50.8
-------- ------- ------- ----------
Total revenues $106,535 $92,171 $14,364 15.6%
======== ======= ======= ==========
</TABLE>
(1) Also includes redevelopment communities and development communities.
18
<PAGE>
As set forth in the above table, $9,118,000 of the $14,364,000 net increase in
total revenues is attributable to properties acquired or disposed of subsequent
to December 31, 1997, redevelopment communities and development communities.
During this period, the Company acquired interests in 12 multifamily properties
and reached stabilized operations at one wholly-owned development community (the
"Post-1997 Acquisition Properties"), and disposed of one multifamily property,
one commercial property and three retail shopping centers (the "Post-1997
Disposition Properties").
Of the increase in total revenues, $4,033,000 is attributable to increases in
property revenues from the Same Store Properties. Property revenues from the
Same Store Properties increased by approximately 5.5% to $76,712,000 in the
first nine months of 1999 from $72,679,000 in the first nine months of 1998. The
majority of this increase was attributable to the 14 Same Store Properties
located in Southern California. The property revenues of these properties
increased by $1,879,000 or 7.9% to $25,615,000 in first nine months of 1999 from
$23,736,000 in the first nine months of 1998. The $1,879,000 increase is
attributable to rental rate increases and the increase in financial occupancy to
97.2% in the first nine months of 1999 from 96.2% in the first nine months of
1998. The 12 multifamily Same Store Properties located in Northern California
accounted for the next largest regional component of the Same Store Properties
property revenues increase. The property revenues of these properties increased
by $1,093,000 or 4.1% to $27,941,000 in the first nine months of 1999 from
$26,848,000 in the first nine months of 1998. The $1,093,000 increase is
primarily attributable to rental rate increases and an increase in financial
occupancy to 97.4% in the first nine months of 1999 from 97.1% in first nine
months of 1998. The 18 multifamily residential properties located in the Pacific
Northwest also contributed to the Same Store Properties property revenues
increase. The property revenues of the these properties increased by $1,061,000
or 4.8% to $23,089,000 in the first nine months of 1999 from $22,028,000 in the
first nine months of 1998. This $1,061,000 increase is primarily attributable to
rental rate increases and the effect of the increase in financial occupancy to
95.0% in the first nine months of 1999 from 94.3% in the first nine months of
1998. The increase in total revenue also reflected an increase of $1,213,000
attributable to other income, which primarily relates to interest income on
outstanding notes receivables and income earned on the Company's investments in
joint venture development projects.
Total Expenses increased by $6,568,000 or approximately 10.5% to $69,081,000 in
the first nine months of 1999 from $62,513,000 in the first nine months of 1998.
Interest expense increased by $1,485,000 or 10.4% to $15,744,000 in the first
nine months from $14,259,000 in the first nine months of 1998. Such increase was
primarily due to the net addition of outstanding mortgage debt in connection
with property and investment acquisitions which was offset by the capitalization
of interest charges on the Company's development and redevelopment communities.
Property operating expenses, exclusive of depreciation and amortization,
increased by $2,274,000 or 8.1% to $30,328,000 in the first nine months of 1999
from $28,054,000 in the first nine months of 1998. Of such increase, $2,847,000
was attributable to the Post-1997 Acquisition Properties and the Post-1997
Disposition Properties. General and administrative expenses represents the costs
of the Company's various acquisition and administrative departments as well as
partnership administration and non-operating expenses. Such expenses increased
by $377,000 in the first nine months of 1999 from the amount for the first nine
months of 1998. This increase is largely due to additional staffing requirements
resulting from the growth of the Company.
Net income increased by $8,254,000 to $30,405,000 in the first nine months of
1999 from $22,151,000 in the first nine months of 1998. Net income for the first
nine months of 1999 included a gain on the sale of real estate of $4,708,000.
The remainder of the increase in net income was primarily a result of the net
contribution of the Acquisition Properties and the increase in net operating
income from the Same Store Properties.
Liquidity and Capital Resources
At September 30, 1999, the Company had $4,338,000 of unrestricted cash and cash
equivalents. The Company expects to meet its short-term liquidity requirements
by using its working capital, cash generated from operations and amounts
available under lines of credit. The Company believes that its current net cash
flows will be adequate to meet operating requirements and to provide for payment
of dividends by the Company in accordance with REIT requirements. The Company
expects to meet its long-term funding requirements relating to property
acquisition and development (beyond the next 12 months) by using working
capital, amounts available from lines of credit, net proceeds from public and
private debt and
19
<PAGE>
equity issuances, and proceeds from the disposition of properties that may be
sold from time to time. There can, however, be no assurance that the Company
will have access to the debt and equity markets in a timely fashion to meet such
future funding requirements or that future working capital, and borrowings under
the lines of credit will be available, or if available, will be sufficient to
meet the Company's requirements or that the Company will be able to dispose of
properties in a timely manner and under terms and conditions that the Company
deems acceptable.
The Company has a $100,000,000 unsecured line of credit. Outstanding balances
under the line of credit bear interest at the bank's reference rate or at the
Company's option, 1.15% over the LIBOR rate. The line of credit matures in June
2000. At September 30, 1999 the Company had $57,200,000 outstanding on its line
of credit, with interest rates during the third quarter of 1999 ranging from
6.4% to 8.1%.
In addition to the unsecured line of credit, the Company had $379,463,000 of
secured indebtedness at September 30, 1999. Such indebtedness consisted of
$320,643,000 in fixed rate debt with interest rates varying from 6.4% to 8.8%
and maturity dates ranging from 2000 to 2026. The indebtedness also includes
$58,820,000 of debt represented by tax exempt variable rate demand bonds with
interest rates paid during the first nine months of 1999 of 5.5% and maturity
dates ranging from 2020 to 2026. A portion of the tax exempt variable rate
demand bonds, $45,220,000, is capped at a maximum interest rates ranging from
7.1% to 7.3%.
The Company's unrestricted cash balance increased by $1,790,000 from $2,548,000
as of December 31, 1998 to $4,338,000 as of September 30, 1999. This increase
was primarily a result of $114,426,000 of net cash provided by financing
activities and $61,328,000 of net cash provided by operating activities, which
was offset by $173,964,000 of net cash used in investing activities. The
$114,426,000 net cash provided by financing activities was primarily a result of
$216,650,000 of proceeds from mortgage and other notes payable and lines of
credit and $103,215,000 of proceeds from preferred unit sales as offset by
$157,302,000 of repayments of mortgages and other notes payable and lines of
credit and $39,203,000 of dividends/distributions paid. Of the $173,964,000 net
cash used in investing activities, $135,882,000 was used to purchase and upgrade
rental properties and $51,636,000 was used to fund real estate under
development.
Non-revenue generating capital expenditures are improvements and upgrades that
extend the useful life of the property and are not related to preparing a
multifamily property unit to be rented to a tenant. The Company expects to incur
approximately $315 per weighted average occupancy unit in non-revenue generating
capital expenditures for the year ended December 31, 1999. These expenditures do
not include the improvements required in connection with the origination of
mortgage loans, expenditures for acquisition properties' renovations and
improvements which are expected to generate additional revenue, and renovation
expenditures required pursuant to tax-exempt bond financings. The Company
expects that cash from operations and/or its lines of credit will fund such
expenditures. However, there can be no assurance that the actual expenditures
incurred during 1999 and/or the funding thereof will not be significantly
different than the Company's current expectations.
The Company is developing eight multifamily residential communities, with an
aggregate of 1,500 multifamily units. Such projects involve certain risks
inherent in real estate development. See "Other Matters/Risk Factors - Risks
That Development Activities Will Be Delayed or Not Completed" in Item 1 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. In
connection with these development projects, the Company has directly, or in some
cases through its joint venture partners, entered into contractual construction
related commitments with unrelated third parties for approximately $161,800,000.
As of September 30, 1999, the Company's remaining commitment to fund the
estimated cost to complete is approximately $71,100,000. The Company expects to
fund such commitments with a combination of its working capital, operating cash
flows, amounts available on its lines of credit, net proceeds from public and
private equity and debt issuances, and proceeds from the disposition of
properties, which may be sold from time to time. In the third quarter of 1999,
the Company announced the commencement of two new development communities and
also reached stabilized occupancy at two communities that were previously
reported as development communities.
On July 28, 1999, The Operating Partnership completed the sale of 2,000,000
units of its 9.30% Series D Cumulative Redeemable Preferred Units to two related
institutional investors at a price of $25.00 per unit.
20
<PAGE>
The net proceeds from this sale were approximately $48,925,000. The net proceeds
were used primarily to reduce outstanding balances under the Company's line of
credit. On September 3, 1999, The Operating Partnership completed the sale of
2,200,000 units of its 9.25% Series E Cumulative Redeemable Preferred Units to
two related institutional investors at a price of $25.00 per unit. The net
proceeds from this sale were approximately $53,400,000. The net proceeds were
used primarily to reduce outstanding balances under the Company's line of
credit.
Pursuant to existing shelf registration statements, the Company has the capacity
to issue up to $342,000,000 of equity securities and the Operating Partnership
has the capacity to issue up to $250,000,000 of debt securities.
The Company pays quarterly dividends from cash available for distribution. Until
it is distributed, cash available for distribution is invested by the Company
primarily in short-term investment grade securities or is used by the Company to
reduce balances outstanding under its lines of credit.
Readiness Disclosure for Year 2000
The Company's State of Readiness. The Company is aware of the issues associated
with the programming code in existing computer systems as the millennium (Year
2000) approaches. The Year 2000 problem is pervasive and complex, as virtually
every computer operation will be affected by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Employing a team made up of internal personnel, the Company has
identified IT systems that are not Year 2000 compliant and has substantially
modified or replaced such systems as necessary. However, because the full
ramifications of the Year 2000 issue will not be fully realized until after the
Year 2000 date change, the Company can provide no assurances that its internal
systems will not be adversely affected by the Year 2000 date change.
The Company has communicated with third parties with whom it does significant
business, such as financial institutions and vendors to determine their
readiness for Year 2000 compliance. Based on position statements received by the
Company, it appears that the Year 2000 compliance effort being made by third
parties with which the Company does significant business is sufficient to avoid
a material adverse impact on the Company's liquidity or ongoing results of
operations. However, no assurance can be given regarding the cost of their
failure to comply.
Costs of Addressing the Company's Year 2000 issues. Given the information known
at this time about the Company's systems that are non-compliant, coupled with
the Company's ongoing, normal course-of-business efforts to upgrade or replace
critical systems as necessary, management does not expect Year 2000 compliance
costs to have any material adverse impact on the Company's liquidity or results
of operations. As of September 30, 1999, no compliance costs have been incurred
by the Company that would not otherwise been incurred in the normal course of
maintenance of the Company's information systems. The costs of any future
assessment and remediation will be charged to general and administrative
expenses.
Risks of the Company's Year 2000 issues. The Company believes that it is taking
appropriate steps to assess and address its Year 2000 issues and currently does
not expect that its business will be adversely affected by the Year 2000 issue
in any material respect. Nevertheless, achieving Year 2000 readiness is
dependent on many factors, some of which are not completely within the Company's
control. Should either the Company's internal systems and devices or the
internal systems and devices of one or more critical vendors fail to achieve
Year 2000 readiness, the Company's business and its results of operations could
be adversely affected.
21
<PAGE>
Funds from Operations
Industry analysts generally consider funds from operations, ("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 of rental properties and non-
recurring gains or losses. Management considers Funds from Operations to be a
useful financial performance measurement of an equity REIT because, together
with net income and cash flows, Funds from Operations provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. Funds From Operations does
not represent net income or cash flows from operations as defined by generally
accepted accounting principles (GAAP) and is not intended to indicate whether
cash flows will be sufficient to fund cash needs. It should not be considered as
an alternative to net income as an indicator of the REIT's operating performance
or to cash flows as a measure of liquidity. Funds From Operations does not
measure whether cash flow is sufficient to fund all cash needs including
principal amortization, capital improvements and distributions to shareholders.
Funds From Operations also does not represent cash flows generated from
operating, investing or financing activities as defined under GAAP. Further,
Funds from Operations as disclosed by other REITs may not be comparable to the
Company's presentation of Funds From Operations. The following table sets forth
Essex's calculation of Funds from Operations for the three and nine months ended
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------- -----------------
September 30 September 30 September 30 September 30
------------- ------------- ------------- -------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income before
minority interests and
extraordinary item $13,426,000 $ 9,998,000 $37,454,000 $29,658,000
Adjustments:
Depreciation & amortization 7,084,000 5,575,000 19,376,000 15,876,000
Adjustment for unconsolidated
joint ventures 366,000 365,000 1,102,000 1,027,000
Provision for litigation loss -- 930,000 -- 930,000
Minority interests (1) (3,616,000) (1,754,000) (8,378,000) (4,353,000)
----------- ----------- ----------- -----------
Funds From Operations $17,260,000 $15,114,000 $49,554,000 $43,138,000
=========== =========== =========== ===========
Weighted average number
shares outstanding diluted (1) 20,573,866 20,523,466 20,500,206 20,516,925
=========== =========== =========== ===========
</TABLE>
(1) Assumes conversion of all outstanding operating partnership interests in
the Operating Partnership and Convertible Preferred Stock, Series 1996 A, into
shares of the Company's Common Stock. Minority interests have been adjusted to
reflect such conversion.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate changes primarily as a result of its
line of credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company's real estate investment portfolio and
operations. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives the Company borrows primarily
at fixed rates and may enter into derivative financial instruments such as
interest rate swaps, caps and treasury locks in order to mitigate its interest
rate risk on a related financial instrument. The Company does not enter into
derivative or interest rate transactions for speculative purposes.
The Company's interest rate risk is monitored using a variety of techniques. The
table below presents the principal amounts and weighted average interest rates
by year of expected maturity to evaluate the expected cash flows and sensitivity
to interest rate changes. The Company believes that the principal amounts of the
Company's mortgage notes payable and line of credit approximate fair value as of
22
<PAGE>
September 30, 1999 as interest rates are consistent with yields currently
available to the Company for similar instruments.
<TABLE>
<CAPTION>
For Year Ended: 1999 2000 2001 2002 2003 Thereafter Total
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt (In thousands)
$ 1,052 21,034 3,114 25,206 30,870 239,367 $ 320,643
Average interest rate 7.04% 7.04% 6.63% 6.63% 5.93% 5.93%
Variable rate LIBOR debt (In thousands)
$ - 57,200 - - - 58,820/(1)/ $ 116,020
Average interest rate - 6.34% - - - 5.50%
</TABLE>
/(1)/ $45,220,000 is capped at maximum interest rates ranging from 7.1% to 7.3%
The Company has four forward treasury contracts for an aggregate notional amount
of $60,000,000, locking the 10 year treasury rate at between 6.15%-6.26% which
limits interest rate exposure on certain future debt financing and which will be
settled in 2000. The fair value of these contracts as of September 30, 1999 is
approximately $635,000. Fair value represents the estimated payments that would
be made to terminate the agreement at September 30, 1999.
The four forward treasury contracts represent the exposures that exist as of
September 30, 1999. As firm commitments do not exist as of September 30, 1999,
the information presented herein has limited predictive value. As a result, the
Company's ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that may arise during the period, the
Company's hedging strategies at that time and interest rates.
23
<PAGE>
Part II Other Information
- ------- -----------------
Item 2: Changes in Securities and Use of Proceeds
-----------------------------------------
(c) Recent Sales of Unregistered Securities
On September 3, 1999, Essex Portfolio, L.P., a California limited
partnership (the "Operating Partnership") as to which the Company
is the sole general partner, completed the private placement of
2,200,000 9.25% Series E Cumulative Redeemable Preferred Units
(the "Perpetual Preferred Units"), representing a limited
partnership interest of the Operating Partnership, to two related
institutional investors in return for contributions to the
Operating Partnership totaling $55 million. The Perpetual
Preferred Units will become exchangeable, on a one for one basis,
in whole or in part at any time on or after the tenth anniversary
of the date of this private placement (or earlier under certain
circumstances) for shares of the Company's 9.25% Series E
Cumulative Redeemable Preferred Stock, par value $.0001 per share
(the "Series E Preferred Stock"). Pursuant to the terms of a
registration rights agreement, entered into in connection with
this private placement, the holders of Series E Preferred Stock
will have certain rights to cause the Company to register such
shares of Series E Preferred Stock. On September 7, 1999, the
Company filed Articles Supplementary reclassifying 2,200,000
shares of its Common Stock, par value $.0001 per share, as
2,200,000 shares of Series E Preferred Stock and setting forth the
rights, preference and privileges of the Series E Preferred Stock.
The net proceeds from the above private placement were used to
reduce outstanding balances on the Company's line of credit.
The above private placement was completed pursuant to the
exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
--------
3.1 Articles Supplementary reclassifying 2,200,000 shares of
Common Stock as 2,200,000 shares of 9.25% Series E Cumulative
Redeemable Preferred Stock, filed with the State of Maryland
on September 9, 1999.
10.1 Fifth Amendment to the First Amended and Restated Agreement
of Limited Partnership of Essex Portfolio, L.P., dated
September 3, 1999.
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
B. Reports on Form 8-K
-------------------
None
24
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESSEX PROPERTY TRUST, INC.
/s/ MARK J. MIKL
--------------------------
Mark J. Mikl, Controller
(Authorized Officer and
Principal Accounting Officer)
November 12, 1999
---------------------
Date
25
<PAGE>
EXHIBIT 3.1
ESSEX PROPERTY TRUST, INC.
--------------------------
ARTICLES SUPPLEMENTARY
Reclassifying 2,200,000 shares of Common Stock
as 2,200,000 shares of
9.25% SERIES E CUMULATIVE REDEEMABLE PREFERRED STOCK
Essex Property Trust, Inc., a corporation organized and existing under the
laws of Maryland (the "Corporation"), does hereby certify to the State
Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority conferred upon the Board of Directors of
-----
the Corporation by Article FIFTH of its Charter (the "Charter") in accordance
with Section 2-105 of the Maryland General Corporation Law (the "MGCL"), the
Board of Directors of the Corporation (the "Board"), at a special meeting held
on August 23, 1999, duly adopted a resolution reclassifying 2,200,000 authorized
but unissued shares of Common Stock (par value $.0001 per share) as Preferred
Stock (par value $.0001 per share), designating such newly reclassified
Preferred Stock as 9.25% Series E Cumulative Redeemable Preferred Stock, the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption as set forth below and authorizing the issuance of
such series of Preferred Stock as set forth below. Upon any restatement of the
Charter, Sections 1 through 9 of Article THIRD shall become subsection (h) of
Article FIFTH of the Charter.
SECOND: The reclassification increases the number of shares classified
------
as 9.25% Series E Cumulative Redeemable Preferred Stock from no shares
immediately prior to the reclassification to 2,200,000 shares immediately after
the reclassification. The reclassification decreases the number of shares
classified as Common Stock (par value $.0001 per share) from 658,697,491 shares
immediately prior to the reclassification to 656,497,491 shares immediately
after the reclassification.
THIRD: Subject in all cases to the provisions of Article EIGHTH of the
-----
Charter of the Corporation with respect to Excess Stock, the following is a
description of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of 9.25% Series E Cumulative Redeemable Preferred Stock
of the Corporation:
9.25% Series E Cumulative Redeemable Preferred Stock
----------------------------------------------------
Section 1. Designation and Amount.
-----------------------
Of the 658,697,491 authorized shares of Common Stock, 2,200,000 shares are
reclassified and designated "9.25% Series E Cumulative Redeemable Preferred
Stock (par value $.0001 per share)" (the "Series E Preferred Stock").
1
<PAGE>
Section 2. Rank.
----
The Series E Preferred Stock will, with respect to distributions and rights
upon voluntary or involuntary liquidation, winding-up or dissolution of the
Corporation, rank senior to all classes or series of Common Stock (as defined in
the Charter) and to all classes or series of equity securities of the
Corporation now or hereafter authorized, issued or outstanding, other than the
8.75% Convertible Preferred Stock, Series 1996A (the "Series A Preferred
Stock"), the 7.875% Series B Cumulative Redeemable Preferred Stock (the "Series
B Preferred Stock"), the 9-1/8% Series C Cumulative Redeemable Preferred Stock
(the "Series C Preferred Stock"), the 9.30% Series D Preferred Stock (the
"Series D Preferred Stock") and the 9.25% Series E Preferred Stock (the "Series
E Preferred Stock") with which it shall be on a parity and any other class or
series of equity securities of the Corporation expressly designated as ranking
on a parity with or senior to the Series E Preferred Stock as to distributions
and rights upon voluntary or involuntary liquidation, winding-up or dissolution
of the Corporation. For purposes of these terms of the Series E Preferred Stock,
the term "Parity Preferred Stock" shall be used to refer to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock and any other class or series of equity securities of
the Corporation now or hereafter authorized, issued or outstanding expressly
designated by the Corporation to rank on a parity with Series E Preferred Stock
with respect to distributions and rights upon voluntary or involuntary
liquidation, winding up or dissolution of the Corporation.
Section 3. Distributions.
--------------
a) Payment of Distributions. Subject to the rights of holders of
-------------------------
Parity Preferred Stock as to the payment of distributions, holders of Series E
Preferred Stock will be entitled to receive, when, as and if declared by the
Corporation, out of funds legally available for the payment of distributions,
cumulative preferential cash distributions at the rate per annum of 9.25% of the
$25.00 liquidation preference per share of Series E Preferred Stock. Such
distributions shall be cumulative, shall accrue from the original date of
issuance and will be payable quarterly in arrears (such quarterly periods, for
purposes of payment and accrual shall be the quarterly periods ending on the
dates specified in this sentence and not calendar quarters), on the 1st day of
March, June, September and December of each year (each a "Preferred Stock
Distribution Payment Date"), commencing in each case on the first Preferred
Stock Distribution Payment Date after the original date of issuance. The amount
of the distribution payable for any period will be computed on the basis of a
360-day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed based on the ratio of the actual number of
days elapsed in such a period to ninety (90) days. If any date on which
distributions are to be made on the Series E Preferred Stock is not a Business
Day (as defined herein), then payment of the distribution to be made on such
date will be made on the next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such delay) except that if such
Business Day is in the next Succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date. Distributions on the
2
<PAGE>
Series E Preferred Stock will be made to the holders of record of the Series E
Preferred Stock on the relevant record dates, which, unless otherwise provided
by the Corporation (as a date not more than thirty (30) days prior to the
Preferred Stock Distribution Date) with respect to any distribution, will be 15
Business Days prior to the relevant Preferred Stock Distribution Payment Date
(each a "Distribution Record Date"). Notwithstanding anything to the contrary
set forth herein, each share of Series E Preferred Stock shall also continue to
accrue all accrued and unpaid distributions to the exchange date on any Series E
Preferred Unit (as defined in the Fifth Amendment to First Amended and Restated
Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of September
3, 1999 (the "Fifth Amendment")) validly exchanged into such share of Series E
Preferred Stock in accordance with the provisions of such Fifth Amendment.
The term "Business Day" shall mean each day, other than a Saturday or a
Sunday, which is not a day on which banking institutions in New York, New York
are authorized or required by law, regulation or executive order to close.
b) Limitations on Distributions. No distributions on the Series E
----------------------------
Preferred Stock shall be declared or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation, including any agreement relating to its indebtedness, prohibits
such declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such declaration, payment or setting
apart for payment shall be restricted or prohibited by law.
c) Distributions Cumulative. Notwithstanding the foregoing,
------------------------
distributions on the Series E Preferred Stock will accrue whether or not the
terms and provisions set forth in Section 3(b) hereof at any time prohibit the
current payment of distributions, whether or not the Corporation has earnings,
whether or not there are funds legally available for the payment of such
distributions and whether or not such distributions are authorized. Accrued but
unpaid distributions on the Series E Preferred Stock will accumulate as of the
Preferred Stock Distribution Payment Date on which they first become payable.
Accumulated and unpaid distributions will not bear interest.
d) Priority as to Distributions.
----------------------------
(i) So long as any Series E Preferred Stock is outstanding, no
distribution of cash or other property shall be authorized, declared, paid or
set apart for payment on or with respect to any class or series of Common Stock
or any class or series of other stock of the Corporation ranking junior to the
Series E Preferred Stock as provided in this Section 3 (such Common Stock or
other junior stock, including, without limitation, the Series A Junior
Participating Preferred Stock) collectively, "Junior Stock"), nor shall any cash
or other property be set aside for or applied to the purchase, redemption or
other acquisition for consideration of any Series E Preferred Stock, any Parity
Preferred Stock with respect to distributions or any Junior Stock, unless, in
each case, all distributions accumulated on all Series E Preferred Stock and all
classes and series of outstanding Parity Preferred Stock as to payment of
distributions have been paid in full. The foregoing sentence will not prohibit
(i) distributions payable solely in Junior
3
<PAGE>
Stock, (ii) the conversion of Junior Stock or Parity Preferred Stock into Junior
Stock of the Corporation, (iii) the redemption, purchase or other acquisition of
Junior Stock made for purposes of and in compliance with requirements of an
employee incentive or benefit plan of the Corporation or any subsidiary of the
Corporation, and (iv) purchase by the Corporation of such Series E Preferred
Stock, Parity Preferred Stock with respect to distributions or Junior Stock
pursuant to Article EIGHTH of the Charter to the extent required to preserve the
Corporation's status as a real estate investment trust.
(ii) So long as distributions have not been paid in full (or a
sum sufficient for such full payment is not irrevocably so set apart) upon the
Series E Preferred Stock, all distributions authorized and declared on the
Series E Preferred Stock and all classes or series of outstanding Parity
Preferred Stock with respect to distributions shall be authorized and declared
so that the amount of distributions authorized and declared per share of Series
E Preferred Stock and such other classes or series of Parity Preferred Stock
shall in all cases bear to each other the same ratio that accrued distributions
per share on the Series E Preferred Stock and such other classes or series of
Parity Preferred Stock (which shall not include any accumulation in respect of
unpaid distributions for prior distribution periods if such class or series of
Parity Preferred Stock do not have cumulative distribution rights) bear to each
other.
e) No Further Rights. Holders of Series E Preferred Stock shall
-----------------
not be entitled to any distributions, whether payable in cash, other property or
otherwise, in excess of the full cumulative distributions described herein.
Section 4. Liquidation Preference.
-----------------------
a) Payment of Liquidating Distributions. Subject to the rights of
------------------------------------
holders of Parity Preferred Stock with respect to rights upon any voluntary or
involuntary liquidation, distribution or winding-up of the Corporation, the
holders of Series E Preferred Stock shall be entitled to receive out of the
assets of the Corporation legally available for distribution or the proceeds
thereof, after payment or provision for debts and other liabilities of the
Corporation, but before any payment or distributions of the assets shall be made
to holders of Common Stock or any other class or series of shares of the
Corporation that ranks junior to the Series E Preferred Stock as to rights upon
liquidation, dissolution or winding-up of the Corporation, an amount equal to
the sum of (i) a liquidation preference of $25.00 per share of Series E
Preferred Stock, and (ii) in amount equal to any accumulated and unpaid
distributions thereon to the date of payment. In the event that, upon such
voluntary or involuntary liquidation, dissolution or winding-up, there are
insufficient assets to permit full payment of liquidating distributions to the
holders of Series E Preferred Stock and any Parity Preferred Stock as to rights
upon liquidation, dissolution or winding-up of the Corporation, all payments of
liquidating distributions on the Series E Preferred Stock and such Parity
Preferred Stock shall be made so that the payments on the Series E Preferred
Stock and such Parity Preferred Stock shall in all cases bear to each other the
same ratio that the respective rights of the Series E Preferred Stock and such
other Parity Preferred Stock (which shall not include any accumulation in
respect of unpaid distributions for prior distribution periods if such
4
<PAGE>
Parity Preferred Stock do not have cumulative distribution rights) upon
liquidation, dissolution or winding-up of the Corporation bear to each other.
b) Notice. Written notice of any such voluntary or involuntary
------
liquidation, dissolution or winding-up of the Corporation, stating the payment
date or dates when, and the place or places where, the amounts distributable in
such circumstances shall be payable, shall be given by (i) fax and (ii) by first
class mail, postage pre-paid, not less than 30 and, not more than 60 days prior
to the payment date stated therein, to each record holder of the Series E
Preferred Stock at the respective addresses of such holders as the same shall
appear on the share transfer records of the Corporation.
c) No Further Rights. After payment of the full amount of the
-----------------
liquidating distributions to which they are entitled, the holders of Series E
Preferred Stock will have no right or claim to any of the remaining assets of
the Corporation.
d) Consolidation, Merger or Certain Other Transactions. Without
---------------------------------------------------
limiting Section 6(c) hereof, the consolidation or merger or other business
combination of the Corporation with or into any corporation, trust or other
entity (or of any corporation, trust or other entity with or into the
Corporation), or the effectuation by the Corporation of a transaction or series
of related transactions in which more than 50% of the voting power of the
Corporation is disposed of shall not be deemed to constitute a liquidation,
dissolution or winding-up of the Corporation.
Section 5. Optional Redemption.
--------------------
a) Right of Optional Redemption. The Series E Preferred Stock may
----------------------------
not be redeemed prior to September 3, 2004. On or after such date, subject to
the terms and conditions of any Parity Preferred Stock, the Corporation shall
have the right to redeem the Series E Preferred Stock, in whole or in part, at
any time or from time to time, upon not less than 30 nor more than 60 days'
written notice, at a redemption price, payable in cash, equal to $25.00 per
share of Series E Preferred Stock plus accumulated and unpaid distributions to
the date of redemption. If fewer than all of the outstanding shares of Series E
Preferred Stock are to be redeemed, the shares of Series E Preferred Stock to be
redeemed shall be selected pro rata (as nearly as practicable without creating
fractional units). Further, in order to ensure that the Corporation remains a
qualified real estate investment trust for federal income tax purposes, the
Series E Preferred Stock will also be subject to the provisions of Article
EIGHTH of the Charter pursuant to which Series E Preferred Stock owned by a
stockholder in excess of the Ownership Limit (as defined in the Charter) will be
automatically transferred to a Trust (as defined in the Charter) and the
Corporation shall have the right to purchase such, shares, as provided in
Article EIGHTH of the Charter.
b) Limitation on Redemption.
------------------------
(i) Except in connection with the liquidation, dissolution,
winding up or termination of the Corporation, the redemption price of the
Series E
5
<PAGE>
Preferred Stock (other than the portion thereof consisting of accumulated but
unpaid distributions) will be payable solely out of the sale proceeds of capital
stock of the Corporation and from no other source. For purposes of the preceding
sentence, "capital stock" means any equity securities (including Common Stock
and Preferred Stock of the Corporation and units of partnership interest of
Essex Portfolio, L.P., as to which the Corporation is the general partner),
shares, participation or other ownership interests (however designated) and any
rights (other than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing.
(ii) The Corporation may not redeem fewer than all of the
outstanding shares of Series E Preferred Stock unless all accumulated and unpaid
distributions have been paid on all Series E Preferred Stock for all quarterly
distribution periods terminating on or prior to the date of redemption;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of Series E Preferred Stock or Parity Preferred Stock
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of Series E Preferred Stock or Parity Preferred Stock, as
the case may be.
c) Rights to Distributions on Stock Called for Redemption.
------------------------------------------------------
Immediately prior to any redemption of Series E Preferred Stock, the Corporation
shall pay, in cash, any accumulated and unpaid distributions through the
redemption date, unless a redemption date falls after a Distribution Record Date
and prior to the corresponding Preferred Stock Distribution Payment Date, in
which case each holder of Series E Preferred Stock at the close of business on
such Distribution Record Date shall be entitled to the distributions payable on
such shares on the corresponding Distribution Payment Date notwithstanding the
redemption of such shares before the Distribution Payment Date.
d) Procedures for Redemption.
-------------------------
(i) Notice of redemption will be (i) faxed, and (ii) mailed by
the Corporation, postage prepaid, not less than 30 nor more than 60 days prior
to the redemption date, addressed to the respective holders of record of the
Series E Preferred Stock to be redeemed at their respective addresses as they
appear on the transfer records of the Corporation. No failure to give or defect
in such notice shall affect the validity of the proceedings for the redemption
of any Series E Preferred Stock except as to the holder to whom such notice was
defective or not given. In addition to any information required by law or by the
applicable rules of any exchange upon which the Series E Preferred Stock may be
listed or admitted to trading, each such notice shall state: (i) the redemption
date, (ii) the redemption price, (iii) the number of shares of Series E
Preferred Stock to be redeemed, (iv) the place or places where such shares of
Series E Preferred Stock are to be surrendered for payment of the redemption
price, (v) that distributions on the Series E Preferred Stock to be redeemed
will cease to accumulate on such redemption date and (vi) that payment of the
redemption price and any accumulated and unpaid distributions will be made upon
presentation and surrender of such Series E Preferred Stock. If fewer than all
of the shares of Series E Preferred Stock held by any holder are to be redeemed,
the notice mailed to such holder shall also specify the number of shares
6
<PAGE>
of Series E Preferred Stock held by such holder to be redeemed. If fewer than
all Series E Preferred Stock evidenced by any certificate are being redeemed, a
new certificate shall be issued upon surrender of the certificate evidencing all
shares of Series E Preferred Stock, evidencing the unredeemed shares of Series E
Preferred Stock without cost to the holder thereof.
(ii) If the Corporation gives a notice of redemption in
respect of Series E Preferred Stock (which notice will be irrevocable) then, by
12:00 noon, New York City time, on the redemption date, the Corporation will
deposit irrevocably in trust for the benefit of the Series E Preferred Stock
being redeemed funds sufficient to pay the applicable redemption price, plus any
accumulated and unpaid distributions, if any, on such shares to the date fixed
for redemption, without interest, and will give irrevocable instructions and
authority to pay such redemption price and any accumulated and unpaid
distributions, if any, on such shares to the holders of the Series E Preferred
Stock upon surrender of the Series E Preferred Stock by such holders at the
place designated in the notice of redemption. On and after the date of
redemption, distributions will cease to accumulate on the Series E Preferred
Stock or portions thereof called for redemption, unless the Corporation defaults
in the payment thereof. If any date fixed for redemption of Series E Preferred
Stock is not a Business Day, then payment of the redemption price payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except that,
if such Business Day falls in the next calendar year, such payment will be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date fixed for redemption. If payment of the
redemption price or any accumulated or unpaid distributions in respect of the
Series E Preferred Stock is improperly withheld or refused and not paid by the
Corporation, distributions on such Series E Preferred Stock will continue to
accumulate from the original redemption date to the date of payment, in which
case the actual payment date will be considered the date fixed for redemption
for purposes of calculating the applicable redemption price and any accumulated
and unpaid distributions.
e) Status of Redeemed Stock. Any Series E Preferred Stock that
------------------------
shall at any time have been redeemed shall after such redemption have the status
of authorized but unissued Preferred Stock, without designation as to class or
series, until such shares are once more designated as part of a particular class
or series by the Board.
Section 6. Voting Rights.
-------------
a) General. Holders of the Series E Preferred Stock will not have
-------
any voting rights, except as set forth below.
b) Right to Elect Directors. If at any time full distributions
------------------------
shall not have been made on any Series E Preferred Stock with respect to any six
(6) prior quarterly distribution periods, whether or not consecutive, (a
"Preferred Distribution Default"), such that distributions for such six (6)
distribution periods have not been fully paid and are outstanding in whole or in
part at the same time, the holders of such Series E Preferred Stock, voting
together as a single class with the holders of each class or series
7
<PAGE>
of Parity Preferred Stock upon which like voting rights have been conferred and
are exercisable (other than holders of Parity Preferred Stock who are deemed to
be "affiliates" of the Corporation as such term is defined in Rule 144 of the
General Rules and Regulations Under the Securities Act of 1933), will have the
right to elect two additional directors to serve on the Corporation's Board (the
"Preferred Stock Directors"), which shall be in addition to the rights of
holders of Series A Preferred Stock to elect directors pursuant to the articles
supplementary pertaining to the Series A Preferred Stock, at a special meeting
called by the holders of record of at least 10% of the outstanding shares of
Series E Preferred Stock or any such class or series of Parity Preferred Stock
or at the next annual meeting of stockholders, and at each subsequent annual
meeting of stockholders or special meeting held in place thereof, until all such
distributions in arrears and distributions for the current quarterly period on
the Series E Preferred Stock and each such class or series of Parity Preferred
Stock have been paid in full. At any such annual or special meeting, the holders
of the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and any subsequently issued series of Parity Preferred Stock
upon which like voting rights have been conferred and are exercisable, will be
entitled to cast votes for such Preferred Stock Directors on the basis of one
vote per $50.00 of liquidation preference to which such class of Parity
Preferred Stock is entitled by its terms (excluding amounts in respect of
accumulated and unpaid dividends) and not cumulatively. If and when all
accumulated distributions and the distribution for the current distribution
period on the Series E Preferred Stock shall have been paid in full or
irrevocably set aside for payment in full, the holders of the Series E Preferred
Stock shall be divested of the voting rights set forth in Section 6(b) herein
(subject to revesting in the event of each and every Preferred Distribution
Default) and, if all distributions in arrears and the distributions for the
current distribution period have been paid in full or irrevocably set aside for
payment in full on all other classes or series of Parity Preferred Stock upon
which like voting rights have been conferred and are exercisable, the term and
office of each Preferred Stock Director so elected shall immediately terminate.
Any Preferred Stock Director may be removed at any time with or without cause by
the vote of, and shall not be removed otherwise than by the vote of, the holders
of record of a majority of the outstanding Series E Preferred Stock when they
have the voting rights set forth in Section 6(b) (voting separately as a single
class with all other classes or series of Parity Preferred Stock upon which like
voting rights have been conferred and are exercisable). So long as a Preferred
Distribution Default shall continue, any vacancy in the office of a Preferred
Stock Director may be filled by written consent of the Preferred Stock Director
remaining in office, or if none remains in office, by a vote of the holders of
record of a majority of the outstanding Series E Preferred Stock when they have
the voting rights set forth in Section 6(b) (voting separately as a single class
with all other classes or series of Parity Preferred Stock upon which like
voting rights have been conferred and are exercisable). The Preferred Stock
Directors shall each be entitled to one vote per director on any matter.
c) Certain Voting Rights. (i) While any shares of the Series E
---------------------
Preferred Stock are outstanding, the Corporation shall not, without the
affirmative vote of the holders of at least two-thirds (2/3) of the outstanding
shares and/or units (voting as a single class and on an as-exchanged for Series
E Preferred Stock basis) comprising the Series E Preferred Stock and the 9.25%
Series E Cumulative Redeemable Preferred Units
8
<PAGE>
of Essex Portfolio, L.P. (collectively, the "Voting Securities") outstanding at
the time (i) authorize or create, or increase the authorized or issued amount
of, any class or series of shares ranking prior to the Series E Preferred Stock
with respect to payment of distributions or rights upon liquidation, dissolution
or winding-up or reclassify any authorized shares of the Corporation into any
such shares, or create, authorize or issue any obligations or security
convertible into or evidencing the right to purchase any such shares, (ii)
either amend, alter or repeal the provisions of the Corporation's Charter
(including these Articles Supplementary) or Bylaws, whether by amendment,
merger, consolidation or otherwise, that would materially and adversely affect
the preferences, other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications, or terms and conditions of
redemption, of any outstanding shares of the Series E Preferred Stock or the
holders thereof; provided that any increase in the amount of authorized
Preferred Stock or the creation or issuance of any other class or series of
Preferred Stock, or any increase in an amount of authorized shares of each class
or series, in each case ranking junior or on a parity to the Series E Preferred
Stock with respect to payment of distributions and the distribution of assets
upon liquidation, dissolution or winding-up, shall not be deemed to materially
and adversely affect such rights, preferences, privileges or voting powers
provided that, with respect to Parity Preferred Stock issued to any "affiliate"
of the Corporation (as such term is defined in Rule 144 of the General Rules and
Regulations Under the Securities Act of 1933), such Parity Preferred Stock is
issued in connection with a larger issuance to non-affiliates of Parity
Preferred Stock of the same series and with the same terms as such Parity
Preferred Stock. While any shares of the Series E Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least two-thirds (2/3) of the Voting Securities outstanding at the
time consolidate, amalgamate, merge with or into, or convey, transfer or lease
its assets substantially as an entirety to, any corporation or other entity,
unless (a) the Corporation is the surviving entity and the shares of the Series
E Preferred Stock remain outstanding with the terms thereof unchanged, (b) the
resulting, surviving or transferee entity is a corporation or other entity
organized under the laws of any state and substitutes for the Series E Preferred
Stock other preferred stock having substantially the same terms and same rights
as the Series E Preferred Stock, including with respect to distributions, voting
rights and rights upon liquidation, dissolution or winding-up, or (c) such
merger, consolidation, amalgamation or asset transfer does not adversely affect
the powers, special rights, preferences and privileges of the holders of the
Series E Preferred Stock in any material respect. However, the Corporation may
create additional classes of Parity Preferred Stock and Junior Stock, increase
the authorized number of shares of Parity Preferred Stock and Junior Stock and
issue additional series of Parity Preferred Stock and Junior Stock without the
consent of any holder of Voting Securities, provided that, with respect to
Parity Preferred Stock issued to any "affiliate" of the Corporation (as such
term is defined in Rule 144 of the General Rules and Regulations Under the
Securities Act of 1933), such Parity Preferred Stock is issued in connection
with a larger issuance to non-affiliates of Parity Preferred Units of the same
series and with the same terms as such Parity Preferred Stock.
Section 7. Transfer Restrictions. The Series E Preferred Stock shall be
---------------------
subject to the provisions of Article EIGHTH of the Charter.
9
<PAGE>
Section 8. No Conversion Rights. The holders of the Series E Preferred
--------------------
Stock shall not have any rights to convert such shares into shares of any other
class or series of stock, or into any other securities of, or interest in, the
Corporation.
Section 9. No Sinking Fund. No sinking fund shall be established for the
---------------
retirement or redemption of Series E Preferred Stock.
FOURTH: The Series E Preferred Stock have been classified and
designated by the Board under the authority contained in the Charter.
FIFTH: These Articles Supplementary have been approved by the Board in
the manner and by the vote required by law.
SIXTH: The undersigned Executive Vice President of the Corporation
acknowledges these Articles Supplementary to be the corporate act of the
Corporation and, as to all matters or facts required to be verified under oath,
the undersigned Executive Vice President acknowledges that to the best of his
knowledge, information and belief, these matters and facts are true in all
material respects and that this statement is made under the penalties for
perjury.
10
<PAGE>
IN WITNESS WHEREOF, these Articles Supplementary are executed on behalf of
the Corporation by its Executive Vice President and attested by its Secretary
this _____ day of September, 1999.
ESSEX PROPERTY TRUST, INC.
____________________________
Michael J. Schall
Executive Vice President
[SEAL]
Attest:
___________________________
Jordan E. Ritter
Vice President and Secretary
THE UNDERSIGNED, Executive Vice President of ESSEX PROPERTY TRUST, INC.,
who executed on behalf of the Corporation, the Articles Supplementary of which
this certificate is made a part, hereby acknowledges in the name and on behalf
of said Corporation the foregoing Articles Supplementary to be the corporate act
of said Corporation and hereby certifies that the matters and facts set forth
herein with respect to the authorization and approval, thereof are true in all
material respects under the penalties of perjury.
By: __________________________
Michael J. Schall
Executive Vice President
11
<PAGE>
EXHIBIT 10.1
FIFTH AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
ESSEX PORTFOLIO, L.P.
Dated as of September 3, 1999
This Fifth Amendment to the First Amended and Restated Agreement of
Limited Partnership of Essex Portfolio, L.P., as amended (as amended, the
"Partnership Agreement"), dated as of the date shown above (the "Amendment"), is
executed by Essex Property Trust, Inc. a Maryland Corporation (the "Company"),
as the General Partner and on behalf of the existing Limited Partners of Essex
Portfolio, L.P. (the "Partnership"), and TMCT II, LLC, a Delaware limited
liability company ("LLC").
RECITALS
WHEREAS, the Partnership was formed pursuant to the Partnership
Agreement, which has been amended and restated as of September 30, 1997;
WHEREAS, on the date hereof, The Times Mirror Company, a Delaware
corporation ("Contributor"), has made a Capital Contribution of an
aggregate of $55,000,000, in cash, to the Partnership in exchange for which
LLC is entitled to receive an aggregate of 2,200,000 of the 9.25% Series E
Cumulative Redeemable Preferred Units (the "Series E Preferred Units") of
limited partnership interests in the Partnership with rights, preferences,
exchange and other rights, voting powers and restrictions, limitations as
to distributions, qualifications and terms and conditions as set forth
herein;
WHEREAS, pursuant to the authority granted to the General Partner
under the Partnership Agreement, the General Partner desires to amend the
Partnership Agreement to reflect (i) the issuance of the Series E Preferred
Units, (ii) the admission of LLC as an Additional Limited Partner and
holder of a certain number of Series E Preferred Units and (iii) certain
other matters described herein;
WHEREAS, LLC desires to become a party to the Partnership
Agreement as a Limited Partner and to be bound by all terms, conditions and
other provisions of this Amendment and the Partnership Agreement (as
amended by the Amendment).
NOW THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, the General Partner hereby amends the Partnership
Agreement as follows:
1. Definitions. Capitalized terms used herein, unless otherwise
-----------
defined herein, shall have the same meanings as set forth in the Partnership
Agreement.
1
<PAGE>
2. Admission of LLC. LLC is hereby admitted as an Additional Limited
----------------
Partner in accordance with Section 4.6 of the Partnership Agreement holding such
number of Series E Preferred Units as is set forth on Exhibit A, as amended.
LLC hereby agrees to become a party to the Partnership Agreement as a Limited
Partner and to be bound by all the terms, conditions and other provisions of the
Partnership Agreement, as amended by this Amendment. Pursuant to Section 4.6(b)
of the Partnership Agreement, the General Partner hereby consents to the
admission of LLC as an Additional Limited Partner of the Partnership. The
admission of LLC shall become effective as of the date of this Amendment which
shall also be the date on which the name of LLC is recorded on the books and
records of the Partnership.
3. Percentage Interest. Section 1.1 of the Partnership Agreement is
-------------------
hereby further amended to delete the definition of "Percentage Interest" in its
entirety and the following definition of "Percentage Interest" is hereby
substituted in its place:
"Percentage Interest" shall mean, with respect to any Partner other
than holders of Series B Preferred Units, Series C Preferred Units, Series
D Preferred Units or Series E Preferred Units, the undivided percentage
ownership interest of such Partner in the Partnership, as determined by
dividing the number of Partnership Units owned by such Partner by the total
number of Partnership Units then outstanding (excluding the Series A
Preferred Interest, the Series B Preferred Interest, the Series B
Partnership Units, Series C Preferred Interest, Series C Preferred Units,
Series D Preferred Interest and Series D Preferred Units, Series E
Preferred Interest and Series E Preferred Units).
4. Restatement of Exhibit A and Exhibit M. Exhibit A to the
--------------------------------------
Partnership Agreement is amended and restated by replacing such Exhibit A with
Exhibit A attached to this Amendment. Exhibit M to the Partnership Agreement is
amended and restated by replacing such Exhibit M with Exhibit M attached to this
Amendment.
5. Preferred Interest. Section 1.1 of the Partnership Agreement is
------------------
hereby amended to include the following definition of "Series E Preferred
Interest" after the "definition of "Series D Preferred Interest" and before the
definition of "Series A Preferred Stock."
"Series E Preferred Interest" shall mean the interest in the
Partnership received by the General Partner in connection with the issuance
of shares of Series E Preferred Stock, as and when issued, which Series E
Preferred Interest includes and shall include the right to receive
preferential distributions and certain other rights as set forth in this
Agreement.
6. Series E Preferred Stock. Section 1.1 of the Partnership
------------------------
Agreement is hereby amended to include the following definitions of "Series E
Preferred Stock" and "Series E Preferred Units" which are hereby inserted after
the definition of "Series D Preferred Units" and before the definition of "Stock
Incentive Plans":
2
<PAGE>
"Series E Preferred Stock" shall mean the preferred stock of the
General Partner described in Article THIRD of the Articles Supplementary,
reclassifying 2,200,000 shares of Common Stock as 2,200,000 shares of 9.25%
Series E Cumulative Redeemable Preferred Stock to be filed with the
Department on or about September 3, 1999.
"Series E Preferred Units" shall mean the 9.25% Series E Cumulative
Redeemable Preferred Units of limited partnership interests in the
Partnership with rights, preferences, exchange and other rights, voting
powers and restrictions, limitations as to distributions, qualifications
and terms and conditions as set forth in Exhibit Q hereto.
7. Distributions. Section 6.2(a) of the Partnership Agreement is
-------------
hereby deleted in its entirety, and the following is hereby substituted in the
place thereof:
(a) Distributions shall be made in accordance with the following
order of priority:
(i) First, on a pro rata basis, (based upon the same ratio that
--------
accrued distributions per share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock and per unit of Series B Preferred Units, Series C
Preferred Units, Series D Preferred Units and Series E Preferred Units
(which shall not include any accumulation in respect of unpaid
distributions for prior distribution periods if such stock or units do not
have cumulative distribution rights) bear to each other) (v) to the General
Partner, on account of the Series A Preferred Interest, Series B Preferred
Interest, Series C Preferred Interest, Series D Preferred Interest and
Series E Preferred Interest until the total amount of distributions made
pursuant to this Section 6.2(a)(i)(v) equals the total amount of accrued
but unpaid distributions (if any) payable with respect to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock and the Series E Preferred Stock as of
the date of such distribution; (w) to the Limited Partners holding Series B
Preferred Units, on account of the Series B Preferred Units until the total
amount of distributions made pursuant to this Section 6.2(a)(i)(w) equals
the total amount of accrued but unpaid distributions (if any) payable with
respect to the Series B Preferred Units, in accordance with Exhibit N of
the Partnership Agreement, as of the date of such distribution; (x) to the
Limited Partners holding Series C Preferred Units, on account of the Series
C Preferred Units until the total amount of distributions made pursuant to
this Section 6.2(a)(i)(x) equals the total amount of accrued but unpaid,
distributions (if any) payable with respect to the Series C Preferred
Units, in accordance with Exhibit O of the Partnership Agreement, as of the
date of such distribution; (y) to the Limited Partners holding Series D
Preferred Units, on account of the Series D Preferred Units until the
distributions made pursuant to this Section 6.2(a)(i)(y) equals the total
amount of accrued but unpaid distributions (if any) payable with respect to
the Series D Preferred Units, in accordance with Exhibit P of the
Partnership Agreement, as of the date of such distribution; and (z) to the
Limited Partners holding Series E Preferred Units, on account of the Series
E Preferred Units until the distributions made pursuant to this Section
6.2(a)(i)(z) equals the total amount of accrued but unpaid distributions
(if
3
<PAGE>
any) payable with respect to the Series E Preferred Units, in accordance
with Exhibit Q of the Partnership Agreement, as of the date of such
distribution.
(ii) Next, to the Partners, pro rata in accordance with the
--------
Partners' then Percentage Interests.
Neither the Partnership nor the Limited Partners shall have any
obligation to see that any funds distributed to the General Partner
pursuant to subparagraph (a)(i) of this Section 6.2 are in turn used by the
General Partner to pay dividends on the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, Series D Preferred
Stock or the Series E Preferred Stock (or any other Preferred Stock) or
that funds distributed to the General Partner pursuant to subparagraph
(a)(ii) of this Section 6.2 are in turn used by the General Partner to pay
dividends on the Common Stock or for any other purpose."
8. Distributions in Kind. Section 8.5 of the Partnership Agreement
---------------------
is hereby amended by adding the following sentence to the end of such section:
"Notwithstanding the foregoing, the Liquidating Trustee
shall not distribute to the holders of Series B Partnership
Units, Series C Partnership Units, Series D Partnership Units,
Series E Partnership Units, Series A Preferred Interest, Series B
Preferred Interest, Series C Preferred Interest, Series D
Preferred Interest and Series E Preferred Interest Partnership
assets other than cash."
9. Exhibit E. Exhibit E to the Partnership Agreement is hereby
---------
deleted in its entirety, and the attached Exhibit E is hereby inserted in the
place thereof.
10. Exhibit Q. The Partnership Agreement is hereby amended by adding
---------
a new exhibit, Exhibit Q, a copy of which is attached hereto. Exhibit Q is
hereby inserted into the Partnership Agreement following Exhibit P.
11. Continuing Effect of Partnership Agreement. Except as modified
------------------------------------------
herein, the Partnership Agreement is hereby ratified and confirmed in its
entirety and shall remain and continue in full force and effect, provided,
however, that to the extent there shall be a conflict between the provisions of
the Partnership Agreement and this Amendment the provisions in this Amendment
will prevail. All references in any document to the Partnership Agreement shall
mean the Partnership Agreement, as amended hereby.
12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same agreement. Facsimile signatures shall be
deemed effective execution of this Agreement and may be relied upon as such by
the other party. In the event facsimile signatures are delivered, originals of
such signatures shall be delivered to the other party within three (3) business
days after execution.
4
<PAGE>
IN WITNESS WHEREOF, the General Partner and the LLC have executed this
Amendment as of the date indicated above.
GENERAL PARTNER
ESSEX PROPERTY TRUST, INC.,
a Maryland corporation as General Partner of Essex
Portfolio, L.P. and on behalf of the existing
Limited Partners
By:____________________________________
Name: Michael J. Schall
Title: Executive Vice President and
Chief Financial Officer
LLC:
TMCT II, LLC
By: THE TIMES MIRROR COMPANY,
its Managing Member
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
EXHIBIT A
PARTNERSHIP UNITS
(As of September 3, 1999)
PARTNERSHIP UNITS
-----------------
<TABLE>
<CAPTION>
Units
-----
<S> <C>
General Partner:
- ---------------
Essex Property Trust, Inc. 16,615,924
Limited Partners:
- ----------------
1. Essex Portfolio Management Company 15,941
2. Essex Property Corporation 9,909
3. GMMS Partners 43,414
4. M & M Projects, Inc. 128,138
5. SummerHill Homes 163,447
6. Paula Amanda 1,785
7. Robert and Margaret Arnold 2,242
8. Randall I. Barkan 2,564
9. David Bernstein Revocable Trust 5,771
10. John D. and Robbin Eudy 7,457
11. Kenneth and Angeliki Frangadakis 2,675
12. George and Katherine Frangadakis, Trustees 4,697
Frangadakis Family Revocable Trust
13. Kenneth and Angeliki Frangadakis, Trustees 24,334
Frangadakis Family Revocable Trust
14. Harvey Friedman 4,042
15. Harvey and Margaret Green 16,735
16. Keith R. and Thelma Guericke 48,116
17. George P. Katsoulis 5,000
18. Gerald E. and Annette Kelly 5,643
19. Nancy Kukkola 11,637
20. George M. Marcus 1,136,227
21. Meistrich Family Trust UTA 12/6/90 4,042
22. Charles E. Martin 1,785
23. William A. and Sherrie Millichap 73,099
24. J. Peter and Cherie Otten 9,447
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Units
-----
<S> <C>
25. Milton Pagonis 10,267
26. Gary Pagonis Family Trust 10,267
27. G. Michael Roark 54,740
28. Michael and Ann Schall 26,388
29. J. Lawrence Schnadig 1,729
30. J.A. Shafran 2,889
31. Swanson Survivors Trust 7,687
32. Linwood C. Thompson 1,278
33. The Way 1994 Living Trust Dtd. 11/2/94 2,226
34. Gay A. Yamagiwa 10,720
35. Craig K. Zimmerman 15,849
36. 280 Euclid Properties, Ltd. 135,260
37. El Molino Properties, Ltd. 138,652
7.875% SERIES B PREFERRED UNITS*
-------------------------------
Limited Partner:
- ---------------
Belair Real Estate Corporation 977,000
Belcrest Realty Corporation 623,000
9 1/8% SERIES C PREFERRED UNITS
-------------------------------
Limited Partner:
Belcrest Realty Corporation 420,000
Belair Real Estate Corporation
9.30% SERIES D PREFERRED UNITS
------------------------------
Limited Partner:
Belcrest Realty Corporation 1,000,000
Belair Real Estate Corporation 1,000,000
9.25% SERIES E PREFERRED UNITS
------------------------------
Limited Partner:
TMCT II, LLC 2,220,000
TOTAL PARTNERSHIP UNITS: 25,062,023
</TABLE>
________________
<PAGE>
EXHIBIT E
ALLOCATIONS
1. Allocation of Net Income and Net Loss.
-------------------------------------
(a) Net Income. Except as otherwise provided herein, Net Income for
----------
any fiscal year or other applicable period shall be allocated in the following
order and priority:
(1) First, to the Partners, until the cumulative Net Income
allocated pursuant to this subparagraph (a)(1) for the current and all prior
periods equals the cumulative Net Loss allocated pursuant to subparagraph (b)(2)
hereof for all prior periods, among the Partners in the reverse order that such
Net Loss was allocated to the Partners pursuant to subparagraph (b)(2) hereof
(and, in the event of a shift of a Partner's interest in the Partnership, to the
Partners in a manner that most equitably reflects the successors in interest to
the Partners).
(2) Thereafter, the balance of the Net Income, if any, shall be
allocated to the Partners in accordance with their respective Percentage
Interests.
(b) Net Loss. Except as otherwise provided herein, Net Loss of the
--------
Partnership for each fiscal year or other applicable period shall be allocated
as follows:
(1) To the Partners in accordance with their respective
Percentage Interests.
(2) Notwithstanding subparagraph (b)(1) hereof, to the extent any
Net Loss allocated to a Partner under subparagraph (b)(1) hereof or this
subparagraph (b)(2) would cause such Partner (hereinafter, a "Restricted
Partner") to have an Adjusted Capital Account Deficit as of the end of the
fiscal year to which such Net Loss relates, such Net Loss shall not be allocated
to such Restricted Partner and instead shall be allocated to the other
Partner(s) (hereinafter, the "Permitted Partners") pro rata in accordance with
their relative Percentage Interests.
(c) Notwithstanding Sections 1(a) and (b) above, on any date on which
any Series A Preferred Stock, any Series B Preferred Stock, any Series C
Preferred Stock, any Series D Preferred Stock, any Series E Preferred Stock or
any Series B Preferred Unit, any Series C Preferred Unit, any Series D Preferred
Unit or any Series E Preferred Unit (or other Preferred Stock or other Preferred
Units) is outstanding, Net Income and Net Loss shall be allocated as follows:
(1) Net Income for any fiscal year or other applicable period
shall be allocated in the following order and priority:
(i) First, to the Partners, until the cumulative Net Income
allocated pursuant to this subparagraph (c)(1)(i) for the current and all prior
periods equals the cumulative Net Loss allocated pursuant to subparagraphs
(c)(2)(iii) and (iv) hereof for all prior periods, among the Partners in the
reverse order that such Net Loss was allocated (and, in the
<PAGE>
event of a shift of a Partner's interest in the Partnership, to the Partners in
a manner that most equitably reflects the successors in interest to such
Partners);
(ii) Second, on pari passu basis to the General Partner and
the holders of the Series B Preferred Units, Series C Preferred Units, Series D
Preferred Units and Series E Preferred Units, until the cumulative Net Income
allocated pursuant to this subparagraph (c)(1)(ii) for the current and all prior
periods equals the cumulative Net Loss allocated pursuant to subparagraph
(c)(2)(ii) hereof for all prior periods;
(iii) Third, on a pari passu basis, to (A) the General
---- -----
Partner until the cumulative amount of Net Income allocated pursuant to this
subparagraph (c)(1)(iii) equals the total amount of dividends paid on the Series
A Preferred Stock, the Series B Preferred Stock the Series C Preferred Stock,
the Series D Preferred Stock and the Series E Preferred Stock (and other
Preferred Stock) as of or prior to the date of such allocation plus the total
amount of accrued but unpaid dividends on the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock (and other Preferred Stock) as of such
date; (B) to the holders of Series B Preferred Units until the cumulative amount
of Net Income allocated pursuant to this subparagraph (c)(i)(iii) equals the
total amount of Priority Return paid on the Series B Preferred Units as of or
prior to the date of such allocation plus the total amount of accrued but unpaid
Priority Return on the Series B Preferred Units; (C) to the holders of Series C
Preferred Units until the cumulative amount of Net Income allocated pursuant to
this subparagraph (c)(i)(iii) equals the total amount of Priority Return paid on
the Series C Preferred Units as of or prior to the date of such allocation plus
the total amount of accrued but unpaid Priority Return on the Series C Preferred
Units; (D) to the holders of Series D Preferred Units until the cumulative
amount of Net Income allocated pursuant to this subparagraph (c)(i)(iii) equals
the total amount of Priority Return paid on the Series D Preferred Units as of
or prior to the date of such allocation plus the total amount of accrued but
unpaid Priority Return on the Series D Preferred Units; and (E) to the holders
of Series E Preferred Units until the cumulative amount of Net Income allocated
pursuant to this subparagraph (c)(i)(iii) equals the total amount of Priority
Return paid on the Series E Preferred Units as of or prior to the date of such
allocation plus the total amount of accrued but unpaid Priority Return on the
Series E Preferred Units.
(iv) Thereafter, the balance of the Net Income, if any,
shall be allocated to the Partners in accordance with their respective
Percentage Interests.
(2) Net Loss of the Partnership for each fiscal year or other
applicable period shall be allocated as follows:
(i) First, to the Partners in accordance with their
respective Percentage Interests until the Capital Account balances of the
Limited Partners (not including the holders of the Series B Preferred Units, the
Series C Preferred Units, the Series D Preferred Units and the Series E
Preferred Units) are reduced to zero (for purpose of this calculation, such
Partners' share of Partnership Minimum Gain shall be added back to their Capital
Accounts);
(ii) Second, on a pari passu basis, to (A) the General
---- -----
Partner until its Capital Account balance has been reduced to zero (for purpose
of this calculation, such
<PAGE>
Partner's share of Partnership Minimum Gain shall be added back to its Capital
Account); (B) to the holders of Series B Preferred Units until their Capital
Account balances have been reduced to zero (for purpose of this calculation,
such Partners' share of Partnership Minimum Gain shall be added back to their
Capital Accounts); (C) to the holders of Series C Preferred Units until their
Capital Account balances have been reduced to zero (for purposes of this
calculation, such Partners' share of Partnership Minimum Gain shall be added
back to their Capital Accounts); (D) to the holders of Series D Preferred Units
until their Capital Account balances have been reduced to zero (for purposes of
this calculation, such Partners' share of Partnership Minimum Gain shall be
added back to their Capital Accounts); and (E) to the holders of Series E
Preferred Units until their Capital Account balances have been reduced to zero
(for purposes of this calculation, such Partners' share of Partnership Minimum
Gain shall be added back to their Capital Accounts);
(iii) Thereafter, to the Partners in accordance with their
then Percentage Interests;
(iv) Notwithstanding subparagraph (c)(2)(iii) hereof, to
the extent any Net Loss allocated to a Partner under subparagraph (c)(2) would
cause such Partner (hereinafter, a "Restricted Partner") to have an Adjusted
Capital Account Deficit as of the end of the fiscal year to which such Net Loss
relates, such Net Loss shall not be allocated to such Restricted Partner and
instead shall be allocated to the other Partner(s) (hereinafter, the "Permitted
Partners") pro rata in accordance with their relative Percentage Interests.
(d) Book-Up and Capital Account Adjustments. On any day on which
---------------------------------------
Series A Preferred Stock (or other Preferred Stock) is redeemed or converted
into Common Stock, the Partnership shall adjust the Gross Asset Values of all
Partnership assets to equal their respective gross fair market values and shall
allocate the amount of such adjustment as Net Income or Net Loss pursuant to
Section 1(c) hereof, provided, however, that if no Series A Preferred Stock (or
other Preferred Stock) is outstanding after such redemption or conversion, such
Net Income or Net Loss shall be allocated in such a manner that after such
allocation the Capital Accounts of the Partners are in proportion to their
Percentage Interests.
(e) Adjustment of Percentage Interests Upon Conversion of Convertible
-----------------------------------------------------------------
Preferred Stock to Common Stock. Upon the conversion of any Series A Preferred
- -------------------------------
Stock to Common Stock of the General Partner, the Percentage Interests of the
Partners shall be adjusted in accordance with the provisions of Article 4 of the
Partnership Agreement as if, on the date of such conversion, the General Partner
had made an additional Capital Contribution to the Partnership in an amount
equal to the number of shares of Common Stock issued as a result of such
conversion multiplied by the fair market value of such shares on the date of
conversion, and provided that in calculating such adjustments, the General
Partner shall be deemed not to have incurred any expenses in connection with
raising the funds used to make such additional Capital Contribution.
2. Special Allocations.
-------------------
Notwithstanding any provisions of paragraph 1 of this Exhibit E, the
following special allocations shall be made in the following order:
<PAGE>
(a) Minimum Gain Chargeback (Nonrecourse Liabilities). If there is a
-------------------------------------------------
net decrease in Partnership Minimum Gain for any Partnership fiscal year (except
as a result of conversion or refinancing of Partnership indebtedness, certain
capital contributions or revaluation of the Partnership property as further
outlined in Regulation Sections 1.704-2(d)(4), (f)(2) or (f)(3)), each Partner
shall be specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to that Partner's share
of the net decrease in Partnership Minimum Gain. The items to be so allocated
shall be determined in accordance with Regulation Section 1.7042(f). This
paragraph (a) is intended to comply with the minimum gain chargeback requirement
in said section of the Regulations and shall be interpreted consistently
therewith. Allocations pursuant to this paragraph (a) shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant hereto.
(b) Minimum Gain Attributable to Partner Nonrecourse Debt. If there
-----------------------------------------------------
is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt
during any fiscal year (other than due to the conversion, refinancing or other
change in the debt instrument causing it to become partially or wholly
nonrecourse, certain capital contributions, or certain revaluations of
Partnership property as further outlined in Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to that Partner's
share of the net decrease in the Minimum Gain Attributable to Partner
Nonrecourse Debt. The items to be so allocated shall be determined in
accordance with Regulation Section 1.704-2(i)(4) and (j)(2). This paragraph (b)
is intended to comply with the minimum gain chargeback requirement with respect
to Partner Nonrecourse Debt contained in said section of the Regulations and
shall be interpreted consistently therewith. Allocations pursuant to this
paragraph (b) shall be made in proportion to the respective amounts required to
be allocated to each Partner pursuant hereto.
(c) Qualified Income Offset. In the event a Limited Partner
-----------------------
unexpectedly receives any adjustments, allocations or distributions described in
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such Limited
Partner has an Adjusted Capital Account Deficit, items of Partnership income and
gain shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate the Adjusted Capital Account Deficit as quickly as
possible. This paragraph (c) is intended to constitute a "qualified income
offset" under Regulation Section 1.704-l(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
----------------------
year or other applicable period shall be allocated to the Partners in accordance
with their respective Percentage Interests.
(e) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
------------------------------
for any fiscal year or other applicable period shall be specially allocated to
the Partner that bears the economic risk of loss for the debt (i.e., the Partner
Nonrecourse Debt) in respect of which such Partner Nonrecourse Deductions are
attributable (as determined under Regulation Section 1.704-2(b)(4) and (i)(1)).
(f) Curative Allocations. It is the intent of the Partnership that,
--------------------
to the extent possible, the Capital Account balances of the Partners be in
proportion to the Partners' Percentage Interests. Thus, items of "book" income,
gain, loss, and deduction shall be allocated among the Partners so that, to the
extent possible, the resulting Partners' Capital Account
<PAGE>
balances bear this relationship. This subparagraph (f) is intended to minimize
to the extent possible and to the extent necessary any economic distortions
which may result from application of the Regulatory Allocations and shall be
interpreted in a manner consistent therewith. For purposes hereof, "Regulatory
Allocations" shall mean the allocations provided under paragraph 1(b)(2) and
this paragraph 2 (save subparagraphs (d) and (f) hereof).
3. Tax Allocations.
---------------
(a) Generally. Subject to paragraphs (b) and (c) hereof, items of
---------
income, gain, loss, deduction and credit to be allocated for income tax purposes
(collectively, "Tax Items") shall be allocated among the Partners on the same
basis as their respective book items.
(b) Sections 1245/1250 Recapture. If any portion of gain from the
----------------------------
sale of property is treated as gain which is ordinary income by virtue of the
application of Code Section 1245 or 1250 ("Affected Gain"), then (A) such
Affected Gain shall be allocated among the Partners in the same proportion that
the depreciation and amortization deductions giving rise to the Affected Gain
were allocated and (B) other Tax Items of gain of the same character that would
have been recognized, but for the application of Code Sections 1245 and/or 1250,
shall be allocated away from those Partners who are allocated Affected Gain
pursuant to Clause (A) so that, to the extent possible, the other Partners are
allocated the same amount, and type, of capital gain that would have been
allocated to them had Code Sections 1245 and/or 1250 not applied; provided,
however, that the net amount of Tax Items allocated to each Partner shall be the
same as if this paragraph 3(a) did not exist. For purposes hereof, in order to
determine the proportionate allocations of depreciation and amortization
deductions for each fiscal year or other applicable period, such deductions
shall be deemed allocated on the same basis as Net Income and Net Loss for such
respective period.
(c) Allocations Respecting Section 704(c) and Revaluations. If any
------------------------------------------------------
Partnership property is subject to Code Section 704(c) or is reflected in the
Capital Accounts of the Partners and on the books of the Partnership at a book
value that differs from the adjusted tax basis of such property, then the tax
items with respect to such property shall, in accordance with the requirements
of Regulations Section 1.704-1(b)(4)(i), be shared among the Partners in a
manner that takes account of the variation between the adjusted tax basis of the
applicable property and its book value in the same manner as variations between
the adjusted tax basis and fair market value of property contributed to the
Partnership are taken into account in determining the Partners' share of tax
items under Code Section 704(c). The General Partner is authorized to choose
any reasonable method permitted by the Regulations pursuant to Code Section
704(c), including the "remedial allocation" method, the "curative allocation"
method and the traditional method; provided that the General Partner agrees to
use reasonable efforts to minimize the amount of taxable income in excess of
book income allocated to the holders of the Series B Preferred Units, the Series
C Preferred Units, the Series D Preferred Units and the Series E Preferred
Units.
(d) Code Section 752 Specification. Pursuant to Regulations Section
------------------------------
1.752-3, the Partners' interest in Partnership profits for purposes of
determining the Partners' shares of excess nonrecourse liabilities shall be
their Percentage Interests.
<PAGE>
EXHIBIT M
ADDRESSES OF PARTNERS
PARTNERSHIP UNIT HOLDERS
------------------------
<TABLE>
<S> <C>
Essex Portfolio Management Company Essex Property Corporation
777 California Avenue 777 California Avenue
Palo Alto, CA 94304 Palo Alto, CA 94304
GMMS Partners M & M Projects, Inc.
777 California Avenue 777 California Avenue
Palo Alto, CA 94304 Palo Alto, CA 94304
SummerHill Homes Paula Amanda
777 California Avenue 1001 Bridgeway #460
Palo Alto, CA 94304 Sausalito, CA 94965
Robert and Margaret Arnold Randall I. Barkan
460 Marlowe 777 California Avenue
Palo Alto, CA 94301 Palo Alto, CA 94304
Belair Capital Fund LLC David Bernstein, Trustee
c/o Eaton Vance Management David Bernstein Revocable Trust
24 Federal Street 8773 Midnight Pass Road #406
Boston, Massachusetts 02110 Sarasota, FL 34242
Attention: Mr. Alan Dynner
Fax: 617-338-8054
Kenneth and Angeliki Frangadakis John D. and Robbin Eudy
10383 Torre Avenue 777 California Avenue
Cupertino, CA 95014 Palo Alto, CA 94304
Kenneth and Angeliki Frangadakis, Trustees George and Katherine Frangadakis, Trustees
Frangadakis Family Revocable Trust Frangadakis Family Revocable Trust
10383 Torre Avenue 7408 Fallenleaf Lane
Cupertino, CA 95014 Cupertino, CA 95014
Keith R. and Thelma Guericke Harvey Friedman
14341 Lutheria Way 720 Rochedale Way
Saratoga, CA 95070 Los Angeles, CA 90049
Gerald E. and Annette Kelly Harvey and Margaret Green
1517 Kalmia Street 12243 Huston Street
San Mateo, CA 94402 N. Hollywood, CA 91607
Charles E. Martin George P. Katsoulis
1001 Bridgeway # 134 3300 Webster Street #612
Sausalito, CA 94965 Oakland, CA 94609
J. Peter and Cherie Otten Nancy Kukkola
250 El Bonito Way 123 Greenmeadow Way
Millbrae, CA 94030 Palo Alto, CA 94306
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Gary and Elisa Pagonis, Trustees George M. Marcus
Gary Pagonis Family Trust 777 California Avenue
10383 Torre Avenue, Suite 1 Palo Alto, CA 94304
Cupertino, CA 95014
Michael and Ann Schall Herbert Meistrich
1544 Sioux Court 1320 W. Muirlands Drive
Fremont, CA 94539 La Jolla, CA 92037
William A. and Sherrie Millichap G. Michael Roark
2626 Hanover P.O. Box 2767
Palo Alto, CA 94304 Sausalito, CA 94966
Milton Pagonis Roger and Anita Swanson, Trustees
10383 Torre Avenue, Suite 1 Swanson Survivors Trust
Cupertino, CA 95014 889 Norfolk Pine Avenue
Sunnyvale, CA 94087
J.A. Shafran J. Lawrence Schnadig
30360 Morning View Drive 833 Moraga Drive #6
Malibu, CA 90265 Los Angeles, CA 90049
Linwood C. Thompson J.A. Shafran
Marcus & Millichap 30360 Morning View Drive
8750 W. Bryn Mawr #750 Malibu, CA 90265
Chicago, IL 60631
Gay A. Yamagiwa Stephen and Patricia Way, Trustees
341 Seville The Way 1994 Living Trust Dtd. 11/2/94
San Mateo, CA 94402 338 Georgetown Avenue
San Mateo, CA 94402
Belcrest Realty Corporation Craig K. Zimmerman
c/o Eaton Vance Management 409 Georgetown Avenue
The Eaton Vance Building San Mateo, CA 94402
255 State Street
Boston, MA 02109
Attn: Mr. Alan Dynner
Belair Real Estate Corporation 280 Euclid Properties, Ltd.
c/o Eaton Vance Management c/o Richard J. Lauter & Company
The Eaton Vance Building 11801 Washington Boulevard
255 State Street Los Angeles, CA 90066
Boston, MA 02109
Attn: Mr. Alan Dynner
El Molino Properties, Ltd. TMCT II, LLC
c/o Richard J. Lauter & Company c/o The Times Mirror Company
11801 Washington Boulevard its managing member
Los Angeles, CA 90066 220 West First Street, 6th Floor
Los Angeles, CA 90012
</TABLE>
<PAGE>
EXHIBIT Q
DESCRIPTION OF PREFERENCES, OTHER RIGHTS, VOTING POWERS,
RESTRICTIONS, LIMITATIONS AS TO DISTRIBUTIONS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION
OF THE SERIES E PREFERRED UNITS
1. Definitions.
In addition to those terms defined in the Agreement, the following
definitions shall be for all purposes, unless otherwise clearly indicated to the
contrary, applied to the terms used in the Agreement and this Exhibit P:
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York, New
York are not required to be open.
"Distribution Payment Date" shall have the meaning set forth in
Section 2(C) hereof.
"Parity Units" means (i) the Series A Preferred Interest, (ii) the
Series B Preferred Interest, (iii) the Series C Preferred Interest, (iv) the
Series D Preferred Interest; (v) the Series E Preferred Interest and (vi) any
class or series of Partnership Interests of the Partnership now or hereafter
authorized, issued or outstanding expressly designated by the Partnership to
rank on a parity with Series E Preferred Units with respect to distributions or
rights upon voluntary or involuntary liquidation, winding-up or dissolution of
the Partnership, or both, as the context may require.
"Priority Return" means, an amount equal to 9.25% per annum,
determined on the basis of a 360 day year of twelve 30 day months (and for any
period shorter than a full quarterly period for which distributions are
computed, the amount of distribution payable will be computed based on the ratio
of the actual number of days elapsed in such quarterly period to ninety (90)
days), cumulative to the extent not distributed for any given distribution
period pursuant to Section 6.2(a) of the Partnership Agreement, of the stated
value of $25.00 per Series E Preferred Unit, commencing on the date of issuance
of the Series E Preferred Units.
"Series E Preferred Stock" means the 9.25% Series E Cumulative
Redeemable Preferred Stock (liquidation preference $25.00 per share), $.0001 par
value, issued by the General Partner.
"Series E Preferred Unit" means a Partnership Unit issued by the
Partnership to certain Persons. The Series E Partnership Units shall constitute
a series of Partnership Units. The Series E Preferred Units shall have the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms and conditions of
redemption as are set forth in this Exhibit Q.
<PAGE>
"Set apart for payment" shall mean irrevocably placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
2. Terms of Series E Preferred Units.
A. Number. The number of authorized Series E Preferred Units shall be
------
2,200,000.
B. Ranking. The Series E Preferred Units will, with respect to
-------
distributions and rights upon voluntary or involuntary liquidation, winding-up
or dissolution of the Partnership, rank senior to all classes or series of
Partnership Interests (as defined in the Partnership Agreement) of the
Partnership now or hereafter authorized, issued or outstanding, other than (i)
the Series A Preferred Interest, the Series B Preferred Interest, the Series C
Preferred Interest, the Series D Preferred Interest, and the Series E Preferred
Interest, with which it shall rank on a parity, and (ii) any class or series of
Partnership Interests or Partnership Units expressly designated as ranking on a
parity with or senior to the Series A Preferred Units, Series B Preferred Units,
Series C Preferred Units, Series D Preferred Units, and the Series E Preferred
Units as to distributions and rights upon voluntary or involuntary liquidation,
winding-up or dissolution of the Partnership.
C. Distributions.
-------------
(i) Subject to the rights of the holders of the Parity Units as
to the payments of distributions, holders of Series E Preferred Units will
be entitled to receive, when, as and if declared by the Partnership, acting
through the Company as the sole general partner of the Partnership,
cumulative preferential cash distributions at the rate per annum of 9.25%
of the original Capital Contribution per Series E Preferred Unit.
Distributions shall be cumulative, shall accrue from the original date of
issuance (the "Issue Date") and shall be payable (A) quarterly in arrears
(such quarterly periods, for purposes of payment and accrual shall be the
quarterly periods ending on the dates specified in this sentence and not
calendar quarters), on the 1st day of March, June, September and December
of each year, commencing on December 1, 1999 and (B) in the event of (i) an
exchange of Series E Preferred Units into shares of Series E Preferred
Stock, or (ii) upon a redemption of Series E Preferred Units, on the
exchange date or redemption date (each a "Distribution Payment Date"). The
amount of distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months and for any period shorter
than a full quarterly period for which distributions are computed, the
amount of the distribution payable will be computed based on the ratio of
the actual number of days elapsed in such quarterly period to ninety (90)
days. If any date on which distributions are to be made on the Series E
Preferred Units is not a Business Day, then payment of the distribution to
be made on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on
such date. Distributions on the Series E Preferred Units will be made to
the holders of record of the Series E Preferred Units on the relevant
record dates, which, unless otherwise provided by the Company
<PAGE>
with respect to any distribution, will be 15 Business Days prior to the
relevant Distribution Payment Date.
(ii) No distributions on the Series E Preferred Units shall be
declared or paid or set apart for payment by the Partnership at such time
as the terms and provisions of any agreement of the Partnership, including
any agreement relating to its indebtedness, prohibits such declaration,
payment or setting apart for payment or provides that such declaration,
payment or setting apart for payment would constitute a breach thereof or a
default thereunder, of if such declaration, payment or setting apart for
payment shall be restricted or prohibited by law.
(iii) Notwithstanding the foregoing, distributions on the Series
E Preferred Units will accrue whether or not the terms and provisions set
forth in Section 2.C(ii) hereof at any time prohibit the current payment of
distributions, whether or not the Company or Partnership has earnings,
whether or not there are funds legally available for the payment of such
distributions and whether or not such distributions are authorized.
Accrued but unpaid distributions on the Series E Preferred Units will
accumulate as of the Distribution Payment Date on which they first become
payable. Accumulated and unpaid distributions will not bear interest.
(iv) So long as any Series E Preferred Unit is outstanding, no
distribution of cash or other property shall be authorized, declared, paid
or set apart for payment on or with respect to any class or series of
Partnership Interests ranking junior to the Series E Preferred Units as
provided in this Section 2 (such Partnership Interests, collectively,
"Junior Units"), nor shall any cash or other property be set aside for or
applied to the purchase, redemption or other acquisition for consideration
of any Series E Preferred Units, any Parity Units with respect to
distributions or any Junior Units, unless, in each case, all distributions
accumulated on all Series E Preferred Units and all classes and series of
outstanding Parity Units as to payment of distributions have been paid in
full. The foregoing sentence will not prohibit (i) distributions payable
solely in Junior Units, (ii) the exchange of Junior Units or Parity Units
into Common Stock or Preferred Stock of the Company in accordance with the
exchange rights of such Junior Units or Parity Units, or (iii) the
redemption, purchase or other acquisition of Junior Units made for purposes
of and in compliance with requirements of an employee incentive or benefit
plan of the Company or any subsidiary of the Partnership or the Company.
(v) So long as distributions have not been paid in full (or a sum
sufficient for such full payment is not so set apart for payment) upon the
Series E Preferred Units, all distributions authorized and declared on the
Series E Preferred Units and all classes or series of outstanding Parity
Units shall be authorized and declared so that the amount of distributions
authorized and declared per share of Series E Preferred Units and such
other classes or series of Parity Units shall in all cases bear to each
other the same ratio that accrued distributions per share on the Series E
Preferred Units and such other classes or series of Parity Units (which
shall not include any accumulation in respect of unpaid distributions for
prior distribution periods if such class or series of Parity Units do not
have cumulative distribution rights) bear to each other.
<PAGE>
(vi) Holders of Series E Preferred Units shall not be entitled to
any distributions, whether payable in cash, other property or otherwise, in
excess of the full cumulative distributions described herein.
D. Allocation of Net Income.
------------------------
With respect to the Series E Preferred Units, the net income of
the Partnership will be allocated as provided in Exhibit E to the
Partnership Agreement.
E. Liquidation.
-----------
Subject to the rights of holders of any series of Parity Units
with respect to rights upon any voluntary or involuntary liquidation
dissolution or winding-up of the Partnership, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Partnership, the
holders of the Series E Preferred Units will be entitled to receive out of
the assets of the Partnership legally available for distribution or the
proceeds thereof, after payment or provision for debts and other
liabilities of the Partnership, an amount equal to their respective Capital
Account balances. Written notice of any such voluntary or involuntary
liquidation, dissolution or winding-up of the Partnership, stating the
payment date or dates when, and the place or places where, the amounts
distributable in such circumstances shall be payable, shall be given by (i)
fax and (ii) by first class mail, postage pre-paid, not less than 30 and
not more than 60 days prior to the payment date stated therein, to each
record holder of the Series E Preferred Units at the respective addresses
of such holders as the same shall appear on the transfer records of the
Partnership. Without limiting Section 2.I hereof, the consolidation or
merger of the Partnership with or into any corporation, trust or other
entity (or of any corporation, trust or other entity with or into the
Partnership) shall not be deemed to constitute a liquidation, dissolution,
winding-up or termination of the Partnership.
F. Optional Redemption.
-------------------
(i) The Series E Preferred Units may not be redeemed prior to
September 3, 2004. On or after such date, subject to the terms and
conditions of any Parity Preferred Stock or any Parity Units, the
Partnership shall have the right to redeem the Series E Preferred Units, in
whole or in part, from time to time, upon not less than 30 nor more than 60
written days' notice, at a redemption price, payable in cash, equal to the
Capital Account balance of such holders of Series E Preferred Units (the
"Redemption Price"); provided; however that such redemption shall not be
permitted if such Redemption Price shall be less than the original Capital
Contribution of such Partner and the cumulative Priority Return to the
redemption date to the extent not previously distributed.
(ii) Except in connection with a liquidation, dissolution,
winding-up or termination of the Partnership as described under
"Liquidation" above, the Redemption Price of the Series E Preferred Units
(other than the portion thereof consisting of accumulated but unpaid
distributions) will be payable solely out of the sale proceeds of capital
stock of the Company, which will be contributed by the Company to the
<PAGE>
Partnership as an additional capital contribution, or out of the sale
proceeds of limited partner interests of the Partnership and from no other
source. For purposes of the preceding sentence, "capital stock" means any
equity securities (including Common Stock and Preferred Stock (as such
terms are defined in the Charter)), shares, participation or other
ownership interests (however designated) and any rights (other than debt
securities convertible into or exchangeable for equity securities) or
options to purchase any of the foregoing. Unless previously redeemed, the
Series E Preferred Units will be redeemed for cash upon termination of the
Partnership. Unless sooner dissolved, the Partnership will terminate on
December 31, 2054. The Series E Preferred Units will not be subject to any
sinking fund.
(iii) If the Partnership gives a notice of redemption in respect
of Series E Preferred Units (which notice will be irrevocable) then, by
12:00 noon, New York City time, on the redemption date, the Partnership
will deposit irrevocably in trust for the benefit of the Series E Preferred
Units being redeemed funds sufficient to pay the applicable Redemption
Price and will give irrevocable instructions and authority to pay such
Redemption Price to the holders of the Series E Preferred Units. If the
Series E Preferred Units are evidenced by a certificate and if fewer than
all Series E Preferred Units evidenced by any certificate are being
redeemed, a new certificate shall be issued upon surrender of the
certificate evidencing all Series E Preferred Units, evidencing the
unredeemed Series E Preferred Units without cost to the holder thereof. On
and after the date of redemption, distributions will cease to accumulate on
the Series E Preferred Units or portions thereof called for redemption,
unless the Partnership defaults in the payment thereof. If any date fixed
for redemption of Series E Preferred Units is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business
Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date fixed for redemption. If payment of the
Redemption Price in respect of the Series E Preferred Units is improperly
withheld or refused and not paid by the Partnership, distributions on such
Series E Preferred Units will continue to accumulate from the original
redemption date to the date of payment, in which case the actual payment
date will be considered the date fixed for redemption for purposes of
calculating the applicable Redemption Price. If fewer than all the Series
E Preferred Units are to be redeemed, the Series E Preferred Units to be
redeemed shall be selected pro rata (as nearly as practicable without
creating fractional units).
(iv) The Partnership may not redeem fewer than all the
outstanding Series E Preferred Units unless all accumulated and unpaid
distributions have been paid on all Series E Preferred Units for all
quarterly distribution periods terminating on or prior to the date of
redemption.
(v) Notice of redemption will be (i) faxed, and (ii) mailed by
the Partnership, postage prepaid, not less than 30 nor more than 60 days
prior to the redemption date, addressed to the respective holders of record
of the Series E Preferred Units to be redeemed at their respective
addresses as they appear on the transfer records
<PAGE>
of the Partnership. No failure to give or defect in such notice shall
affect the validity of the proceedings for the redemption of any Series E
Preferred Units except as to the holders to whom notice was defective or
not given. Each notice shall state: (i) the redemption date, (ii) the
Redemption Price, (iii) the aggregate number of Series E Preferred Units to
be redeemed; (iv) the place or places where the Series E Preferred Units
are to be surrendered for payment of the Redemption Price; (v) that
distributions on the Series E Preferred Units to be redeemed will cease to
accumulate on such redemption date and (vi) that payment of the Redemption
Price will be made upon presentation and surrender of such Series E
Preferred Units. If fewer than all of the Series E Preferred Units held by
any holder are to be redeemed, the notice mailed to such holder shall also
specify then number of Series E Preferred Units to be redeemed from such
holder.
G. Exchange Rights.
---------------
(i) Unless called for redemption as described above under
"Optional Redemption," Series E Preferred Units will be exchangeable in
whole or in part at anytime on or after the tenth anniversary of the Issue
Date, at the option of the holders thereof, for authorized but previously
unissued shares of the Company's Series E Preferred Stock at an exchange
price of $25.00 per share of Series E Preferred Stock (equivalent to an
exchange rate of one share of Series E Preferred Stock for each Series E
Preferred Unit), subject to adjustment as described below (the "Exchange
Price"), provided that the Series E Preferred Units will become immediately
exchangeable at any time in whole or in part at the option of the holders
for Series E Preferred Units:
(y) if at any time full distributions shall not have been timely
made on any outstanding Series E Preferred Units with respect to any six
(6) prior quarterly distribution periods, whether or not consecutive,
provided, however, that a distribution in respect of Series E Preferred
Units shall be considered timely made if made within two (2) Business Days
after the applicable Distribution Payment Date if at the time of such
payment there shall not be any prior quarterly distribution periods in
respect of which full distributions were not timely made or
(z) upon receipt by holders of Series E Preferred Units of (A)
notice from the General Partner that the General Partner or a subsidiary of
the General Partner has become aware of facts that will or likely will
cause the Partnership to become a "publicly traded partnership" (a "PTP")
within the meaning of Section 7704 of the Internal Revenue Code of 1986, as
amended, and (B) an opinion rendered by independent counsel to the General
Partner familiar with such matter (or, in the event of a conflict, other
reputable independent counsel designated by such General Partner counsel),
addressed to a holder or holders of Series E Preferred Units, that the
Partnership is, or likely is, or upon the occurrence of a defined event in
the immediate future will be or likely will be, a PTP.
Series E Preferred Units may be exchanged for Series E Preferred
Stock in whole or in part at the option of any holder prior to the tenth
anniversary of the Issue Date and after the third anniversary thereof if
such holder delivers to the Partnership and the Company either (i) a
private letter ruling addressed to a holder of Series E Preferred
<PAGE>
Units or (ii) an opinion of independent counsel reasonably acceptable to
the Company based on the enactment of temporary or final Treasury
Regulations or the publication of a Revenue Ruling, in either case to the
effect that an exchange of the Series E Preferred Units at such earlier
time would not cause the Series E Preferred Units to be considered "stock
and securities" within the meaning of section 351(e) of the Code for
purposes of determining whether the holder of such Series E Preferred Units
is an "investment company" under section 721(b) of the Code if an exchange
is permitted at such earlier date.
The Series E Preferred Units will become exchangeable in whole or
in part at the option of the holders of the Series E Preferred Units if, at
any time such holders conclude based on results or projected results that
there exists (in the reasonable judgment of such holders) an imminent and
substantial risk that such holders' interest in the Partnership represents
or will represent more than 19.0% of the total profits of or capital
interests in the Partnership for a taxable year, (ii) such holders deliver
to the General Partner an opinion of nationally recognized independent
counsel, reasonably acceptable to the General Partner to the effect that
there is a substantial risk that their interest in the Partnership does not
or will not satisfy the 19.0% limit and (iii) the General Partner agrees
with the conclusions referred to in clauses (i) and (ii) of this sentence,
such agreement not to be unreasonably withheld.
(ii) Notwithstanding anything to the contrary set forth in
2.G(i), if an Exchange Notice (as defined herein) has been delivered to the
General Partner, then the General Partner may, at its option, elect to
redeem or cause the Partnership to redeem all or a portion of the
outstanding Series E Preferred Units for cash in an amount equal to the
original Capital Contribution per Series E Preferred Unit and all accrued
and unpaid distributions thereon to the date of redemption. The General
Partner may exercise its option to redeem the Series E Preferred Units for
cash pursuant to this 2.G(ii) by giving each holder of record of Series E
Preferred Units notice of its election to redeem for cash, within fifteen
(15) Business Days after receipt of the Exchange Notice, by (i) fax, and
(ii) registered mail, postage paid, at the address of each holder as it may
appear on the records of the Partnership stating (i) the redemption date,
which shall be no later than sixty (60) days following the receipt of the
Exchange Notice, (ii) the Redemption Price, (iii) the place or places where
the Series E Preferred Units are to be surrendered for payment of the
Redemption Price, (iv) that distributions on the Series E Preferred Units
will cease to accrue on such redemption date; (v) that payment of the
Redemption Price will be made upon presentation and surrender of the Series
E Preferred Units and (vi) the aggregate number of Series E Preferred Units
to be redeemed, and if fewer than all of the outstanding Series E Preferred
Units are to be redeemed, the number of Series E Preferred Units to be
redeemed held by such holder, which number shall equal such holder's pro
rata share (based on the percentage of the aggregate number of outstanding
Series E Preferred Units the total number of Series E Preferred Units held
by such holder represents) of the aggregate number of Series E Preferred
Units being redeemed. The redemption of Series E Preferred Units described
in this Section 2.G(iii) shall be subject to the provisions of Section
2.F.(ii) and (iii); provided, however, that the term "Redemption Price" in
such Sections shall be read to mean the original Capital
<PAGE>
Contribution per Series E Preferred Unit being redeemed plus all accrued
and unpaid distributions to the redemption date.
(iii) In the event an exchange of all or a portion of the Series
E Preferred Units pursuant to Section 2.G(i) would violate the Ownership
Limit of the General Partner set forth in Article EIGHTH of the Charter,
the General Partner will give written notice thereof to each holder of
record of Series E Preferred Units exercising such exchange right, within
fifteen (15) Business Days following receipt of the Exchange Notice, by (i)
fax, and (ii) mail, postage prepaid, at the address of each such holder set
forth in the records of the Partnership. In such event, each holder of
Series E Preferred Units exercising its exchange right, shall be entitled
to exchange a number of Series E Preferred Units which would comply with
the Ownership Limit of the General Partner set forth in Article EIGHTH of
the Charter and any Series E Preferred Units not so exchanged (the "Excess
Units") shall be redeemed by the Partnership for cash in an amount equal to
the original Capital Contribution per Excess Unit, plus any accrued and
unpaid distributions thereon to the date of redemption. The written notice
of the General Partner shall state (i) the number of Excess Units held by
such holder, (ii) the Redemption Price of the Excess Units, (iii) the date
on which such Excess Units shall be redeemed, which date shall be no later
than ninety (90) days following the receipt of the Exchange Notice, except
as provided below, (iv) the place or places where such Excess Units are to
be surrendered for payment of the Redemption Price, (iv) that distributions
on the Excess Units will cease to accrue on such redemption date, and (v)
that payment of the Redemption Price will be made upon presentation and
surrender of such Excess Units. The redemption of Series E Preferred Units
described in this Section 2.G(iii) shall be subject to the provisions of
Section 2.F(ii) and (iii); provided, however, that the term "Redemption
Price" in such Sections shall be read to mean the original Capital
Contribution per Series E Preferred Unit being redeemed plus all accrued
and unpaid distributions to the redemption date. The Partnership may at
its option delay the payment of cash to effect redemption of Series E
Preferred Units pursuant to this Section 2.G(iii) for up to two hundred
seventy (270) days following the end of the 90 day period set forth in
clause (iii) above of this Section 2.G(iii), provided that during such two
hundred seventy (270) day period, the General Partner shall pay, in
addition to the Redemption Price of the Excess Units and any accrued and
unpaid distribution with respect to the Excess Units, to the holder of such
Excess Units an amount equal to 1 1/4% per annum of the original Capital
Contribution per such Excess Unit from the end of such 90 day period
through the date of redemption.
To the extent the General Partner would not be able to pay the
cash set forth above in exchange for the Excess Units, and to the extent
consistent with the Charter, the General Partner agrees that it will grant
to the holders of the Series E Preferred Units exceptions to the Beneficial
Ownership Limit and Constructive Ownership Limit set forth in the Charter
sufficient to allow such holders to exchange all of their Series E
Preferred Units for Series E Preferred Stock, provided such holders furnish
to the General Partner representations acceptable to the General Partner in
its sole and absolute discretion which assure the General Partner that such
exceptions will not jeopardize the General Partner's tax status as a REIT
for purposes of federal and applicable state law.
<PAGE>
(iv) Any exchange shall be exercised pursuant to a notice of
exchange (the "Exchange Notice") delivered to the General Partner by the
holder who is exercising such exchange right, by (i) fax, and (ii) by mail,
postage prepaid. The exchange of Series E Preferred Units, or a specified
portion thereof, may be effected after the fifteenth (15th) Business Day
following receipt by the General Partner of the Exchange Notice by
delivering certificates, if any, representing such Series E Preferred Units
to be exchanged together with written notice of exchange and a proper
assignment of such Series E Preferred Units to the office of the Company
maintained for such purpose. Currently, such office is Essex Property
Trust, Inc., 925 E. Meadow Drive, Palo Alto, California 94303.
(v) Each exchange will be deemed to have been effected
immediately prior to the close of business on the date on which such Series
E Preferred Units to be exchanged (together with all required
documentation) shall have been surrendered and notice shall have been
received by the Company as aforesaid and the exchange shall be at the
Exchange Price in effect at such time and on such date. The right to
exchange Series E Preferred Units called for redemption will terminate upon
receipt by the holder of such Series E Preferred Units of a notice of
redemption from the Partnership that pertains to such Series E Preferred
Units.
(vi) In the event of an exchange of Series E Preferred Units into
shares of Series E Preferred Stock, an amount equal to the accrued and
unpaid distributions to the date of exchange on any Series E Preferred
Units tendered for exchange shall accrue on the shares of the Series E
Preferred Stock into which such Series E Preferred Units are exchanged and
the Series E Preferred Units so exchanged shall no longer be outstanding.
(vii) Fractional shares of Series E Preferred Stock are not to
be issued upon exchange but, in lieu thereof, the Company will pay a cash
adjustment based upon the fair market value of the Series E Preferred Stock
on the day prior to the exchange date as determined in good faith by the
Board of Directors of the Company.
H. Exchange Price Adjustments.
--------------------------
(i) The Exchange Price is subject to adjustment upon certain
events, including (i) subdivisions, combinations and reclassification of
the Series E Preferred Stock, and (ii) distributions to all holders of
Series E Preferred Stock of evidences of indebtedness of the Company or
assets (including securities, but excluding dividends and distributions
paid in cash out of equity applicable to the Series E Preferred Stock).
(ii) In case the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, statutory share
exchange, tender offer for all or substantially all of the Company's
capital stock or sale of all or substantially all of the Company's assets),
in each case as a result of which the Series E Preferred Stock will be
converted into the right to receive shares of capital stock, other
securities or other property (including cash or any combination thereof),
each Series E Preferred Unit, will thereafter be exchangeable into the kind
and amount of shares of capital stock and other securities and property
receivable (including cash or any combination thereof) upon the
<PAGE>
consummation of such transaction by a holder of that number of shares of
Series E Preferred Stock or fraction thereof into which one Series E
Preferred Unit was exchangeable immediately prior to such transaction. The
Company may not become a party to any such transaction unless the terms
thereof are consistent with the foregoing.
(iii) No adjustment of the Exchange Price is required to be made
in any case until cumulative adjustments amount to 1% or more of the
Exchange Price. Any adjustments not so required to be made will be carried
forward and taken into subsequent adjustments.
I. Voting Rights.
-------------
(i) Holders of the Series E Preferred Units will not have any
voting rights or rights to consent to any matters, except as set forth
below.
(ii) So long as any Series E Preferred Units remains outstanding,
the Partnership shall not, without the affirmative vote of the holders
(other than the General Partner) of at least two-thirds (2/3) of the Series
E Preferred Units outstanding at the time (i) authorize or create, or
increase the authorized or issued amount of, any class or series of
Partnership Interests ranking prior to the Series E Preferred Units with
respect to payment of distributions or rights upon liquidation, dissolution
or winding-up or reclassify any Partnership Interests of the Partnership
into any such Partnership Interest, or create, authorize or issue any
obligations or security convertible into or evidencing the right to
purchase any such Partnership Interest, (ii) amend, alter or repeal the
provisions of the Partnership Agreement, whether by merger, consolidation
or otherwise, that would materially and adversely affect the powers,
special rights, preferences, privileges or voting power of the Series E
Preferred Units or the holders thereof, provided that any increase in the
amount of Partnership Interests or the creation or issuance of any other
class or series of Partnership Interests ranking junior to or on a parity
with the Series E Preferred Units with respect to payment of distributions
and the distribution of assets upon liquidation, dissolution or winding up
shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers; provided that, with respect to
Parity Preferred Units issued to any "affiliate" of the Partnership (as
such term is defined in Rule 144 of the General Rules and Regulations under
the Securities Act of 1933), such Parity Preferred Units are issued in
connection with a larger issuance to non-affiliates of Parity Preferred
Units of the same series and with the same terms as such Parity Preferred
Units, or (iii) consolidate, amalgamate, merge into or with, or convey,
transfer or lease its assets substantially as an entirety to, any General
Partner or other entity, unless (a) the Partnership is the surviving entity
and the Series E Preferred Units remain outstanding with the terms thereof
unchanged or, (b) the resulting surviving or transferee entity is a
partnership, limited liability company or other pass-through entity
organized under the laws of any state and substitutes the Series E
Preferred Units for other interests in such entity having substantially the
same terms and rights as the Series E Preferred Units, including with
respect to distributions, voting rights and rights upon liquidation,
dissolution or winding-up, or (c) such merger, consolidation, amalgamation
or asset transfer does not adversely affect the powers, special rights,
preferences and privileges of the holders of the Series E Preferred Units
in any material
<PAGE>
respect. However, the Partnership may create additional classes and series
of Parity Units and Junior Units, increase the authorized number of Parity
Units and Junior Units and issue additional classes and series of Parity
Units and Junior Units without the consent of any holders of the Series E
Preferred Units; provided that, with respect to Parity Preferred Units
issued to any "affiliate" of the Partnership (as such term is defined in
Rule 144 of the General Rules and Regulations under the Securities Act of
1933), such Parity Preferred Units are issued in connection with a larger
issuance to non-affiliates of Parity Preferred Units of the same series and
with the same terms as such Parity Preferred Units.
While any Series E Preferred Units are outstanding, the General
Partner shall not take any action that under Section 6(c) of the Series E
Articles Supplementary requires the affirmative vote of the holders of at
least two-thirds (2/3) of the outstanding shares and/or units (voting as a
single class and on an as-exchanged for Series E Preferred Stock basis)
comprising the Series E Preferred Stock and/or Series E Preferred Units
unless it has obtained such requisite vote of the Series Preferred Stock
and Series E Preferred Units.
In addition to the foregoing, the Partnership will not enter into
any contract, mortgage, loan or other agreement that directly prohibits or
restricts the ability of a Series E Limited Partner to exercise its rights
set forth herein to effect in full an exchange or redemption pursuant to
Section 2(G), except with the affirmative vote of the holders (other than
the General Partner) of at least two-thirds (2/3) of the Series E Preferred
Units outstanding at that time.
J. Restrictions on Ownership and Transfer.
--------------------------------------
Each holder of the Series E Preferred Units shall be permitted to
transfer its Series E Preferred Units if such transfer is in accordance
with the provisions and restrictions on Transfers of Limited Partnership
Interests set forth in Sections 9.2(b) and 9.3 (other than 9.3(ii)) of the
Partnership Agreement; provided, however, that upon any Transfer by a
holder of Series E Preferred Units to any Controlled Entity, such
transferee shall, subject to compliance with Section 9.3 and clauses (A),
(B) and (D) of Section 9.2 of the Partnership Agreement, be admitted as a
Substituted Limited Partner.
No transfer of the Series E Preferred Units is permitted without
the consent of the General Partner, which consent may be given or withheld
in its sole and absolute discretion, if such transfer would result in more
than four (4) partners holding all outstanding Series E Preferred Units
within the meaning of Treasury Regulation Section 1.7704-1(h)(1)(ii);
provided, however, that the General Partner's consent may not be
unreasonably withheld if (a) the General Partner has received reasonable
prior notice of the proposed transfer, (b) such transfer would not result
in more than four (4) partners holding all outstanding Series E Preferred
Units within the meaning of such Treasury Regulation Sections and (c) the
General Partner is relying on a provision other than Treasury Regulation
Section 1.7704-1(h) to avoid classification of Operating Partnership as a
PTP. In addition, no transfer may be made to any person if such transfer
would cause the exchange of the Series E Preferred Units for Series E
Preferred Stock, as
<PAGE>
provided herein, to be required to be registered under the Securities Act,
or any state securities laws. Notwithstanding anything in this Agreement to
the contrary, the Series E Preferred Units shall be freely transferable to
LLC, which shall upon such transfer be admitted as a limited partner
hereunder.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Essex
Property Trust, Inc. report for the nine months ended September 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 21,160
<SECURITIES> 0
<RECEIVABLES> 30,971
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,740
<PP&E> 1,146,329
<DEPRECIATION> 92,774
<TOTAL-ASSETS> 1,129,526
<CURRENT-LIABILITIES> 64,462
<BONDS> 436,663
0
1
<COMMON> 2
<OTHER-SE> 384,413
<TOTAL-LIABILITY-AND-EQUITY> 1,129,526
<SALES> 0
<TOTAL-REVENUES> 106,535
<CGS> 0
<TOTAL-COSTS> 49,704
<OTHER-EXPENSES> 3,633
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,744
<INCOME-PRETAX> 37,454
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,454
<DISCONTINUED> 0
<EXTRAORDINARY> 90
<CHANGES> 0
<NET-INCOME> 30,405
<EPS-BASIC> 1.68
<EPS-DILUTED> 1.64
</TABLE>
