Essex Property Trust 10-K 2016-12-31

Filed 2017-02-24. 21 sections, 529K characters. Original on sec.gov · Markdown · JSON

What changed since the 2015-12-31 10-KNew, removed and reworded risk factor headings, then every item sentence by sentence.

Cover and table of contents

10-K 1 ess-123116x10k.htm 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(MARK ONE)



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission file number: 1-13106 (Essex Property Trust, Inc.)

Commission file number: 333-44467-01 (Essex Portfolio, L.P.)

ESSEX PROPERTY TRUST, INC.

ESSEX PORTFOLIO, L.P.

(Exact name of Registrant as Specified in its Charter)



Maryland (Essex Property Trust, Inc.) California (Essex Portfolio, L.P.)		77-0369576 (Essex Property Trust, Inc.) 77-0369575 (Essex Portfolio, L.P.)
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

1100 Park Place, Suite 200

San Mateo, California 94403

(Address of Principal Executive Offices including Zip Code)

(650) 655-7800

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock, $.0001 par value (Essex Property Trust, Inc.)		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



Essex Property Trust, Inc. Yes x No o	Essex Portfolio, L.P. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.



Essex Property Trust, Inc. Yes o No x	Essex Portfolio, L.P. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Essex Property Trust, Inc. Yes x No o	Essex Portfolio, L.P. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Essex Property Trust, Inc. Yes x No o	Essex Portfolio, L.P. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.



Essex Property Trust, Inc. x	Essex Portfolio, L.P. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Essex Property Trust, Inc.:



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Essex Portfolio, L.P.:



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).



Essex Property Trust, Inc. Yes o No x	Essex Portfolio, L.P. Yes o No x

As of June 30, 2016, the aggregate market value of the voting stock held by non-affiliates of Essex Property Trust, Inc. was $14,824,768,853. The aggregate market value was computed with reference to the closing price on the New York Stock Exchange on such date. Shares of common stock held by executive officers, directors and holders of more than ten percent of the outstanding common stock have been excluded from this calculation because such persons may be deemed to be affiliates. This exclusion does not reflect a determination that such persons are affiliates for any other purposes. There is no public trading market for the common units of Essex Portfolio, L.P. As a result, the aggregate market value of the common units held by non-affiliates of Essex Portfolio, L.P., cannot be determined.

As of February 21, 2017, 65,549,470 shares of common stock ($.0001 par value) of Essex Property Trust, Inc. were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

The following document is incorporated by reference in Part III of the Annual Report on Form 10-K: Proxy statement for the annual meeting of stockholders of Essex Property Trust, Inc. to be filed within 120 days of December 31, 2016.

EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2016 of Essex Property Trust, Inc. and Essex Portfolio, L.P. Unless stated otherwise or the context otherwise requires, references to “ESS” mean Essex Property Trust, Inc., a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT”), and references to “EPLP” mean Essex Portfolio, L.P. (the “Operating Partnership”). Unless stated otherwise or the context otherwise requires, references to the “Company,” “Essex,” “we,” “us” or “our” mean collectively ESS, EPLP and those entities/subsidiaries owned or controlled by ESS and/or EPLP. References to the “Operating Partnership” mean collectively EPLP and those entities/subsidiaries owned or controlled by EPLP.

ESS is the general partner of, and as of December 31, 2016 owned an approximate 96.7% ownership interest in EPLP. The remaining 3.3% interest is owned by limited partners. As the sole general partner of EPLP, ESS has exclusive control of EPLP's day-to-day management.

The Company is structured as an umbrella partnership REIT (“UPREIT”) and ESS contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, ESS receives a number of OP Units (see definition below) in the Operating Partnership equal to the number of shares of common stock it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership, which is one of the reasons why the Company is structured in the manner outlined above. Based on the terms of EPLP's partnership agreement, OP Units can be exchanged into ESS common stock on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to ESS and shares of common stock.

The Company believes that combining the reports on Form 10-K of ESS and EPLP into this single report provides the following benefits:


•	enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;


•	eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and


•	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates the Company and the Operating Partnership as one business. The management of ESS consists of the same members as the management of EPLP.

All of the Company's property ownership, development and related business operations are conducted through the Operating Partnership and ESS has no material assets, other than its investment in EPLP. ESS's primary function is acting as the general partner of EPLP. As general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. ESS also issues equity from time to time and guarantees certain debt of EPLP, as disclosed in this report. The Operating Partnership holds substantially all of the assets of the Company, including the Company's ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by the Company, which are contributed to the capital of the Operating Partnership in exchange for additional limited partnership interests in the Operating Partnership (“OP Units”) (on a one-for-one share of common stock per OP Unit basis), the Operating Partnership generates all remaining capital required by the Company's business. These sources include the Operating Partnership's working capital, net cash provided by operating activities, borrowings under its revolving credit facilities, the issuance of secured and unsecured debt and equity securities and proceeds received from disposition of certain properties and joint ventures.

The Company believes it is important to understand the few differences between ESS and EPLP in the context of how ESS and EPLP operate as a consolidated company. Shareholders' equity, partners' capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners' capital in the Operating Partnership's consolidated financial statements and as noncontrolling interests in the Company's consolidated financial statements. The noncontrolling interests in the Operating Partnership's consolidated financial statements include the interests of unaffiliated partners in various consolidated partnerships and joint venture partners. The noncontrolling interests in the Company's consolidated financial statements include (i) the same noncontrolling interests as presented in the Operating Partnership’s consolidated financial statements and (ii) limited partner OP unitholders of the Operating Partnership. The differences between stockholders' equity and partners' capital result from differences in the equity issued at the Company and Operating Partnership levels.

iii

To help investors understand the significant differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of shareholders' equity or partners' capital, earnings per share/unit, as applicable; and a combined Management's Discussion and Analysis of Financial Condition and Results of Operations.

This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.

ESSEX PROPERTY TRUST, INC.

ESSEX PORTFOLIO, L.P.

2016 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS



Part I.		Page
Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	22
Item 3.	Legal Proceedings	30
Item 4.	Mine Safety Disclosures	30
Part II.
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Financial Data	33
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
Item 7A.	Quantitative and Qualitative Disclosures About Market Risks	49
Item 8.	Financial Statements and Supplementary Data	50
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	50
Item 9A.	Controls and Procedures	50
Item 9B.	Other Information	51
Part III.
Item 10.	Directors, Executive Officers and Corporate Governance	51
Item 11.	Executive Compensation	51
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51
Item 13.	Certain Relationships and Related Transactions, and Director Independence	51
Item 14.	Principal Accounting Fees and Services	52
Part IV.
Item 15.	Exhibits and Financial Statement Schedules	53
Signatures		S-0

PART I

Forward Looking Statements

This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the section, “Forward Looking Statements.” Actual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in Item 1A, Risk Factors of this Form 10-K.

Item 1. Business

OVERVIEW

Essex Property Trust, Inc. (“Essex”, "ESS", or the “Company”) a Maryland corporation, is an S&P 500 company that operates as a self-administered and self-managed real estate investment trust (“REIT”). The Company owns all of its interest in its real estate and other investments directly or indirectly through Essex Portfolio, L.P. (the “Operating Partnership” or “EPLP”). The Company is the sole general partner of the Operating Partnership and as of December 31, 2016 owns a 96.7% general partnership interest. In this report, the terms “Essex” or the “Company” also refer to Essex Property Trust, Inc., its Operating Partnership and those entities owned or controlled by the Operating Partnership.

The Company has elected to be treated as a REIT for federal income tax purposes, commencing with the year ended December 31, 1994 as the Company completed an initial public offering on June 13, 1994. In order to maintain compliance with REIT tax rules, the Company utilizes taxable REIT subsidiaries for various revenue generating or investment activities. All taxable REIT subsidiaries are consolidated by the Company.

The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of predominantly apartment communities, located along the West Coast. As of December 31, 2016, the Company owned or held an interest in 245 communities, aggregating 59,645 apartment homes, excluding the Company's ownership in preferred equity investments, as well as two operating commercial buildings (totaling approximately 140,564 square feet), and six active development projects with 2,223 apartment homes in various stages of development (collectively, the “Portfolio”).

The Company’s website address is http://www.essex.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its Annual Meeting of Stockholders are available, free of charge, on its website as soon as practicable after the Company files the reports with the U.S. Securities and Exchange Commission (“SEC”).

BUSINESS STRATEGIES

The following is a discussion of the Company’s business strategies in regards to real estate investment and management.

Business Strategies

Research Driven Approach to Investments – The Company believes that successful real estate investment decisions and portfolio growth begin with extensive regional economic research and local market knowledge. The Company continually assesses markets where the Company operates, as well as markets where the Company considers future investment opportunities by evaluating the following:


•	Focus on markets in major metropolitan areas that have regional population in excess of one million;


•	Constraints on new supply driven by: (i) low availability of developable land sites where competing housing could be economically built; (ii) political growth barriers, such as protected land, urban growth boundaries, and potential lengthy and expensive development permit processes; and (iii) natural limitations to development, such as mountains or waterways;


•	Rental demand is enhanced by affordability of rents relative to costs of for-sale housing; and


•	Housing demand that is based on job growth, proximity to jobs, high median incomes and the quality of life including related commuting factors.

Recognizing that all real estate markets are cyclical, the Company regularly evaluates the results of its regional economic, and local market research, and adjusts the geographic focus of its portfolio accordingly. The Company seeks to increase its portfolio allocation in markets projected to have the strongest local economies and to decrease such allocations in markets projected to

have declining economic conditions. Likewise, the Company also seeks to increase its portfolio allocation in markets that have attractive property valuations and to decrease such allocations in markets that have inflated valuations and low relative yields.

Property Operations – The Company manages its communities by focusing on activities that may generate above-average rental growth, tenant retention/satisfaction and long-term asset appreciation. The Company intends to achieve this by utilizing the strategies set forth below:


•	Property Management – Oversee delivery of and quality of the housing provided to our residents and manage the properties financial performance.


•	Capital Preservation –Asset Management is responsible for the planning, budgeting and completion of major capital improvement projects at the Company’s communities.


•	Business Planning and Control – Comprehensive business plans are implemented in conjunction with significant investment decisions. These plans include benchmarks for future financial performance, based on collaborative discussions between on-site managers and senior management.


•	Development and Redevelopment – The Company focuses on acquiring and developing apartment communities in supply constrained markets, and redeveloping its existing communities to improve the financial and physical aspects of the Company’s communities.

CURRENT BUSINESS ACTIVITIES

Acquisitions of Real Estate

Acquisitions are an important component of the Company’s business plan, and during 2016, the Company acquired ownership interests in four communities comprised of 753 apartment homes for $333.7 million.

The following is a summary of 2016 acquisitions ($ in millions):



Property Name	Location	Apartment Homes	Essex Ownership Percentage		Ownership	Quarter in 2016	Purchase Price
Mio	San Jose, CA	103	100	%	EPLP	Q1	$	51.3
Form 15	San Diego, CA	242	100	%	EPLP	Q1	97.4
Emerson Valley Village	Los Angeles, CA	144	100	%	EPLP	Q4	67.0
Ashton Sherman Village	Los Angeles, CA	264	100	%	EPLP	Q4	118.0
Total 2016		753					$	333.7

Dispositions of Real Estate

As part of its strategic plan to own quality real estate in supply-constrained markets, the Company continually evaluates all the communities and sells those which no longer meet its strategic criteria. The Company may use the capital generated from the dispositions to invest in higher-return communities or other real estate investments, or repay debts. The Company believes that the sale of these communities will not have a material impact on its future results of operations or cash flows nor will their sale materially affect its ongoing operations. Generally, the Company seeks to have any impact of earnings dilution resulting from these dispositions offset by the positive impact of its acquisitions, development and redevelopment activities.

In January 2016, the Company sold its former headquarters office building, located in Palo Alto, CA, for gross proceeds of $18.0 million, resulting in total gains of $9.6 million.

During 2016, the Company sold three apartment communities, Harvest Park, Tuscana, and Candlewood North, for a total of $80.8 million, resulting in total gains of $14.0 million, net of $4.4 million deferred tax gain on sale of real estate.

During 2016, the Company sold two joint venture apartment communities, The Heights and Canyon Creek, for total proceeds of $147.3 million. The Company's share of the gain on the sales was $13.0 million.

In November 2016, the Company contributed four apartment communities, Bridgeport, The Carlyle, Hillsborough Park, and Meadowood to a new entity, BEX II, then a wholly-owned subsidiary of EPLP and in December 2016 sold a 49.9%

membership interest in BEX II for a total of $153.2 million, resulting in total gains of $126.6 million. Subsequent to this sale, the Company accounts for BEX II under the equity method.

Development Pipeline

The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects. As of December 31, 2016, the Company had various consolidated predevelopment projects. The Company may also acquire land for future development purposes or sale.

The following table sets forth information regarding the Company’s development pipeline ($ in millions):



					As of
					12/31/2016
		Essex			Incurred		Estimated
Development Pipeline	Location	Ownership%		Apartment Homes	Project Cost (1)		Project Cost(1)
Development Projects - Consolidated
Station Park Green	San Mateo, CA	100	%	320	$	78	$	239
Gateway Village	Santa Clara, CA	100	%	476	37		226
Total - Consolidated Development Projects				796	115		465
Development Projects - Joint Venture
The Galloway (at Owens)	Pleasanton, CA	55	%	255	87		89
The Galloway (at Hacienda)	Pleasanton, CA	55	%	251	71		86
Century Towers	San Jose, CA	50	%	376	143		172
500 Folsom (2)	San Francisco, CA	50	%	545	107		415
Total - Joint Venture Development Projects				1,427	408		762
Predevelopment Projects - Consolidated
Other Projects	Various	100	%	—	80		80
Total - Predevelopment Projects				—	80		80
Grand Total - Development and Predevelopment Pipeline				2,223	$	603	$	1,307


(1)	Includes costs related to the entire project, including both the Company's and joint venture partners' costs. Includes incurred costs and estimated costs to complete these development projects. For predevelopment projects, only incurred costs are included in estimated costs.


(2)	Estimated project cost for this development is net of a projected value for low-income housing tax credit proceeds and savings from tax exempt bonds.

Redevelopment Pipeline

The Company defines the redevelopment pipeline as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. During redevelopment, apartment homes may not be available for rent and, as a result, may have less than stabilized operations. As of December 31, 2016, the Company had ownership interests in six major redevelopment communities aggregating 1,869 apartment homes with estimated redevelopment costs of $170.2 million, of which approximately $65.5 million remains to be expended.

Long Term Debt

During 2016, the Company made regularly scheduled principal payments and loan payoffs of $177.0 million of its secured mortgage notes payable at an average interest rate of 5.0%.

In April 2016, the Company issued $450 million of 3.375% senior unsecured notes that mature in April 2026. The interest is payable semi-annually in arrears on April 15th and October 15th of each year, commencing October 15, 2016, until the maturity date in April 2026. The Company used the net proceeds of this offering to repay indebtedness under its unecured lines of credit and for other general corporate purposes.

Bank Debt

As of December 31, 2016, Fitch Ratings ("Fitch"), Moody’s Investor Service, and Standard and Poor's (“S&P”) credit agencies rated Essex Property Trust, Inc. and Essex Portfolio, L.P. BBB+/Stable, Baa1/Stable, and BBB+/Stable, respectively.

At December 31, 2016, the Company had two lines of unsecured credit aggregating $1.03 billion. The Company's $1.0 billion credit facility had an interest rate of LIBOR plus 0.90%, which is based on a tiered rate structure tied to the Company's credit ratings. In January 2017, the Company's $1.0 billion credit facility's maturity date was extended to December 2020 with one 18-month extension, exercisable at the Company's option. The Company's $25.0 million working capital unsecured line of credit had an interest rate of LIBOR plus 0.90%, which is based on a tiered rate structure tied to the Company's credit ratings. The $25.0 million credit facility matures in January 2018.

Equity Transactions

During 2016, ESS did not issue any shares of common stock under its equity distribution program. Furthermore, during the first quarter of 2017 through February 21, 2017, ESS has not issued any shares under its equity distribution program.

Co-investments

The Company has entered into, and may continue in the future to enter into, joint ventures or partnerships (including limited liability companies) through which we own an indirect economic interest in less than 100% of the community or land owned directly by the joint venture or partnership. For each joint venture the Company holds a 50% to 55% non-controlling interest in the venture and will earn customary management fees and may earn development, asset property management fees and may also earn a promote interest.

The Company has also made, and may continue in the future to make, preferred equity investments in various multi-family development projects. The Company earns a preferred rate of return on these investments.

OFFICES AND EMPLOYEES

The Company is headquartered in San Mateo, California, and has regional offices in Woodland Hills, California; San Jose, California; Irvine, California; San Diego, California and Bellevue, Washington. As of December 31, 2016, the Company had 1,799 employees.

INSURANCE

The Company purchases general liability and property insurance coverage, including loss of rent, for each of its communities. The Company also purchases limited earthquake, terrorism, environmental and flood insurance. There are certain types of losses which may not be covered or could exceed coverage limits. The insurance programs are subject to deductibles and self-insured retentions in varying amounts. The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI") to self-insure certain earthquake and property losses. As of December 31, 2016, PWI has cash and marketable securities of approximately $69.9 million, and is consolidated in the Company's financial statements.

All of the Company's communities are located in areas that are subject to earthquake activity. The Company evaluates its financial loss exposure to seismic events by using actuarial loss models developed by the insurance industry and property vulnerability based on structural evaluations of seismic consultants. The Company manages this exposure, where considered appropriate, desirable, and cost-effective, by upgrading properties to increase their resistance to forces caused by seismic events, by considering available funds and coverages provided by PWI and/or by purchasing seismic insurance. The Company also purchases limited earthquake insurance for certain properties owned by the Company's co-investments.

In addition, the Company carries other types of insurance coverage related to a variety of risks and exposures.

Based on market conditions, the Company may change or potentially eliminate insurance coverages, or increase levels of self-insurance. Further, the Company may incur losses, which could be material, due to uninsured risks, deductibles and self-insured retentions, and/or losses in excess of coverage limits.

COMPETITION

There are numerous housing alternatives that compete with the Company’s communities in attracting residents. These include other apartment communities, condominiums and single-family homes. If the demand for the Company’s communities is reduced or if competitors develop and/or acquire competing housing, rental rates and occupancy may drop which may have a material adverse effect on the Company’s financial condition and results of operations.

The Company faces competition from other real estate investment trusts, businesses and other entities in the acquisition, development and operation of apartment communities. Some competitors are larger and have greater financial resources than the Company. This competition may result in increased costs of apartment communities the Company acquires and or develops.

WORKING CAPITAL

The Company believes that cash flows generated by its operations, existing cash and marketable securities balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of its reasonably anticipated cash needs during 2017.

The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates, stock price, and other fluctuations in the capital markets environment, which can affect the Company’s plans for acquisitions, dispositions, development and redevelopment activities.

ENVIRONMENTAL CONSIDERATIONS

See the discussion under the caption, “Risks Related to Real Estate Investments and Our Operations - The Company’s Portfolio may have environmental liabilities” in Item 1A, Risk Factors, for information concerning the potential effect of environmental regulations on its operations, which discussion under the caption “The Company’s Portfolio may have environmental liabilities” is incorporated by reference into this Item 1.

OTHER MATTERS

Certain Policies of the Company

The Company intends to continue to operate in a manner that will not subject it to regulation under the Investment Company Act of 1940. The Company may in the future (i) issue securities senior to its common stock, (ii) fund acquisition activities with borrowings under its line of credit and (iii) offer shares of common stock and/or units of limited partnership interest in the Operating Partnership or affiliated partnerships as partial consideration for property acquisitions. The Company from time to time acquires partnership interests in partnerships and joint ventures, either directly or indirectly through subsidiaries of the Company, when such entities’ underlying assets are real estate.

The Company invests primarily in apartment communities that are located in predominantly coastal markets within Southern California, the San Francisco Bay Area, and the Seattle metropolitan area. The Company currently intends to continue to invest in apartment communities in such regions. However, these practices may be reviewed and modified periodically by management.

Item 1A. RISK FACTORS

For purposes of this section, the term “stockholders” means the holders of shares of Essex Property Trust, Inc.’s common stock and preferred stock. Set forth below are the risks that we believe are material to Essex Property Trust, Inc.’s stockholders and Essex Portfolio, L.P.’s unit holders. You should carefully consider the following factors in evaluating our Company, our properties and our business.

Our business, operating results, cash flows and financial condition are subject to various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual operating results to vary materially from recent results or from our anticipated future results.

Risks Related to Our Real Estate Investments and Operations

General real estate investment risks may adversely affect property income and values. Real estate investments are subject to a variety of risks. If the communities and other real estate investments do not generate sufficient income to meet operating expenses, including debt service and capital expenditures, cash flow and the ability to make distributions to stockholders will be adversely affected. Income from the communities may be further adversely affected by, among other things, the following factors:


•	the general economic climate;


•	local economic conditions in which the communities are located, such as oversupply of housing or a reduction in demand for rental housing;


•	the attractiveness of the communities to tenants;


•	competition from other available housing alternatives;


•	changes in rent control or stabilization laws or other laws regulating housing;


•	the Company’s ability to provide for adequate maintenance and insurance;


•	declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants;


•	rising crime rates in our markets; and


•	changes in interest rates and availability of financing.

As leases at the communities expire, tenants may enter into new leases on terms that are less favorable to the Company. Income and real estate values also may be adversely affected by such factors as applicable laws (e.g., the Americans with Disabilities Act of 1990 and tax laws). Real estate investments are relatively illiquid and, therefore, the Company’s ability to vary its portfolio promptly in response to changes in economic or other conditions may be quite limited.

Real estate in our markets can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions, which could have a material adverse effect on our financial condition and results of operations. In addition, if we are found to have held, acquired or developed a community primarily with the intent to resell the community, federal tax laws may limit our ability to sell the community without incurring a 100% tax on the gain on the sale of the community and potentially adversely impacting our status as a real estate investment trust (“REIT”) unless we own the community through one of our taxable REIT subsidiaries (“TRSs”).

Short-term leases expose us to the effects of declining market rents, and the Company may be unable to renew leases or relet units as leases expire. Substantially all of our apartment leases are for a term of one year or less. If the Company is unable to promptly renew the leases or relet the units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then the Company’s results of operations and financial condition will be adversely affected. With these short term leases, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.

National and regional economic environments can negatively impact the Company’s operating results. The Company's forecast for the national economy assumes growth of the gross domestic product of the national economy and the economies of the west coast states. In the event of a recession, the Company could incur reductions in rental rates, occupancy levels, property valuations and increases in operating costs such as advertising and turnover expenses.

Inflation/Deflation may affect rental rates and operating expenses. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and/or property operating expenses.

Acquisitions of communities involve various risks and uncertainties and may fail to meet expectations. The Company intends to continue to acquire apartment communities. However, there are risks that acquisitions will fail to meet the Company’s expectations. The Company’s estimates of future income, expenses and the costs of improvements or redevelopment that are necessary to allow the Company to market an acquired apartment community as originally intended may prove to be inaccurate. Also, in connection with such acquisitions, we may assume unknown liabilities, which could ultimately lead to material costs for us. The Company expects to finance future acquisitions, in whole or in part, under various forms of secured or unsecured financing or through the issuance of partnership units by the Operating Partnership or related partnerships or additional equity by the Company. The use of equity financing, rather than debt, for future developments or acquisitions could dilute the interest of the Company’s existing stockholders. If the Company finances new acquisitions under existing lines of credit, there is a risk that, unless the Company obtains substitute financing, the Company may not be able to undertake additional borrowing for further acquisitions or developments or such borrowing may be not available on advantageous terms.

Development and redevelopment activities may be delayed, not completed, and/or not achieve expected results. The Company pursues development and redevelopment projects and these projects generally require various governmental and other approvals, which have no assurance of being received. The Company’s development and redevelopment activities generally entail certain risks, including, among others, the following:


•	funds may be expended and management's time devoted to projects that may not be completed;


•	construction costs of a project may exceed original estimates possibly making the project economically unfeasible;


•	projects may be delayed due to, without limitation, adverse weather conditions, labor or material shortage, or environmental remediation;


•	occupancy rates and rents at a completed project may be less than anticipated;


•	expenses at completed development projects may be higher than anticipated, including, without limitation, due to costs of environmental remediation;


•	we may be unable to obtain, or experience a delay in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or delay or abandonment of opportunities;


•	we may be unable to obtain financing with favorable terms, or at all, for the proposed development of community, which may cause us to delay or abandon an opportunity; and


•	we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant te

Showing the first 8K of 95K characters. Open the full section

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s portfolio as of December 31, 2016 (including communities owned by unconsolidated joint ventures, but excluding communities underlying preferred equity investments) was comprised of 245 operating apartment communities

(comprising 59,645 apartment homes), of which 27,968 apartment homes are located in Southern California, 19,480 apartment homes are located in the San Francisco Bay Area, and 12,197 apartment homes are located in the Seattle metropolitan area. The Company’s apartment communities accounted for 99.4% of the Company’s revenues for the year ended December 31, 2016.

Occupancy Rates

Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rental revenue for occupied apartment homes plus market rent for vacant apartment homes). When calculating actual rents for occupied apartment homes and market rents for vacant apartment homes, delinquencies and concessions are not taken into account. Total possible rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates and the Company's calculation of financial occupancy may not be comparable to financial occupancy as disclosed by other REITs. Market rates are determined using a variety of factors such as effective rental rates at the property based on recently signed leases and asking rates for comparable properties in the market. The recently signed effective rates at the property are used as the starting point in the determination of the market rates of vacant apartment homes. The Company then increases or decreases these rates based on the supply and demand in the apartment community’s market. The Company will check the reasonableness of these rents based on its position within the market and compare the rents against the asking rents by comparable properties in the market.

For communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric. While a community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy which is based on contractual revenue is not considered the best metric to quantify occupancy.

Communities

The Company’s communities are primarily suburban garden-style communities comprising multiple clusters of two and three-story buildings situated on three to fifteen acres of land. As of December 31, 2016, the Company’s communities include 156 garden-style, 83 mid-rise, and 6 high-rise communities. The communities have an average of approximately 243 apartment homes, with a mix of studio, one, two and some three-bedroom apartment homes. A wide variety of amenities are available at the Company’s communities, including covered parking, fireplaces, swimming pools, clubhouses with fitness facilities, volleyball and playground areas and tennis courts.

The Company hires, trains and supervises on-site service and maintenance personnel. The Company believes that the following primary factors enhance the Company’s ability to retain tenants:


•	located near employment centers;


•	attractive communities that are well maintained; and


•	proactive customer service.

Commercial Buildings

The Company owns an office building with approximately 106,564 square feet located in Irvine, California, of which the Company occupies approximately 8,000 square feet at December 31, 2016. The Company owns Essex-Hollywood, a 34,000 square foot commercial building.

The following tables describe the Company’s operating portfolio as of December 31, 2016. The first table describes the Company’s communities and the second table describes the Company’s other real estate assets. (See Note 7 of the Company’s consolidated financial statements for more information about the Company’s secured mortgage debt and Schedule III for a list of secured mortgage loans related to the Company’s portfolio.)



		Apartment	Rentable	Year	Year
Communities (1)	Location	Homes	Square Footage	Built	Acquired	Occupancy(2)
Southern California
Alpine Village	Alpine, CA	301	254,400	1971	2002	97%



		Apartment	Rentable	Year	Year
Communities (1)	Location	Homes	Square Footage	Built	Acquired	Occupancy(2)
Anavia	Anaheim, CA	250	312,343	2009	2010	96%
Barkley, The (3)(4)	Anaheim, CA	161	139,800	1984	2000	97%
Park Viridian	Anaheim, CA	320	254,600	2008	2014	97%
Bonita Cedars	Bonita, CA	120	120,800	1983	2002	97%
Camarillo Oaks	Camarillo, CA	564	459,000	1985	1996	97%
Camino Ruiz Square	Camarillo, CA	159	105,448	1990	2006	97%
Enclave at Town Square (18)	Chino Hills, CA	124	89,948	1987	2014	98%
The Summit (5)	Chino Hills, CA	125	98,420	1989	2014	98%
Pinnacle at Otay Ranch I & II	Chula Vista, CA	364	384,192	2001	2014	96%
Mesa Village	Clairemont, CA	133	43,600	1963	2002	97%
Villa Siena	Costa Mesa, CA	272	262,842	1974	2014	96%
Emerald Pointe	Diamond Bar, CA	160	134,816	1989	2014	97%
Regency at Encino	Encino, CA	75	78,487	1989	2009	97%
The Havens (18)	Fountain Valley, CA	440	414,040	1969	2014	96%
Valley Park (4)	Fountain Valley, CA	160	169,700	1969	2001	98%
Capri at Sunny Hills (4)	Fullerton, CA	102	128,100	1961	2001	97%
Haver Hill (5)	Fullerton, CA	264	224,130	1973	2012	96%
Pinnacle at Fullerton	Fullerton, CA	192	174,336	2004	2014	96%
Wilshire Promenade	Fullerton, CA	149	128,000	1992	1997	96%
Montejo Apartments (4)	Garden Grove, CA	124	103,200	1974	2001	97%
CBC	Goleta, CA	148	91,538	1962	2006	96%
The Sweeps	Goleta, CA	91	88,370	1967	2006	96%
416 on Broadway	Glendale, CA	115	126,782	2009	2010	97%
Hampton Court	Glendale, CA	83	71,500	1974	1999	94%
Hampton Place	Glendale, CA	132	141,500	1970	1999	94%
Devonshire	Hemet, CA	276	207,200	1988	2002	97%
Huntington Breakers	Huntington Beach, CA	342	241,700	1984	1997	96%
The Huntington	Huntington Beach, CA	276	202,256	1975	2012	96%
Axis 2300	Irvine, CA	115	170,714	2010	2010	97%
Hillsborough Park (24)	La Habra, CA	235	215,500	1999	1999	96%
Village Green	La Habra, CA	272	175,762	1971	2014	97%
The Palms at Laguna Niguel	Laguna Niguel, CA	460	362,136	1988	2014	96%
Trabuco Villas	Lake Forest, CA	132	131,000	1985	1997	98%
Marbrisa	Long Beach, CA	202	122,800	1987	2002	96%
Pathways at Bixby Village	Long Beach, CA	296	197,700	1975	1991	96%
8th & Hope	Los Angeles, CA	290	298,437	2014	2015	96%
5600 Wilshire	Los Angeles, CA	284	243,910	2008	2014	96%
Alessio	Los Angeles, CA	624	552,716	2001	2014	95%
Ashton Sherman Village	Los Angeles, CA	264	296,186	2014	2016	100%
Avant	Los Angeles, CA	440	305,989	2014	2015	95%
The Avery (4)	Los Angeles, CA	121	129,393	2014	2014	98%
Bellerive	Los Angeles, CA	63	79,296	2011	2011	97%
Belmont Station	Los Angeles, CA	275	225,000	2009	2009	98%
Bunker Hill	Los Angeles, CA	456	346,600	1968	1998	90%
Catalina Gardens	Los Angeles, CA	128	117,585	1987	2014	96%
Cochran Apartments	Los Angeles, CA	58	51,400	1989	1998	96%
Emerson Valley Village	Los Angeles, CA	144	179,060	2012	2016	100%
Gas Company Lofts (5)	Los Angeles, CA	251	226,666	2004	2013	96%



		Apartment	Rentable	Year	Year
Communities (1)	Location	Homes	Square Footage	Built	Acquired	Occupancy(2)
Jefferson at Hollywood	Los Angeles, CA	270	238,119	2010	2014	95%
Kings Road	Los Angeles, CA	196	132,100	1979	1997	97%
Marbella	Los Angeles, CA	60	50,108	1991	2005	96%
Pacific Electric Lofts (6)	Los Angeles, CA	314	277,980	2006	2012	95%
Park Catalina	Los Angeles, CA	90	72,864	2002	2012	96%
Park Place	Los Angeles, CA	60	48,000	1988	1997	96%
Regency Palm Court (5)	Los Angeles, CA	116	54,844	1987	2014	95%
Santee Court	Los Angeles, CA	165	132,040	2004	2010	97%
Santee Village	Los Angeles, CA	73	69,817	2011	2011	97%
Tiffany Court	Los Angeles, CA	101	74,538	1987	2014	98%
Wilshire La Brea	Los Angeles, CA	478	354,972	2014	2014	96%
Windsor Court (5)	Los Angeles, CA	95	51,266	1987	2014	96%
Windsor Court	Los Angeles, CA	58	46,600	1988	1997	96%
Aqua Marina Del Rey	Marina Del Rey, CA	500	479,312	2001	2014	96%
Marina City Club (7)	Marina Del Rey, CA	101	127,200	1971	2004	97%
Mirabella	Marina Del Rey, CA	188	176,800	2000	2000	97%
Mira Monte	Mira Mesa, CA	354	262,600	1982	2002	97%
Madrid (6)	Mission Viejo, CA	230	228,099	2000	2012	97%
Hillcrest Park	Newbury Park, CA	608	521,900	1973	1998	96%
Fairway Apartments at Big Canyon (8)	Newport Beach, CA	74	107,100	1972	1999	96%
Muse	North Hollywood, CA	152	135,292	2011	2011	97%
Country Villas	Oceanside, CA	180	179,700	1976	2002	97%
Mission Hills	Oceanside, CA	282	244,000	1984	2005	97%
Renaissance at Uptown Orange	Orange, CA	460	432,836	2007	2014	97%
Mariner's Place	Oxnard, CA	105	77,200	1987	2000	96%
Monterey Villas	Oxnard, CA	122	122,100	1974	1997	96%
Tierra Vista	Oxnard, CA	404	387,100	2001	2001	97%
Arbors at Parc Rose (6)	Oxnard, CA	373	503,196	2001	2011	96%
The Hallie	Pasadena, CA	292	216,700	1972	1997	94%
The Stuart	Pasadena, CA	188	168,630	2007	2014	96%
Villa Angelina (4)	Placentia, CA	256	217,600	1970	2001	97%
Fountain Park	Playa Vista, CA	705	608,900	2002	2004	97%
Highridge (4)	Rancho Palos Verdes, CA	255	290,200	1972	1997	97%
Cortesia	Rancho Santa Margarita, CA	308	277,580	1999	2014	97%
Pinnacle at Talega	San Clemente, CA	362	355,764	2002	2014	96%
Allure at Scripps Ranch	San Diego, CA	194	207,052	2002	2014	97%
Bernardo Crest	San Diego, CA	216	205,548	1988	2014	97%
Cambridge Park	San Diego, CA	320	317,958	1998	2014	96%
Carmel Creek	San Diego, CA	348	384,216	2000	2014	95%
Carmel Landing	San Diego, CA	356	283,426	1989	2014	97%
Carmel Summit	San Diego, CA	246	225,880	1989	2014	97%
CentrePointe	San Diego, CA	224	126,700	1974	1997	96%
Domain	San Diego, CA	379	345,044	2013	2013	96%
Esplanade (18)	San Diego, CA	616	479,600	1986	2014	96%
Form 15	San Diego, CA	242	184,190	2014	2016	96%
Montanosa	San Diego, CA	472	414,968	1990	2014	96%



		Apartment	Rentable	Year	Year
Communities (1)	Location	Homes	Square Footage	Built	Acquired	Occupancy(2)
Summit Park	San Diego, CA	300	229,400	1972	2002	96%
Essex Skyline (9)	Santa Ana, CA	349	512,791	2008	2010	96%
Fairhaven Apartments (4)	Santa Ana, CA	164	135,700	1970	2001	97%
Parkside Court (18)	Santa Ana, CA	210	152,400	1986	2014	97%
Pinnacle at MacArthur Place	Santa Ana, CA	253	262,867	2002	2014	96%
Hope Ranch	Santa Barbara, CA	108	126,700	1965	2007	98%
Bridgeport Coast (19)	Santa Clarita, CA	188	168,198	2006	2014	97%
Hidden Valley (10)	Simi Valley, CA	324	310,900	2004	2004	98%
Meadowood (24)	Simi Valley, CA	320	264,500	1986	1996	96%
Shadow Point	Spring Valley, CA	172	131,200	1983	2002	97%
The Fairways at Westridge (19)	Valencia, CA	234	223,330	2004	2014	96%
The Vistas of West Hills (19)	Valencia, CA	220	221,119	2009	2014	96%
Allegro	Valley Village, CA	97	127,812	2010	2010	98%
Lofts at Pinehurst, The	Ventura, CA	118	71,100	1971	1997	97%
Pinehurst (11)	Ventura, CA	28	21,200	1973	2004	98%
Woodside Village	Ventura, CA	145	136,500	1987	2004	97%
Walnut Heights	Walnut, CA	163	146,700	1964	2003	97%
The Dylan	West Hollywood, CA	184	150,678	2014	2014	96%
The Huxley	West Hollywood, CA	187	154,776	2014	2014	95%
Reveal	Woodland Hills, CA	438	414,892	2010	2011	96%
Avondale at Warner Center	Woodland Hills, CA	446	331,000	1970	1999	97%
		27,968	24,870,300			96%
Northern California
Belmont Terrace	Belmont, CA	71	72,951	1974	2006	96%
Fourth & U	Berkeley, CA	171	146,255	2010	2010	96%
The Commons	Campbell, CA	264	153,168	1973	2010	97%
Pointe at Cupertino	Cupertino, CA	116	135,200	1963	1998	97%
Connolly Station (20)	Dublin, CA	309	286,348	2014	2014	97%
Avenue 64	Emeryville, CA	224	196,896	2007	2014	96%
Emme (20)	Emeryville, CA	190	148,935	2015	2015	97%
Foster's Landing	Foster City, CA	490	415,130	1987	2014	97%
Stevenson Place	Fremont, CA	200	146,200	1975	2000	93%
Mission Peaks	Fremont, CA	453	404,034	1995	2014	93%
Mission Peaks II	Fremont, CA	336	294,720	1989	2014	95%
Paragon Apartments	Fremont, CA	301	267,047	2013	2014	97%
Boulevard	Fremont, CA	172	131,200	1978	1996	93%
Briarwood (6)	Fremont, CA	160	111,160	1978	2011	94%
The Woods (6)	Fremont, CA	160	105,280	1978	2011	96%
City Centre (19)	Hayward, CA	192	175,420	2000	2014	97%
City View	Hayward, CA	572	462,400	1975	1998	97%
Lafayette Highlands	Lafayette, CA	150	151,790	1973	2014	97%
Apex	Milpitas, CA	366	350,961	2014	2014	96%
Regency at Mountain View (5)	Mountain View, CA	142	127,600	1970	2013	93%
Bridgeport (24)	Newark, CA	184	139,000	1987	1987	97%
The Landing at Jack London Square	Oakland, CA	282	257,796	2001	2014	96%
The Grand	Oakland, CA	243	205,026	2009	2009	97%
Radius	Redwood City, CA	264	245,862	2015	2015	96%



		Apartment	Rentable	Year	Year
Communities (1)	Location	Homes	Square Footage	Built	Acquired	Occupancy(2)
San Marcos	Richmond, CA	432	407,600	2003	2003	96%
Bennett Lofts	San Francisco, CA	165	184,713	2004	2012	95%
Fox Plaza	San Francisco, CA	443	230,017	1968	2013	95%
MB 360	San Francisco, CA	360	441,489	2014	2014	92%
Mosso (20)	San Francisco, CA	463	607,549	2014	2014	96%
Park West	San Francisco, CA	126	90,060	1958	2012	94%
101 San Fernando	San Jose, CA	323	296,078	2001	2010	96%
Bella Villagio	San Jose, CA	231	227,511	2004	2010	97%
Enso	San Jose, CA	183	179,562	2014	2015	96%
Epic (20)	San Jose, CA	769	660,030	2013	2013	95%
Esplanade	San Jose, CA	278	279,000	2002	2004	96%
Fountains at River Oaks	San Jose, CA	226	209,954	1990	2014	97%
Marquis (21)	San Jose, CA	166	136,467	2015	2016	91%
Mio	San Jose, CA	103	92,405	2015	2016	97%
Museum Park	San Jose, CA	117	121,329	2002	2014	97%
One South Market (23)	San Jose, CA	312	283,268	2015	2015	96%
Palm Valley (15)	San Jose, CA	1,098	1,132,284	2008	2014	95%
The Carlyle (24)	San Jose, CA	132	129,200	2000	2000	96%
The Waterford	San Jose, CA	238	219,600	2000	2000	97%
Willow Lake	San Jose, CA	508	471,744	1989	2012	97%
Lakeshore Landing	San Mateo, CA	308	223,972	1988	2014	96%
Hillsdale Garden	San Mateo, CA	697	611,505	1948	2006	97%
Park 20 (20)	San Mateo, CA	197	140,547	2015	2015	96%
Deer Valley	San Rafael, CA	171	167,238	1996	2014	96%
Bel Air	San Ramon, CA	462	391,000	1988	1995	97%
Canyon Oaks	San Ramon, CA	250	237,894	2005	2007	98%
Crow Canyon	San Ramon, CA	400	337,064	1992	2014	96%
Foothill Gardens	San Ramon, CA	132	155,100	1985	1997	97%
Mill Creek at Windermere	San Ramon, CA	400	381,060	2005	2007	98%
Twin Creeks	San Ramon, CA	44	51,700	1985	1997	97%
1000 Kiely	Santa Clara, CA	121	128,486	1971	2011	97%
Le Parc	Santa Clara, CA	140	113,200	1975	1994	98%
Marina Cove (13)	Santa Clara, CA	292	250,200	1974	1994	96%
Riley Square (6)	Santa Clara, CA	156	126,900	1972	2012	96%
Villa Granada	Santa Clara, CA	270	238,841	2010	2014	97%
Chestnut Street Apartments	Santa Cruz, CA	96	87,640	2002	2008	97%
Bristol Commons	Sunnyvale, CA	188	142,600	1989	1995	97%
Brookside Oaks (4)	Sunnyvale, CA	170	119,900	1973	2000	97%
Lawrence Station	Sunnyvale, CA	336	297,188	2012	2014	97%
Magnolia Lane (14)	Sunnyvale, CA	32	31,541	2001	2007	97%
Magnolia Square (4)	Sunnyvale, CA	156	110,824	1963	2007	97%
Montclaire	Sunnyvale, CA	390	294,100	1973	1988	97%
Reed Square	Sunnyvale, CA	100	95,440	1970	2011	97%
Solstice	Sunnyvale, CA	280	257,659	2014	2014	96%
Summerhill Park	Sunnyvale, CA	100	78,500	1988	1988	96%
Via	Sunnyvale, CA	284	309,421	2011	2011	98%
Windsor Ridge	Sunnyvale, CA	216	161,800	1989	1989	97%
Vista Belvedere	Tiburon, CA	76	78,300	1963	2004	93%



		Apartment	Rentable	Year	Year
Communities (1)	Location	Homes	Square Footage	Built	Acquired	Occupancy(2)
Verandas (19)	Union City, CA	282	199,092	1989	2014	96%
Agora(22)	Walnut Creek, CA	49	106,228	2016	2016	71%
		19,480	17,455,179			96%
Seattle, Washington Metropolitan Area
Belcarra	Bellevue, WA	296	241,567	2009	2014	96%
BellCentre	Bellevue, WA	248	181,288	2001	2014	96%
Cedar Terrace	Bellevue, WA	180	174,200	1984	2005	96%
Courtyard off Main	Bellevue, WA	110	108,388	2000	2010	97%
Ellington	Bellevue, WA	220	165,794	1994	2014	95%
Emerald Ridge	Bellevue, WA	180	144,000	1987	1994	96%
Foothill Commons	Bellevue, WA	394	288,300	1978	1990	96%
Palisades, The	Bellevue, WA	192	159,700	1977	1990	97%
Park Highland	Bellevue, WA	250	224,750	1993	2014	95%
Piedmont	Bellevue, WA	396	348,969	1969	2014	96%
Sammamish View	Bellevue, WA	153	133,500	1986	1994	97%
Woodland Commons	Bellevue, WA	302	217,878	1978	1990	95%
Bothell Ridge (18)	Bothell, WA	214	167,370	1988	2014	96%
Canyon Pointe	Bothell, WA	250	210,400	1990	2003	96%
Inglenook Court	Bothell, WA	224	183,600	1985	1994	97%
Pinnacle Sonata	Bothell, WA	268	343,095	2000	2014	96%
Salmon Run at Perry Creek	Bothell, WA	132	117,100	2000	2000	97%
Stonehedge Village	Bothell, WA	196	214,800	1986	1997	97%
Highlands at Wynhaven	Issaquah, WA	333	424,674	2000	2008	95%
Park Hill at Issaquah	Issaquah, WA	245	277,700	1999	1999	96%
Wandering Creek	Kent, WA	156	124,300	1986	1995	97%
Ascent	Kirkland, WA	90	75,840	1988	2012	97%
Bridle Trails	Kirkland, WA	108	99,700	1986	1997	97%
Corbella at Juanita Bay	Kirkland, WA	169	103,339	1978	2010	96%
Evergreen Heights	Kirkland, WA	200	188,300	1990	1997	96%
Slater 116	Kirkland, WA	108	81,415	2013	2013	96%
Montebello	Kirkland, WA	248	272,734	1996	2012	95%
Aviara (12)	Mercer Island, WA	166	147,033	2013	2014	96%
Laurels at Mill Creek	Mill Creek, WA	164	134,300	1981	1996	97%
Parkwood at Mill Creek	Mill Creek, WA	240	257,160	1989	2014	96%
The Elliot at Mukilteo (4)	Mukilteo, WA	301	245,900	1981	1997	96%
Castle Creek	Newcastle, WA	216	191,900	1998	1998	97%
Delano	Redmond, WA	126	116,340	2005	2011	97%
Elevation	Redmond, WA	158	138,916	1986	2010	97%
Redmond Hill (6)	Redmond, WA	442	350,275	1985	2011	96%
Shadowbrook	Redmond, WA	418	338,880	1986	2014	96%
The Trails of Redmond	Redmond, WA	423	376,000	1985	2014	97%
Vesta (6)	Redmond, WA	440	381,675	1998	2011	97%
Brighton Ridge	Renton, WA	264	201,300	1986	1996	96%
Fairwood Pond	Renton, WA	194	189,200	1997	2004	97%
Forest View	Renton, WA	192	182,500	1998	2003	97%
Pinnacle on Lake Washington	Renton, WA	180	190,908	2001	2014	96%
Annaliese	Seattle, WA	56	48,216	2009	2013	96%
The Audrey at Belltown	Seattle, WA	137	94,119	1992	2014	96%



		Apartment	Rentable	Year	Year
Communities (1)	Location	Homes	Square Footage	Built	Acquired	Occupancy(2)
Ballinger Commons (18)	Seattle, WA	485	407,253	1989	2014	96%
The Bernard	Seattle, WA	63	43,151	2008	2011	96%
Cairns, The	Seattle, WA	100	70,806	2006	2007	97%
Citywalk (18)	Seattle, WA	102	92,010	1988	2014	97%
Collins on Pine	Seattle, WA	76	48,733	2013	2014	97%
Domaine	Seattle, WA	92	79,421	2009	2012	97%
Expo (15)	Seattle, WA	275	190,176	2012	2012	97%
Fountain Court	Seattle, WA	320	207,000	2000	2000	96%
Joule (16)	Seattle, WA	295	191,109	2010	2010	97%
Taylor 28	Seattle, WA	197	155,630	2008	2014	96%
Vox Apartments	Seattle, WA	58	42,173	2013	2013	97%
Wharfside Pointe	Seattle, WA	155	119,200	1990	1994	95%
		12,197	10,503,985			96%

Total/Weighted Average		59,645	52,829,464			96%



			Square	Year	Year
Other real estate assets (1)	Location	Tenants	Footage	Built	Acquired	Occupancy (2)
Essex - Hollywood	Los Angeles, CA	—	34,000	1938	2006	—%
Derian Office Building (17)	Irvine, CA	8	106,564	1983	2000	100%
		8	140,564			76%

Footnotes to the Company’s Portfolio Listing as of December 31, 2016


(1)	Unless otherwise specified, the Company has a 100% ownership interest in each community.


(2)	For communities, occupancy rates are based on financial occupancy for the year ended December 31, 2016; for the commercial buildings occupancy rates are based on physical occupancy as of December 31, 2016. For an explanation of how financial occupancy and physical occupancy are calculated, see “Properties-Occupancy Rates” in this Item 2.


(3)	The community is subject to a ground lease, which, unless extended, will expire in 2082.

(4)

The Company holds a 1% special limited partner interest in the partnerships which own these apartment communities. These investments were made under arrangements whereby Essex Management Company became the 1% sole general partner and the other limited partners were granted the right to require the applicable partnership to redeem their interest for cash. Subject to certain conditions, the Company may, however, elect to deliver an equivalent number of shares of the Company’s common stock in satisfaction of the applicable partnership’s cash redemption obligation.


(5)	This community is owned by Wesco III. The Company has a 50% interest in Wesco III which is accounted for using the equity method of accounting.


(6)	This community is owned by Wesco I. The Company has a 50% interest in Wesco I which is accounted for using the equity method of accounting.


(7)	This community is subject to a ground lease, which, unless extended, will expire in 2067.


(8)	This community is subject to a ground lease, which, unless extended, will expire in 2027.


(9)	The Company has a 97% interest and an Executive Vice President of the Company has a 3% interest in this community.


(10)	The Company has a 75% member interest.


(11)	The community is subject to a ground lease, which, unless extended, will expire in 2028.


(12)	This community is subject to a ground lease, which, unless extended, will expire in 2070.


(13)	A portion of this community on which 84 apartment homes are presently located is subject to a ground lease, which, unless extended, will expire in 2028.


(14)	The community is subject to a ground lease, which, unless extended, will expire in 2070.


(15)	The Company has 50% ownership in each of these communities which is accounted for using the equity method of accounting.


(16)	The Company has 99% ownership in this community.


(17)	The Company occupies 8% of space in this property.


(18)	This community is owned by BEXAEW. The Company has a 50% interest in BEXAEW which is accounted for using the equity method of accounting.


(19)	This community is owned by Wesco IV. The Company has a 50% interest in Wesco IV which is accounted for using the equity method of accounting.


(20)	This community is owned by an entity that is co-owned by the Company and CPP. The Company has a 55% ownership in this community which is accounted for using the equity method of accounting.


(21)	The Company has a 50.1% membership interest in this community which is accounted for using the equity method of accounting.


(22)	This community is owned by an entity that is co-owned by the Company and CPP. The Company has a 51% membership interest in this community which is accounted for using the equity method of accounting.


(23)	The Company has a 55% membership interest in this community which is accounted for using the equity method of accounting.


(24)	This community is owned by BEX II. The Company has a 50.1% interest in BEX II which is accounted for using the equity method of accounting.

Item 3. Legal Proceedings

The information, which regards lawsuits, other proceedings and claims, set forth in Note 15, “Commitments and Contingencies”, of our notes to consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K is incorporated by reference into this Item 3. In addition to such matters referred to in Note 15, the Company is subject to various other legal and/or regulatory proceedings arising in the course of its business operations. We believe that, with respect to such matters that we are currently a party to, the ultimate disposition of any such matter will not result in a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not Applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The shares of the Company’s common stock are traded on the New York Stock Exchange (“NYSE”) under the symbol ESS. ESS common stock has been traded on the NYSE since June 13, 1994. The high, low and closing price per share of common stock reported on the NYSE for the quarters indicated are as follows:



Quarter Ended	High		Low		Close
December 31, 2016	$	234.07	$	200.01	$	232.50
September 30, 2016	$	236.56	$	217.16	$	222.70
June 30, 2016	$	237.50	$	207.20	$	228.09
March 31, 2016	$	240.55	$	191.25	$	233.86
December 31, 2015	$	244.71	$	214.29	$	239.41
September 30, 2015	$	232.20	$	205.72	$	223.42
June 30, 2015	$	231.90	$	208.85	$	212.50
March 31, 2015	$	243.17	$	207.26	$	229.90

The closing price of ESS stock as of February 21, 2017 was $230.97.

There is no established public trading market for Essex Portfolio, L.P.’s OP Units.

Holders

The approximate number of holders of record of the shares of ESS common stock was 1,336 as of February 21, 2017. This number does not include stockholders whose shares are held in investment accounts by other entities. ESS believes the actual number of stockholders is greater than the number of holders of record.

As of February 21, 2017, there were 184 holders of record of Essex Portfolio, L.P.’s OP Units, including ESS.

Return of Capital

Under provisions of the Internal Revenue Code of 1986, as amended, the portion of the cash dividend, if any, that exceeds earnings and profits is considered a return of capital. The return of capital is generated due to a variety of factors, including the deduction of non-cash expenses, primarily depreciation, in the determination of earnings and profits.

The status of the cash dividends distributed for the years ended December 31, 2016, 2015, and 2014 related to common stock, and Series H preferred stock for tax purposes are as follows:



	2016		2015		2014
Common Stock
Ordinary income	86.68	%	99.28	%	70.03	%
Capital gain	7.11	%	0.72	%	21.95	%
Unrecaptured section 1250 capital gain	6.21	%	—	%	8.02	%
	100.00	%	100.00	%	100.00	%

	2016		2015		2014
Series G and H Preferred stock
Ordinary income	86.68	%	99.28	%	70.03	%
Capital gains	7.11	%	0.72	%	21.95	%
Unrecaptured section 1250 capital gain	6.21	%	—	%	8.02	%
	100.00	%	100.00	%	100.00	%

Dividends and Distributions

Since ESS’s initial public offering on June 13, 1994, ESS and the Operating Partnership have paid regular quarterly dividends/distributions to its stockholders and unitholders. ESS paid the following dividends per share of common stock and the Operating Partnership paid the following distributions per limited partner OP unit:



Year Ended	Annual Dividend/Distribution		Quarter Ended	2016	2015	2014
1995	$	1.69	March 31,	$1.60	$1.44	$1.21
1996	$	1.72	June 30,	$1.60	$1.44	$1.30
1997	$	1.77	September 30,	$1.60	$1.44	$1.30
1998	$	1.95	December 31,	$1.60	$1.44	$1.30
1999	$	2.15
2000	$	2.38	Annual Dividend/Distribution	$6.40	$5.76	$5.11
2001	$	2.80
2002	$	3.08
2003	$	3.12
2004	$	3.16
2005	$	3.24
2006	$	3.36
2007	$	3.72
2008	$	4.08
2009	$	4.12
2010	$	4.13
2011	$	4.16
2012	$	4.40
2013	$	4.84

Future dividends/distributions by ESS and the Operating Partnership will be at the discretion of the Board of Directors of ESS and will depend on the actual cash flows from operations of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, applicable legal restrictions and such other factors as the Board of Directors deem relevant. There are currently no contractual restrictions on ESS and the Operating Partnership present or future ability to pay dividends and distributions.

The Board of Directors has declared a dividend/distribution for the fourth quarter of 2016 of $1.60 per share. The dividend/distribution was paid on January 17, 2017 to shareholders/unitholders of record as of December 30, 2016.

Dividend Reinvestment and Share Purchase Plan

ESS has adopted a dividend reinvestment and share purchase plan designed to provide holders of common stock with a convenient and economical means to reinvest all or a portion of their cash dividends in shares of common stock and to acquire additional shares of common stock through voluntary purchases. Computershare, LLC, which serves as ESS transfer agent, administers the dividend reinvestment and share purchase plan. For a copy of the plan, contact Computershare, LLC at (312) 360-5354.

Securities Authorized for Issuance under Equity Compensation Plans

See the Company’s disclosure in the 2017 Proxy Statement under the heading “Equity Compensation Plan Information”, which disclosure is incorporated herein by reference.

Issuance of Registered Equity Securities

During 2016, ESS did not make any common stock sales pursuant to its registration statement. Additionally, during the first quarter of 2017 through February 21, 2017, ESS has not issued any shares of common stock.

Issuer Purchases of Equity Securities

In December 2015, ESS Board of Directors authorized a stock repurchase plan to allow ESS to acquire shares in an aggregate of up to $250 million. Under the program, in October 2016, the Company repurchased and retired 5,100 shares totaling $1.0 million, including commissions, at an average stock price of $204.92 per share. There have been no other repurchases since the inception of this plan. The Company has $249 million of purchase authority remaining under the plan.

Performance Graph

The line graph below compares the cumulative total stockholder return on ESS common stock for the last five years with the cumulative total return on the S&P 500 and the NAREIT All Equity REIT index over the same period. This comparison assumes that the value of the investment in the common stock and each index was $100 on December 31, 2011 and that all dividends were reinvested (1).



	Period Ending
Index	12/31/2011	12/31/2012	12/31/2013	12/31/2014	12/31/2015	12/31/2016
Essex Property Trust, Inc.	100.00	107.51	108.64	160.79	191.14	190.89
NAREIT All Equity REIT Index	100.00	119.70	123.12	157.63	162.08	176.07
S&P 500	100.00	116.00	153.57	174.60	177.01	198.18


(1)	Common stock performance data is provided by SNL Financial.

The graph and other information furnished under the above caption “Performance Graph” in this Part II Item 5 of this Form 10-K shall not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of the Exchange Act, as amended.

Unregistered Sales of Equity Securities

During the years ended December 31, 2016 and 2015, the Operating Partnership issued partnership units in private placements in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, in the amounts and for the consideration set forth below:

During the years ended December 31, 2016 and 2015, ESS issued an aggregate of 137,622 and 203,556 shares of its common stock upon the exercise of stock options, respectively. ESS contributed the proceeds from the option exercises of $18.9 million and $26.5 million to our Operating Partnership in exchange for an aggregate of 137,622 and 203,556 common OP Units, as required by the Operating Partnership’s partnership agreement, during the years ended December 31, 2016 and 2015, respectively.

During the years ended December 31, 2016 and 2015, ESS issued an aggregate of 2,018 and 3,338 shares of its common stock in connection with restricted stock awards for no cash consideration, respectively. For each share of common stock issued by ESS in connection with such awards, our Operating Partnership issued common OP units to ESS as required by the partnership agreement, for an aggregate of 2,018 and 3,338 units during the years ended December 31, 2016 and 2015, respectively.

During the years ended December 31, 2016 and 2015, ESS issued an aggregate of 14,094 and 6,450 shares of its common stock in connection with the exchange of Operating Partnership limited partnership units and DownREIT limited partnership units by limited partners into shares of common stock. For each share of common stock issued by ESS in connection with such exchange, our Operating Partnership issued common OP units to ESS as required by the partnership agreement, for an aggregate of 14,094 and 6,450 units during the year ended December 31, 2016 and 2015, respectively.

During the year ended December 31, 2016, there were no shares of ESS's common stock issued or sold pursuant to its equity distribution program. During the year ended December 31, 2015, ESS issued and sold an aggregate of 1,481,737 shares of its common stock, respectively, pursuant to a registration statement and its equity distribution program. ESS contributed the net proceeds from these share issuances of $332.3 million in exchange for an aggregate of 1,481,737 common OP Units, respectively, as required by the Operating Partnership's partnership agreement.

Item 6. Selected Financial Data

The following tables set forth summary financial and operating information for the ESS and the Operating Partnership from January 1, 2012 through December 31, 2016.

Essex Property Trust, Inc. and Subsidiaries



	Years Ended December 31,
	2016		2015		2014		2013		2012
	($ in thousands, except per share amounts)
OPERATING DATA:(1)
Rental and other property	$	1,285,723	$	1,185,498	$	961,591	$	603,327	$	527,945
Management and other fees from affiliates	8,278		8,909		9,347		7,263		8,457
Income before discontinued operations	$	438,410	$	248,239	$	134,438	$	140,882	$	127,653
Income from discontinued operations	—		—		—		31,173		11,937
Net income	438,410		248,239		134,438		172,055		139,590
Net income available to common stockholders	$	411,124	$	226,865	$	116,859	$	150,811	$	119,812
Per share data:
Basic:
Income before discontinued operations available to common stockholders	$	6.28	$	3.50	$	2.07	$	3.26	$	3.10
Net income available to common stockholders	$	6.28	$	3.50	$	2.07	$	4.05	$	3.42
Weighted average common stock outstanding	65,472		64,872		56,547		37,249		35,032
Diluted:
Income before discontinued operations available to common stockholders	$	6.27	$	3.49	$	2.06	$	3.25	$	3.09
Net income available to common stockholders	$	6.27	$	3.49	$	2.06	$	4.04	$	3.41
Weighted average common stock outstanding	65,588		65,062		56,697		37,335		35,125
Cash dividend per common share	$	6.40	$	5.76	$	5.11	$	4.84	$	4.40


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



	As of December 31,
	2016		2015		2014		2013		2012
	($ in thousands)
BALANCE SHEET DATA:(1)
Investment in rental properties (before accumulated depreciation)	$	12,676,306	$	12,331,469	$	11,244,681	$	5,443,757	$	5,033,672
Net investment in rental properties	10,364,760		10,381,577		9,679,875		4,188,871		3,952,155
Real estate under development	190,505		242,326		429,096		50,430		66,851
Co-investments	1,161,275		1,036,047		1,042,423		677,133		571,345
Total assets	12,217,408		12,008,384		11,530,299		5,164,171		4,828,821
Total indebtedness	5,563,260		5,318,757		5,084,256		3,010,856		2,800,281
Redeemable noncontrolling interest	44,684		45,452		23,256		—		—
Cumulative convertible preferred stock	—		—		—		4,349		4,349
Cumulative redeemable preferred stock	—		73,750		73,750		73,750		73,750
Stockholders' equity	6,192,178		6,237,733		6,022,672		1,884,619		1,764,804


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



	As of and for the years ended December 31,
	2016			2015			2014			2013			2012
	($ in thousands, except per share amounts)
OTHER DATA:
Funds from operations (FFO)(1) attributable to common stockholders and unitholders:
Net income available to common stockholders	$	411,124		$	226,865		$	116,859		$	150,811		$	119,812
Adjustments:
Depreciation and amortization	441,682			453,423			360,592			193,518			170,686
Gains not included in FFO attributable to common stockholders and unitholders	(167,607		)	(81,347		)	(50,064		)	(67,975		)	(60,842		)
Deferred tax expense on sale of real estate and land - taxable REIT subsidiary activity	4,410			—			—			—			—
Depreciation add back from unconsolidated co-investments	50,956			49,826			33,975			15,748			14,467
Noncontrolling interest related to Operating Partnership units	14,089			7,824			4,911			8,938			7,950
Insurance reimbursements	—			(1,751		)	—			—			—
Depreciation attributable to third party ownership and other	(9		)	(781		)	(1,331		)	(1,309		)	(1,223		)
Funds from operations attributable to common stockholders and unitholders	$	754,645		$	654,059		$	464,942		$	299,731		$	250,850
Non-core items:
Merger and integration expenses	—			3,798			53,530			4,284			—
Acquisition and investment related costs	1,841			2,414			1,878			1,161			2,255
Gain on sale of marketable securities, note prepayment, and other investments	(5,719		)	(598		)	(886		)	(2,519		)	(819		)
Gain on sale of land	—			—			(2,533		)	(1,503		)	—
Interest rate hedge ineffectiveness (2)	(250		)	—			—			—			—
Loss on early retirement of debt	606			6,114			268			300			5,009
Co-investment promote income	—			(192		)	(10,640		)	—			(2,299		)
Income from early redemption of preferred equity investments	—			(1,954		)	(5,250		)	(1,358		)	—
Excess of redemption value of preferred stock over carrying value	2,541			—			—			—			—
Insurance reimbursements, legal settlements, and other, net (3)	(4,470		)	(2,970		)	1,852			—			—
Core funds from operations (Core FFO) attributable to common stockholders and unitholders	$	749,194		$	660,671		$	503,161		$	300,096		$	254,996
Weighted average number of shares outstanding, diluted (FFO)(4)	67,890			67,310			58,921			39,501			37,378
Funds from operations attributable to common stockholders and unitholders per share - diluted	$	11.12		$	9.72		$	7.89		$	7.59		$	6.71
Core funds from operations attributable to common stockholders and unitholders per share - diluted	$	11.04		$	9.82		$	8.54		$	7.60		$	6.82

(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 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.

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)

Interest rate swaps generally are adjusted to fair value through other comprehensive income (loss). However, because certain of our interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portion of the change in fair value of these interest rate swaps attributable to this mismatch is recorded as noncash interest rate hedge ineffectiveness through interest expense.


(3)	Other items, net are non-recurring in nature.


(4)	Assumes conversion of all dilutive outstanding operating partnership interests in the Operating Partnership and excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the DownREIT limited partnership units for cash and does not consider them to be common stock equivalents.

Essex Portfolio, L.P. and Subsidiaries



	Years Ended December 31,
	2016		2015		2014		2013		2012
	($ in thousands, except per unit amounts)
OPERATING DATA:(1)
Rental and other property	$	1,285,723	$	1,185,498	$	961,591	$	603,327	$	527,945
Management and other fees from affiliates	8,278		8,909		9,347		7,263		8,457
Income before discontinued operations	$	438,410	$	248,239	$	134,438	$	140,882	$	127,653
Income from discontinued operations	—		—		—		31,173		11,937
Net income	438,410		248,239		134,438		172,055		139,590
Net income available to common unitholders	$	425,213	$	234,689	$	121,726	$	159,749	$	127,771
Per unit data:
Basic:
Income before discontinued operations available to common unitholders	$	6.28	$	3.50	$	2.07	$	3.27	$	3.11
Net income available to common unitholders	$	6.28	$	3.50	$	2.07	$	4.06	$	3.43
Weighted average common units outstanding	67,696		67,054		58,772		39,380		37,252
Diluted:
Income before discontinued operations available to common unitholders	$	6.27	$	3.49	$	2.07	$	3.26	$	3.10
Net income available to common unitholders	$	6.27	$	3.49	$	2.07	$	4.05	$	3.42
Weighted average common units outstanding	67,812		67,244		58,921		39,467		37,344
Cash distributions per common unit	$	6.40	$	5.76	$	5.11	$	4.84	$	4.40


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



	As of December 31,
	2016		2015		2014		2013		2012
	($ in thousands)
BALANCE SHEET DATA:(1)
Investment in rental properties (before accumulated depreciation)	$	12,676,306	$	12,331,469	$	11,244,681	$	5,443,757	$	5,033,672
Net investment in rental properties	10,364,760		10,381,577		9,679,875		4,188,871		3,952,155
Real estate under development	190,505		242,326		429,096		50,430		66,851
Co-investments	1,161,275		1,036,047		1,042,423		677,133		571,345
Total assets	12,217,408		12,008,384		11,530,299		5,164,171		4,828,821
Total indebtedness	5,563,260		5,318,757		5,084,256		3,010,856		2,800,281
Redeemable noncontrolling interest	44,684		45,452		23,256		—		—
Cumulative convertible preferred interest	—		—		—		4,349		4,349
Cumulative redeemable preferred interest	—		71,209		71,209		71,209		71,209
Partners' capital	6,244,364		6,287,381		6,073,433		1,932,108		1,811,427


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

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying consolidated 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.

OVERVIEW

ESS is a self-administered and self-managed REIT that acquires, develops, redevelops, and manages apartment communities in selected residential areas located primarily in the West Coast of the United States. ESS owns all of its interests in its real estate investments, directly or indirectly, through the Operating Partnership. ESS is the sole general partner of the Operating Partnership and, as of December 31, 2016, had an approximately 96.7% general partner interest in the Operating Partnership.

The Company’s investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth. The Company’s strong financial condition supports its investment strategy by enhancing its ability to quickly shift acquisition, development, redevelopment, and disposition activities to markets that will optimize the performance of the portfolio.

As of December 31, 2016, the Company had ownership interests in 245 communities, comprising 59,645 apartment homes, excluding the Company's ownership in preferred equity interest co-investments.

The Company’s apartment communities are predominately located in the following major regions:

Southern California (Los Angeles, Orange, San Diego, and Ventura counties)

Northern California (the San Francisco Bay Area)

Seattle Metro (Seattle metropolitan area)

As of December 31, 2016, the Company’s development pipeline was comprised of two consolidated projects under development, four unconsolidated joint venture projects under development and various consolidated predevelopment projects aggregating 2,223 apartment homes, with total incurred costs of $0.6 billion, and estimated remaining project costs of approximately $0.7 billion for total estimated project costs of $1.3 billion.

As of December 31, 2016, the Company also had ownership interests in two operating commercial buildings (with approximately 140,564 square feet).

By region, the Company's operating results for 2016 and 2015 and projections for 2017 new housing supply (defined as new multi-family apartment homes and single family homes, excluding developments with fewer than 50 apartment homes as well as student, senior and 100% affordable housing), job growth, and rental income are as follows:

Southern California Region: As of December 31, 2016, this region represented 49% of the Company’s consolidated apartment homes. Revenues for “2016/2015 Same-Properties” (as defined below), or “Same-Property revenues,” increased 6.2% in 2016 as compared to 2015. In 2017, the Company projects new residential supply of 36,425 apartment homes and single family homes, which represents 0.6% of the total housing stock. The Company projects an increase of 145,450 jobs or 2.0%, and an increase in Same-Property revenues of between 3.50% to 4.50% in 2017.

Northern California Region: As of December 31, 2016, this region represented 30% of the Company’s consolidated apartment homes. Same-Property revenues increased 6.8% in 2016 as compared to 2015. In 2017, the Company projects new residential supply of 19,150 apartment homes and single family homes, which represents 0.8% of the total housing stock. The Company projects an increase of 68,350 jobs or 2.2%, and an increase in Same-Property revenues of between 1.25% to 2.25% in 2017.

Seattle Metro Region: As of December 31, 2016, this region represented 21% of the Company’s consolidated apartment homes. Same-Property revenues increased 7.9% in 2016 as compared to 2015. In 2017, the Company projects new residential supply of 19,600 apartment homes and single family homes, which represents 1.6% of the total housing stock. The Company projects an increase of 44,600 jobs or 2.7%, and an increase in Same-Property revenues of between 3.75% to 4.75% in 2017.

The Company projects an increase in 2017 Same-Property revenues of between 2.75% to 3.75%, as renewal and new leases are signed at higher rents in 2017 than 2016. Same-Property operating expenses are projected to increase in 2017 by 2.50% to 3.50%.

The Company’s consolidated communities are as follows:



	As of			As of
	December 31, 2016			December 31, 2015
	Apartment Homes	%		Apartment Homes	%
Southern California	23,613	49	%	23,707	49	%
Northern California	14,519	30	%	14,694	30	%
Seattle Metro	10,239	21	%	10,239	21	%
Total	48,371	100	%	48,640	100	%

Co-investments, including Wesco I, LLC ("Wesco I"), Wesco III, LLC ("Wesco III"), Wesco IV, LLC (“Wesco IV”), Canadian Pension Plan Investment Board ("CPPIB" or "CPP"), Palm Valley, BEXAEW, LLC (“BEXAEW”), BEX II, LLC ("BEX II"), communities, developments under construction and preferred equity interest co-investment communities are not included in the table presented above for both periods.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 2016 to the Year Ended December 31, 2015

The Company’s average financial occupancies for the Company’s stabilized apartment communities or “2016/2015 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2016 and 2015) increased 30 basis points to 96.3% in 2016 from 96.0% in 2015. Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rental revenue for occupied apartment homes plus market rent for vacant apartment homes). Actual rental revenue represents contractual rental revenue pursuant to leases without considering delinquency and concessions. Total potential rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. We believe that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate.

Market rates are determined using the recently signed effective rates on new leases at the property and are used as the starting point in the determination of the market rates of vacant apartment homes. The Company may increase or decrease these rates based on the supply and demand in the apartment community’s market. The Company will check the reasonableness of these rents based on its position within the market and compare the rents against the asking rents by comparable properties in the market. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates and the Company's calculation of financial occupancy may not be comparable to financial occupancy as disclosed by other REITs.

The Company does not take into account delinquency and concessions to calculate actual rent for occupied apartment homes and market rents for vacant apartment homes. The calculation of financial occupancy compares contractual rates for occupied apartment homes to estimated market rents for unoccupied apartment homes, and thus the calculation compares the gross value of all apartment homes excluding delinquency and concessions. For apartment communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric. While an apartment community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy, which is based on contractual revenue is not considered the best metric to quantify occupancy.

The regional breakdown of the Company’s 2016/2015 Same-Property portfolio for financial occupancy for the years ended December 31, 2016 and 2015 is as follows:



	Years ended December 31,
	2016		2015
Southern California	96.4	%	95.9	%
Northern California	96.3	%	96.1	%
Seattle Metro	96.1	%	96.1	%

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2016/2015 Same-Properties.



	Number of Apartment	Years Ended December 31,				Dollar		Percentage
Property Revenues ($ in thousands)	Homes	2016		2015		Change		Change
2016/2015 Same-Properties: (1)
Southern California	20,698	$	497,448	$	468,614	$	28,834	6.2	%
Northern California	13,220	401,642		376,019		25,623		6.8	%
Seattle Metro	10,239	217,259		201,417		15,842		7.9	%
Total 2016/2015 Same-Property revenues	44,157	1,116,349		1,046,050		70,299		6.7	%
2016/2015 Non-Same Property Revenues		169,374		139,448		29,926		21.5	%
Total property revenues		$	1,285,723	$	1,185,498	$	100,225	8.5	%


(1)	Same-property excludes properties held for sale.

2016/2015 Same-Property Revenues increased by $70.3 million or 6.7% to $1.1 billion for 2016 compared to $1.0 billion in 2015. The increase was primarily attributable to an increase of 6.4% in average rental rates from $1,942 per apartment home for 2015 to $2,066 per apartment home for 2016.

2016/2015 Non-Same Property Revenues increased by $29.9 million or 21.5% to $169.4 million in 2016 compared to $139.4 million in 2015. The increase was primarily due to revenue generated by the acquisition, completed development, or consolidation of three communities, net of dispositions, since January 1, 2015.

Management and other fees from affiliates decreased by $0.6 million in 2016 compared to 2015. The decrease is primarily due to the loss of asset and management fees in 2016 as compared to 2015 associated with the Company's purchase of the joint venture partner's remaining membership interest in The Huxley, The Dylan, and Reveal communities during 2015 and the sale of certain communities.

Property operating expenses, excluding real estate taxes increased $14.8 million or 6.3% in 2016 compared to 2015, primarily due to the acquisition, completed development, or consolidation of three communities, net of dispositions, since January 1, 2015. 2016/2015 Same-Property operating expenses excluding real estate taxes, increased by $9.9 million or 4.7% in 2016 compared to 2015, due mainly to a $4.7 million increase in property management fees and a $2.3 million increase in maintenance and repairs.

Real estate taxes increased $10.6 million or 8.3% in 2016 compared to 2015, primarily due to the acquisition, completed development, or consolidation of three communities, net of dispositions, since January 1, 2015. 2016/2015 Same-Property real estate taxes increased by $2.2 million or 2.0% for 2016 compared to 2015 due to increases in tax rates and property valuations.

Depreciation and amortization expense decreased by $11.7 million or 2.6% in 2016 compared to 2015, primarily due to the amortization of a larger amount of in-place leases during 2015 compared to 2016, offset by the acquisition, completed development, or consolidation of three communities, net of dispositions, since January 1, 2015.

Merger and integration expenses include, but are not limited to, advisor fees, legal fees, and accounting fees related to the merger with BRE and related integration activity. There were no merger and integration expenses for 2016 and $3.8 million for 2015.

Interest expense increased $14.8 million or 7.2% in 2016, primarily due to the $500.0 senior unsecured notes due on April 1, 2025 issued in March 2015 and the $450.0 million senior unsecured notes due on April 15, 2026 issued in April 2016, which resulted in an increase of $14.9 million in interest expense for 2016 compared to 2015. Additionally, there was a $3.1 million decrease in capitalized interest in 2016 compared to 2015, which was due to a decrease in development costs as compared to the same period in 2015. These additions were offset by a reduction in interest expense due to the payoff of $150.0 million in private placement unsecured bonds in 2016.

Total return swap income of $11.7 million in 2016 consists of monthly settlements related to the Company's total return swap contracts that were entered into during 2015, in connection with $257.3 million of tax-exempt mortgage notes payable. The Company had total return swap income of $5.7 million in 2015.

Interest and other income increased $8.2 million or 42.6% in 2016, primarily due to an increase of $5.1 million in gains from the sale of marketable securities and $2.5 million in income from marketable securities and other interest income.

Equity income from co-investments increased by $26.8 million or 122.8% in 2016 compared to 2015, primarily due to $13.0 million in income on the gain on sale of two co-investment communities as well as income from five preferred equity investments originated during 2016.

Gains on sale of real estate and land increased by $107.2 million or 226.5% in 2016 compared to 2015, due primarily to a $126.6 million gain from the sale of minority membership interest in BEX II, LLC, $10.7 million gain on the sale of Harvest Park before a tax expense, a $7.3 million gain on the sale of Candlewood North and a $9.6 million gain on the sale of the Company's headquarters office building during 2016, as compared to approximately $7.1 million in gains on the sales of Pinnacle South Mountain and two commercial buildings as well as a $40.2 million gain on the sale of Sharon Green during 2015.

Deferred tax expense on gain on sale of real estate and land of $4.4 million for 2016 was recorded primarily due to the sale of Harvest Park, which was owned by our wholly owned taxable REIT subsidiary. There was no current tax expense on the sale of real estate and land for 2016 as the Harvest Park proceeds were used in a like-kind exchange transaction.

Gains on remeasurement of co-investment of $34.0 million in 2015 was due to the remeasurement of the Company's investments, caused by the Company's acquisition of a controlling interest in The Huxley and The Dylan properties, resulting in a gain of $21.3 million, and Reveal, resulting in a gain of $12.7 million. There were no gains on remeasurement of co-investments in 2016.

Comparison of Year Ended December 31, 2015 to the Year Ended December 31, 2014

The Company’s average financial occupancies for the Company’s stabilized apartment communities for “2015/2014 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2015 and 2014) was unchanged at 96.2% in both 2015 and 2014. The regional breakdown of the Company’s stabilized 2015/2014 Same-Property portfolio for financial occupancy for the years ended December 31, 2015 and 2014 is as follows:



	Years ended December 31,
	2015		2014
Southern California	96.2	%	96.3	%
Northern California	96.3	%	96.2	%
Seattle Metro	96.2	%	96.0	%

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2015/2014 Same-Properties.



	Number of Apartment	Years Ended December 31,				Dollar		Percentage
Property Revenues ($ in thousands)	Homes	2015		2014		Change		Change
2015/2014 Same-Properties: (1)
Southern California	12,875	$	283,435	$	267,413	$	16,022	6.0	%
Northern California	9,080	250,478		226,679		23,799		10.5	%
Seattle Metro	6,558	124,143		115,219		8,924		7.7	%
Total 2015/2014 Same-Property revenues	28,513	658,056		609,311		48,745		8.0	%
2015/2014 Non-Same Property Revenues		527,442		352,280		175,162		49.7	%
Total property revenues		$	1,185,498	$	961,591	$	223,907	23.3	%


(1)	Same-property excludes BRE properties acquired April 1, 2014 and properties held for sale.

2015/2014 Same-Property Revenues increased by $48.7 million or 8.0% to $658 million for 2015 compared to $609.3 million in 2014. The increase was primarily attributable to an increase of 8.1% in average rental rates from $1,741 per apartment home for 2014 to $1,882 per apartment home for 2015.

2015/2014 Non-Same Property Revenues increased by $175.2 million or 49.7% to $527.4 million in 2015 compared to $352.3 million in 2014. The increase was primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and properties held for sale, since January 1, 2014.

Property operating expenses, excluding real estate taxes increased $30.3 million or 14.8% in 2015 compared to 2014, primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and properties held for sale, since January 1, 2014. 2015/2014 Same-Property operating expenses excluding real estate taxes, increased by $2.3 million or 1.7% in 2015 compared to 2014, due mainly to a $1.7 million increase in repairs and maintenance.

Real estate taxes increased $20.7 million or 19.2% in 2015 compared to 2014, due primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and held for sale, since January 1, 2014. 2015/2014 Same-Property real estate taxes increased by $1.7 million or 3.2% for 2015 compared to 2014.

Depreciation and amortization expense increased by $92.8 million or 25.7% in 2015 compared to 2014, primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and properties held for sale, since January 1, 2014.

Merger and integration expenses include, but are not limited to, advisor fees, legal fees, and accounting fees related to the BRE merger and related integration activity. The Company completed the merger with BRE on April 1, 2014. Merger and integration expenses were $3.8 million for 2015 and $53.5 million for 2014.

Interest expense increased $40.3 million or 24.5% in 2015, due to an increase in average outstanding debt primarily due to assumed debt in connection with the BRE merger in addition to a $6.8 million decrease in capitalized interest in 2015 compared to 2014, which was due to a decrease in development costs as compared to the same period in 2014.

Total return swap income of $5.7 million in 2015 consists of monthly settlements related to the Company's total return swap contracts that were entered into during the year, in connection with $257.3 million of tax-exempt mortgage notes payable. The Company had no total return swap income in 2014.

Interest and other income increased $7.3 million or 62.1% in 2015, due to an increase in the investment of mortgage backed securities, an increase of $3.1 million in insurance proceeds and $0.6 million in income from the sale of an investment.

Equity income from co-investments decreased by $18.0 million to $21.9 million in 2015 compared to $39.9 million in 2014, primarily due to events in 2014 which did not recur in 2015, including the Company’s share of the gain on the sale of two co-investment communities of $6.6 million, promote income of $10.6 million, and income from the early redemption of preferred equity investments of $5.3 million in 2014, partially offset by $2.0 million in income from the early redemption of two preferred equity investments during 2015 and an increase of $7.4 million in equity income from co-investment operations. Additionally, income from preferred equity investments decreased by approximately $5.1 million from 2014 to 2015.

Gains on sale of real estate and land increased by $1.3 million or 2.8% in 2015 compared to 2014, due primarily to $7.1 million in gains on the sales of Pinnacle South Mountain and two commercial buildings as well as a $40.2 million gain on the sale of Sharon Green during 2015 as compared to approximately $16.8 million in gains on the sales of Vista Capri North, Coldwater Canyon, Pinnacle Town Center, and a land parcel adjacent to the Company's Park Viridian property, as well as a $29.2 million gain on the sale of Mt. Sutro during 2014.

Gains on remeasurement of co-investment increased by $34.0 million in 2015 compared to 2014, due to the remeasurement of the Company's investments, as a result of the Company's acquisition of a controlling interest in The Huxley and The Dylan properties, resulting in a gain of $21.3 million, and Reveal, resulting in a gain of $12.7 million.

Liquidity and Capital Resources

The following table sets forth the Company’s cash flows for 2016, 2015 and 2014 ($ in thousands):



	For the year ended December 31,
	2016			2015			2014
Cash flow provided by (used in):
Operating activities	$	712,523		$	617,410		$	493,312
Investing activities	$	(421,412	)	$	(725,556	)	$	(1,147,156	)
Financing activities	$	(255,873	)	$	108,214		$	520,610

ESS’s business is operated primarily through the Operating Partnership. ESS issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by the Operating Partnership. ESS itself does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. ESS’s principal funding requirement is the payment of dividends on its common stock and preferred stock. ESS’s sole source of funding for its dividend payments is distributions it receives from the Operating Partnership.

As of December 31, 2016, ESS owned a 96.7% general partner interest and the limited partners owned the remaining 3.3% interest in the Operating Partnership.

The liquidity of ESS is dependent on the Operating Partnership’s ability to make sufficient distributions to ESS. The primary cash requirement of ESS is its payment of dividends to its stockholders. ESS also guarantees some of the Operating Partnership’s debt, as discussed further in Notes 6 and 7 of the notes to consolidated financial statements included elsewhere herein. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger the ESS’s guarantee obligations, then ESS will be required to fulfill its cash payment commitments under such guarantees. However, ESS’s only significant asset is its investment in the Operating Partnership.

For ESS to maintain its qualification as a REIT, it must pay dividends to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains. While historically ESS has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, ESS’s own stock. As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. ESS may need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, acquisitions and developments.

At December 31, 2016, the Company had $64.9 million of unrestricted cash and cash equivalents and $139.2 million in marketable securities, of which $44.8 million were held available for sale. The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of the Company’s reasonably anticipated cash needs during 2017. The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect the Company’s plans for acquisitions, dispositions, development and redevelopment activities.

As of December 31, 2016, the Company had $315.0 million of private placement unsecured bonds outstanding at an average interest rate of 4.5% with maturity dates ranging from September 2017 through August 2021.

As of December 31, 2016, the Company had $2.9 billion of fixed rate public bonds outstanding, with interest rates varying from 3.25% to 5.50% and maturity dates ranging from 2017 to 2026.

As of December 31, 2016, the Company had $100.0 million outstanding on its $350.0 million unsecured term loan. The $350.0 million unsecured term loan has a delayed draw feature and bears a variable interest rate of LIBOR plus 0.95%. The Company has entered into four forward starting interest rate swap contracts for a term of five years with an aggregate notional balance of $150.0 million, with settlements starting in March 2017, which effectively will convert the interest rate on $150.0 million of the term loan to a fixed rate of 2.2%. At December 31, 2016, the Company had an active $25.0 million notional interest rate swap, with a maturity date in July 2017, which effectively converts $25.0 million of the term loan to a fixed rate of 2.4%

As of December 31, 2016, the Company’s mortgage notes payable totaled $2.2 billion, net of unamortized premiums and debt issuance costs, which consisted of $1.9 billion in fixed rate debt with interest rates varying from 3.0% to 6.4% and maturity dates ranging from 2017 to 2027 and $281.7 million of tax-exempt variable rate demand notes with a weighted average interest rate of 1.2%. The tax-exempt variable rate demand notes have maturity dates ranging from 2025 to 2046, and $20.7 million is subject to interest rate caps and $257.3 million is subject to total return swaps.

The Company has two lines of credit aggregating $1.03 billion as of December 31, 2016 including a $1.0 billion unsecured line of credit. As of December 31, 2016, there was a $125.0 million balance on this unsecured line of credit with an underlying interest rate of LIBOR plus 0.90%. In January 2017, the facility maturity date was extended to December 31, 2020 with one 18-month extension, exercisable at the Company's option. The Company also has a $25.0 million working capital unsecured line of credit agreement. As of December 31, 2016, there were no amounts outstanding on this unsecured line with an underlying interest rate of LIBOR plus 0.90%.

The Company’s unsecured line of credit and unsecured debt agreements contain debt covenants related to limitations on indebtedness and liabilities and maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization. The Company was in compliance with the debt covenants as of December 31, 2016 and 2015.

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 investment grade securities held available for sale or is used by the Company to reduce balances outstanding under its line of credit.

Derivative Activity

The Company uses interest rate swaps, interest rate caps, and total return swap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps and total return swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparties nonperformance risk in the fair value measurements.

The Company has entered into interest rate swap contracts with an aggregate notional amount of $175.0 million, $25 million of which effectively fixed the interest rate on $25.0 million of the $100.0 million drawn on its $350.0 million unsecured term loan at 2.4%. The remaining $150.0 million in swaps are forward starting swaps, with settlement payments commencing in March 2017. These derivatives qualify for hedge accounting.

The Company has entered into four total return swap contracts, with an aggregate notional amount of $257.3 million, that effectively converts $257.3 million of mortgage notes payable to a floating interest rate based on SIFMA plus a spread. Additionally, the total return swaps provide fair market value protection on the mortgage notes payable to our counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call one of the total return swaps with $114.4 million of the outstanding debt at par, while the call option on the other three total return swaps relating to $142.9 million of the outstanding debt can be exercised starting on January 1, 2017. These derivatives do not qualify for hedge accounting.

As of December 31, 2016 the Company also had three interest rate caps with an aggregate notional amount of $20.7 million that effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for $20.7 million of the Company’s tax exempt variable rate debt.

As of December 31, 2016 and 2015, the aggregate carrying value of the interest rate swap contracts was an asset of $4.4 million and zero, respectively and is included in prepaid expenses and other assets on the consolidated balance sheets and a liability of $33.1 thousand and $1.0 million, respectively. The aggregate carrying value of the interest rate caps was zero on the balance sheets as of both December 31, 2016 and 2015. The aggregate carrying value of the total return swaps was zero and $4.0 thousand as of December 31, 2016 and 2015, respectively.

Hedge ineffectiveness related to cash flow hedges, which is reported in current year income as interest expense, net was income of $0.3 million for the year ended December 31, 2016. Hedge ineffectiveness was not significant for the years ended 2015 and 2014.

Issuance of Common Stock

In 2016, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number or amount of certain equity (only ESS) and debt securities as defined in the prospectus.

ESS has entered into equity distribution agreements with Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., Capital One Securities, Inc., Citigroup Global Markets Inc, Jefferies LLC, J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA), Inc, and UBS Securities LLC. The Company did not issue any shares of common stock pursuant to its equity distribution program in 2016. In 2015, ESS issued 1,481,737 shares of common stock for proceeds of $332.3 million, net of fees and commissions. During the first quarter of 2017 through February 21, 2017, ESS has not issued any shares of common stock pursuant to this program. Under this program, ESS may from time to time sell shares of common stock into the existing trading market at current market prices, and the Company anticipates using the net proceeds, which are contributed to the Operating Partnership, to pay down debt, fund redevelopment and development pipelines, fund acquisitions, and for general corporate purposes. As of February 21, 2017, ESS may sell an additional 5,000,000 shares under the current equity distribution program.

Capital Expenditures

Non-revenue generating capital expenditures are improvements and upgrades that extend the useful life of the property. For the year ended December 31, 2016, non-revenue generating capital expenditures totaled approximately $1,219 per apartment home. The Company projects to incur approximately $1,250 per apartment home in non-revenue generating capital expenditures for the year ending December 31, 2017. These expenditures do not include the improvements required in connection with the origination of mortgage loans, expenditures for deferred maintenance on acquisition properties, expenditures for property renovations and improvements which are expected to generate additional revenue, and do not include expenditures incurred, due to changes in government regulations, that the Company would not have incurred otherwise. 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 2017 and/or the funding thereof will not be significantly different than the Company’s current expectations.

Development and Predevelopment Pipeline

The Company defines development projects as new communities that are being constructed or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of December 31, 2016, the Company had two consolidated development projects comprised of 796 apartment homes with an estimated cost of $0.5 billion of which $0.4 billion remains to be expended, and four unconsolidated joint venture active development projects comprised of 1,427 apartment homes with an estimated cost of $0.8 billion, of which approximately $0.4 billion remains to be expended. The Company's share of these estimated remaining project costs is approximately $0.2 billion.

The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects. The Company may also acquire land for future development purposes or sale.

The Company expects to fund the development and predevelopment pipeline by using a combination of some or all of the following sources: its working capital, amounts available on its lines of credit, construction loans, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of properties, if any.

Redevelopment Pipeline

The Company defines redevelopment communities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. During redevelopment, apartment homes may not be available for rent and, as a result, may have less than stabilized operations. As of December 31, 2016, the Company had ownership interests in six major redevelopment communities aggregating 1,869 apartment homes with estimated redevelopment costs of $170.2 million, of which approximately $65.5 million remains to be expended.

Alternative Capital Sources

The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities. As of December 31, 2016, the Company had an interest in 1,427 apartment homes of communities actively under development with joint ventures for a total estimated cost of $0.8 billion. Total estimated remaining costs total approximately $0.4 billion, of which the Company estimates that its remaining investment in these development joint ventures will be approximately $0.2 billion. In addition, the Company had an interest in 11,274 apartment homes of operating communities with joint ventures for a total book value of $0.8 billion.

Contractual Obligations and Commercial Commitments

The following table summarizes the maturity or due dates of the Company’s contractual obligations and other commitments at December 31, 2016, and the effect such obligations could have on the Company’s liquidity and cash flow in future periods ($ in thousands):



	2017		2018 and 2019		2020 and 2021		Thereafter		Total
Mortgage notes payable	$	82,796	$	878,529	$	745,452	$	441,313	$	2,148,090
Unsecured debt	340,000		75,000		500,000		2,350,000		3,265,000
Lines of credit	—		125,000		—		—		125,000
Interest on indebtedness (1)	217,709		379,762		243,695		262,494		1,103,660
Ground leases	2,897		5,794		5,794		106,111		120,596
Operating leases	1,750		3,673		3,915		10,361		19,699
Development commitments (including co-investments) (2)	287,827		308,219		107,954		—		704,000
	$	932,979	$	1,775,977	$	1,606,810	$	3,170,279	$	7,486,045


(1)	Interest on indebtedness for variable debt was calculated using interest rates as of December 31, 2016.


(2)	Estimated project cost for development of the Company's 500 Folsom project is net of a projected value for low-income housing tax credit proceeds and savings from tax exempt bonds.

Variable Interest Entities

In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidates the Operating Partnership, 19 DownREIT limited partnerships (comprising eleven communities), and 9 co-investments. The Company consolidates these entities because it is deemed the primary beneficiary. The consolidated total assets and liabilities related to the 9 consolidated co-investments and 19 DownREIT limited partnerships, net of intercompany eliminations, were approximately $989.3 million and $288.1 million, respectively, as of December 31, 2016, and $893.1 million and $231.8 million respectively, as of December 31, 2015. Noncontrolling interests in these entities was $52.9 million and $54.6 million as of December 31, 2016 and 2015, respectively. As of December 31, 2016, the Company did not have any other VIEs of which it was not deemed to be the primary beneficiary and did not have any VIEs of which it was not deemed to be the primary beneficiary.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements, in accordance with U.S. generally accepted accounting principles, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. The Company defines critical accounting policies as those accounting policies that require the Company's management to exercise their most difficult, subjective and complex judgments. The Company’s critical accounting policies relate principally to the following key areas: (i) accounting for business combinations; (ii) consolidation under applicable accounting standards of various entities; (iii) assessing the carrying values of the Company's real estate and investments in and advances to joint ventures and affiliates; and (iv) internal cost capitalization. The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management.

The Company accounts for its business combinations, including the merger and other acquisitions of investments in real estate, in accordance with ASC 805-10, Business Combinations, which requires the acquired tangible and intangible assets and

liabilities to be recorded at fair value, with excess purchase price, if any, recorded to goodwill. The Company must make significant assumptions in determining the fair value of the tangible and intangible assets and liabilities acquired and consideration transferred. The use of different assumptions in estimating the fair value could affect the measurement and timing of recognition of acquired assets and liabilities and related expenses.

The consideration transferred in a business combination is generally measured at fair value. For debt assumed by the Company, the fair value is determined using estimated market interest rates for debt with comparable terms in place at the time of the acquisition. For equity issued by the Company, the fair value is generally based on the fair value of the Company’s equity interests at the date of issuance.

The fair value of the tangible assets, which principally includes land and building, is determined first by valuing the property as a whole as if it were vacant, using stabilized net operating income and market specific capitalization rates. The fair value of the land and building is then recorded based on its estimated fair value.

In calculating the fair value of identified intangible assets of an acquired property, the in-place leases are valued based on in-place rent rates and amortized over the average remaining term of all acquired leases.

The Company assesses each entity in which it has an investment or contractual relationship to determine if it may be deemed to be a VIE. If such an entity is a VIE, then the Company performs an analysis to determine who is the primary beneficiary. If the Company is the primary beneficiary, then the entity is consolidated. The analysis required to identify VIEs and primary beneficiaries is complex and judgmental, and the analysis must be applied to various types of entities and legal structures.

The Company assesses the carrying value of its real estate investments by monitoring investment market conditions and performance compared to budget for operating properties and joint ventures, and by monitoring estimated costs for properties under development. Local market knowledge and data is used to assess carrying values of properties and the market value of acquisition opportunities. Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment may not be fully recoverable, the carrying amount is evaluated. If the sum of the property’s expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the property, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property. Adverse changes in market conditions or poor operating results of real estate investments could result in impairment charges. When the Company determines that a property is held for sale, it discontinues the periodic depreciation of that property. The criteria for determining when a property is held for sale requires judgment and has potential financial statement impact as depreciation would cease and an impairment loss could occur upon determination of held for sale status. Assets held for sale are reported at the lower of the carrying amount or estimated fair value less costs to sell.

Further, the Company evaluates whether its co-investments are other than temporarily impaired and, if so, records an impairment loss equal to the excess of the co-investments' carrying value over its estimated fair value.

The Company capitalizes all direct and certain indirect costs, including interest and real estate taxes, incurred during development and redevelopment activities. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use. The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period. Included in capitalized costs are management’s accounting estimates of the direct and incremental personnel costs and indirect project costs associated with the Company's development and redevelopment activities. Indirect project costs consist primarily of personnel costs associated with construction administration and development, including accounting, legal fees, and various corporate and community onsite costs that clearly relate to projects under development.

The Company bases its accounting estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.

Net Operating Income

Same-Property net operating income (“Same-Property NOI”) is considered by management to be an important supplemental performance measure to earnings from operations included in the Company’s consolidated statements of income. The presentation of Same-Property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. Same-Property NOI, which is based on net operating income ("NOI"), reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. Prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, and NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines Same-Property NOI as Same-Property revenue less Same-Property operating expenses.

The reconciliation of earnings from operations to Same-Property NOI for the periods presented:



	2016			2015			2014
Earnings from operations	$	420,800		$	331,174		$	201,514
Adjustments:
Depreciation and amortization	441,682			453,423			360,592
Management and other fees from affiliates	(8,278		)	(8,909		)	(9,347		)
General and administrative	40,751			40,090			40,878
Merger and integration expenses	—			3,798			53,530
Acquisition and investment related costs	1,841			2,414			1,878
Net operating income	896,796			821,990			649,045
Less: Non Same-Property NOI	(115,934		)	(99,320		)	(60,464		)
Same-Property NOI	$	780,862		$	722,670		$	588,581

Forward Looking Statements

Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Annual Report on Form 10-K 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 expectations as to the timing of completion of current development and redevelopment projects and the stabilization dates of such projects, expectation as to the total projected costs of development and redevelopment projects, beliefs as to the adequacy of future cash flows to meet anticipated cash needs, expectations as to the amount of non-revenue generating capital expenditures, future acquisitions, the Company's development and redevelopment pipeline and the sources of funding for it, the anticipated performance of existing properties, anticipated property and growth trends in various geographic regions, statements regarding the Company’s expected 2017 Same-Property revenue generally and in various areas, and 2017 Same-Property operating expenses, statements regarding the Company's financing activities, and the use of proceeds from such activities.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, that the Company will fail to achieve its business objectives, that the actual completion of development and redevelopment projects will be subject to delays, that the stabilization dates of such projects will be delayed, that the total projected costs of current development and redevelopment projects will exceed expectations, that such development and redevelopment projects will not be completed, that development and redevelopment projects and acquisitions will fail to meet expectations, that estimates of future income from an acquired property may prove to be inaccurate, 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, that there may be a downturn in the markets in which the Company's communities are located, that the terms of any refinancing may not be as favorable as the terms of existing indebtedness, as well as those risks, special considerations, and other factors discussed in Item 1A, Risk Factors, of this Form 10-K, and those risk factors and special considerations set forth in the Company’s other filings with 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. All forward-looking statements are made as of today, and the Company assumes no obligation to update this information.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Hedging Activities

The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company entered into interest rate swaps as part of its cash flow hedging strategy. As of December 31, 2016, the Company has five interest rate swap contracts to mitigate the risk of changes in the interest-related cash outflows on $175.0 million, of the five-year unsecured term debt, $150.0 million of which relate to four forward starting interest rate swaps that have settlement payments starting in March 2017. As of December 31, 2016, the Company also had $281.7 million of variable rate indebtedness, of which $20.7 million is subject to interest rate cap protection. All of the Company’s interest rate swaps are designated as cash flow hedges as of December 31, 2016. The following table summarizes the notional amount, carrying value, and estimated fair value of the Company’s derivative instruments used to hedge interest rates as of December 31, 2016. The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rates or market risks. The table also includes a sensitivity analysis to demonstrate the impact on the Company’s derivative instruments from an increase or decrease in 10-year Treasury bill interest rates by 50 basis points, as of December 31, 2016.



				Carrying and		Estimated Carrying Value
			Maturity	Estimated		+ 50		- 50
($ in thousands)	Notional Amount		Date Range	Fair Value		Basis Points		Basis Points
Cash flow hedges:
Interest rate swaps	$	175,000	2017-2022	$	4,406	$	7,930	$	883
Interest rate caps	20,674		2018-2019	—		1		—
Total cash flow hedges	$	195,674	2017-2022	$	4,406	$	7,931	$	883

Additionally, the Company has entered into total return swap contracts, with an aggregate notional amount of $257.3 million, that effectively converts $257.3 million of mortgage notes payable to a floating interest rate based on SIFMA plus a spread and carrying value of zero at December 31, 2016. The Company is exposed to insignificant interest rate risk on these swaps as the related mortgages are callable, at par, by the Company, co-terminus with the termination of any related swap. These derivatives do not qualify for hedge accounting.

Interest Rate Sensitive Liabilities

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. Management has estimated that the fair value of the Company’s $5.1 billion of fixed rate debt, including premiums, discounts and debt financing costs, at December 31, 2016, to be $5.1 billion. Management has estimated the fair value of the Company’s $499.7 million of variable rate debt, including debt financing costs, at December 31, 2016, to be $502.8 million based on the terms of existing mortgage notes payable and variable rate demand notes compared to those available in the marketplace. The following table represents scheduled principal payments ($ in thousands).



	For the Years Ended December 31,
	2017			2018			2019			2020			2021			Thereafter			Total		Fair value
Fixed rate debt	$422,263			$301,033			$651,362			$693,221			$550,876			$	2,412,626		$	5,031,381	$	5,123,058
Average interest rate	2.7		%	5.5		%	4.3		%	4.8		%	4.3		%	3.6		%
Variable rate debt (1)	$	533		$	542		$	125,592		$	647		$	708		$	378,687		$	506,709	$	502,767
Average interest rate	1.5		%	1.5		%	1.8		%	1.5		%	1.5		%	1.6		%


(1)	$195.7 million is subject to interest rate protection agreements ($150.0 million in swaps have settlement payments starting in March 2017).

The table incorporates only those exposures that exist as of December 31, 2016; it does not consider those exposures or positions that could arise after that date. As a result, the Company’s ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies would depend on the exposures that arise during the period.

Item 8. Financial Statements and Supplementary Data

The response to this item is submitted as a separate section of this Form 10-K. See Item 15.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Essex Property Trust, Inc.

As of December 31, 2016, ESS carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, ESS’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2016, ESS’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by ESS in the reports that ESS files or submits under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that ESS files or submits under the Exchange Act is accumulated and communicated to the ESS’s management, including ESS’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in ESS’s internal control over financial reporting, that occurred during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, ESS’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

ESS’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). ESS’s management assessed the effectiveness of ESS’s internal control over financial reporting as of December 31, 2016. In making this assessment, ESS’s management used the criteria set forth in the report entitled “Internal Control-Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). ESS’s management has concluded that, as of December 31, 2016, its internal control over financial reporting was effective based on these criteria. ESS’s independent registered public accounting firm, KPMG LLP, has issued an attestation report over ESS’s internal control over financial reporting, which is included herein.

Essex Portfolio, L.P.

As of December 31, 2016, the Operating Partnership carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer of the general partner, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of the general partner concluded that as of December 31, 2016, the Operating Partnership’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Operating Partnership in the reports that it files or submits under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that the Operating Partnership files or submits under the Exchange Act is accumulated and communicated to the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of the general partner, to allow timely decisions regarding required disclosure.

There were no changes in the Operating Partnership’s internal control over financial reporting, that occurred during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The Operating Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Operating Partnership’s management assessed the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2016. In making this assessment, the Operating Partnership’s management used the criteria set forth in the report entitled “Internal Control-Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Operating Partnership’s management has concluded that, as of December 31, 2016, its internal control over financial reporting was effective based on these criteria.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the heading “Board and Corporate Governance Matters,” to be filed with the SEC within 120 days of December 31, 2016.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the headings “Executive Compensation” and “Director Compensation,” to be filed with the SEC within 120 days of December 31, 2016.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the heading “Security Ownership of Certain Beneficial Owners and Management,” to be filed with the SEC within 120 days of December 31, 2016.

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the heading “Certain Relationships and Related Persons Transactions,” to be filed with the SEC within 120 days of December 31, 2016.

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2017 Annual Meeting of Shareholders, under the headings “Report of the Audit Committee” and “Fees Paid to KPMG LLP,” to be filed with the SEC within 120 days of December 31, 2016.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(A) Financial Statements



(1) Consolidated Financial Statements of Essex Property Trust, Inc.	Page

Reports of Independent Registered Public Accounting Firm	F- 1

Consolidated Balance Sheets: As of December 31, 2016 and 2015	F- 4

Consolidated Statements of Income: Years ended December 31, 2016, 2015, and 2014	F- 5

Consolidated Statements of Comprehensive Income: Years ended December 31, 2016, 2015, and 2014	F- 6

Consolidated Statements of Equity: Years ended December 31, 2016, 2015, and 2014	F- 7

Consolidated Statements of Cash Flows: Years ended December 31, 2016, 2015, and 2014	F- 10

Notes to Consolidated Financial Statements	F- 20

(2) Consolidated Financial Statements of Essex Portfolio, L.P.

Report of Independent Registered Public Accounting Firm	F- 3

Consolidated Balance Sheets: As of December 31, 2016 and 2015	F- 12

Consolidated Statements of Income: Years ended December 31, 2016, 2015, and 2014	F- 13

Consolidated Statements of Comprehensive Income: Years ended December 31, 2016, 2015, and 2014	F- 14

Consolidated Statements of Capital: Years ended December 31, 2016, 2015, and 2014	F- 15

Consolidated Statements of Cash Flows: Years ended December 31, 2016, 2015, and 2014	F- 18

Notes to Consolidated Financial Statements	F- 20

(3) Financial Statement Schedule – Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2016	F- 51

(4) See the Exhibit Index immediately following the signature page and certifications for a list of exhibits filed or incorporated by reference as part of this report.

(B) Exhibits

The Company hereby files, as exhibits to this Form 10-K, those exhibits listed on the Exhibit Index referenced in Item 15(A)(4) above.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Essex Property Trust, Inc.:

We have audited the accompanying consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2016. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These consolidated financial statements and the accompanying financial statement schedule III are the responsibility of Essex Property Trust, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements and the accompanying financial statement schedule III based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Essex Property Trust, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2017 expressed an unqualified opinion on the effectiveness of Essex Property Trust, Inc.’s internal control over financial reporting.



/S/ KPMG LLP
KPMG LLP

San Francisco, California

February 24, 2017

F- 1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Essex Property Trust, Inc.:

We have audited Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Essex Property Trust, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express an opinion on Essex Property Trust, Inc.'s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of una

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