Item 6. Selected Financial Data

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Item 6. Selected Financial Data

The following tables set forth summary financial and operating information for the Company and the Operating Partnership from January 1, 2010 through December 31, 2014.

Essex Property Trust, Inc. and Subsidiaries



	Years Ended December 31,
	2014		2013		2012		2011		2010
	($ in thousands, except per share amounts)
OPERATING DATA:
Rental and other property	$	959,958	$	602,003	$	526,696	$	460,660	$	400,841
Management and other fees from affiliates(1)	9,347		7,263		8,457		5,428		3,836

Income before discontinued operations	$	134,438	$	140,882	$	127,653	$	46,958	$	47,424
Income from discontinued operations	—		31,173		11,937		10,558		3,358
Net income	134,438		172,055		139,590		57,516		50,782
Net income available to common stockholders	$	116,859	$	150,811	$	119,812	$	40,368	$	33,764
Per share data:
Basic:
Income before discontinued operations available to common stockholders	$	2.07	$	3.26	$	3.10	$	0.94	$	1.03
Net income available to common stockholders	$	2.07	$	4.05	$	3.42	$	1.24	$	1.14
Weighted average common stock outstanding	56,547		37,249		35,032		32,542		29,667
Diluted:
Income before discontinued operations available to common stockholders	$	2.06	$	3.25	$	3.09	$	0.94	$	1.03
Net income available to common stockholders	$	2.06	$	4.04	$	3.41	$	1.24	$	1.14
Weighted average common stock outstanding	56,697		37,335		35,125		32,629		29,734
Cash dividend per common share	$	5.11	$	4.84	$	4.40	$	4.16	$	4.13


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



	As of December 31,
	2014		2013		2012		2011		2010
	($ in thousands)
BALANCE SHEET DATA:
Investment in rental properties (before accumulated depreciation)	$	11,252,511	$	5,443,757	$	5,033,672	$	4,313,064	$	3,964,561
Net investment in rental properties	9,687,705		4,188,871		3,952,155		3,393,038		3,189,008
Real estate under development	434,371		50,430		66,851		44,280		217,531
Co-investments	1,036,411		677,133		571,345		383,412		107,840
Total assets	11,562,874		5,186,839		4,847,223		4,036,964		3,732,887
Total secured indebtedness	2,245,944		1,404,080		1,565,599		1,745,858		2,082,745
Total unsecured indebtedness	2,863,873		1,629,444		1,253,084		615,000		176,000
Redeemable noncontrolling interest	23,256		—		—		—		—
Cumulative convertible preferred stock	—		4,349		4,349		4,349		4,349
Cumulative redeemable preferred stock	73,750		73,750		73,750		73,750		25,000
Stockholders' equity	6,022,672		1,884,619		1,764,804		1,437,527		1,149,946



	As of and for the years ended December 31,
	2014			2013			2012			2011			2010
	($ in thousands, except per share amounts)
OTHER DATA:
Funds from operations (FFO)(1):
Net income available to common stockholders	$	116,859		$	150,811		$	119,812		$	40,368		$	33,764
Adjustments:
Depreciation and amortization	360,592			193,518			170,686			152,543			129,711
Gains not included in FFO, net of internal disposition costs	(50,064		)	(67,975		)	(60,842		)	(7,543		)	—
Depreciation add back from unconsolidated co-investments and other, net	37,555			23,377			21,194			14,804			7,893
Funds from operations	$	464,942		$	299,731		$	250,850		$	200,172		$	171,368
Non-core items:
Loss on early retirement of debt	268			300			5,009			1,163			—
Merger and acquisition costs	55,408			5,445			2,255			1,231			1,250
Gain on sale of marketable securities and note prepayment	(886		)	(2,519		)	(819		)	(4,956		)	(12,491		)
Co-investment promote income	(10,640		)	—			(2,299		)	—			(500		)
Income from early redemption of preferred equity investments	(5,250		)	(1,358		)	—			—			—
Other items, net (2)	(681		)	(1,503		)	—			(831		)	1,168
Core funds from operations (Core FFO)	$	503,161		$	300,096		$	254,996		$	196,779		$	160,795
Weighted average number of shares outstanding, diluted (FFO)(3)	58,921			39,501			37,378			34,861			32,028
Funds from operations per share - diluted	$	7.89		$	7.59		$	6.71		$	5.74		$	5.35
Core funds from operations per share - diluted	$	8.54		$	7.60		$	6.82		$	5.64		$	5.02


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

(1)

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

FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor does it intend to present, a complete picture of the Company's financial condition and operating performance. The Company believes that net earnings computed under GAAP remain the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings. The Company considers FFO and FFO excluding non-routine items (referred to as “Core FFO”) to be useful financial performance measurements of an equity REIT because, together with net income and cash flows, FFO provides investors with an additional basis to evaluate operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and its ability to pay dividends. Further, the Company believes that its consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of its financial condition and its operating performance.

In calculating FFO, the Company follows the definition for this measure published by the National Association of Real Estate Investment Trusts (“NAREIT”), which is a REIT trade association. The Company believes that, under the NAREIT FFO definition, the three most significant adjustments made to net income are (i) the exclusion of historical cost depreciation, (ii) the exclusion of gains and losses from the sale of previously depreciated properties and (iii) the exclusion of impairment losses on depreciated properties. Essex agrees that these three NAREIT adjustments are useful to investors for the following reasons:


(a)	historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost

(a)

historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost

accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.


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

(b)

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

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


(2)	Other items, net are non-recurring in nature and include items such as gains on non-operating assets and tax related items.


(3)	Assumes conversion of all dilutive outstanding operating partnership interests in the Operating Partnership.

Essex Portfolio, L.P. and Subsidiaries



	Years Ended December 31,
	2014		2013		2012		2011		2010
	($ in thousands, except per unit amounts)
OPERATING DATA:
Rental and other property	$	959,958	$	602,003	$	526,696	$	460,660	$	400,841
Management and other fees from affiliates(1)	9,347		7,263		8,457		5,428		3,836

Income before discontinued operations	$	134,438	$	140,882	$	127,653	$	46,958	$	47,424
Income from discontinued operations	—		31,173		11,937		10,558		3,358
Net income	134,438		172,055		139,590		57,516		50,782
Net income available to common unitholders	$	121,726	$	159,749	$	127,771	$	43,593	$	42,842
Per unit data:
Basic:
Income before discontinued operations available to common unitholders	$	2.07	$	3.27	$	3.11	$	0.95	$	1.04
Net income available to common unitholders	$	2.07	$	4.06	$	3.43	$	1.25	$	1.14
Weighted average common units outstanding	58,772		39,380		37,252		34,774		31,961
Diluted:
Income before discontinued operations available to common unitholders	$	2.07	$	3.26	$	3.10	$	0.95	$	1.03
Net income available to common unitholders	$	2.07	$	4.05	$	3.42	$	1.25	$	1.14
Weighted average common units outstanding	58,921		39,467		37,344		34,861		32,028
Cash distributions per common unit	$	5.11	$	4.84	$	4.40	$	4.16	$	4.13


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



	As of December 31,
	2014		2013		2012		2011		2010
	($ in thousands)
BALANCE SHEET DATA:
Investment in rental properties (before accumulated depreciation)	$	11,252,511	$	5,443,757	$	5,033,672	$	4,313,064	$	3,964,561
Net investment in rental properties	9,687,705		4,188,871		3,952,155		3,393,038		3,189,008
Real estate under development	434,371		50,430		66,851		44,280		217,531
Co-investments	1,036,411		677,133		571,345		383,412		107,840
Total assets	11,562,874		5,186,839		4,847,223		4,036,964		3,732,887
Total secured indebtedness	2,245,944		1,404,080		1,565,599		1,745,858		2,082,745
Total unsecured indebtedness	2,863,873		1,629,444		1,253,084		615,000		176,000
Redeemable noncontrolling interest	23,256		—		—		—		—
Cumulative convertible preferred interest	—		4,349		4,349		4,349		4,349
Cumulative redeemable preferred interest	71,209		71,209		71,209		71,209		104,412
Partners' capital	6,073,433		1,932,108		1,811,427		1,486,914		1,284,515

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