Item 15. Exhibits and Financial Statement Schedules

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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 unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Essex Property Trust, Inc. maintained, in all material respects, effective 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).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 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, and our report dated February 24, 2017, expressed an unqualified opinion on those consolidated financial statements.



/S/ KPMG LLP
KPMG LLP

San Francisco, California

February 24, 2017

F- 2

Report of Independent Registered Public Accounting Firm

The General Partner

Essex Portfolio, L.P.:

We have audited the accompanying consolidated balance sheets of Essex Portfolio, L.P. (the Operating Partnership) and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, capital, 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 Operating Partnership’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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Essex Portfolio, L.P. 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.



/S/ KPMG LLP
KPMG LLP

San Francisco, California

February 24, 2017

F- 3

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2016 and 2015

(Dollars in thousands, except share amounts)



	2016			2015
ASSETS
Real estate:
Rental properties:
Land and land improvements	$	2,559,743		$	2,522,842
Buildings and improvements	10,116,563			9,808,627
	12,676,306			12,331,469
Less accumulated depreciation	(2,311,546		)	(1,949,892		)
	10,364,760			10,381,577
Real estate under development	190,505			242,326
Co-investments	1,161,275			1,036,047
Real estate held for sale, net	101,957			26,879
	11,818,497			11,686,829
Cash and cash equivalents-unrestricted	64,921			29,683
Cash and cash equivalents-restricted	105,381			93,372
Marketable securities	139,189			137,485
Notes and other receivables	40,970			19,285
Prepaid expenses and other assets	48,450			41,730
Total assets	$	12,217,408		$	12,008,384
LIABILITIES AND EQUITY
Unsecured debt, net	$	3,246,779		$	3,088,680
Mortgage notes payable, net	2,191,481			2,215,077
Lines of credit	125,000			15,000
Accounts payable and accrued liabilities	138,226			131,415
Construction payable	35,909			40,953
Dividends payable	110,170			100,266
Other liabilities	32,922			34,518
Total liabilities	5,880,487			5,625,909
Commitments and contingencies
Redeemable noncontrolling interest	44,684			45,452
Equity:
Common stock; $.0001 par value, 670,000,000 and 656,020,000 shares authorized, respectively; 65,527,993 and 65,379,359 shares issued and outstanding, respectively	6			6
Cumulative redeemable 7.125% Series H preferred stock at liquidation value	—			73,750
Additional paid-in capital	7,029,679			7,003,317
Distributions in excess of accumulated earnings	(805,409		)	(797,329		)
Accumulated other comprehensive loss, net	(32,098		)	(42,011		)
Total stockholders' equity	6,192,178			6,237,733
Noncontrolling interest	100,059			99,290
Total equity	6,292,237			6,337,023
Total liabilities and equity	$	12,217,408		$	12,008,384

See accompanying notes to consolidated financial statements.

F- 4

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Income

Years ended December 31, 2016, 2015 and 2014

(Dollars in thousands, except per share and share amounts)



	2016			2015			2014
Revenues:
Rental and other property	$	1,285,723		$	1,185,498		$	961,591
Management and other fees from affiliates	8,278			8,909			9,347
	1,294,001			1,194,407			970,938
Expenses:
Property operating, excluding real estate taxes	249,765			234,953			204,673
Real estate taxes	139,162			128,555			107,873
Depreciation and amortization	441,682			453,423			360,592
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
	873,201			863,233			769,424
Earnings from operations	420,800			331,174			201,514
Interest expense	(219,654		)	(204,827		)	(164,551		)
Total return swap income	11,716			5,655			—
Interest and other income	27,305			19,143			11,811
Equity income from co-investments	48,698			21,861			39,893
Loss on early retirement of debt	(606		)	(6,114		)	(268		)
Gain on sale of real estate and land	154,561			47,333			46,039
Deferred tax expense on gain on sale of real estate and land	(4,410		)	—			—
Gain on remeasurement of co-investment	—			34,014			—
Net income	438,410			248,239			134,438
Net income attributable to noncontrolling interest	(23,431		)	(16,119		)	(12,288		)
Net income attributable to controlling interest	414,979			232,120			122,150
Dividends to preferred stockholders	(1,314		)	(5,255		)	(5,291		)
Excess of redemption value of preferred stock over the carrying value	(2,541		)	—			—
Net income available to common stockholders	$	411,124		$	226,865		$	116,859
Per share data:
Basic:
Net income available to common stockholders	$	6.28		$	3.50		$	2.07
Weighted average number of shares outstanding during the year	65,471,540			64,871,717			56,546,959
Diluted:
Net income available to common stockholders	$	6.27		$	3.49		$	2.06
Weighted average number of shares outstanding during the year	65,587,816			65,061,685			56,696,525

See accompanying notes to consolidated financial statements.

F- 5

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Years ended December 31, 2016, 2015 and 2014

(Dollars in thousands)



	2016			2015			2014
Net income	$	438,410		$	248,239		$	134,438
Other comprehensive income (loss):
Change in fair value of derivatives and amortization of swap settlements	15,926			7,893			4,168
Changes in fair value of marketable securities, net	(828		)	1,865			6,302
Reversal of unrealized gains upon the sale of marketable securities	(4,848		)	—			(886		)
Total other comprehensive income	10,250			9,758			9,584
Comprehensive income	448,660			257,997			144,022
Comprehensive income attributable to noncontrolling interest	(23,768		)	(16,436		)	(12,852		)
Comprehensive income attributable to controlling interest	$	424,892		$	241,561		$	131,170

See accompanying notes to consolidated financial statements.

F- 6

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Equity

Years ended December 31, 2016, 2015 and 2014

(Dollars and shares in thousands)



	Series H Preferred stock		Common stock		Additional paid-in		Distributions in excess of accumulated		Accumulated other comprehensive		Noncontrolling
	Shares	Amount	Shares	Amount	capital		earnings		loss, net		Interest		Total
Balances at December 31, 2013	2,950	73,750	37,421	4	2,345,763		(474,426	)	(60,472	)	113,619		1,998,238
Net income	—	—	—	—	—		122,150		—		12,288		134,438
Reversal of unrealized gains upon the sale of marketable securities	—	—	—	—	—		—		(841	)	(45	)	(886	)
Changes in fair value of derivatives and amortization of swap settlements	—	—	—	—	—		—		3,721		447		4,168
Changes in fair value of marketable securities	—	—	—	—	—		—		6,140		162		6,302
Issuance of common stock under:
Stock consideration in the Merger, net	—	—	23,067	2	3,774,085		—		—		—		3,774,087
Stock option and restricted stock plans, net	—	—	218	—	11,024		—		—		—		11,024
Equity distribution agreements, net	—	—	2,943	—	532,670		—		—		—		532,670
Equity-based compensation costs	—	—	—	—	5,719		—		—		6,153		11,872
Reclassification of noncontrolling interest to redeemable noncontrolling interest	—	—	—	—	(19,823	)	—		—		(1,067	)	(20,890	)
Changes in the redemption value of redeemable noncontrolling interest	—	—	—	—	312		—		—		—		312
Conversion of Series G preferred stock	—	—	34	—	4,349		—		—		—		4,349
Contributions from noncontrolling interest	—	—	—	—	—		—		—		1,419,816		1,419,816
Retirement of noncontrolling interest	—	—	—	—	—		—		—		(1,419,816	)	(1,419,816	)
Distributions to noncontrolling interest	—	—	—	—	—		—		—		(17,069	)	(17,069	)
Redemptions of noncontrolling interest	—	—	—	—	(2,934	)	—		—		(1,092	)	(4,026	)

F- 7



Common and preferred stock dividends	—	—		—	—		—			(298,521		)	—			—			(298,521		)
Balances at December 31, 2014	2,950	73,750		63,683	6		6,651,165			(650,797		)	(51,452		)	113,396			6,136,068
Net income	—	—		—	—		—			232,120			—			16,119			248,239
Change in fair value of derivatives and amortization of swap settlements	—	—		—	—		—			—			7,637			256			7,893
Change in fair value of marketable securities	—	—		—	—		—			—			1,804			61			1,865
Issuance of common stock under:
Stock option and restricted stock plans, net	—	—		207	—		26,540			—			—			—			26,540
Sale of common stock, net	—	—		1,482	—		332,137			—			—			—			332,137
Equity based compensation costs	—	—		—	—		5,946			—			—			3,700			9,646
Reclassification of noncontrolling interest to redeemable noncontrolling interest	—	—		—	—		(7,657		)	—			—			(12,115		)	(19,772		)
Changes in the redemption value of redeemable noncontrolling interest	—	—		—	—		(2,615		)	—			—			—			(2,615		)
Distributions to noncontrolling interest	—	—		—	—		—			—			—			(21,705		)	(21,705		)
Redemptions of noncontrolling interest	—	—		7	—		(2,199		)	—			—			(422		)	(2,621		)
Common and preferred stock dividends	—	—		—	—		—			(378,652		)	—			—			(378,652		)
Balances at December 31, 2015	2,950	$	73,750	65,379	$	6	$	7,003,317		$	(797,329	)	$	(42,011	)	$	99,290		$	6,337,023
Net income	—	—		—	—		—			414,979			—			23,431			438,410
Reversal of unrealized gains upon the sale of marketable securities	—	—		—	—		—			—			(4,689		)	(159		)	(4,848		)
Change in fair value of derivatives and amortization of swap settlements	—	—		—	—		—			—			15,403			523			15,926
Change in fair value of marketable securities, net	—	—		—	—		—			—			(801		)	(27		)	(828		)
Issuance of common stock under:
Stock option and restricted stock plans, net	—	—		140	—		18,949			—			—			—			18,949
Sale of common stock, net	—	—		—	—		(384		)	—			—			—			(384		)
Equity based compensation costs	—	—		—	—		8,246			—			—			2,653			10,899

F- 8



Redemption of Series H preferred stock	(2,950	)	(73,750		)	—		—		2,541			(2,541		)	—			—			(73,750		)
Retirement of common stock, net	—		—			(5	)	—		(1,045		)	—			—			—			(1,045		)
Changes in the redemption value of redeemable noncontrolling interest	—		—			—		—		172			—			—			596			768
Distributions to noncontrolling interest	—		—			—		—		—			—			—			(25,854		)	(25,854		)
Redemptions of noncontrolling interest	—		—			14		—		(2,117		)	—			—			(394		)	(2,511		)
Common and preferred stock dividends	—		—			—		—		—			(420,518		)	—			—			(420,518		)
Balances at December 31, 2016	—		$	—		65,528		$	6	$	7,029,679		$	(805,409	)	$	(32,098	)	$	100,059		$	6,292,237

See accompanying notes to consolidated financial statements.

F- 9

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2016, 2015 and 2014

(Dollars in thousands)



	2016			2015			2014
Cash flows from operating activities:
Net income	$	438,410		$	248,239		$	134,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	441,682			453,423			360,592
Amortization of discount on marketable securities and other investments	(14,211		)	(12,389		)	(9,325		)
Amortization of (premium) discount and financing costs, net	(15,234		)	(19,361		)	(14,672		)
Gain on sale of marketable securities and other investments	(5,719		)	(598		)	(886		)
Company's share of gain on the sales of co-investments	(13,046		)	—			(6,558		)
Earnings from co-investments	(35,652		)	(21,861		)	(33,335		)
Operating distributions from co-investments	60,472			46,608			49,486
Gain on the sales of real estate and land	(154,561		)	(47,333		)	(46,039		)
Equity-based compensation	10,899			6,061			8,740
Loss on early retirement of debt, net	606			6,114			268
Gain on remeasurement of co-investments	—			(34,014		)	—
Noncash merger and integration expenses	—			—			9,025
Changes in operating assets and liabilities:
Prepaid expenses, receivables and other assets	(2,328		)	267			15,828
Accounts payable and accrued liabilities	1,701			(9,633		)	24,233
Other liabilities	(496		)	1,887			1,517
Net cash provided by operating activities	712,523			617,410			493,312
Cash flows from investing activities:
Additions to real estate:
Acquisitions of real estate and acquisition related capital expenditures	(315,632		)	(515,726		)	(387,547		)
Redevelopment	(83,927		)	(99,346		)	(81,429		)
Development acquisitions of and additions to real estate under development	(76,455		)	(157,900		)	(152,766		)
Capital expenditures on rental properties	(60,013		)	(57,277		)	(78,864		)
Acquisition of membership interest in co-investments	—			(115,724		)	—
Collections of notes and other receivables	4,070			—			76,585
Investments in notes receivable	(24,070		)	—			—
Proceeds from insurance for property losses	5,543			16,811			35,547
BRE merger consideration paid	—			—			(555,826		)
Proceeds from dispositions of real estate	239,289			319,008			141,189
Contributions to co-investments	(183,989		)	(127,879		)	(246,006		)
Changes in restricted cash and refundable deposits	(14,138		)	(14,068		)	(36,582		)
Purchases of marketable securities	(18,779		)	(14,300		)	(20,516		)
Sales and maturities of marketable securities and other investments	30,458			8,907			8,753
Non-operating distributions from co-investments	76,231			31,938			150,306
Net cash used in investing activities	(421,412		)	(725,556		)	(1,147,156		)
Cash flows from financing activities:

F- 10



Borrowings under debt agreements	1,265,388			1,345,855			2,093,406
Repayment of debt	(1,018,126		)	(1,197,351		)	(1,814,020		)
Repayment of cumulative redeemable preferred stock	(73,750		)	—			—
Retirement of common stock	(1,045		)	—			—
Additions to deferred charges	(7,926		)	(8,034		)	(17,402		)
Net proceeds from issuance of common stock	(384		)	332,137			531,379
Net proceeds from stock options exercised	18,949			26,540			11,039
Distributions to noncontrolling interest	(25,334		)	(21,055		)	(17,465		)
Redemption of noncontrolling interest	(2,511		)	(2,621		)	(5,753		)
Common and preferred stock dividends paid	(411,134		)	(367,257		)	(260,574		)
Net cash (used in) provided by financing activities	(255,873		)	108,214			520,610
Cash acquired from the BRE merger	—			—			140,353
Cash acquired from consolidation of co-investment	—			4,005			—
Net increase in cash and cash equivalents	35,238			4,073			7,119
Cash and cash equivalents at beginning of year	29,683			25,610			18,491
Cash and cash equivalents at end of year	$	64,921		$	29,683		$	25,610

Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest	$	203,743		$	181,106		$	130,691
Interest capitalized	$	12,486		$	15,571		$	22,510

Supplemental disclosure of noncash investing and financing activities:
Issuance of Operating Partnership units for contributed properties	$	—		$	—		$	1,419,816
Retirement of Operating Partnership units	$	—		$	—		$	(1,419,816	)
Transfers between real estate under development to rental properties, net	$	104,159		$	308,704		$	10,203
Transfer from real estate under development to co-investments	$	9,919		$	6,234		$	83,574
Reclassifications (from) to redeemable noncontrolling interest to or from additional paid in capital and noncontrolling interest	$	(768	)	$	22,387		$	18,766
Debt assumed in connection with acquisition (excluding BRE merger)	$	48,832		$	114,435		$	72,568
Debt deconsolidated in connection with BEX II transaction	$	20,195		$	—		$	—

See accompanying notes to consolidated financial statements

F- 11

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2016 and 2015

(Dollars in thousands, except per unit amounts)



	2016			2015
ASSETS
Real estate:
Rental properties:
Land and land improvements	$	2,559,743		$	2,522,842
Buildings and improvements	10,116,563			9,808,627
	12,676,306			12,331,469
Less: accumulated depreciation	(2,311,546		)	(1,949,892		)
	10,364,760			10,381,577
Real estate under development	190,505			242,326
Co-investments	1,161,275			1,036,047
Real estate held for sale, net	101,957			26,879
	11,818,497			11,686,829
Cash and cash equivalents-unrestricted	64,921			29,683
Cash and cash equivalents-restricted	105,381			93,372
Marketable securities	139,189			137,485
Notes and other receivables	40,970			19,285
Prepaid expenses and other assets	48,450			41,730
Total assets	$	12,217,408		$	12,008,384
LIABILITIES AND CAPITAL
Unsecured debt, net	$	3,246,779		$	3,088,680
Mortgage notes payable, net	2,191,481			2,215,077
Lines of credit	125,000			15,000
Accounts payable and accrued liabilities	138,226			131,415
Construction payable	35,909			40,953
Distributions payable	110,170			100,266
Other liabilities	32,922			34,518
Total liabilities	5,880,487			5,625,909
Commitments and contingencies
Redeemable noncontrolling interest	44,684			45,452
Capital:
General Partner:
Common equity (65,527,993 and 65,379,359 units issued and outstanding, respectively)	6,224,276			6,208,535
Series H 7.125% Preferred interest (liquidation value $0 and $73,750, respectively)	—			71,209
	6,224,276			6,279,744
Limited Partners:
Common equity (2,237,290 and 2,214,545 units issued and outstanding, respectively)	49,436			47,235
Accumulated other comprehensive loss	(29,348		)	(39,598		)
Total partners' capital	6,244,364			6,287,381
Noncontrolling interest	47,873			49,642
Total capital	6,292,237			6,337,023
Total liabilities and capital	$	12,217,408		$	12,008,384

See accompanying notes to consolidated financial statements

F- 12

ESSEX PORTFOLIO, L.P. AND SUBSIDIARES

Consolidated Statements of Income

Years ended December 31, 2016, 2015, and 2014

(Dollars in thousands, except per unit and unit amounts)



	2016			2015			2014
Revenues:
Rental and other property	$	1,285,723		$	1,185,498		$	961,591
Management and other fees from affiliates	8,278			8,909			9,347
	1,294,001			1,194,407			970,938
Expenses:
Property operating, excluding real estate taxes	249,765			234,953			204,673
Real estate taxes	139,162			128,555			107,873
Depreciation and amortization	441,682			453,423			360,592
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
	873,201			863,233			769,424
Earnings from operations	420,800			331,174			201,514
Interest expense	(219,654		)	(204,827		)	(164,551		)
Total return swap income	11,716			5,655			—
Interest and other income	27,305			19,143			11,811
Equity income from co-investments	48,698			21,861			39,893
Loss on early retirement of debt, net	(606		)	(6,114		)	(268		)
Gain on sale of real estate and land	154,561			47,333			46,039
Deferred tax expense on gain on sale of real estate and land	(4,410		)	—			—
Gain on remeasurement of co-investment	—			34,014			—
Net income	438,410			248,239			134,438
Net income attributable to noncontrolling interest	(9,342		)	(8,295		)	(7,421		)
Net income attributable to controlling interest	429,068			239,944			127,017
Preferred interest distributions	(1,314		)	(5,255		)	(5,291		)
Excess of redemption value of preferred units over the carrying value	(2,541		)	—			—
Net income available to common unitholders	$	425,213		$	234,689		$	121,726
Per unit data:
Basic:
Net income available to common unitholders	$	6.28		$	3.50		$	2.07
Weighted average number of common units outstanding during the year	67,695,640			67,054,184			58,771,666
Diluted:
Net income available to common unitholders	$	6.27		$	3.49		$	2.07
Weighted average number of common units outstanding during the year	67,811,916			67,244,152			58,921,232

See accompanying notes to consolidated financial statements

F- 13

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2016, 2015, and 2014

(Dollars in thousands)



	2016			2015			2014
Net income	$	438,410		$	248,239		$	134,438
Other comprehensive income (loss):
Change in fair value of derivatives and amortization of swap settlements	15,926			7,893			4,168
Changes in fair value of marketable securities, net	(828		)	1,865			6,302
Reversal of unrealized gains upon the sale of marketable securities	(4,848		)	—			(886		)
Total other comprehensive income	10,250			9,758			9,584
Comprehensive income	448,660			257,997			144,022
Comprehensive income attributable to noncontrolling interest	(9,342		)	(8,295		)	(7,421		)
Comprehensive income attributable to controlling interest	$	439,318		$	249,702		$	136,601

See accompanying notes to consolidated financial statements.

F- 14

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Consolidated Statements of Capital

Years ended December 31, 2016, 2015, and 2014

(Dollars and units in thousands)



	General Partner					Limited Partners					Accumulated
				Preferred						Preferred	other
	Common Equity			Equity		Common Equity				Equity	comprehensive		Noncontrolling
	Units	Amount		Amount		Units		Amount		Amount	loss, net		Interest		Total
Balances at December 31, 2013	37,421	1,873,882		71,209		2,150		45,957		—	(58,940	)	66,130		1,998,238
Net income	—	116,859		5,291		—		4,867		—	—		7,421		134,438
Reversal of unrealized gains upon the sale of marketable securities	—	—		—		—		—		—	(886	)	—		(886	)
Changes in fair value of derivatives and amortization of swap settlements	—	—		—		—		—		—	4,168		—		4,168
Changes in fair value of marketable securities	—	—		—		—		—		—	6,302		—		6,302
Issuance of common units under:
Common stock issued as consideration by general partner in merger	23,067	3,774,087		—		—		—		—	—		—		3,774,087
General partner's stock based compensation, net	218	11,024		—		—		—		—	—		—		11,024
Sale of common stock by the general partner, net	2,943	532,670		—		—		—		—	—		—		532,670
Equity-based compensation costs	—	5,719		—		28		6,153		—	—		—		11,872
Reclassification of noncontrolling interest to redeemable noncontrolling interest	—	(19,823	)	—		(10	)	4,017		—	—		(5,084	)	(20,890	)
Changes in the redemption value of redeemable noncontrolling interest	—	312		—		—		—		—	—		—		312
Conversion of Series G preferred stock	34	4,349		—		—		—		—	—		—		4,349
Contributions from noncontrolling interest	—	—		—		8,561		1,419,816		—	—		—		1,419,816
Retirement of noncontrolling interest	—	—		—		(8,561	)	(1,419,816	)	—	—		—		(1,419,816	)
Distributions to noncontrolling interests	—	—		—		—		—		—	—		(4,890	)	(4,890	)
Redemptions	—	(3,374	)	—		—		(1,181	)	—	—		(942	)	(5,497	)
Distributions declared	—	(292,790	)	(5,291	)	—		(11,148	)	—	—		—		(309,229	)

F- 15



Balances at December 31, 2014	63,683		6,002,915			71,209			2,168		48,665			—		(49,356		)	62,635			6,136,068
Net income	—		226,865			5,255			—		7,824			—		—			8,295			248,239
Change in fair value of derivatives and amortization of swap settlements	—		—			—			—		—			—		7,893			—			7,893
Changes in fair value of marketable securities	—		—			—			—		—			—		1,865			—			1,865
Issuance of common units under:
General partner's stock based, net compensation	207		26,540			—			—		—			—		—			—			26,540
Sale of common stock by the general partner, net	1,482		332,137			—			—		—			—		—			—			332,137
Equity based compensation costs	—		5,946			—			54		3,700			—		—			—			9,646
Changes in redemption value of redeemable noncontrolling interest	—		(2,615		)	—			—		—			—		—			—			(2,615		)
Reclassification of noncontrolling interest to redeemable noncontrolling interest	—		(7,657		)	—			—		—			—		—			(12,115		)	(19,772		)
Distributions to noncontrolling interests	—		—			—			—		—			—		—			(8,751		)	(8,751		)
Redemptions	7		(2,199		)	—			(7	)	—			—		—			(422		)	(2,621		)
Distributions declared	—		(373,397		)	(5,255		)	—		(12,954		)	—		—			—			(391,606		)
Balances at December 31, 2015	65,379		$	6,208,535		$	71,209		2,215		$	47,235		$	—	$	(39,598	)	$	49,642		$	6,337,023
Net income	—		411,124			3,855			—		14,089			—		—			9,342			438,410
Reversal of unrealized gains upon the sale of marketable securities	—		—			—			—		—			—		(4,848		)	—			(4,848		)
Change in fair value of derivatives and amortization of swap settlements	—		—			—			—		—			—		15,926			—			15,926
Change in fair value of marketable securities, net	—		—			—			—		—			—		(828		)	—			(828		)
Issuance of common stock under:
General partner's stock based compensation, net	140		18,949			—			—		—			—		—			—			18,949
Sale of common stock by general partner, net	—		(384		)	—			—		—			—		—			—			(384		)
Equity based compensation costs	—		8,246			—			37		2,653			—		—			—			10,899
Redemption of Series H preferred units	—		—			(73,750		)	—		—			—		—			—			(73,750		)
Retirement of common units, net	(5	)	(1,045		)	—			—		—			—		—			—			(1,045		)

F- 16



Changes in the redemption value of redeemable noncontrolling interest	—	172			—			—		—			—		—			596			768
Distributions to noncontrolling interest	—	—			—			—		—			—		—			(11,296		)	(11,296		)
Redemptions	14	(2,117		)	—			(15	)	17			—		—			(411		)	(2,511		)
Distributions declared	—	(419,204		)	(1,314		)	—		(14,558		)	—		—			—			(435,076		)
Balances at December 31, 2016	65,528	$	6,224,276		$	—		2,237		$	49,436		$	—	$	(29,348	)	$	47,873		$	6,292,237

See accompanying notes to consolidated financial statements

F- 17

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2016, 2015, and 2014

(Dollars in thousands)



	2016			2015			2014
Cash flows from operating activities:
Net income	$	438,410		$	248,239		$	134,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	441,682			453,423			360,592
Amortization of discount on marketable securities and other investments	(14,211		)	(12,389		)	(9,325		)
Amortization of (premium) discount and financing costs, net	(15,234		)	(19,361		)	(14,672		)
Gain on sale of marketable securities and other investments	(5,719		)	(598		)	(886		)
Company's share of gain on the sales of co-investments	(13,046		)	—			(6,558		)
Earnings from co-investments	(35,652		)	(21,861		)	(33,335		)
Operating distributions from co-investments	60,472			46,608			49,486
Gain on the sales of real estate and land	(154,561		)	(47,333		)	(46,039		)
Equity-based compensation	10,899			6,061			8,740
Loss on early retirement of debt, net	606			6,114			268
Gain on remeasurement of co-investment	—			(34,014		)	—
Noncash merger and integration expenses	—			—			9,025
Changes in operating assets and liabilities:
Prepaid expenses, receivables and other assets	(2,328		)	267			15,828
Accounts payable and accrued liabilities	1,701			(9,633		)	24,233
Other liabilities	(496		)	1,887			1,517
Net cash provided by operating activities	712,523			617,410			493,312
Cash flows from investing activities:
Additions to real estate:
Acquisitions of real estate and acquisition related capital expenditures	(315,632		)	(515,726		)	(387,547		)
Redevelopment	(83,927		)	(99,346		)	(81,429		)
Development acquisitions of and additions to real estate under development	(76,455		)	(157,900		)	(152,766		)
Capital expenditures on rental properties	(60,013		)	(57,277		)	(78,864		)
Acquisition of membership interest in co-investments	—			(115,724		)	—
Collections of notes and other receivables	4,070			—			76,585
Investments in notes receivable	(24,070		)	—			—
Proceeds from insurance for property losses	5,543			16,811			35,547
BRE merger consideration paid	—			—			(555,826		)
Proceeds from dispositions of real estate	239,289			319,008			141,189
Contributions to co-investments	(183,989		)	(127,879		)	(246,006		)
Changes in restricted cash and refundable deposits	(14,138		)	(14,068		)	(36,582		)
Purchases of marketable securities	(18,779		)	(14,300		)	(20,516		)
Sales and maturities of marketable securities and other investments	30,458			8,907			8,753
Non-operating distributions from co-investments	76,231			31,938			150,306
Net cash used in investing activities	(421,412		)	(725,556		)	(1,147,156		)
Cash flows from financing activities:

F- 18



Borrowings under debt agreements	1,265,388			1,345,855			2,093,406
Repayment of debt	(1,018,126		)	(1,197,351		)	(1,814,020		)
Repayment of cumulative redeemable preferred stock	(73,750		)	—			—
Retirement of common stock	(1,045		)	—			—
Additions to deferred charges	(7,926		)	(8,034		)	(17,402		)
Net proceeds from issuance of common units	(384		)	332,137			531,379
Net proceeds from stock options exercised	18,949			26,540			11,039
Distributions to noncontrolling interest	(6,960		)	(7,615		)	(4,841		)
Redemption of noncontrolling interests	(2,511		)	(2,621		)	(802		)
Common and preferred units and preferred interests distributions paid	(429,508		)	(380,697		)	(278,149		)
Net cash (used in) provided by financing activities	(255,873		)	108,214			520,610
Cash acquired from the BRE merger	—			—			140,353
Cash acquired from consolidation of co-investment	—			4,005			—
Net increase in cash and cash equivalents	35,238			4,073			7,119
Cash and cash equivalents at beginning of year	29,683			25,610			18,491
Cash and cash equivalents at end of year	$	64,921		$	29,683		$	25,610

Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest	$	203,743		$	181,106		$	130,691
Interest capitalized	$	12,486		$	15,571		$	22,510

Supplemental disclosure of noncash investing and financing activities:
Issuance of Operating Partnership units for contributed properties	$	—		$	—		$	1,419,816
Retirement of Operating Partnership units	$	—		$	—		$	(1,419,816	)
Transfers between real estate under development to rental properties, net	$	104,159		$	308,704		$	10,203
Transfer from real estate under development to co-investments	$	9,919		$	6,234		$	83,574
Reclassifications (from) to redeemable noncontrolling interest to or from additional paid in capital and noncontrolling interest	$	(768	)	$	22,387		$	18,766
Debt assumed in connection with acquisition (excluding BRE merger)	$	48,832		$	114,435		$	72,568
Debt deconsolidated in connection with BEX II transaction	$	20,195		$	—		$	—

See accompanying notes to consolidated financial statements

F- 19

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

(1) Organization

The accompanying consolidated financial statements present the accounts of Essex Property Trust, Inc. (“Essex”, “ESS”, or the “Company”), which include the accounts of the Company and Essex Portfolio, L.P. and subsidiaries (the “Operating Partnership,” which holds the operating assets of the Company). Unless otherwise indicated, the notes to consolidated financial statements apply to both the Company and the Operating Partnership.

ESS is the sole general partner in the Operating Partnership with a 96.7% general partner interest and the limited partners owned a 3.3% interest as of December 31, 2016. The limited partners may convert their Operating Partnership units into an equivalent number of shares of common stock. Total Operating Partnership limited partnership units outstanding were 2,237,290 and 2,214,545 as of December 31, 2016 and 2015, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $520.2 million and $530.2 million, as of December 31, 2016 and 2015, respectively. The Company has reserved shares of common stock for such conversions.

As of December 31, 2016, the Company owned or had ownership interests in 245 apartment communities, (aggregating 59,645 apartment homes), two operating commercial buildings, and six active development projects (collectively, the “Portfolio”). The communities are located in Southern California (Los Angeles, Orange, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan areas.

On April 1, 2014, Essex completed the merger with BRE Properties, Inc. (“BRE”). In connection with the closing of the merger, (1) BRE merged into a wholly owned subsidiary of Essex, and (2) each outstanding share of BRE common stock was converted into (i) 0.2971 shares (the “Stock Consideration”) of Essex common stock, and (ii) $7.18 in cash, (the “Cash Consideration”), plus cash in lieu of fractional shares for total consideration of approximately $4.3 billion. The Cash Consideration was adjusted as a result of the authorization and declaration of a special distribution to the stockholders of BRE of $5.15 per share of BRE common stock payable to BRE stockholders of record as of the close of business on March 31, 2014 (the “Special Dividend”). The Special Dividend was payable as a result of the closing of the sale of certain interests in assets of BRE to certain parties, which closed on March 31, 2014. Pursuant to the terms of the merger agreement, the amounts payable as a Special Dividend reduced the Cash Consideration of $12.33 payable by Essex in the merger to $7.18 per share of BRE common stock.

Essex issued approximately 23.1 million shares of Essex common stock as Stock Consideration in the merger. For purchase accounting, the value of the common stock issued by Essex upon the consummation of the merger was determined based on the closing price of BRE’s common stock on the closing date of the merger. As a result of Essex being admitted to the S&P 500 on the same date as the closing of the merger, Essex’s common stock price experienced significantly higher than usual trading volume and the closing price of $174 per share was significantly higher than its volume-weighted average trading price for the days before and after April 1, 2014. BRE’s common stock did not experience the same proportionate increase in common stock price leading up to April 1, 2014. As a result, given that a substantial component of the purchase price is an exchange of equity instruments, Essex used the closing price of BRE’s common stock on April 1, 2014 of $61 per share, less the Cash Consideration, as the fair value of the equity consideration. After deducting the Special Dividend and the Cash Consideration per share, this resulted in a value of $48.67 per share of BRE common stock which is the equivalent of approximately $164 per share of Essex common stock issued.

(2) Summary of Critical and Significant Accounting Policies

(a) Principles of Consolidation and Basis of Presentation

The accounts of the Company, its controlled subsidiaries and the variable interest entities (“VIEs”) in which it is the primary beneficiary are consolidated in the accompanying financial statements and prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included and are normal and recurring in nature. All significant inter-company accounts and transactions have been eliminated. Certain reclassifications have been made in prior period amounts to conform to the current year’s presentation including the reclassification of $3.3 million in deferred financing costs related to lines of credit which were reclassified from lines of credit to prepaid expenses and other assets as of December 31, 2015. Such reclassifications had no net effect on previously reported financial results.

F- 20

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

Noncontrolling interest includes the 3.3% limited partner interests in the Operating Partnership not held by the Company at both December 31, 2016 and 2015. These percentages include the Operating Partnership’s vested long term incentive plan units (see Note 12).

(b) Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The new standard provides a single comprehensive revenue recognition model for contracts with customers (excluding certain contracts, such as lease contracts) to improve comparability within industries. The new standard requires an entity to recognize revenue to reflect the transfer of goods or services to customers at an amount the entity expects to be paid in exchange for those goods and services and provide enhanced disclosures, all to provide more comprehensive guidance for transactions such as service revenue and contract modifications. In August 2015, the FASB deferred the effective date of the new standard by one year, and it is now effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The new standard may be applied using either a full retrospective or a modified approach upon adoption. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.

In January 2016, the FASB issued ASU No. 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities", which requires changes to the classification and measurement of investments in certain equity securities and to the presentation of certain fair value changes for financial liabilities measured at fair value. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption is permitted. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.

In February 2016, the FASB issued ASU No. 2016-02 "Leases", which requires an entity that is a lessee to classify leases as either finance or operating and to recognize a lease liability and a right-of-use asset for all leases that have a duration of greater than 12 months. Leases of 12 months or less will be accounted for similar to existing guidance for operating leases today. For lessors, accounting for leases under the new standard will be substantially the same as existing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of initial direct costs. The new standard will be effective for the Company beginning on January 1, 2019 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a modified retrospective approach. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.

In March 2016, the FASB issued ASU No. 2016-07 "Simplifying the Transition to the Equity Method of Accounting", which eliminates the requirement to retroactively adjust an investment, results of operations, and retained earnings when the investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The new standard will be effective for the Company beginning on January 1, 2017 and early adoption is permitted. The Company does not expect the impact of this to be material on its consolidated results of operations or financial position.

In March 2016, the FASB issued ASU No. 2016-09 "Improvement to Employee Share-Based Payment Accounting", which amends certain aspects of how an entity accounts for share-based payments to employees. This amendment requires entities to recognize the income tax effects of share-based awards in the income statement when the awards vest or are settled, rather than recording such effects in additional paid-in capital. Entities will also be permitted to elect to account for forfeitures of share-based payments as they occur or continue with the current practice which requires estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change. The new standard will be effective January 1, 2017, with early adoption permitted. The change in recognition of income tax effects of share-based awards will be applied prospectively. If the Company elects to account for forfeitures of share-based payments as they occur, such change will be applied using a modified retrospective approach, with a cumulative-effect adjustment to distributions in excess of accumulated earnings. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.

In June 2016, the FASB issued ASU No. 2016-13 "Measure of Credit Losses on Financial Instruments", which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Currently, U.S. GAAP requires entities to write down credit losses only

F- 21

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

when losses are probable and loss reversals are not permitted. The new standard will be effective for the Company beginning on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.

In August 2016, the FASB issued ASU No. 2016-15 "Classification of Certain Cash Receipts and Cash Payments", which requires entities to adhere to a uniform classification and presentation of certain cash receipts and cash payments in the statement of cash flows. The amendments in this update provide guidance on eight specific cash flow issues. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption is permitted. The Company does not expect the impact of the other items identified in the ASU to be material on its consolidated results of operations or financial position.

In October 2016, the FASB issued ASU No. 2016-17 "Interests Held through Related Parties that are Under Common Control", which further refines the consolidation guidance of variable interest entities as outlined in ASU 2015-02 "Consolidation: Amendments to the Consolidation Analysis" (which became effective for the Company since January 2016) and requires entities to consider only their proportionate indirect interest in a variable interest entity held through an entity under common control. Currently, U.S. GAAP requires entities to consider such proportionate indirect interests as if the entities held the interest themselves. This new standard will be effective for the Company beginning January 1, 2017 and early adoption is permitted. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.

In November 2016, the FASB issued ASU No. 2016-18 "Statement of Cash Flows", which requires entities to include restricted cash and restricted cash equivalents in the reconciliation of beginning-of period to the end-of-period of cash and cash equivalents in the statement of cash flows. This new standard seeks to eliminate the current diversity in practice in how changes in restricted cash and restricted cash equivalents is presented in the statement of cash flows. This new standard will be effective for the Company beginning January 1, 2018 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated statements of cash flows.

In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations: Clarifying the Definition of a Business", which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Currently, U.S. GAAP does not specify the minimum inputs and processes required for an integrated set of assets and activities to meet the definition of a business, causing a broad interpretation of the definition of a business. This new standard will be effective for the Company beginning January 1, 2018 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.

Significant expenditures, which improve or extend the life of an asset and have a useful life of greater than one year, are capitalized. Operating real estate assets are stated at cost and consist of land, buildings and improvements, furniture, fixtures and equipment, and other costs incurred during their development, redevelopment and acquisition. Expenditures for maintenance and repairs are charged to expense as incurred.

The depreciable life of various categories of fixed assets is as follows:



Computer software and equipment	3 - 5 years
Interior apartment home improvements	5 years
Furniture, fixtures and equipment	5 - 10 years
Land improvements and certain exterior components of real property	10 years
Real estate structures	30 years

The Company capitalizes all costs incurred with the predevelopment, development or redevelopment of real estate assets or are associated with the construction or expansion of real property. Such capitalized costs include land, land improvements, allocated costs of the Company’s project management staff, construction costs, as well as interest and related loan fees, property taxes and insurance. Capitalization begins for predevelopment, development, and redevelopment projects when activity commences. Capitalization ends when the apartment home is completed and the property is available for a new resident or if the development activities cease.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

The Company allocates the purchase price of real estate to land and building including personal property, and identifiable intangible assets, such as the value of above, below and in-place leases. The values of the above and below market leases are amortized and recorded as either a decrease (in the case of above market leases) or an increase (in the case of below market leases) to rental revenue over the remaining term of the associated leases acquired, which in the case of below market leases the Company assumes lessees will elect to renew their leases. The value of acquired in-place leases are amortized to expense over the average remaining term of the leases acquired. The net carrying value of acquired in-place leases is $1.4 million and $2.9 million as of December 31, 2016 and 2015, respectively, and are included in prepaid expenses and other assets on the Company's consolidated balance sheets.

The Company performs the following evaluation for communities acquired:


(1)	adjust the purchase price for any fair value adjustments resulting from such things as assumed debt or contingencies;


(2)	estimate the value of the real estate “as if vacant” as of the acquisition date;


(3)	allocate that value among land and buildings including personal property;


(4)	compute the value of the difference between the “as if vacant” value and the adjusted purchase price, which will represent the total intangible assets;


(5)	compute the value of the above and below market leases and determine the associated life of the above market/ below market leases;


(6)	compute the value of the in-place leases and customer relationships, if any, and the associated lives of these assets.

Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment or held for sale may not be fully recoverable, the carrying amount will be evaluated for impairment. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount (including intangible assets) of a property held for investment, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property. Fair value of a property is determined using conventional real estate valuation methods, such as discounted cash flow, the property’s unleveraged yield in comparison to the unleveraged yields and sales prices of similar communities that have been recently sold, and other third party information, if available. Communities held for sale are carried at the lower of cost and fair value less estimated costs to sell. As of December 31, 2016 one property was classified as held for sale. As of December 31, 2015 two properties were classified as held for sale. No impairment charges were recorded in 2016, 2015 or 2014.

In the normal course of business, the Company will receive purchase offers for its communities, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. The Company classifies real estate as "held for sale" when all criteria under the accounting standard for the disposals of long-lived assets have been met.

(d) Co-investments

The Company owns investments in joint ventures (“co-investments”) in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with the accounting standards. Therefore, the Company accounts for these investments using the equity method of accounting. Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company’s equity in earnings less distributions received and the Company’s share of losses.

A majority of the co-investments, excluding the preferred equity investments, compensate the Company for its asset management services and some of these investments may provide promote distributions if certain financial return benchmarks are achieved. Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible. Any promote fees are reflected in equity income from co-investments.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

(e) Revenues and Gains on Sale of Real Estate

Revenues from tenants renting or leasing apartment homes are recorded when due from tenants and are recognized monthly as they are earned, which is not materially different than on a straight-line basis. Apartment homes are rented under short-term leases (generally, lease terms of 6 to 12 months). Revenues from tenants leasing commercial space are recorded on a straight-line basis over the life of the respective lease.

The Company recognizes gains on sales of real estate when a contract is in place, a closing has taken place, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property and the Company does not have a substantial continuing involvement with the property.

(f) Cash Equivalents and Restricted Cash

Highly liquid investments with original maturities of three months or less when purchased are classified as cash equivalents. Restricted cash balances relate primarily to reserve requirements for capital replacement at certain communities in connection with the Company’s mortgage debt.

(g) Marketable Securities

The Company reports its available for sale securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds, Level 2 for the unsecured bonds and Level 3 for investments in mortgage backed securities, as defined by the FASB standard for fair value measurements as discussed later in Note 2), and any unrealized gain or loss is recorded as other comprehensive income. There were no other than temporary impairment charges for the years ended December 31, 2016, 2015, and 2014. Realized gains and losses, interest income, and amortization of purchase discounts are included in interest and other income on the consolidated statements of income.

As of December 31, 2016 and 2015, marketable securities consisted primarily of investment-grade unsecured bonds, common stock, investments in mortgage backed securities, investment funds that invest in U.S. treasury or agency securities, and other limited partnership investments. As of December 31, 2016 and 2015, the Company classified its investments in mortgage backed securities, which mature in November 2019 and September 2020, as held to maturity, and accordingly, these securities are stated at their amortized cost. The discount on the mortgage backed securities is being amortized to interest income based on an estimated yield and the maturity date of the securities.

As of December 31, 2016 and 2015 marketable securities consist of the following ($ in thousands):



	December 31, 2016
	Amortized Cost		Gross Unrealized Gain (Loss)			Carrying Value
Available for sale:
Investment-grade unsecured bonds	$	19,604	$	(73	)	$	19,531
Investment funds - U.S. treasuries	10,022		(22		)	10,000
Common stock and stock funds	13,696		1,569			15,265
Held to maturity:
Mortgage backed securities	94,393		—			94,393
Total - Marketable securities	$	137,715	$	1,474		$	139,189

F- 24

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014



	December 31, 2015
	Amortized Cost		Gross Unrealized Gain (Loss)			Carrying Value
Available for sale:
Investment-grade unsecured bonds	$	11,618	$	68		$	11,686
Investment funds - U.S. treasuries	3,675		(9		)	3,666
Common stock and stock funds	34,655		7,091			41,746
Held to maturity:
Mortgage backed securities	80,387		—			80,387
Total - Marketable securities	$	130,335	$	7,150		$	137,485

The Company uses the specific identification method to determine the cost basis of a security sold and to reclassify amounts from accumulated other comprehensive income for securities sold.

For the years ended December 31, 2016, 2015 and 2014, the proceeds from sales of available for sale securities totaled $30.5 million, $3.3 million and $8.8 million, respectively. For the years ended December 31, 2016, 2015 and 2014 these sales resulted in gains of $4.8 million, no net gains or losses, and gains of $0.9 million, respectively.

For the year ended December 31, 2015, the proceeds from the sale of other investments totaled $5.6 million, which resulted in a realized gain of $0.6 million recorded in interest and other income on the consolidated statements of income. There were no such sales for the years ended December 31, 2016 and 2014.

(h) Notes Receivable

Notes receivable relate to real estate financing arrangements including mezzanine and bridge loans and are secured by real estate. Interest is recognized over the life of the note as interest income.

Each note is analyzed to determine if it is impaired. A note is impaired if it is probable that the Company will not collect all contractually due principal and interest. The Company does not accrue interest when a note is considered impaired and an allowance is recorded for any principal and previously accrued interest that are not believed to be collectible. All cash receipts on impaired notes are applied to reduce the principal amount of such notes until the principal has been recovered and, thereafter, are recognized as interest income. As of December 31, 2016 and 2015, no notes were impaired.

(i) Capitalization Policy

The Company capitalizes all direct and certain indirect costs, including interest, real estate taxes and insurance, 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 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. Those costs as well as capitalized development and redevelopment fees totaled $18.5 million, $17.6 million and $17.6 million for the years ended December 31, 2016, 2015 and 2014, respectively, most of which relates to development projects. The Company capitalizes leasing costs associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized are immaterial for all periods presented.

(j) Fair Value of Financial Instruments

The Company values its financial instruments based on the fair value hierarchy of valuation techniques described in the FASB’s accounting standard for fair value measurements. Level 1 inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include quoted prices for similar assets and liabilities in active

F- 25

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

markets and inputs other than quoted prices observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability. The Company uses Level 1 inputs for the fair values of its cash equivalents and its marketable securities except for unsecured bonds and mortgage backed securities. The Company uses Level 2 inputs for its investments in unsecured bonds, notes receivable, notes payable, and derivative assets/liabilities. These inputs include interest rates for similar financial instruments. The Company’s valuation methodology for derivatives is described in Note 8. The Company uses Level 3 inputs to estimate the fair value of its mortgage backed securities. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Management believes that the carrying amounts of the outstanding balances under its notes and other receivables approximate fair value as of December 31, 2016 and 2015, because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available for similar instruments. Management has estimated that the fair value of fixed rate debt with a carrying value of $5.1 billion and $4.8 billion, including premiums, discounts and debt financing costs, at December 31, 2016 and 2015, respectively, to be $5.1 billion and $4.8 billion. Management has estimated the fair value of the Company’s $499.7 million and $525.3 million of variable rate debt, including debt financing costs, at December 31, 2016 and 2015, respectively, to be $502.8 million and $527.6 million based on the terms of the Company’s existing variable rate debt compared to those available in the marketplace. Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payable, other liabilities and dividends payable approximate fair value as of December 31, 2016 and 2015 due to the short-term maturity of these instruments. Marketable securities, excluding mortgage backed securities, and derivative assets/liabilities are carried at fair value as of December 31, 2016 and 2015.

At December 31, 2016 and 2015, the Company’s investments in mortgage backed securities had a carrying value of $94.4 million and $80.4 million, respectively. The Company estimated the fair value of investment in mortgage backed securities at December 31, 2016 and 2015 to be approximately $108.8 million and $110.2 million, respectively. The Company determines the fair value of the mortgage backed securities based on unobservable inputs (Level 3 of the fair value hierarchy) considering the assumptions that market participants would make in valuing these securities. Assumptions such as estimated default rates and discount rates are used to determine expected, discounted cash flows to estimate the fair value.

(k) Interest Rate Protection, Swap, and Forward Contracts

The Company uses interest rate swaps, interest rate cap contracts, and forward starting swaps to manage interest rate risks. 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 primarily uses interest rate swaps and interest rate caps as part of its cash flow hedging strategy.

The Company records all derivatives on its consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated for accounting purposes as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated for accounting purposes as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the initial and ongoing effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

For derivatives not designated for accounting purposes as cash flow hedges, changes in fair value are recognized in earnings. All of the Company’s interest rate swaps are considered cash flow hedges. The change in fair value of the total return swaps is reported as total return swap income in the consolidated statements of income.

F- 26

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

(l) Income Taxes

Generally in any year in which ESS qualifies as a real estate investment trust (“REIT”) under the Internal Revenue Code (the “IRC”), it is not subject to federal income tax on that portion of its income that it distributes to stockholders. No provision for federal income taxes, other than the taxable REIT subsidiaries discussed below, has been made in the accompanying consolidated financial statements for each of the years in the three-year period ended December 31, 2016 as ESS has elected to be and believes it qualifies under the IRC as a REIT and has made distributions during the periods in amounts to preclude ESS from paying federal income tax.

In order to maintain compliance with REIT tax rules, the Company utilizes taxable REIT subsidiaries for various revenue generating or investment activities. The taxable REIT subsidiaries are consolidated by the Company. In general, the activities and tax related provisions, assets and liabilities are not material. In 2016, a taxable REIT subsidiary sold two properties that it had acquired in 2007, resulting in Company's recognition of a deferred income tax expense of approximately $4.4 million.

As a partnership, the Operating Partnership is not subject to federal or state income taxes except that in order to maintain ESS’s compliance with REIT tax rules that are applicable to ESS, the Operating Partnership utilizes taxable REIT subsidiaries for various revenue generating or investment activities. The taxable REIT subsidiaries are consolidated by the Operating Partnership.

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

(m) Equity-based Compensation

The cost of share and unit based compensation awards is measured at the grant date based on the estimated fair value of the awards. The estimated fair value of stock options and restricted stock granted by the Company are being amortized over the vesting period. The estimated grant date fair values of the long term incentive plan units (discussed in Note 12) are being amortized over the expected service periods.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

(n) Changes in Accumulated Other Comprehensive Loss, by Component

Changes in Accumulated Other Comprehensive Loss, Net, by Component

Essex Property Trust, Inc. ($ in thousands)



	Change in fair value and amortization of swap settlements			Unrealized gains on available for sale securities			Total
Balance at December 31, 2015	$	(48,366	)	$	6,355		$	(42,011	)
Other comprehensive income before reclassification	25,371			(801		)	24,570
Amounts reclassified from accumulated other comprehensive loss	(9,968		)	(4,689		)	(14,657		)
Other comprehensive income	15,403			(5,490		)	9,913
Balance at December 31, 2016	$	(32,963	)	$	865		$	(32,098	)

Changes in Accumulated Other Comprehensive Loss, by Component

Essex Portfolio, L.P. ($ in thousands)



	Change in fair value and amortization of swap settlements			Unrealized gains on available for sale securities			Total
Balance at December 31, 2015	$	(46,087	)	$	6,489		$	(39,598	)
Other comprehensive income before reclassification	26,234			(828		)	25,406
Amounts reclassified from accumulated other comprehensive loss	(10,308		)	(4,848		)	(15,156		)
Other comprehensive income	15,926			(5,676		)	10,250
Balance at December 31, 2016	$	(30,161	)	$	813		$	(29,348	)

Amounts reclassified from accumulated other comprehensive loss in connection with derivatives are recorded to interest expense on the consolidated statements of income. Realized gains and losses on available for sale securities are included in interest and other income on the consolidated statements of income.

(o) Redeemable Noncontrolling Interest

The carrying value of redeemable noncontrolling interest in the accompanying balance sheets was $44.7 million and $45.5 million as of December 31, 2016 and 2015, respectively. The amounts represent limited partners' interests as to which it is outside of the Company’s control to redeem the noncontrolling interests with Company common stock and may potentially be redeemed for cash.

The changes in the redemption value of redeemable noncontrolling interests for the years ended December 31, 2016, 2015, and 2014 is as follows:



	2016			2015		2014
Balance at January 1,	$	45,452		$	23,256	$	—
Reclassifications due to change in redemption value and other	(768		)	22,196		18,505
Redemptions	—			—		—
Additions	—			—		4,751
Balance at December 31,	$	44,684		$	45,452	$	23,256

F- 28

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

(p) Accounting Estimates

The preparation of consolidated financial statements, in accordance with GAAP, 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. On an on-going basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate portfolio, its investments in and advances to joint ventures and affiliates, and its notes receivable. 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 vary from those estimates and those estimates could be different under different assumptions or conditions.

(q) Variable Interest Entities

In February 2015, the FASB issued ASU No. 2015-02 "Consolidation: Amendments to the Consolidation Analysis," which provides new consolidation guidance and makes changes to both the variable interest model and the voting model. Among other changes, the new standard specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or similar entity unless that presumption can be overcome. The Company adopted ASU No. 2015-02 on January 1, 2016. Based on the Company’s evaluation of the new standard, it determined that no change was required to its accounting for variable interest entities (“VIEs”). However, under the guidance of ASU No. 2015-02, 9 previously consolidated co-investments now meet the definition of a VIE and require additional disclosure about these VIEs which the Company continues to consolidate as the Company was determined to be the primary beneficiary.

The Company continues to be the primary beneficiary and consolidates the Operating Partnership and 19 DownREIT limited partnerships (comprising eleven communities). Commencing on January 1, 2016, 9 other consolidated co-investments were determined to be VIEs and the Company continues to consolidate those co-investments as the Company was determined to be the primary beneficiary. The Company has no assets or liabilities other than its investment in the Operating Partnership. 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. The Company's financial risk in each VIE is limited to its equity investment in the VIE.

The DownREIT VIEs collectively own eleven apartment communities in which Essex Management Company (“EMC”) is the general partner, the Operating Partnership is a special limited partner, and the other limited partners were granted rights of redemption for their interests. Such limited partners can request to be redeemed and the Company, subject to certain restrictions, can elect to redeem their rights for cash or by issuing shares of its common stock on a one share per unit basis. Conversion values will be based on the market value of the Company's common stock at the time of redemption multiplied by the number of units stipulated under various arrangements, as noted above. The other limited partners receive distributions based on the Company's current dividend rate times the number of units held. Total DownREIT units outstanding were 952,140 and 963,172 as of December 31, 2016 and 2015 respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $221.4 million and $230.6 million, as of December 31, 2016 and 2015, respectively. The carrying value of redeemable noncontrolling interest in the accompanying balance sheets was $44.7 million and $45.5 million as of December 31, 2016 and 2015, respectively. The amounts represent units of limited partners' interests in DownREIT VIEs as to which it is outside of the Company’s control to redeem the DownREIT units with Company common stock and may potentially be redeemed for cash, and are presented at either their redemption value or historical cost, depending on the limited partner's right to redeem their units as of the balance sheet date. The carrying value of DownREIT units as to which it is within the control of the Company to redeem the units with its common stock was $18.6 million and $18.4 million as of December 31, 2016 and 2015, respectively and is classified within noncontrolling interests in the accompanying consolidated balance sheets.

Interest holders in VIEs consolidated by the Company are allocated a priority of net income equal to the cash payments made to those interest holders or distributions from cash flow. The remaining results of operations are generally allocated to the Company.

As of December 31, 2016 and 2015, the Company did not have any other VIEs of which it was deemed to be the primary beneficiary and did not have any VIEs of which it was not deemed to be the primary beneficiary.

F- 29

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

(r) Discontinued Operations

The Company determined that the disposals during the years ended December 31, 2016 and 2015 were not considered discontinued operations in accordance with ASU 2014-08. The gains related to these disposals are recorded in gain on sale of real estate and land in the consolidated statements of income.

(3) Real Estate Investments

(a) Acquisitions of Real Estate

For the year ended December 31, 2016, the Company purchased four communities consisting of 753 apartment homes for $333.7 million. The table below summarizes acquisition activity for the year ended December 31, 2016 ($ in millions):



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

The $333.7 million aggregate purchase price for the acquisitions listed above were included on the Company's consolidated balance sheet as follows: $72.4 million was included in land and land improvements, $259.3 million was included in buildings and improvements, and $2.0 million was included in prepaid expenses and other assets, within the Company's consolidated balance sheets.

For the year ended December 31, 2015, the Company purchased seven communities consisting of 1,722 apartment homes for $638.1 million.

(b) Sales of Real Estate Investments

For the year ended December 31, 2016, the Company sold three communities consisting of 323 apartment homes for $80.8 million resulting in gains totaling $14.0 million, net of $4.4 million deferred tax on gain on sale of real estate. The table below summarizes disposition activity for the year ended December 31, 2016 ($ in millions):



Property Name	Location	Apartment Homes	Essex Ownership Percentage		Ownership	Quarter in 2016	Sales Price		Gains
Harvest Park	Santa Rosa, CA	104	100	%	EPLP	Q1	$	30.5	$	6.4	(1)
Tuscana	Tracy, CA	30	100	%	EPLP	Q4	6.7		0.3		(2)
Candlewood North	Northridge, CA	189	100	%	EPLP	Q4	43.6		7.3
Total 2016		323					$	80.8	$	14.0


(1)	Net of $4.3 million deferred tax on gain on sale of real estate.


(2)	Net of $0.1 million deferred tax on gain on sale of real estate.

During 2016, the Company sold its former headquarters office building, located in Palo Alto, CA, for gross proceeds of $18.0 million, resulting in a gain of $9.6 million, which is included in the line item gain on sale of real estate and land in the Company's consolidated statement of income.

During 2015, the Company sold two communities, consisting of 848 apartment homes, for $308.8 million resulting in gains totaling $44.9 million, which are included in the line item gain on sale of real estate and land in the Company's consolidated statement of income. In March 2015, the Company sold two commercial buildings, located in Emeryville, CA for $13.0 million,

F- 30

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

resulting in gain of $2.4 million, which are included in the line item gain on sale of real estate and land in the Company's consolidated statements of income.

During 2014, the Company sold four communities, consisting of 594 apartment homes, for $120.4 million resulting in gains totaling $43.6 million, which are included in the line item gain on sale of real estate and land in the Company's consolidated statements of income.

As of December 31, 2016, Jefferson at Hollywood, a 270 apartment home community, located in Los Angeles, CA, was classified as held for sale. The carrying value of $102.0 million is included in real estate assets held for sale, net, on the Company's consolidated balance sheet.

(d) Co-investments

The Company has joint ventures and preferred equity investments in co-investments which are accounted for under the equity method. The co-investments’ accounting policies are similar to the Company’s accounting policies. The co-investments own, operate, and develop apartment communities.

During 2016, a co-investment of the Company sold two communities, consisting of 532 apartment homes, for $147.3 million, resulting in gains totaling $13.0 million, which represents the Company's share of the gain, and are included in the line item equity income from co-investments in the Company's consolidated statements of income.

In November 2016, the Company converted its preferred equity investment, with a carrying value of $12.9 million, in a limited liability company that owns a property located in San Jose, CA to a 50.1% equity interest ownership. The Company continues to account for its interest in this limited liability company under the equity method.

In November 2016, the Company contributed four wholly owned properties into a new entity, BEX II. In December 2016, the Company sold a 49.9% ownership interest in BEX II to a third party. Subsequent to the sale the Company accounts for its interest in BEX II under the equity method. The sale of the 49.9% ownership interest resulted in a gain of $126.6 million, which is included in the line item gain on sale of real estate and land in the Company's consolidated statement of income.

The carrying values of the Company’s co-investments as of December 31, 2016 and 2015 are as follows ($ in thousands):



	Ownership		December 31,
	Percentage		2016		2015
Membership interest/Partnership interest in:
CPPIB	50%-55%		$	422,068	$	422,317
Wesco I, III and IV	50	%	180,687		218,902
Palm Valley	50	%	68,396		68,525
BEXAEW	50	%	47,963		88,850
BEX II	50	%	19,078		—
Other	50%-55%		43,713		32,927
Total operating co-investments			781,905		831,521
Total development co-investments	50%-55%		157,317		98,214
Total preferred interest co-investments (includes related party investments of $35.9 million and $35.8 million as of December 31, 2016 and December 31, 2015, respectively - FN 5 - Related Party Transactions for further discussion)			222,053		106,312
Total co-investments			$	1,161,275	$	1,036,047

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

The combined summarized financial information of co-investments is as follows ($ in thousands):



	December 31,
	2016		2015
Combined balance sheets: (1)
Rental properties and real estate under development	$	3,807,245	$	3,360,360
Other assets	121,505		96,785
Total assets	$	3,928,750	$	3,457,145
Debt	$	1,617,639	$	1,499,601
Other liabilities	74,607		92,241
Equity	2,236,504		1,865,303
Total liabilities and equity	$	3,928,750	$	3,457,145
Company's share of equity	$	1,161,275	$	1,036,047



	Years ended December 31,
	2016			2015			2014
Combined statements of income: (1)
Property revenues	$	289,011		$	260,175		$	188,548
Property operating expenses	(99,637		)	(93,067		)	(71,419		)
Net operating income	189,374			167,108			117,129
Gain on sale of real estate	28,291			14			23,333
Interest expense	(46,894		)	(44,834		)	(39,990		)
General and administrative	(7,448		)	(5,879		)	(6,321		)
Equity income from co-investments (2)	—			—			26,798
Depreciation and amortization	(103,986		)	(103,613		)	(74,657		)
Net income	$	59,337		$	12,796		$	46,292
Company's share of net income (3)	$	48,698		$	21,861		$	39,893


(1)	Includes preferred equity investments held by the Company.


(2)	Represents income from Wesco II's preferred equity investment in Park Merced.


(3)	Includes the Company's share of equity income from co-investments, income from preferred equity investments, gain on sale of co-investments, co-investment promote income, and income from early redemption of preferred equity investments. Includes income earned from investments with a related party of $3.4 million and $3.7 million for the years ended December 31, 2016 and 2015, respectively.

Operating Co-investments

As of December 31, 2016 and 2015, the Company, through several joint ventures, owned 11,274 and 10,520 apartment homes, respectively, in operating communities. The Company owns 50%-55% of these joint ventures and the Company’s book value of these co-investments was $781.9 million and $831.5 million at December 31, 2016 and 2015, respectively.

Development Co-Investments

As of December 31, 2016 and 2015, the Company, through several joint ventures, owned 1,427 and 1,676 apartment homes, respectively, in development communities. The Company owns 50%-55% of these joint ventures and the Company’s book value of these co-investments was $157.3 million and $98.2 million at December 31, 2016 and 2015, respectively.

In February 2015, the Company entered into a joint venture to develop 500 Folsom, a multi-family community comprised of 545 apartment homes located in San Francisco, California. The Company has a 50% ownership interest in the development

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

which has a projected total cost of $415.0 million. Construction began in the fourth quarter of 2015 and the property is projected to open in the fourth quarter of 2018. At December 31, 2016, the total remaining estimated costs to be incurred on this project were $307.6 million, of which the Company’s portion of the remaining costs was $153.7 million.

Preferred Equity Investments

As of December 31, 2016 and 2015, the Company held preferred equity investment interests in several joint-ventures which own real estate. The Company’s book value of these preferred equity investments was $222.1 million and $106.3 million at December 31, 2016 and 2015, respectively.

In March 2016, the Company made a commitment to fund a $47.1 million preferred equity investment in a limited liability company located in Glendale, CA. As of December 31, 2016, the entire commitment of $47.1 million was funded. This investment earns a 12.0% preferred return and is scheduled to mature in March 2020.

In May 2016, the Company made a $23.7 million preferred equity investment in a limited liability company located in Seattle, WA. This investment will accrue interest based on a 10.0% compounded preferred return for the first 30 months, after which the rate may decrease to 8.0% if certain loan-to-value thresholds are met and is scheduled to mature in November 2020.

In August 2016, the Company made a commitment to fund a $11.6 million preferred equity investment in a limited liability company located in Santa Ana, CA. As of December 31, 2016, the entire commitment of $11.6 million was funded. This investment will accrue interest based on a 12.0% compounded preferred return and is scheduled to mature in March 2020.

In November 2016, the Company made a $23.0 million preferred equity investments in a limited liability company located in San Jose, CA. The investment accrues interest based on a 11.0% compounded preferred return which will decrease to 9.0% upon stabilization of the operating property which the limited liability company owns. This investment is scheduled to mature on the later of the date when permanent financing is obtained or November 2019.

In November 2016, the Company made a $10.7 million preferred equity investment in a limited liability company located in Redmond, WA. The investment accrues interest based on a 11.0% compounded preferred return for the first 30 months, after which the rate may decrease to 9.5% if certain loan-to-value thresholds are met and is scheduled to mature in November 2020.

In March 2015, a multi-family property, located in Anaheim, CA that was owned by an entity affiliated with a related party, in which the Company held a $13.7 million preferred equity investment, was sold. That investment of $13.7 million plus an additional $1.3 million in cash was invested as outlined in the next paragraph. Prior to the property sale, the $13.7 million preferred equity investment earned a 9.0% preferred return.

In June 2015, the Company made $10.0 million and $5.0 million preferred equity investments in limited liability companies owned by a related party, that own properties located in San Jose and Concord, California, respectively. These investments earn a 9.5% preferred return and are scheduled to mature in June 2022.

In August 2015, the Company made a $5.0 million preferred equity investment in a limited liability company owned by a related party that owns a property located in Los Angeles, California. This investment earns a 9.5% preferred return and is scheduled to mature in August 2022.

In August 2015, the Company redeemed a preferred equity investment in a joint venture that holds a property in San Jose, California with a carrying value of $20.4 million. The Company recognized a gain of $1.5 million as a result of this redemption which is included in equity income from co-investments in the consolidated statements of income.

(e) Real Estate under Development

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, four unconsolidated joint venture development projects, and various consolidated predevelopment projects, aggregating 2,223 apartment homes for an estimated total cost of $1.3 billion, of which $704.0 million remains to be expended. The Company’s portion of the remaining costs was $528.0 million at December 31, 2016.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

(4) Notes and Other Receivables

Notes receivables, secured by real estate, and other receivables consist of the following as December 31, 2016 and 2015 ($ in thousands):



	2016		2015
Note receivable, secured, bearing interest at 10.75%, due September 2020	$	17,685	$	—
Related party note receivable, secured, bearing interest at 9.5%, due October 2019(2)	6,593		—
Note receivable, secured, bearing interest at 6.0%, due December 2016	—		3,219
Notes and other receivables from affiliates (1)	4,695		3,092
Other receivables	11,997		12,974
Total notes and receivables	$	40,970	$	19,285


(1)	The Company had $4.7 million and $3.1 million of short-term loans outstanding and due from various joint ventures as of December 31, 2016 and 2015, respectively. See Note 5, Related Party Transactions, for additional details.


(2)	See Note 5, Related Party Transactions, for additional details.

(5) Related Party Transactions

The Company has adopted written related party transaction guidelines that are intended to cover transactions in which the Company (including entities it controls) is a party and in which any “related person” has a direct or indirect interest. A “related person” means any Company director, director nominee, or executive officer, any beneficial owner of more than 5% of the Company’s outstanding common stock, and any immediate family member of any of the foregoing persons. A related person may be considered to have an indirect interest in a transaction if he or she (i) is an owner, director, officer or employee of or otherwise associated with another company that is engaging in a transaction with the Company, or (ii) otherwise, through one or more entities or arrangements, has an indirect financial interest in or personal benefit from the transaction.

The related person transaction review and approval process is intended to determine, among any other relevant issues, the dollar amount involved in the transaction; the nature and value of any related person’s direct or indirect interest (if any) in the transaction; and whether or not (i) a related person’s interest is material, (ii) the transaction is fair, reasonable, and serves the best interest of the Company and its shareholders, and (iii) whether the transaction or relationship should be entered into, continued or ended.

The Company’s Chairman and founder, Mr. George Marcus, is the Chairman of the Marcus & Millichap Company (“MMC”), which is a parent company of a diversified group of real estate service, investment, and development firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in MMI. MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013. For the year ended December 31, 2016, the Company paid brokerage commissions totaling $1.1 million to affiliates of MMC related to real estate transactions. There were no brokerage commissions paid by the Company to MMI or its affiliates during 2015 and 2014.

The Company charges certain fees relating to its co-investments for asset management, property management, development and redevelopment services. These fees from affiliates total $12.4 million, $15.6 million, and $16.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. All of these fees are net of intercompany amounts eliminated by the Company. The Company netted development and redevelopment fees of $4.2 million, $6.7 million, and $7.2 million against general and administrative expenses for the years ended December 31, 2016, 2015 and 2014, respectively.

As described in Note 4, the Company has provided short-term bridge loans to affiliates. As of December 31, 2016 and 2015, $4.7 million and $3.1 million, respectively, of short-term loans remained outstanding due from joint venture affiliates and is classified within notes and other receivables in the accompanying consolidated balance sheets. In November 2016, the Company provided a $6.6 million mezzanine loan to a limited liability company in which MMC holds a significant ownership interest through subsidiaries. The mezzanine loan is also classified within notes and other receivables in the accompanying consolidated balance sheets.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

In March 2015, a multi-family property, located in Anaheim, CA that was owned by an entity affiliated with MMC, in which the Company held a $13.7 million preferred equity investment, was sold. That investment of $13.7 million plus an additional $1.3 million in cash was invested as outlined in the next two paragraphs. Prior to the property sale, the $13.7 million preferred equity investment earned a 9.0% preferred return and was scheduled to mature in September 2020.

In June 2015, the Company made a $10.0 million preferred equity investment in an entity affiliated with MMC that owns Greentree Apartments, a 220 apartment community located in San Jose, CA. This investment will earn a 9.5% preferred return and is scheduled to mature in June 2022.

In June 2015, the Company made a $5.0 million preferred equity investment in an entity affiliated with MMC that owns Sterling Cove Apartments, a 218 apartment community located in Concord, CA. This investment will earn a 9.5% preferred return and is scheduled to mature in June 2022.

In August 2015, the Company made a $5 million preferred equity investment in an entity affiliated with MMC that owns Alta Vista Apartments, a 92 apartment community located in Los Angeles, CA. This investment will earn a 9.5% preferred return and is scheduled to mature in August 2022.

In July 2014, the Company acquired Paragon Apartments, a 301 unit apartment community located in Fremont, CA for $111.0 million from an entity that was partially owned by an affiliate of MMC.

In January 2013, the Company invested $8.6 million as a preferred equity interest investment in an entity affiliated with MMC that owns an apartment development in Redwood City, California. In March 2015 the Company's preferred interest investment was prepaid and the Company recognized a gain of $0.5 million as a result of the prepayment.

In 2010, an Executive Vice President of the Company invested $4.0 million for a 3% limited partnership interest in a partnership with the Company that owns Essex Skyline at MacArthur Place. The Executive Vice President’s investment is equal to a pro-rata share of the contributions to the limited partnership. The Executive Vice President’s investment also receives pro-rata distributions resulting from distributable cash generated by the property if and when distributions are made.

(6) Unsecured Debt

ESS does not have any indebtedness as all debt is incurred by the Operating Partnership. ESS guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities up to the maximum amounts and for the full term of the facilities.

Unsecured debt consists of the following as of December 31, 2016 and 2015 ($ in thousands):



	2016			2015			Weighted Average Maturity In Years
Unsecured bonds private placement - fixed rate	$	314,190		$	463,891		3.6
Term loan - variable rate	98,189			224,467			5.1
Bonds public offering - fixed rate	2,834,400			2,400,322			6.3
Unsecured debt, net (1)	3,246,779			3,088,680
Lines of credit (2)	125,000			15,000
Total unsecured debt	$	3,371,779		$	3,103,680
Weighted average interest rate on fixed rate unsecured and unsecured private placement bonds	3.6		%	3.6		%
Weighted average interest rate on variable rate term loan	2.3		%	2.4		%
Weighted average interest rate on lines of credit	1.8		%	1.9		%

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014


(1)	Includes unamortized premium and discounts of $(0.1) million and $14.3 million and reduced by unamortized debt issuance costs of $18.1 million and $15.6 million as of December 31, 2016 and 2015, respectively.


(2)	Lines of credit, related to the Company's two lines of unsecured credit aggregating $1.03 billion, excludes unamortized debt issuance costs of $3.3 million as of both December 31, 2016 and 2015. The debt issuance costs are included in prepaid expenses and other assets on the condensed consolidated balance sheets.

As of December 31, 2016 and 2015, the Company had $315.0 million and $465.0 million of private placement unsecured bonds outstanding at an average effective interest rate of 4.5%, for both periods.

The following is a summary of the Company’s unsecured private placement bonds as of December 31, 2016 and 2015 ($ in thousands):



	Maturity	2016		2015		Coupon Rate
Senior unsecured private placement notes	March 2016	$	—	$	150,000	4.36	%
Senior unsecured private placement notes	September 2017	40,000		40,000		4.50	%
Senior unsecured private placement notes	December 2019	75,000		75,000		4.92	%
Senior unsecured private placement notes	April 2021	100,000		100,000		4.27	%
Senior unsecured private placement notes	June 2021	50,000		50,000		4.30	%
Senior unsecured private placement notes	August 2021	50,000		50,000		4.37	%
		$	315,000	$	465,000

In November 2016, the Company paid off its unsecured $225 million term loan and entered into a new $350 million term loan commitment, with a delayed draw feature and a variable interest rate of LIBOR plus 0.95%, with a scheduled maturity date of February 2022. As of December 31, 2016 and 2015, the Company had unsecured term loans outstanding of $100.0 million and $225.0 million at an average interest rate of 2.3% and 2.4%, respectively. These loans are included in the line “Term loan-variable rate” in the table above, and as of December 31, 2016 and 2015, the carrying value, net of debt issuance costs, was $98.2 million and $224.5 million, respectively. The Company entered into four forward starting interest rate swap contracts, with settlement payments starting in March 2017, for a term of five years with a notional amount totaling $150.0 million, which will effectively convert the interest rate on $150.0 million of the term loan to a fixed rate of 2.2%. These four forward starting interest rate swaps are accounted for as cash flow hedges. Additionally, the Company has a $25 million interest rate swap contract, which effectively converts the interest rate on $25.0 million of the $100.0 million drawn on its new term loan to a fixed rate of 2.4%. As of December 31, 2015, the Company had unsecured term loans with a $225.0 million commitment and an outstanding balance of $225.0 million at a variable interest rate of LIBOR plus 1.05%. The $200 million tranche of this unsecured term loan had a maturity date of November 2016 and the $25 million tranche had a maturity date of August 2017. The Company previously entered into interest rate swap contracts for a term of five years with a notional amount totaling $225.0 million which effectively converted the interest rate on $225.0 million of the term loan to a fixed rate of 2.4%. In November 2016, the Company paid off and terminated the $225.0 million commitment and the notional amount of $200.0 million of the $225.0 million interest rate swap contracts matured. The remaining notional amount of $25.0 million interest rate swap contract will mature in July 2017.

In April 2016, the Company issued $450.0 million of senior unsecured notes due on April 15, 2026 with a coupon rate of 3.375% per annum and are payable on April 15th and October 15th of each year, beginning October 15, 2016 (the "2026 Notes"). The 2026 Notes were offered to investors at a price of 99.386% of par value. The 2026 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line “Bonds public offering-fixed rate” in the table above, and as of December 31, 2016, the carrying value of the 2026 Notes, net of discount and debt issuance costs was $443.7 million.

In March 2015, the Company issued $500.0 million of senior unsecured notes due on April 1, 2025 with a coupon rate of 3.5% per annum and are payable on April 1st and October 1st of each year, beginning October 1, 2015 (the "2025 Notes"). The 2025 Notes were offered to investors at a price of 99.747% of par value. The 2025 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

“Bonds public offering-fixed rate” in the table above, and as of December 31, 2016 and 2015, the carrying value of the 2025 Notes, net of discount and debt issuance costs was $495.4 million and $494.8 million, respectively.

In April 2014, the Company assumed $900.0 million aggregate principal amount of BRE’s 5.500% senior notes due 2017; 5.200% senior notes due 2021; and 3.375% senior notes due 2023 (together “BRE Notes”). These notes are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2016 and 2015, the carrying value of the BRE Notes, plus unamortized premium was $907.1 million and $919.1 million, respectively.

In April 2014, the Company issued $400.0 million of senior unsecured notes due on May 1, 2024 with a coupon rate of 3.875% per annum and are payable on May 1st and November 1st of each year, beginning November 1, 2014 (the "2024 Notes"). The 2024 Notes were offered to investors at a price of 99.234% of par value. The 2024 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2016 and 2015, the carrying value of the 2024 Notes, net of discount and debt issuance costs was $395.1 million and $394.5 million, respectively.

In April 2013, the Company issued $300.0 million of senior unsecured notes due on May 1, 2023 with a coupon rate of 3.25% per annum and are payable on May 1st and November 1st of each year, beginning November 1, 2013 (the "2023 Notes"). The 2023 Notes were offered to investors at a price of 99.152% of par value. The 2023 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line “Bonds public offering-fixed rate” in the table above, and as of December 31, 2016 and 2015, the carrying value of the 2023 Notes, net of discount and debt issuance costs was $296.5 million and $295.9 million, respectively.

During the third quarter 2012, the Company issued $300.0 million of senior unsecured notes due August 2022 with a coupon rate of 3.625% per annum and are payable on February 15th and August 15th of each year, beginning February 15, 2013 (the "2022 Notes"). The 2022 Notes were offered to investors at a price of 98.99% of par value. The 2022 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2016 and 2015, the carrying value of the 2022 Notes, net of unamortized discount and debt issuance costs was $296.6 million and $296.0 million, respectively.

The following is a summary of the Company’s senior unsecured notes as of December 31, 2016 and 2015 ($ in thousands):



	Maturity	2016		2015		Coupon Rate
Senior notes	March 2017	$	300,000	$	300,000	5.500	%
Senior notes	March 2021	300,000		300,000		5.200	%
Senior notes	August 2022	300,000		300,000		3.625	%
Senior notes	January 2023	300,000		300,000		3.375	%
Senior notes	May 2023	300,000		300,000		3.250	%
Senior notes	May 2024	400,000		400,000		3.875	%
Senior notes	April 2025	500,000		500,000		3.500	%
Senior notes	April 2026	450,000		—		3.375	%
		$	2,850,000	$	2,400,000

The aggregate scheduled principal payments of unsecured debt payable, excluding lines of credit, at December 31, 2016 are as follows ($ in thousands):

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014



2017	$	340,000
2018	—
2019(1)	75,000
2020	—
2021	500,000
Thereafter	2,350,000
	$	3,265,000


(1)	Amount does not include $125.0 million outstanding on the Company's lines of credit as of December 31, 2016, that becomes due in December 2020 in accordance with the January 2017 amendment.

The Company has two lines of credit aggregating $1.03 billion as of December 31, 2016. The Company has a $1.0 billion credit facility with an underlying interest rate based on a tiered rate structure tied to the Company's credit ratings and was LIBOR plus 0.90% as of December 31, 2016. As of December 31, 2016 and 2015, the balance of the $1.0 billion credit facility was $125.0 million and $15.0 million, respectively. 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 working capital unsecured line of credit agreement for $25.0 million. The underlying interest rate on the $25.0 million line is based on a tiered rate structure tied to the Company's credit ratings on the credit facility of LIBOR plus 0.90% and has a maturity date of January 2018. As of December 31, 2016 and 2015, there was a zero balance outstanding on this unsecured line.

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.

(7) Mortgage Notes Payable

ESS does not have any indebtedness as all debt is incurred by the Operating Partnership. Mortgage notes payable consist of the following as of December 31, 2016 and 2015 ($ in thousands):



	2016			2015
Fixed rate mortgage notes payable	$	1,911,699		$	1,925,985
Variable rate mortgage notes payable (1)	279,782			289,092
Total mortgage notes payable (2)	$	2,191,481		$	2,215,077
Number of properties securing mortgage notes	61			64
Remaining terms	1-30 years			1-31 years
Weighted average interest rate	4.3		%	4.4		%

The aggregate scheduled principal payments of mortgage notes payable at December 31, 2016 are as follows ($ in thousands):



2017	$	82,796
2018	301,575
2019	576,954
2020	693,868
2021	51,584
Thereafter	441,313
	$	2,148,090

(1)

Variable rate mortgage notes payable, including $257.3 million in bonds that have been converted to variable rate through total return swap contracts, consists of multi-family housing mortgage revenue bonds secured by deeds of trust on rental properties and guaranteed by collateral pledge agreements, payable monthly at a variable rate as defined in the Loan Agreement (approximately 1.2% at December 2016 and 1.2% at December 2015) plus credit enhancement

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

and underwriting fees ranging from approximately 1.0% to 1.3%. Among the terms imposed on the properties, which are security for the bonds, is a requirement that 20% of the apartment homes are subject to tenant income criteria. Principal balances are due in full at various maturity dates from May 2025 through December 2046. Of these bonds $20.7 million are subject to various interest rate cap agreements that limit the maximum interest rate to such bonds.


(2)	Includes total unamortized premium of $50.8 million and $64.8 million and reduced by unamortized debt issuance costs of $7.4 million and $8.0 million as of December 31, 2016 and 2015, respectively.

For the Company’s mortgage notes payable as of December 31, 2016, monthly interest expense and principal amortization, excluding balloon payments, totaled approximately $7.4 million and $2.5 million, respectively. Second deeds of trust accounted for zero of the $2.2 billion in mortgage notes payable as of December 31, 2016. Repayment of debt before the scheduled maturity date could result in prepayment penalties. The prepayment penalty on the majority of the Company’s mortgage notes payable are computed by the greater of (a) 1% of the amount of the principal being prepaid or (b) the present value of the mortgage note payable which is calculated by multiplying the principal being prepaid by the difference between the interest rate of the mortgage note and the stated yield rate on a specified U.S. treasury security as defined in the mortgage note agreement.

(8) Derivative Instruments and Hedging Activities

The Company uses interest rate swaps and interest rate cap 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 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 counterparty’s nonperformance risk in the fair value measurements.

In November 2016, the Company replaced its $225.0 million term loan with a new $350 million five-year term loan with a delayed draw feature. The new term loan carries a variable interest rate of LIBOR plus 95 basis points. Also in November 2016, four interest rate swaps related to the replaced term loan, with a total notional balance of $200.0 million, matured. An additional swap with a notional of $25.0 million, with a maturity date in July 2017, was still in place as of December 31, 2016 and was hedging a portion of the $100 million drawn on the $350.0 million term loan as of December 31, 2016. In 2016, the Company entered into four new forward starting interest rate swaps (settlement payments begin in March 2017) related to the new $350.0 million term. These four new swaps, with a total notional amount of $150.0 million bear an average fixed interest rate of 2.2% and are scheduled to mature in February 2022. These derivatives qualify for hedge accounting.

As of December 31, 2016, the Company had interest rate caps, which are not accounted for as hedges, totaling a 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 $0.03 million and $1.0 million, respectively, and is included in other liabilities on the consolidated balance sheets. The aggregate carrying value of the interest rate cap was zero on the balance sheet as of December 31, 2016 and December 31, 2015.

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

Additionally, the Company has entered into four total return swaps, that effectively convert $257.3 million of mortgage notes payable to a floating interest rate based on SIFMA plus a spread. 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

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

outstanding debt can be exercised starting on January 1, 2017. These derivatives do not qualify for hedge accounting and had a carrying and fair value of zero and $4 thousand at December 31, 2016 and 2015, respectively. These total return swaps are scheduled to mature between September 2021 and November 2022. The realized gains of $11.7 million and $5.7 million as of December 31, 2016 and 2015, respectively, were reported in current year income as total return swap income. No such income or expense was incurred for the year ended December 31, 2014.

(9) Lease Agreements

As of December 31, 2016 the Company is a lessor for two commercial buildings and the commercial portions of 37 mixed use communities. The tenants’ lease terms expire at various times through 2031. The future minimum non-cancelable base rent to be received under these operating leases for each of the years ending after December 31 is summarized as follows ($ in thousands):



	Future
	Minimum
	Rent
2017	$	13,453
2018	12,773
2019	12,347
2020	11,518
2021	10,073
Thereafter	39,043
	$	99,207

(10) Equity Transactions

Preferred Securities Offerings

In April 2016, the Company redeemed all of the issued and outstanding 2,950,000 shares of the Company's 7.125% Series H Cumulative Redeemable Preferred Stock ("Series H") for $25.00 per share for $73.8 million in cash. In connection with the Series H redemption, the Operating Partnership redeemed the Series H 7.125% Preferred Interest. The notice of redemption was given in March 2016, which resulted in the Company and the Operating Partnership each recording $2.5 million in excess of redemption value over carrying value charge to net income attributable to common stockholders and net income related to unitholders, respectively.

Common Stock Offerings

During 2016, the Company did not issue any shares of common stock through its equity distribution program. During 2015, the Company issued 1,481,737 shares of common stock, through its equity distribution program, at an average price of $226.46 for net proceeds of $332.3 million.

Operating Partnership Units and Long Term Incentive Plan (“LTIP”) Units

As of December 31, 2016 and 2015, the Operating Partnership had outstanding 2,056,263 and 2,070,360 operating partnership units and 181,027 and 144,185 vested LTIP units, respectively. The Operating Partnership’s general partner, ESS, owned 96.7% of the partnership interests in the Operating Partnership at both December 31, 2016 and 2015, and ESS is responsible for the management of the Operating Partnership’s business. As the general partner of the Operating Partnership, ESS effectively controls the ability to issue common stock of ESS upon a limited partner’s notice of redemption. ESS has generally acquired OP units upon a limited partner’s notice of redemption in exchange for shares of its common stock. The redemption provisions of OP units owned by limited partners that permit ESS to settle in either cash or common stock at the option of ESS were further evaluated in accordance with applicable accounting guidance to determine whether temporary or permanent equity classification on the balance sheet is appropriate. The Operating Partnership evaluated this guidance, including the requirement

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

to settle in unregistered shares, and determined that, with few exceptions, these OP units meet the requirements to qualify for presentation as permanent equity.

LTIP units represent an interest in the Operating Partnership for services rendered or to be rendered by the LTIP unit holder in its capacity as a partner, or in anticipation of becoming a partner, in the Operating Partnership. Upon the occurrence of specified events, LTIP units may over time achieve full parity with common units of the Operating Partnership for all purposes. Upon achieving full parity, LTIP units will be exchanged for an equal number of the OP Units.

The redemption value of OP and LTIP units owned by the limited partners, not including ESS, had such units been redeemed at December 31, 2016, was approximately $520.2 million and $530.2 million based on the closing price of ESS’s common stock as of December 31, 2016 and 2015, respectively.

(11) Net Income Per Common Share and Net Income Per Common Unit

Essex Property Trust, Inc.

Basic and diluted income per share is calculated as follows for the years ended December 31 ($ in thousands, except share and per share amounts):



	2016				2015				2014
	Income	Weighted- average Common Shares	Per Common Share Amount		Income	Weighted- average Common Shares	Per Common Share Amount		Income	Weighted- average Common Shares	Per Common Share Amount
Basic:
Net income available to common stockholders	411,124	65,471,540	$	6.28	226,865	64,871,717	$	3.50	116,859	56,546,959	$	2.07
Effect of Dilutive Securities (1)	—	116,276			—	189,968			—	149,566
Diluted:
Net income available to common stockholders	411,124	65,587,816	$	6.27	226,865	65,061,685	$	3.49	116,859	56,696,525	$	2.06

(1)

Weighted average convertible limited partnership units of 2,224,100, 2,182,467, and 2,224,707, which include vested Series Z Incentive Units, Series Z-1 Incentive Units, 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units, for the years ended December 31, 2016, 2015 and 2014, respectively, were not included in the determination of diluted earnings per share calculation because they were anti-dilutive. The related income allocated to these convertible limited partnership units aggregated $14.1 million, $7.8 million, and $4.9 million for the years ended December 31, 2016, 2015, and 2014, respectively. Additionally, excludes all DownREIT units as they are anti-dilutive.

Stock options of 252,334, 54,100, and 10,843, for the years ended December 31, 2016, 2015, and 2014, respectively, were not included in the diluted earnings per share calculation because the assumed proceeds per share of these options plus the average unearned compensation were greater than the average market price of the common stock for the years ended and, therefore, were anti-dilutive.

All shares of cumulative convertible Series H preferred interest have been excluded from diluted earnings per share for the years ended December 31, 2016, 2015, and 2014 respectively, as the effect was anti-dilutive. All shares of cumulative convertible Series G preferred interest have been excluded from diluted earnings per share for the year ended December 31, 2014 as the effect was anti-dilutive.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

Essex Portfolio, L.P.

Basic and diluted income per unit is calculated as follows for the years ended December 31 ($ in thousands, except unit and per unit amounts):



	2016					2015					2014
	Income		Weighted- average Common Units	Per Common Unit Amount		Income		Weighted- average Common Units	Per Common Unit Amount		Income		Weighted- average Common Units	Per Common Unit Amount
Basic:
Net income available to common unitholders	$	425,213	67,695,640	$	6.28	$	234,689	67,054,184	$	3.50	$	121,726	58,771,666	$	2.07
Effect of Dilutive Securities (1)	—		116,276			—		189,968			—		149,566
Diluted:
Net income available to common unitholders	$	425,213	67,811,916	$	6.27	$	234,689	67,244,152	$	3.49	$	121,726	58,921,232	$	2.07

(1)

Stock options of 252,334, 54,100, and 10,843, for the years ended December 31, 2016, 2015, and 2014, respectively, were not included in the diluted earnings per unit calculation because the assumed proceeds per share of these options plus the average unearned compensation were greater than the average market price of the common shares for the years ended and, therefore, were anti-dilutive. Additionally, excludes all DownREIT units as they are anti-dilutive.

The cumulative convertible Series H preferred interest have been excluded from diluted earnings per unit for the years ended December 31, 2016, 2015, and 2014 respectively, as the effect was anti-dilutive. The cumulative convertible Series G preferred interest have been excluded from diluted earnings per unit for the year ended December 31, 2014 as the effect was anti-dilutive.

(12) Equity Based Compensation Plans

Stock Options and Restricted Stock

In May 2013, stockholders approved the Company’s 2013 Stock Award and Incentive Compensation Plan (“2013 Plan”). The 2013 Plan became effective on June 1, 2013 and serves as the successor to the Company’s 2004 Stock Incentive Plan (the “2004 Plan”), and no additional equity awards can be granted under the 2004 Plan after the date the 2013 Plan became effective.

The Company’s 2013 Plan provides incentives to attract and retain officers, directors and key employees. The 2013 Plan provides for the grants of options to purchase shares of common stock, grants of restricted stock and other award types. Under the 2013 Plan, the maximum aggregate number of shares that may be issued is 1,000,000, plus any shares that have not been issued under the 2004 Plan, including shares subject to outstanding awards under the 2004 Plan that are not issued or delivered to a participant for any reason. The 2013 Plan is administered by the Compensation Committee of the Board of Directors, which is comprised of independent directors. The Compensation Committee is authorized to establish the exercise price; however, the exercise price cannot be less than 100% of the fair market value of the common stock on the grant date. The Company’s options have a life of five to ten years. Option grants for officers and employees fully vest between 0 and 5 years after the grant date.

Stock-based compensation expense for options and restricted stock under the fair value method totaled $8.2 million, $6.1 million, and $6.1 million for years ended December 31, 2016, 2015 and 2014 respectively. Stock-based compensation expense for options and restricted stock for the year ended December 31, 2016 and 2015, includes $0.1 million and $0.2 million related to the BRE merger, of which zero and $0.1 million relates to merger and integration expenses, and which is recorded in merger and integration expense in the consolidated statements of income, respectively. For the years ended December 31, 2016 and 2015, stock-based compensation expense included $3.5 million and $2.7 million related to an immediate vesting of options and

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

restricted stock for bonuses awarded based on asset dispositions, which is recorded as a cost of real estate and land sold, respectively. Stock-based compensation for options and restricted stock related to recipients who are direct and incremental to projects under development were capitalized and totaled $0.5 million, $0.3 million, and $0.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. The intrinsic value of the options exercised totaled $11.9 million, $19.4 million, and $12.7 million, for the years ended December 31, 2016, 2015, and 2014 respectively. The intrinsic value of the options exercisable totaled $20.8 million and $29.8 million as of December 31, 2016 and 2015, respectively.

Total unrecognized compensation cost related to unvested stock options totaled $5.0 million as of December 31, 2016 and the unrecognized compensation cost is expected to be recognized over a period of 2.8 years.

The average fair value of stock options granted for the years ended December 31, 2016, 2015 and 2014 was $21.65, $22.78 and $20.56, respectively. Certain stock options granted in 2016, 2015, and 2014 included a $75 cap, a $100 cap or a $125 cap on the appreciation of the market price over the exercise price. The fair value of stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:



	2016			2015			2014
Stock price	$	219.60		$	227.75		$	176.65
Risk-free interest rates	2.08		%	1.83		%	2.37		%
Expected lives	6 years			6 years			8 years
Volatility	26.47		%	20.06		%	18.00		%
Dividend yield	2.89		%	2.73		%	2.90		%

A summary of the status of the Company’s stock option plans as of December 31, 2016, 2015, and 2014 and changes during the years ended on those dates is presented below:



	2016				2015				2014
	Shares		Weighted- average exercise price		Shares		Weighted- average exercise price		Shares		Weighted- average exercise price
Outstanding at beginning of year	525,094		$	154.98	664,785		$	138.78	695,488		$	133.37
Granted	207,429		219.60		78,600		227.75		42,518		176.65
Granted - BRE options converted	—		—		—		—		133,766		121.03
Exercised	(138,054	)	138.79		(203,556	)	131.53		(185,387	)	113.72
Forfeited and canceled	(36,821	)	178.18		(14,735	)	136.11		(21,600	)	144.29
Outstanding at end of year	557,648		181.50		525,094		154.98		664,785		138.78
Options exercisable at year end	290,340		160.90		342,048		152.42		395,986		133.99

The following table summarizes information about restricted stock outstanding as of December 31, 2016, 2015 and 2014 and changes during the years ended:

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014



	2016				2015				2014
	Shares		Weighted- average grant price		Shares		Weighted- average grant price		Shares		Weighted- average grant price
Unvested at beginning of year	54,676		$	147.10	25,820		$	168.22	16,176		$	108.06
Granted	49,183		150.13		56,177		155.21		22,014		194.03
Granted - BRE restricted stock converted	—		—		—		—		119,411		173.82
Vested	(38,427	)	147.12		(22,939	)	148.20		(126,931	)	171.56
Forfeited and canceled	(7,083	)	141.76		(4,382	)	122.06		(4,850	)	135.10
Unvested at end of year	58,349		149.11		54,676		147.10		25,820		168.22

The unrecognized compensation cost related to unvested restricted stock totaled $5.9 million as of December 31, 2016 and is expected to be recognized over a period of 2.2 years.

Long Term Incentive Plans – LTIP Units

On December 9, 2014, the Operating Partnership issued 44,750 units under the 2015 Long-Term Incentive Plan Award agreements to executives of the Company. The 2015 Long-Term Incentive Plan Units (the “2015 LTIP Units”) are subject to forfeiture based on performance-based and service based conditions. An additional 24,000 units were granted subject only to performance-based criteria and were fully vested on the date granted. The 2015 LTIP Units, that were subject to vesting, will vest at 20% per year on each of the first five anniversaries of the initial grant date. The 2015 LTIP Units performance conditions measurement ended on December 9, 2015 and 95.75% of the units awarded were earned by the recipients. 2015 LTIP Units not earned based on the performance-based criteria were automatically forfeited by the recipients. The 2015 LTIP Units, once earned and vested, are convertible one-for-one into common units of the Operating Partnership which, in turn, are convertible into common stock of the Company subject to a ten-year liquidity restriction.

In December 2013, the Operating Partnership issued 50,500 units under the 2014 Long-Term Incentive Plan Award agreements to executives of the Company. The 2014 Long-Term Incentive Plan Units (the “2014 LTIP Units”) were subject to forfeiture based on performance-based conditions and are currently subject to service based vesting. The 2014 LTIP Units vest 25% per year on each of the first four anniversaries of the initial grant date. In December 2014, the Company achieved the performance criteria and all of the 2014 LTIP Units awarded were earned by the recipients, subject to satisfaction of service based vesting conditions. The 2014 LTIP Units are convertible one-for-one into common units of the Operating Partnership which, in turn, are convertible into common stock of the Company subject to a ten year liquidity restriction.

The estimated fair value of the 2015 LTIP Units and 2014 LTIP Units were determined on the grant date using Monte Carlo simulations under a risk-neutral premise and considered Essex’s stock price on the date of grant, the unpaid dividends on unvested units and the discount factor for 10 years of illiquidity.

Prior to 2013, the Company issued Series Z Incentive Units and Series Z-1 Incentive Units (collectively referred to as “Z Units”) of limited partnership interest in the Operating Partnership. Vesting in the Z Units is based on performance criteria established in the plan. The criteria can be revised by the Board's Compensation Committee if the Committee deems that the plan's criterion is unachievable for any given year. The sale of Z Units is contractually prohibited. Z Units are convertible into Operating Partnership units which are exchangeable for shares of the Company’s common stock that have marketability restrictions. The estimated fair value of Z Units were determined on the grant date and considered the Company's stock price on the date of grant, the dividends that are not paid on unvested units and a marketability discount for the 8 to 15 years of illiquidity. Compensation expense is calculated by multiplying estimated vesting increases for the period by the estimated fair value as of the grant date.

During 2011 and 2010, the Operating Partnership issued 154,500 Series Z-1 Incentive Units (the “Z-1 Units”) of limited partner interest to executives of the Company. The Z-1 Units are convertible one-for-one into common units of the Operating Partnership (which, in turn, are convertible into common stock of the Company) upon the earlier to occur of 100 percent vesting of the units or the year 2026. The conversion ratchet (accounted for as vesting) of the Z-1 Units into common units, is to

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

increase consistent with the Company’s annual FFO growth, but is not to be less than zero or greater than 14 percent. Z-1 Unit holders are entitled to receive distributions, on vested units, that are now equal to dividends distributed to common stockholders.

Stock-based compensation expense for LTIP and Z Units under the fair value method totaled approximately $2.7 million, $3.5 million and $6.0 million for the years ended December 31, 2016, 2015 and 2014, respectively. Stock-based compensation expense for the year ended December 31, 2014 includes $1.7 million related to merger and integration expenses and is recorded in merger and integration expense in the consolidated statements of income. No such amounts were recorded in merger and integration expense in 2015. For the year ended December 31, 2014, stock-based compensation expense included $2.4 million related to an immediate vesting of certain of the 2015 LTIP Units. No such amounts were recorded in 2015. Stock-based compensation related to LTIP Units attributable to recipients who are direct and incremental to these projects was capitalized to real estate under development and totaled approximately $0.6 million, $0.5 million, and $0.4 million, for the years ended December 31, 2016, 2015, and 2014, respectively. The intrinsic value of the vested and unvested LTIP Units totaled $56.0 million as of December 31, 2016. Total unrecognized compensation cost related to the unvested LTIP Units under the LTIP Units plans totaled $3.6 million as of December 31, 2016. On a weighted average basis, the unamortized cost for the 2014 and 2015 LTIP Units and the Z Units is expected to be recognized over the next 2.2 years to 8.5 years, depending on certain performance targets.

The following table summarizes information about the LTIP Units outstanding as of December 31, 2016 ($ in thousands):



	Long Term Incentive Plan - LTIP Units
	Total Vested Units		Total Unvested Units		Total Outstanding Units		Weighted- average Grant-date Fair Value		Weighted- average Remaining Contractual Life (years)
Balance, December 31, 2013	118,190		149,381		267,571		$	63.53	9.3
Granted	24,000		44,750		68,750
Vested	41,729		(41,729	)	—
Converted	(2,000	)	—		(2,000	)
Cancelled	—		(1,335	)	(1,335	)
Balance, December 31, 2014	181,919		151,067		332,986		71.14		10.5
Granted	—		—		—
Vested	36,650		(36,650	)	—
Converted	(74,384	)	—		(74,384	)
Cancelled	—		(8,260	)	(8,260	)
Balance, December 31, 2015	144,185		106,157		250,342		75.41		9.5
Granted	—		—		—
Vested	36,842		(36,842	)	—
Converted	—		—		—
Cancelled	—		(9,288	)	(9,288	)
Balance, December 31, 2016	181,027		60,027		241,054		$	75.11	8.5

(13) Segment Information

The Company's segment disclosures present the measure used by the chief operating decision makers for purposes of assessing each segment's performance. Essex's chief operating decision makers are comprised of several members of its executive management team who use NOI to assess the performance of the business for the Company's reportable operating segments. NOI represents total property revenue less direct property operating expenses.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

The executive management team evaluates the Company's operating performance geographically. The Company defines its reportable operating segments as the three geographical regions in which its communities are located: Southern California, Northern California and Seattle Metro.

Excluded from segment revenues and net operating income are management and other fees from affiliates and interest and other income. Non-segment revenues and net operating income included in the following schedule also consist of revenue generated from commercial properties and properties that have been sold. Other non-segment assets include real estate under development, co-investments, real estate held for sale, net, cash and cash equivalents, marketable securities, notes and other receivables and prepaid expenses and other assets.

The revenues and net operating income for each of the reportable operating segments are summarized as follows for the years ended December 31, 2016, 2015, and 2014 ($ in thousands):



	Years Ended December 31,
	2016			2015			2014
Revenues:
Southern California	$	561,094		$	507,536		$	418,495
Northern California	453,140			407,590			319,082
Seattle Metro	217,259			201,417			168,337
Other real estate assets	54,230			68,955			55,677
Total property revenues	$	1,285,723		$	1,185,498		$	961,591
Net operating income:
Southern California	$	382,312		$	340,797		$	274,806
Northern California	325,394			291,168			223,559
Seattle Metro	148,279			136,579			112,494
Other real estate assets	40,811			53,446			38,186
Total net operating income	896,796			821,990			649,045
Management and other fees from affiliates	8,278			8,909			9,347
Depreciation and amortization	(441,682		)	(453,423		)	(360,592		)
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		)
Interest expense	(219,654		)	(204,827		)	(164,551		)
Total return swap income	11,716			5,655			—
Interest and other income	27,305			19,143			11,811
Equity income in co-investments	48,698			21,861			39,893
Loss on early retirement of debt	(606		)	(6,114		)	(268		)
Gain on sale of real estate and land	154,561			47,333			46,039
Deferred tax expense on gain on sale of real estate and land	(4,410		)	—			—
Gain on remeasurement of co-investment	—			34,014			—
Net income	$	438,410		$	248,239		$	134,438

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

Total assets for each of the reportable operating segments are summarized as follows as of December 31, 2016 and 2015 ($ in thousands):



	As of December 31,
Assets:	2016		2015
Southern California	$	4,924,792	$	4,752,174
Northern California	3,791,549		3,733,218
Seattle Metro	1,570,340		1,613,175
Other real estate assets	78,079		283,010
Net reportable operating segments - real estate assets	10,364,760		10,381,577
Real estate under development	190,505		242,326
Co-investments	1,161,275		1,036,047
Real estate held for sale, net	101,957		26,879
Cash and cash equivalents, including restricted cash	170,302		123,055
Marketable securities	139,189		137,485
Notes and other receivables	40,970		19,285
Prepaid expenses and other assets	48,450		41,730
Total assets	$	12,217,408	$	12,008,384

(14) 401(k) Plan

The Company has a 401(k) benefit plan (the “Plan”) for all eligible employees. Employee contributions are limited by the maximum allowed under Section 401(k) of the Internal Revenue Code. The Company matches 50% of the employee contributions up to a specified maximum. Company contributions to the Plan were approximately $1.8 million, $1.6 million, and $0.9 million for the years ended December 31, 2016, 2015, and 2014, respectively.

(15) Commitments and Contingencies

As of December 31, 2016, the Company had seven ground leases for certain apartment communities and buildings that expire between 2027 and 2082. Ground lease payments are typically the greater of a stated minimum or a percentage of gross rents generated by these apartment communities, some of which may be subject to future adjustments, which are not contemplated in the disclosed minimum lease commitments. The total minimum lease commitments, under ground leases and operating leases, for each of the years ending December 31 is summarized as follows ($ in thousands):



	Total Minimum
	Lease Commitments
2017	$	4,647
2018	4,704
2019	4,763
2020	4,823
2021	4,886
Thereafter	116,472
	$	140,295

To the extent that an environmental matter arises or is identified in the future that has other than a remote risk of having a material impact on the financial statements, the Company will disclose the estimated range of possible outcomes associated with it and, if an outcome is probable, accrue an appropriate liability for that matter. The Company will consider whether any such matter results in an impairment of value on the affected property and, if so, the impairment will be recognized.

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

The Company has no way of determining the magnitude of any potential liability to which it may be subject arising out of unknown environmental conditions with respect to the communities currently or formerly owned by the Company. No assurance can be given that: existing environmental assessments conducted with respect to any of these communities have revealed all environmental conditions or potential liabilities associated with such conditions; any prior owner or operator of a property did not create any material environmental condition not known to the Company; or a material unknown environmental condition does not otherwise exist as to any one or more of the communities. The Company has limited insurance coverage for some of the types of environmental conditions and associated liabilities described above.

The Company has entered into transactions that may require the Company to pay the tax liabilities of the partners in the Operating Partnership or in the DownREIT entities. These transactions are within the Company’s control. Although the Company plans to hold the contributed assets or defer recognition of gain on their sale pursuant to like-kind exchange rules under Section 1031 of the Internal Revenue Code, the Company can provide no assurance that it will be able to do so and if such tax liabilities were incurred they may have a material impact on the Company’s financial position.

There continue to be lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in the residential units and common areas of those communities. Some of these lawsuits have resulted in substantial monetary judgments or settlements. The Company has been sued for mold related matters and has settled some, but not all, such suits. Insurance carriers have reacted to the increase in mold related liability awards by excluding mold related claims from standard general liability policies and pricing mold endorsements at prohibitively high rates. The Company has, however, purchased pollution liability insurance which includes some coverage for some mold claims. The Company has also adopted policies intended to promptly address and resolve reports of mold and to minimize any impact mold might have on residents of its properties. The Company believes its mold policies and proactive response to address reported mold exposures reduces its risk of loss from mold claims. While no assurances can be given that the Company has identified and responded to all mold occurrences, the Company promptly addresses and responds to all known mold reports. Liabilities resulting from such mold related matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. As of December 31, 2016, potential liabilities for mold and other environmental liabilities are not quantifiable and an estimate of possible loss cannot be made.

The Company carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the communities. There are, however, certain types of extraordinary losses, such as, for example, losses from terrorism or earthquakes, for which the Company has limited insurance coverage. Substantially all of the communities are located in areas that are subject to earthquake activity. The Company has established a wholly-owned insurance subsidiary, Pacific Western Insurance LLC (“PWI”). Through PWI, the Company is self-insured as it relates to earthquake related losses. Additionally, since January 2008, PWI has provided property and casualty insurance coverage for the first $5.0 million of the Company’s property level insurance claims per incident. As of December 31, 2016, PWI has cash and marketable securities of approximately $69.9 million. These assets are consolidated in the Company’s financial statements. Beginning in 2013, the Company has obtained limited third party seismic insurance on selected assets in the Company's co-investments.

On December 19, 2014, a putative class action was filed against the Company in the U.S. District Court for the Northern

District of California, entitled Foster v. Essex Property Trust, Inc. alleging that the Company failed to properly secure the

personally-identifying information of its residents. The lawsuit seeks the recovery of unspecified damages and certain

injunctive relief. This lawsuit was filed in connection with a cyber-intrusion that the Company discovered in the third quarter of

This matter was dismissed subject to possible appeal.

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.

(16) Subsequent Events

In January 2017, the Company sold Jefferson at Hollywood, a 270 apartment home community, located in Los Angeles, CA, for $132.5 million.

In January 2017, the Company purchased its joint venture partner's 50.0% interest in Palm Valley, for a contract price of $183.0 million. Prior to the purchase, an approximately $220.0 million mortgage encumbered the property. Concurrent with the closing

F- 48

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

of the acquisition, the entire mortgage balance was repaid and the property is now unencumbered. Palm Valley has 1,098 apartment homes, within four communities, and is located in San Jose, CA.

(17) Quarterly Results of Operations (Unaudited)

Essex Property Trust, Inc.

The following is a summary of quarterly results of operations for 2016 and 2015 ($ in thousands, except per share and dividend amounts):



	Quarter ended December 31		Quarter ended September 30		Quarter ended June 30		Quarter ended March 31
2016:
Total property revenues	$	326,905	$	327,078	$	319,562	$	312,178
Net income	$	204,517	$	70,162	$	76,824	$	86,907
Net income available to common stockholders	$	195,569	$	65,561	$	72,013	$	77,981
Per share data:
Net income:
Basic (1)	$	2.98	$	1.00	$	1.10	$	1.19
Diluted (1)	$	2.98	$	1.00	$	1.10	$	1.19
Market price:
High	$	234.07	$	236.56	$	237.50	$	240.55
Low	$	200.01	$	217.16	$	207.20	$	191.25
Close	$	232.50	$	222.70	$	228.09	$	233.86
Dividends declared	$	1.60	$	1.60	$	1.60	$	1.60
2015:
Total property revenues	$	308,646	$	302,522	$	294,101	$	280,229
Net income	$	85,762	$	47,182	$	50,542	$	64,753
Net income available to common stockholders	$	79,624	$	42,323	$	45,555	$	59,363
Per share data:
Net income:
Basic (1)	$	1.22	$	0.65	$	0.70	$	0.92
Diluted (1)	$	1.22	$	0.65	$	0.70	$	0.92
Market price:
High	$	244.71	$	232.20	$	231.90	$	243.17
Low	$	214.29	$	205.72	$	208.85	$	207.26
Close	$	239.41	$	223.42	$	212.50	$	229.90
Dividends declared	$	1.44	$	1.44	$	1.44	$	1.44


(1)	Quarterly earnings per common unit amounts may not total to the annual amounts due to rounding and the changes in the number of weighted common units outstanding and included in the calculation of basic and diluted shares.

F- 49

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

Essex Portfolio, L.P.

The following is a summary of quarterly results of operations for 2016 and 2015 ($ in thousands, except per unit and distribution amounts):



	Quarter ended December 31		Quarter ended September 30		Quarter ended June 30		Quarter ended March 31
2016:
Total property revenues	$	326,905	$	327,078	$	319,562	$	312,178
Net income	$	204,517	$	70,162	$	76,824	$	86,907
Net income available to common unitholders	$	202,201	$	67,784	$	74,463	$	80,765
Per unit data:
Net income:
Basic (1)	$	2.98	$	1.00	$	1.10	$	1.19
Diluted (1)	$	2.98	$	1.00	$	1.10	$	1.19
Distributions declared	$	1.60	$	1.60	$	1.60	$	1.60
2015:
Total property revenues	$	308,646	$	302,522	$	294,101	$	280,229
Net income	$	85,762	$	47,182	$	50,542	$	64,753
Net income available to common unitholders	$	82,333	$	43,794	$	47,088	$	61,474
Per unit data:
Net income:
Basic (1)	$	1.22	$	0.65	$	0.70	$	0.93
Diluted (1)	$	1.22	$	0.65	$	0.70	$	0.92
Distributions declared	$	1.44	$	1.44	$	1.44	$	1.44


(1)	Quarterly earnings per common unit amounts may not total to the annual amounts due to rounding and the changes in the number of weighted common units outstanding and included in the calculation of basic and diluted shares.

F- 50

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2016

(Dollars in thousands)



									Costs
					Initial cost				capitalized		Gross amount carried at close of period
	Apartment						Buildings and		subsequent to		Land and		Buildings and				Accumulated			Date of	Date	Lives
Property	Homes	Location	Encumbrance		Land		improvements		acquisition		improvements		improvements		Total (1)		depreciation			construction	acquired	(years)
Encumbered communities
Avondale at Warner Center	446	Woodland Hills, CA	$	43,687	$	10,536	$	24,522	$	20,008	$	10,601	$	44,465	$	55,066	$	(28,536	)	1970	Jan-99	3-30
Bel Air	462	San Ramon, CA	51,531		12,105		18,252		33,311		12,682		50,986		63,668		(30,311		)	1988	Jan-95	3-30
Belcarra	296	Bellevue, WA	52,238		21,725		92,091		487		21,725		92,578		114,303		(9,268		)	2009	Apr-14	5-30
BellCentre	248	Bellevue, WA	39,597		16,197		67,207		3,240		16,197		70,447		86,644		(7,170		)	2001	Apr-14	5-30
Belmont Station	275	Los Angeles, CA	29,629		8,100		66,666		5,704		8,267		72,203		80,470		(23,456		)	2009	Mar-09	3-30
Brookside Oaks	170	Sunnyvale, CA	18,536		7,301		16,310		23,979		10,328		37,262		47,590		(18,245		)	1973	Jun-00	3-30
Canyon Oaks	250	San Ramon, CA	27,059		19,088		44,473		2,845		19,088		47,318		66,406		(15,836		)	2005	May-07	3-30
Carmel Creek	348	San Diego, CA	63,142		26,842		107,368		3,952		26,842		111,320		138,162		(11,480		)	2000	Apr-14	5-30
City View	572	Hayward, CA	61,761		9,883		37,670		24,081		10,350		61,284		71,634		(41,530		)	1975	Mar-98	3-30
Courtyard off Main	110	Bellevue, WA	15,133		7,465		21,405		3,467		7,465		24,872		32,337		(5,651		)	2000	Oct-10	3-30
Domaine	92	Seattle, WA	14,597		9,059		27,177		830		9,059		28,007		37,066		(4,152		)	2009	Sep-12	3-30
Elevation	158	Redmond, WA	10,697		4,758		14,285		5,961		4,757		20,247		25,004		(6,425		)	1986	Jun-10	3-30
Ellington	220	Bellevue, WA	21,497		15,066		45,249		2,170		15,066		47,419		62,485		(3,879		)	1994	Jul-14	3-30
Fairhaven Apartments	164	Santa Ana, CA	15,761		2,626		10,485		6,622		2,957		16,776		19,733		(8,593		)	1970	Nov-01	3-30
Form 15	242	San Diego, CA	47,442		24,510		72,221		4,513		25,540		75,704		101,244		(2,120		)	2014	Mar-16	3-30
Foster's Landing	490	Foster City, CA	97,220		61,714		144,000		7,016		61,714		151,016		212,730		(15,886		)	1987	Apr-14	5-30
Fountains at River Oaks	226	San Jose, CA	32,118		26,046		60,773		3,229		26,046		64,002		90,048		(6,363		)	1990	Apr-14	3-30
Fountain Park	705	Playa Vista, CA	82,435		25,073		94,980		30,967		25,203		125,817		151,020		(59,294		)	2002	Feb-04	3-30
Hampton Place/Hampton Court	215	Glendale, CA	19,833		6,695		16,753		19,093		6,733		35,808		42,541		(15,684		)	1970	Jun-99	3-30
Hidden Valley	324	Simi Valley, CA	29,295		14,174		34,065		3,373		9,674		41,938		51,612		(17,484		)	2004	Dec-04	3-30
Highlands at Wynhaven	333	Issaquah, WA	30,901		16,271		48,932		9,533		16,271		58,465		74,736		(18,290		)	2000	Aug-08	3-30
Highridge	255	Rancho Palos Verdes, CA	69,202		5,419		18,347		29,991		6,073		47,684		53,757		(30,084		)	1972	May-97	3-30
Hillcrest Park	608	Newbury Park, CA	64,211		15,318		40,601		18,880		15,755		59,044		74,799		(34,815		)	1973	Mar-98	3-30
Huntington Breakers	342	Huntington Beach, CA	35,943		9,306		22,720		18,651		9,315		41,362		50,677		(22,606		)	1984	Oct-97	3-30
Inglenook Court	224	Bothell, WA	8,194		3,467		7,881		7,159		3,474		15,033		18,507		(11,373		)	1985	Oct-94	3-30
1000 Kiely	121	Santa Clara, CA	48,414		9,359		21,845		7,268		9,359		29,113		38,472		(7,266		)	1971	Mar-11	3-30
Magnolia Square/Magnolia Lane (2)	188	Sunnyvale, CA	52,175		8,190		24,736		15,223		8,191		39,958		48,149		(15,672		)	1963	Sep-07	3-30
Mill Creek at Windermere	400	San Ramon, CA	46,414		29,551		69,032		3,935		29,551		72,967		102,518		(23,405		)	2005	Sep-07	3-30
Mirabella	188	Marina Del Rey, CA	42,544		6,180		26,673		14,474		6,270		41,057		47,327		(21,140		)	2000	May-00	3-30
Montanosa	472	San Diego, CA	61,972		26,697		106,787		3,280		26,697		110,067		136,764		(11,271		)	1990	Apr-14	5-30

F- 51

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2016

(Dollars in thousands)



									Costs
					Initial cost				capitalized		Gross amount carried at close of period
	Apartment						Buildings and		subsequent to		Land and		Buildings and				Accumulated			Date of	Date	Lives
Property	Homes	Location	Encumbrance		Land		improvements		acquisition		improvements		improvements		Total (1)		depreciation			construction	acquired	(years)
Montclaire	390	Sunnyvale, CA	44,122		4,842		19,776		21,476		4,997		41,097		46,094		(35,665		)	1973	Dec-88	3-30
Montebello	248	Kirkland, WA	26,475		13,857		41,575		4,077		13,858		45,651		59,509		(7,791		)	1996	Jul-12	3-30
Montejo Apartments	124	Garden Grove, CA	11,939		1,925		7,685		3,173		2,194		10,589		12,783		(5,420		)	1974	Nov-01	3-30
Park Highland	250	Bellevue, WA	26,617		9,391		38,224		10,626		9,391		48,850		58,241		(5,230		)	1993	Apr-14	5-30
Park Hill at Issaquah	245	Issaquah, WA	27,224		7,284		21,937		6,769		7,284		28,706		35,990		(11,712		)	1999	Feb-99	3-30
Pathways at Bixby Village	296	Long Beach, CA	35,673		4,083		16,757		19,526		6,239		34,127		40,366		(27,669		)	1975	Feb-91	3-30
Piedmont	396	Bellevue, WA	45,454		19,848		59,606		9,087		19,848		68,693		88,541		(6,386		)	1969	May-14	3-30
Pinnacle at Fullerton	192	Fullerton, CA	26,804		11,019		45,932		1,699		11,019		47,631		58,650		(4,847		)	2004	Apr-14	5-30
Pinnacle on Lake Washington	180	Renton, WA	18,078		7,760		31,041		755		7,760		31,796		39,556		(3,245		)	2001	Apr-14	5-30
Pinnacle at MacArthur Place	253	Santa Ana, CA	38,538		15,810		66,401		2,115		15,810		68,516		84,326		(6,945		)	2002	Apr-14	5-30
Pinnacle at Otay Ranch I & II	364	Chula Vista, CA	40,069		17,023		68,093		2,561		17,023		70,654		87,677		(7,157		)	2001	Apr-14	5-30
Pinnacle at Talega	362	San Clemente, CA	44,804		19,292		77,168		1,576		19,292		78,744		98,036		(8,014		)	2002	Apr-14	5-30
Stevenson Place	200	Fremont, CA	20,628		996		5,582		10,694		1,001		16,271		17,272		(11,105		)	1975	Apr-00	3-30
Summerhill Park	100	Sunnyvale, CA	12,793		2,654		4,918		10,432		2,656		15,348		18,004		(7,221		)	1988	Sep-88	3-30
The Audrey at Belltown	137	Seattle, WA	21,279		9,228		36,911		423		9,228		37,334		46,562		(3,761		)	1992	Apr-14	5-30
The Barkley (3)	161	Anaheim, CA	15,666		—		8,520		5,984		2,353		12,151		14,504		(6,678		)	1984	Apr-00	3-30
The Bernard	63	Seattle, WA	8,841		3,699		11,345		384		3,689		11,739		15,428		(2,136		)	2008	Sep-11	3-30
The Dylan	184	West Hollywood, CA	59,866		19,984		82,286		405		19,984		82,691		102,675		(5,863		)	2015	Mar-15	3-30
The Elliot at Mukilteo	301	Mukilteo, WA	10,639		2,498		10,595		15,308		2,824		25,577		28,401		(16,550		)	1981	Jan-97	3-30
The Huntington	276	Huntington Beach, CA	29,861		10,374		41,495		4,191		10,374		45,686		56,060		(7,652		)	1975	Jun-12	3-30
The Huxley	187	West Hollywood, CA	54,501		19,362		75,641		770		19,362		76,411		95,773		(5,537		)	2014	Mar-15	3-30
The Landing at Jack London Square	282	Oakland, CA	53,055		33,554		78,292		4,246		33,554		82,538		116,092		(8,759		)	2001	Apr-14	5-30
The Palisades	192	Bellevue, WA	19,752		1,560		6,242		12,093		1,565		18,330		19,895		(15,115		)	1977	May-90	3-30
The Palms at Laguna Niguel	460	Laguna Niguel, CA	55,441		23,584		94,334		3,393		23,584		97,727		121,311		(9,922		)	1988	Apr-14	5-30
The Waterford	238	San Jose, CA	30,240		11,808		24,500		14,172		15,165		35,315		50,480		(19,053		)	2000	Jun-00	3-30
Tierra Vista	404	Oxnard, CA	52,715		13,652		53,336		4,595		13,661		57,922		71,583		(25,300		)	2001	Jan-01	3-30
Valley Park	160	Fountain Valley, CA	21,530		3,361		13,420		5,545		3,761		18,565		22,326		(9,050		)	1969	Nov-01	3-30
Villa Angelina	256	Placentia, CA	24,723		4,498		17,962		6,808		4,962		24,306		29,268		(12,185		)	1970	Nov-01	3-30
Villa Granada	270	Santa Clara, CA	58,828		38,299		89,365		1,059		38,299		90,424		128,723		(9,193		)	2010	Apr-14	5-30
Wandering Creek	156	Kent, WA	5,224		1,285		4,980		3,981		1,296		8,950		10,246		(6,767		)	1986	Nov-95	3-30
Wilshire Promenade	149	Fullerton, CA	16,924		3,118		7,385		7,984		3,797		14,690		18,487		(9,114		)	1992	Jan-97	3-30
	16,620		$	2,191,481	$	794,369	$	2,564,810	$	529,149	$	807,080	$	3,081,248	$	3,888,328	$	(848,327	)

F- 52

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2016

(Dollars in thousands)



									Costs
					Initial cost				capitalized		Gross amount carried at close of period
	Apartment						Buildings and		subsequent to		Land and		Buildings and				Accumulated			Date of	Date	Lives
Property	Homes	Location	Encumbrance		Land		improvements		acquisition		improvements		improvements		Total (1)		depreciation			construction	acquired	(years)

Unencumbered Communities
8th & Hope	290	Los Angeles, CA	$	—	$	29,279	$	169,350	$	1,746	$	29,279	$	171,096	$	200,375	$	(11,991	)	2014	Feb-15	3-30
Alessio	624	Los Angeles, CA	—		32,136		128,543		4,416		32,136		132,959		165,095		(13,779		)	2001	Apr-14	5-30
Allegro	97	Valley Village, CA	—		5,869		23,977		1,811		5,869		25,788		31,657		(7,554		)	2010	Oct-10	3-30
Allure at Scripps Ranch	194	San Diego, CA	—		11,923		47,690		862		11,923		48,552		60,475		(4,885		)	2002	Apr-14	5-30
Alpine Village	301	Alpine, CA	—		4,967		19,728		7,285		4,982		26,998		31,980		(12,764		)	1971	Dec-02	3-30
Anavia	250	Anaheim, CA	—		15,925		63,712		7,262		15,925		70,974		86,899		(14,512		)	2009	Dec-10	3-30
Annaliese	56	Seattle, WA	—		4,727		14,229		426		4,726		14,656		19,382		(1,977		)	2009	Jan-13	3-30
Apex	366	Milpitas, CA	—		44,240		103,251		1,685		44,240		104,936		149,176		(8,143		)	2014	Aug-14	3-30
Aqua Marina Del Rey	500	Marina Del Rey, CA	—		58,442		175,326		8,039		58,442		183,365		241,807		(19,062		)	2001	Apr-14	5-30
Ascent	90	Kirkland, WA	—		3,924		11,862		1,726		3,924		13,588		17,512		(2,335		)	1988	Oct-12	3-30
Ashton Sherman Village	264	Los Angeles, CA	—		23,550		93,811		12		23,550		93,823		117,373		(136		)	2014	Dec-16	3-30
Avant	440	Los Angeles, CA	—		32,379		137,940		593		32,379		138,533		170,912		(6,522		)	2014	Jun-15	3-30
Avenue 64	224	Emeryville, CA	—		27,235		64,403		13,349		27,235		77,752		104,987		(7,074		)	2007	Apr-14	5-30
Aviara (4)	166	Mercer Island, WA	—		—		49,813		498		—		50,311		50,311		(5,693		)	2013	Apr-14	5-30
Axis 2300	115	Irvine, CA	—		5,405		33,585		1,287		5,405		34,872		40,277		(9,957		)	2010	Aug-10	3-30
Bella Villagio	231	San Jose, CA	—		17,247		40,343		2,544		17,247		42,887		60,134		(9,707		)	2004	Sep-10	3-30
Bellerive	63	Los Angeles, CA	—		5,401		21,803		856		5,401		22,659		28,060		(5,427		)	2011	Aug-11	3-30
Belmont Terrace	71	Belmont, CA	—		4,446		10,290		5,181		4,473		15,444		19,917		(6,223		)	1974	Oct-06	3-30
Bennett Lofts	165	San Francisco, CA	—		21,771		50,800		27,370		28,371		71,570		99,941		(10,291		)	2004	Dec-12	3-30
Bernardo Crest	216	San Diego, CA	—		10,802		43,209		2,263		10,802		45,472		56,274		(4,633		)	1988	Apr-14	5-30
Bonita Cedars	120	Bonita, CA	—		2,496		9,913		2,842		2,503		12,748		15,251		(6,100		)	1983	Dec-02	3-30
Boulevard	172	Fremont, CA	—		3,520		8,182		11,391		3,580		19,513		23,093		(14,961		)	1978	Jan-96	3-30
Bridle Trails	108	Kirkland, WA	—		1,500		5,930		5,622		1,531		11,521		13,052		(7,672		)	1986	Oct-97	3-30
Brighton Ridge	264	Renton, WA	—		2,623		10,800		4,523		2,656		15,290		17,946		(10,385		)	1986	Dec-96	3-30
Bristol Commons	188	Sunnyvale, CA	—		5,278		11,853		8,069		5,293		19,907		25,200		(11,273		)	1989	Jan-95	3-30
416 on Broadway	115	Glendale, CA	—		8,557		34,235		2,111		8,557		36,346		44,903		(8,028		)	2009	Dec-10	3-30
Bunker Hill	456	Los Angeles, CA	—		11,498		27,871		63,985		11,639		91,715		103,354		(32,678		)	1968	Mar-98	3-30
Camarillo Oaks	564	Camarillo, CA	—		10,953		25,254		5,444		11,075		30,576		41,651		(20,556		)	1985	Jul-96	3-30
Cambridge Park	320	San Diego, CA	—		18,185		72,739		1,619		18,185		74,358		92,543		(7,679		)	1998	Apr-14	5-30
Camino Ruiz Square	159	Camarillo, CA	—		6,871		26,119		1,567		6,931		27,626		34,557		(9,542		)	1990	Dec-06	3-30

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2016

(Dollars in thousands)



						Costs
				Initial cost		capitalized	Gross amount carried at close of period
	Apartment				Buildings and	subsequent to	Land and	Buildings and		Accumulated		Date of	Date	Lives
Property	Homes	Location	Encumbrance	Land	improvements	acquisition	improvements	improvements	Total (1)	depreciation		construction	acquired	(years)
Canyon Pointe	250	Bothell, WA	—	4,692	18,288	6,623	4,693	24,910	29,603	(11,707	)	1990	Oct-03	3-30
Capri at Sunny Hills	102	Fullerton, CA	—	3,337	13,320	8,626	4,048	21,235	25,283	(11,437	)	1961	Sep-01	3-30
Carmel Landing	356	San Diego, CA	—	16,725	66,901	3,866	16,725	70,767	87,492	(7,321	)	1989	Apr-14	5-30
Carmel Summit	246	San Diego, CA	—	14,968	59,871	2,007	14,968	61,878	76,846	(6,271	)	1989	Apr-14	5-30
Castle Creek	216	Newcastle, WA	—	4,149	16,028	3,066	4,833	18,410	23,243	(12,291	)	1998	Dec-98	3-30
Catalina Gardens	128	Los Angeles, CA	—	6,714	26,856	710	6,714	27,566	34,280	(2,811	)	1987	Apr-14	5-30
CBC Apartments & The Sweeps	239	Goleta, CA	—	11,841	45,320	5,848	11,906	51,103	63,009	(21,004	)	1962	Jan-06	3-30
Cedar Terrace	180	Bellevue, WA	—	5,543	16,442	5,457	5,652	21,790	27,442	(9,597	)	1984	Jan-05	3-30
CentrePointe	224	San Diego, CA	—	3,405	7,743	20,221	3,442	27,927	31,369	(13,724	)	1974	Jun-97	3-30
Chestnut Street Apartments	96	Santa Cruz, CA	—	6,582	15,689	1,387	6,582	17,076	23,658	(5,165	)	2002	Jul-08	3-30
Collins on Pine	76	Seattle, WA	—	7,276	22,226	179	7,276	22,405	29,681	(1,973	)	2013	May-14	3-30
Corbella at Juanita Bay	169	Kirkland, WA	—	5,801	17,415	2,368	5,801	19,783	25,584	(4,515	)	1978	Nov-10	3-30
Cortesia	308	Rancho Santa Margarita, CA	—	13,912	55,649	1,103	13,912	56,752	70,664	(5,799	)	1999	Apr-14	5-30
Country Villas	180	Oceanside, CA	—	4,174	16,583	3,902	4,187	20,472	24,659	(10,111	)	1976	Dec-02	3-30
Crow Canyon	400	San Ramon, CA	—	37,579	87,685	3,158	37,579	90,843	128,422	(9,277	)	1992	Apr-14	5-30
Deer Valley	171	San Rafael, CA	—	21,478	50,116	1,629	21,478	51,745	73,223	(5,335	)	1996	Apr-14	5-30
Delano	126	Redmond, WA	—	7,470	22,511	1,056	7,470	23,567	31,037	(4,127	)	2005	Dec-11	3-30
Devonshire	276	Hemet, CA	—	3,470	13,786	3,685	3,482	17,459	20,941	(8,659	)	1988	Dec-02	3-30
Domain	379	San Diego, CA	—	23,848	95,394	1,141	23,848	96,535	120,383	(10,174	)	2013	Nov-13	3-30
Emerald Pointe	160	Diamond Bar, CA	—	8,458	33,832	1,203	8,458	35,035	43,493	(3,605	)	1989	Apr-14	5-30
Emerald Ridge	180	Bellevue, WA	—	3,449	7,801	4,937	3,449	12,738	16,187	(8,907	)	1987	Nov-94	3-30
Emerson Valley Village	144	Los Angeles, CA	—	13,378	53,240	9	13,378	53,249	66,627	(77	)	2012	Dec-16	3-30
Enso	183	San Jose, CA	—	21,397	71,135	858	21,397	71,993	93,390	(2,637	)	2014	Dec-15	3-30
Esplanade	278	San Jose, CA	—	18,170	40,086	11,222	18,429	51,049	69,478	(21,749	)	2002	Apr-04	3-30
Essex Skyline	349	Santa Ana, CA	—	21,537	146,099	4,587	21,537	150,686	172,223	(24,175	)	2008	Apr-10	3-30
Evergreen Heights	200	Kirkland, WA	—	3,566	13,395	4,936	3,649	18,248	21,897	(11,867	)	1990	Jun-97	3-30
Fairway Apartments at Big Canyon (5)	74	Newport Beach, CA	—	—	7,850	7,136	9	14,977	14,986	(8,513	)	1972	Jun-99	3-28
Fairwood Pond	194	Renton, WA	—	5,296	15,564	2,784	5,297	18,347	23,644	(8,155	)	1997	Oct-04	3-30
Foothill Commons	394	Bellevue, WA	—	2,435	9,821	38,221	2,440	48,037	50,477	(34,450	)	1978	Mar-90	3-30
Foothill Gardens/Twin Creeks	176	San Ramon, CA	—	5,875	13,992	8,902	5,964	22,805	28,769	(13,660	)	1985	Feb-97	3-30
Forest View	192	Renton, WA	—	3,731	14,530	2,101	3,731	16,631	20,362	(7,661	)	1998	Oct-03	3-30

F- 54

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2016

(Dollars in thousands)



						Costs
				Initial cost		capitalized	Gross amount carried at close of period
	Apartment				Buildings and	subsequent to	Land and	Buildings and		Accumulated		Date of	Date	Lives
Property	Homes	Location	Encumbrance	Land	improvements	acquisition	improvements	improvements	Total (1)	depreciation		construction	acquired	(years)
Fountain Court	320	Seattle, WA	—	6,702	27,306	10,809	6,585	38,232	44,817	(21,314	)	2000	Mar-00	3-30
Fourth & U	171	Berkeley, CA	—	8,879	52,351	2,621	8,879	54,972	63,851	(13,809	)	2010	Apr-10	3-30
Fox Plaza	443	San Francisco, CA	—	39,731	92,706	18,477	39,731	111,183	150,914	(15,448	)	1968	Feb-13	3-30
Hillsdale Garden	697	San Mateo, CA	—	22,000	94,681	21,533	22,000	116,214	138,214	(44,137	)	1948	Sep-06	3-30
Hope Ranch	108	Santa Barbara, CA	—	4,078	16,877	2,675	4,208	19,422	23,630	(6,308	)	1965	Mar-07	3-30
Joule	295	Seattle, WA	—	14,558	69,417	3,849	14,558	73,266	87,824	(18,880	)	2010	Mar-10	3-30
Kings Road	196	Los Angeles, CA	—	4,023	9,527	12,514	4,031	22,033	26,064	(12,625	)	1979	Jun-97	3-30
Lafayette Highlands	150	Lafayette, CA	—	17,774	41,473	851	17,774	42,324	60,098	(4,330	)	1973	Apr-14	5-30
Lakeshore Landing	308	San Mateo, CA	—	38,155	89,028	4,172	38,155	93,200	131,355	(10,025	)	1988	Apr-14	5-30
Laurels at Mill Creek	164	Mill Creek, WA	—	1,559	6,430	5,701	1,595	12,095	13,690	(8,373	)	1981	Dec-96	3-30
Lawrence Station	336	Sunnyvale, CA	—	45,532	106,735	517	45,532	107,252	152,784	(13,299	)	2012	Apr-14	5-30
Le Parc	140	Santa Clara, CA	—	3,090	7,421	11,503	3,092	18,922	22,014	(13,388	)	1975	Feb-94	3-30
Marbrisa	202	Long Beach, CA	—	4,700	18,605	7,913	4,760	26,458	31,218	(12,247	)	1987	Sep-02	3-30
Marina City Club (6)	101	Marina Del Rey, CA	—	—	28,167	42,537	—	70,704	70,704	(20,352	)	1971	Jan-04	3-30
Marina Cove (7)	292	Santa Clara, CA	—	5,320	16,431	13,464	5,324	29,891	35,215	(20,354	)	1974	Jun-94	3-30
Mariner's Place	105	Oxnard, CA	—	1,555	6,103	2,218	1,562	8,314	9,876	(4,954	)	1987	May-00	3-30
MB 360	360	San Francisco, CA	—	21,421	114,376	121,769	42,001	215,565	257,566	(12,003	)	2014	Apr-14	3-30
Mesa Village	133	Clairemont, CA	—	1,888	7,498	1,501	1,894	8,993	10,887	(4,323	)	1963	Dec-02	3-30
Mio	103	San Jose, CA	—	11,012	39,982	182	11,012	40,164	51,176	(1,363	)	2015	Jan-16	3-30
Mira Monte	354	Mira Mesa, CA	—	7,165	28,459	9,962	7,186	38,400	45,586	(20,783	)	1982	Dec-02	3-30
Miracle Mile/Marbella	236	Los Angeles, CA	—	7,791	23,075	13,759	7,886	36,739	44,625	(22,818	)	1988	Aug-97	3-30
Mission Hills	282	Oceanside, CA	—	10,099	38,778	5,762	10,167	44,472	54,639	(18,507	)	1984	Jul-05	3-30
Mission Peaks	453	Fremont, CA	—	46,499	108,498	2,168	46,499	110,666	157,165	(11,305	)	1995	Apr-14	5-30
Mission Peaks II	336	Fremont, CA	—	31,429	73,334	3,170	31,429	76,504	107,933	(7,962	)	1989	Apr-14	5-30
Monterey Villas	122	Oxnard, CA	—	2,349	5,579	6,117	2,424	11,621	14,045	(6,834	)	1974	Jul-97	3-30
Muse	152	North Hollywood, CA	—	7,822	33,436	2,457	7,823	35,892	43,715	(9,961	)	2011	Feb-11	3-30
Museum Park	117	San Jose, CA	—	13,864	32,348	934	13,864	33,282	47,146	(3,438	)	2002	Apr-14	5-30
Paragon Apartments	301	Fremont, CA	—	32,230	77,320	589	32,230	77,909	110,139	(6,431	)	2013	Jul-14	3-30
Park Catalina	90	Los Angeles, CA	—	4,710	18,839	2,785	4,710	21,624	26,334	(3,739	)	2002	Jun-12	3-30
Park Viridian	320	Anaheim, CA	—	15,894	63,574	1,727	15,894	65,301	81,195	(6,673	)	2008	Apr-14	5-30
Park West	126	San Francisco, CA	—	9,424	21,988	11,278	9,424	33,266	42,690	(5,609	)	1958	Sep-12	3-30
Parkwood at Mill Creek	240	Mill Creek, WA	—	10,680	42,722	1,896	10,680	44,618	55,298	(4,667	)	1989	Apr-14	5-30

F- 55

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2016

(Dollars in thousands)



						Costs
				Initial cost		capitalized		Gross amount carried at close of period
	Apartment				Buildings and	subsequent to		Land and	Buildings and		Accumulated		Date of	Date	Lives
Property	Homes	Location	Encumbrance	Land	improvements	acquisition		improvements	improvements	Total (1)	depreciation		construction	acquired	(years)
Pinehurst (8)	28	Ventura, CA	—	—	1,711	519		6	2,224	2,230	(1,344	)	1973	Dec-04	3-24
Pinnacle Sonata	268	Bothell, WA	—	14,647	58,586	1,911		14,647	60,497	75,144	(6,089	)	2000	Apr-14	5-30
Pointe at Cupertino	116	Cupertino, CA	—	4,505	17,605	11,631		4,505	29,236	33,741	(13,938	)	1963	Aug-98	3-30
Radius	264	Redwood City, CA	—	11,702	152,336	(39	)	11,702	152,297	163,999	(14,159	)	2015	Apr-14	3-30
Reed Square	100	Sunnyvale, CA	—	6,873	16,037	7,788		6,873	23,825	30,698	(5,865	)	1970	Jan-12	3-30
Regency at Encino	75	Encino, CA	—	3,184	12,737	3,066		3,184	15,803	18,987	(4,623	)	1989	Dec-09	3-30
Renaissance at Uptown Orange	460	Orange, CA	—	27,870	111,482	3,165		27,870	114,647	142,517	(11,618	)	2007	Apr-14	5-30
Reveal	438	Woodland Hills, CA	—	25,073	121,314	854		25,073	122,168	147,241	(8,165	)	2010	Apr-15	3-30
Salmon Run at Perry Creek	132	Bothell, WA	—	3,717	11,483	1,781		3,801	13,180	16,981	(7,106	)	2000	Oct-00	3-30
Sammamish View	153	Bellevue, WA	—	3,324	7,501	6,497		3,331	13,991	17,322	(11,078	)	1986	Nov-94	3-30
101 San Fernando	323	San Jose, CA	—	4,173	58,961	9,052		4,173	68,013	72,186	(16,920	)	2001	Jul-10	3-30
San Marcos	432	Richmond, CA	—	15,563	36,204	28,870		22,866	57,771	80,637	(26,023	)	2003	Nov-03	3-30
Santee Court/Santee Village	238	Los Angeles, CA	—	9,581	40,317	4,935		9,582	45,251	54,833	(10,633	)	2004	Oct-10	3-30
Shadow Point	172	Spring Valley, CA	—	2,812	11,170	2,818		2,820	13,980	16,800	(6,781	)	1983	Dec-02	3-30
Shadowbrook	418	Redmond, WA	—	19,292	77,168	3,028		19,292	80,196	99,488	(8,197	)	1986	Apr-14	5-30
Slater 116	108	Kirkland, WA	—	7,379	22,138	540		7,379	22,678	30,057	(2,621	)	2013	Sep-13	3-30
Solstice	280	Sunnyvale, CA	—	34,444	147,262	4,404		34,444	151,666	186,110	(17,915	)	2014	Apr-14	5-30
Stonehedge Village	196	Bothell, WA	—	3,167	12,603	5,889		3,201	18,458	21,659	(12,004	)	1986	Oct-97	3-30
Summit Park	300	San Diego, CA	—	5,959	23,670	5,523		5,977	29,175	35,152	(14,340	)	1972	Dec-02	3-30
Taylor 28	197	Seattle, WA	—	13,915	57,700	648		13,915	58,348	72,263	(5,840	)	2008	Apr-14	5-30
The Avery	121	Los Angeles, CA	—	6,964	29,922	105		6,964	30,027	36,991	(2,793	)	2014	Mar-14	3-30
The Cairns	100	Seattle, WA	—	6,937	20,679	1,195		6,939	21,872	28,811	(7,191	)	2006	Jun-07	3-30
The Commons	264	Campbell, CA	—	12,555	29,307	5,378		12,556	34,684	47,240	(9,005	)	1973	Jul-10	3-30
The Grand	243	Oakland, CA	—	4,531	89,208	5,646		4,531	94,854	99,385	(27,586	)	2009	Jan-09	3-30
The Hallie	292	Pasadena, CA	—	2,202	4,794	51,281		8,385	49,892	58,277	(21,785	)	1972	Apr-97	3-30
The Lofts at Pinehurst	118	Ventura, CA	—	1,570	3,912	4,648		1,618	8,512	10,130	(4,933	)	1971	Jun-97	3-30
The Stuart	188	Pasadena, CA	—	13,574	54,298	1,857		13,574	56,155	69,729	(5,919	)	2007	Apr-14	5-30
The Trails of Redmond	423	Redmond, WA	—	21,930	87,720	2,992		21,930	90,712	112,642	(9,312	)	1985	Apr-14	5-30
Tiffany Court	101	Los Angeles, CA	—	6,949	27,796	906		6,949	28,702	35,651	(2,902	)	1987	Apr-14	5-30
Trabuco Villas	132	Lake Forest, CA	—	3,638	8,640	2,707		3,890	11,095	14,985	(7,091	)	1985	Oct-97	3-30
Via	284	Sunnyvale, CA	—	22,000	82,270	1,792		22,016	84,046	106,062	(19,028	)	2011	Jul-11	3-30
Villa Siena	272	Costa Mesa, CA	—	13,842	55,367	3,627		13,842	58,994	72,836	(5,937	)	1974	Apr-14	5-30

F- 56

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2016

(Dollars in thousands)



									Costs
					Initial cost				capitalized		Gross amount carried at close of period
	Apartment						Buildings and		subsequent to		Land and		Buildings and				Accumulated			Date of	Date	Lives
Property	Homes	Location	Encumbrance		Land		improvements		acquisition		improvements		improvements		Total (1)		depreciation			construction	acquired	(years)
Village Green	272	La Habra, CA	—		6,488		36,768		2,820		6,488		39,588		46,076		(4,132		)	1971	Apr-14	5-30
Vista Belvedere	76	Tiburon, CA	—		5,573		11,901		8,205		5,573		20,106		25,679		(8,793		)	1963	Aug-04	3-30
Vox Apartments	58	Seattle, WA	—		5,545		16,635		79		5,545		16,714		22,259		(1,802		)	2013	Oct-13	3-30
Walnut Heights	163	Walnut, CA	—		4,858		19,168		4,269		4,887		23,408		28,295		(10,501		)	1964	Oct-03	3-30
Wharfside Pointe	155	Seattle, WA	—		2,245		7,020		11,286		2,258		18,293		20,551		(11,308		)	1990	Jun-94	3-30
Willow Lake	508	San Jose, CA	—		43,194		101,030		9,603		43,194		110,633		153,827		(17,032		)	1989	Oct-12	3-30
5600 Wilshire	284	Los Angeles, CA	—		30,535		91,604		1,004		30,535		92,608		123,143		(9,435		)	2008	Apr-14	5-30
Wilshire La Brea	478	Los Angeles, CA	—		56,932		211,998		7,368		56,932		219,366		276,298		(25,646		)	2014	Apr-14	5-30
Windsor Ridge	216	Sunnyvale, CA	—		4,017		10,315		15,508		4,021		25,819		29,840		(17,389		)	1989	Mar-89	3-30
Woodland Commons	302	Bellevue, WA	—		2,040		8,727		22,031		2,044		30,754		32,798		(16,605		)	1978	Mar-90	3-30
Woodside Village	145	Ventura, CA	—		5,331		21,036		3,751		5,341		24,777		30,118		(10,673		)	1987	Dec-04	3-30
	31,481		$	—	$	1,693,968	$	6,072,893	$	977,660	$	1,738,155	$	7,006,366	$	8,744,521	$	(1,446,609	)



									Costs
					Initial cost				capitalized		Gross amount carried at close of period
	Square						Buildings and		subsequent		Land and		Buildings and				Accumulated			Date of	Date	Lives
Property	Footage	Location	Encumbrance		Land		improvements		to acquisition		improvements		improvements		Total(1)		depreciation			construction	acquired	(years)
Other real estate assets
Hollywood	34,000	Los Angeles, CA	$	—	$	10,200	$	13,800	$	14	$	10,200	$	13,814	$	24,014	$	(3,934	)	1938	Jul-06	3-30
Derian Office Building	106,564	Irvine, CA	—		3,079		12,315		4,049		4,308		15,135		19,443		(12,676		)	1983	Jul-00	3-30
	140,564		$	—	$	13,279	$	26,115	$	4,063	$	14,508	$	28,949	$	43,457	$	(16,610	)

Total			$	2,191,481	$	2,501,616	$	8,663,818	$	1,510,872	$	2,559,743	$	10,116,563	$	12,676,306	$	(2,311,546	)

(1) The aggregate cost for federal income tax purposes is approximately $10.0 billion (unaudited).

(2) A portion of land is leased pursuant to a ground lease expiring 2070.

(3) The land is leased pursuant to a ground lease expiring 2082.

(4) The land is leased pursuant to a ground lease expiring 2070.

(5) The land is leased pursuant to a ground lease expiring 2027.

(6) The land is leased pursuant to a ground lease expiring 2067.

(7) A portion of land is leased pursuant to a ground lease expiring in 2028.

(8) The land is leased pursuant to a ground lease expiring in 2028.

F- 57

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2016

(Dollars in thousands)

A summary of activity for rental properties and accumulated depreciation is as follows:



	2016			2015			2014				2016			2015			2014
Rental properties:										Accumulated depreciation:
Balance at beginning of year	$	12,331,469		$	11,244,681		$	5,443,757		Balance at beginning of year	$	1,949,892		$	1,564,806		$	1,254,886
Acquisition, development, and improvement of real estate (1) (2)	609,669			1,333,102			5,833,617			Depreciation expense (1)	432,165			402,687			320,921
Disposition of real estate and other	(264,832		)	(246,314		)	(32,693		)	Depreciation expense - Disposals and other	(70,511		)	(17,601		)	(11,001		)
Balance at the end of year	$	12,676,306		$	12,331,469		$	11,244,681		Balance at the end of year	$	2,311,546		$	1,949,892		$	1,564,806

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

(2) Amount for 2014 includes $5.2 billion related to BRE merger.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Mateo, State of California, on February 24, 2017.



	ESSEX PROPERTY TRUST, INC.

	By: /S/ ANGELA L. KLEIMAN
	Angela L. Kleiman
	Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial Officer)

	By: /S/ JOHN FARIAS
	John Farias
	Group Vice President, Chief Accounting Officer

	ESSEX PORTFOLIO, L.P. By: Essex Property Trust, Inc., its general partner

	By: /S/ ANGELA L. KLEIMAN
	Angela L. Kleiman
	Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial Officer)

	By: /S/ JOHN FARIAS
	John Farias
	Group Vice President, Chief Accounting Officer

F- 58

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael J. Schall and Angela L. Kleiman, and each of them, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each Registrant and in the capacities and on the dates indicated.



Signature	Title	Date

/S/ MICHAEL J. SCHALL Michael J. Schall	Chief Executive Officer and President, and Director (Principal Executive Officer)	February 24, 2017

/S/ KEITH R. GUERICKE Keith R. Guericke	Director, and Vice Chairman of the Board	February 24, 2017

/S/ GEORGE M. MARCUS George M. Marcus	Director and Chairman of the Board	February 24, 2017

/S/ IRVING F. LYONS, III Irving F. Lyons, III	Director	February 24, 2017

/S/ GARY P. MARTIN Gary P. Martin	Director	February 24, 2017

/S/ ISSIE N. RABINOVITCH Issie N. Rabinovitch	Director	February 24, 2017

/S/ THOMAS E. ROBINSON Thomas E. Robinson	Director	February 24, 2017

/S/ BYRON A. SCORDELIS Byron A. Scordelis	Director	February 24, 2017

/S/ JANICE L. SEARS Janice L. Sears	Director	February 24, 2017

S-1

EXHIBIT INDEX



Exhibit No.	Document

3.1	Articles of Amendment and Restatement of Essex Property Trust, Inc., attached as Exhibit 3.2 to the Company's Current Report on Form 8-K, filed May 23, 2016, and incorporated herein by reference.

3.2	Fifth Amended and Restated Bylaws of Essex Property Trust, Inc. (as of May 17, 2016), attached as Exhibit 3.3 to the Company's Current Report on Form 8-K, filed May 23, 2016, and incorporated herein by reference.

3.3	Certificate of Limited Partnership of Essex Portfolio, L.P. and amendments thereto, attached as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013, and incorporated herein by reference.

4.1	Indenture, dated August 15, 2012, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.625% Senior Notes due 2022 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed August 15, 2012, and incorporated herein by reference.

4.2	Indenture, dated April 15, 2013, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.25% Senior Notes due 2023 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed April 15, 2013, and incorporated herein by reference.

4.3	Form of Common Stock Certificate of Essex Property Trust, Inc., filed as Exhibit 4.5 to the Company's Form S-4 Registration Statement, filed January 29, 2014, and incorporated herein by reference.

4.4	Indenture governing 5.500% Senior Notes due 2017, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 5.500% Senior Notes due 2017, attached as Exhibit 4.1 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.

4.5	Indenture governing 5.200% Senior Notes due 2021, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 5.200% Senior Notes due 2021, attached as Exhibit 4.2 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.

4.6	Indenture governing 3.375% Senior Notes due 2023, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 3.375% Senior Notes due 2023, attached as Exhibit 4.3 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.

4.7	Indenture, dated April 15, 2014, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.875% Senior Notes due 2024 and the guarantee thereof, attached as Exhibit 4.1 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 16, 2014, and incorporated herein by reference.

4.8	Indenture, dated March 17, 2015, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.500% Senior Notes due 2025 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed March 17, 2015, and incorporated herein by reference.

4.9	Indenture, dated April 11, 2016, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of the 3.375% Senior Notes due 2026 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed April 11, 2016, and incorporated herein by reference.

10.1	Agreement between Essex Property Trust, Inc. and George M. Marcus, dated March 27, 2003 attached as Exhibit 10.32 to the Company's Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.

10.2	Essex Property Trust, Inc. 2004 Stock Incentive Plan, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference.*

10.3	2005 Deferred Compensation Plan (as amended and restated) of Essex Portfolio, L.P., dated as of December 2, 2008, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 8, 2008, and incorporated herein by reference.*

10.4	Form of Indemnification Agreement between Essex Property Trust, Inc. and its directors and officers, attached as Exhibit 99.1 to the Company's Current Report on Form 8-K, filed February 25, 2011, and incorporated herein by reference.*



10.5	Note Purchase Agreement, dated as of June 30, 2011, among Essex Portfolio, L.P., Essex Property Trust, Inc. and the purchasers of the notes party thereto (including the forms of the 4.50% Senior Guaranteed Notes, Series A, due September 30, 2017, and the 4.92% Senior Guaranteed Notes, Series B, due December 30, 2019), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed July 5, 2011, and incorporated herein by reference. †

10.6	Amended and Restated Revolving Credit Agreement, dated as of September 16, 2011, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer, and other lenders as specified therein, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference.

10.7	Note Purchase Agreement, dated as of March 14, 2012, among Essex Portfolio, L.P., the Company and the purchasers of the notes party thereto (including the forms of the 4.27% Senior Guaranteed Notes, Series C, due April 30, 2021, the 4.30% Senior Guaranteed Notes, Series D, due June 29, 2021, and the 4.37% Senior Guaranteed Notes, Series E, due August 30, 2021), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on March 20, 2012, and incorporated herein by reference. †

10.8	First Amendment to Amended and Restated Revolving Credit Agreement, dated May 31, 2012, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer, and the other lenders party thereto, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference.

10.9	Modification Agreement, dated July 30, 2012, attached as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference.

10.10	Amendment to Agreement, dated as of September 11, 2012, between the Company and George Marcus, attached as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, and incorporated herein by reference.

10.11	Essex Property Trust, Inc. Executive Severance Plan (as Amended and Restated effective March 12, 2013), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 18, 2013, and incorporated herein by reference.*

10.12	Second Amendment to Amended and Restated Revolving Credit Agreement, dated August 30, 2012, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer, and the other lenders party thereto, attached as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.

10.13	Third Amendment to Amended and Restated Revolving Credit Agreement, dated January 22, 2013, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer, and the other lenders party thereto, attached as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.

10.14	Essex Property Trust, Inc. 2013 Stock Award and Incentive Compensation Plan, attached as Appendix B to the Company's Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Stockholders held May 14, 2013, filed April 1, 2013, and incorporated herein by reference.*

10.15	Essex Property Trust, Inc. 2013 Employee Stock Purchase Plan, attached as Appendix C to the Company's Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Stockholders held May 14, 2013, filed April 1, 2013, and incorporated herein by reference.*

10.16	Forms of equity award agreements for officers under the 2013 Stock Award and Incentive Compensation Plan, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference.*

10.17	Amended and Restated Non-Employee Director Equity Award Program, dated May 17, 2016, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed May 23, 2016, and incorporated herein by reference.*

10.18	Third Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of December 10, 2013, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 12, 2013, and incorporated herein by reference.*

10.19	Fourth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 29, 2014, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and the other lenders party thereto, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed January 31, 2014, and incorporated herein by reference.



10.20	Third Modification Agreement, dated as of January 29, 2014 by and among Essex Portfolio, L.P., U.S. Bank National Association, as Administrative Agent and Lender and the other lenders party thereto, attached as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed January 31, 2014, and incorporated herein by reference.

10.21	BRE Properties, Inc. 1999 Stock Incentive Plan (assumed by Essex Property Trust, Inc.), attached as Exhibit 99.1 to Essex Property Trust, Inc.'s Registration Statement on Form S-8, filed April 1, 2014, and incorporated herein by reference.*

10.22	BRE Properties, Inc. Fifth Amended and Restated Non-Employee Stock Option and Restricted Stock Plan (assumed by Essex Property Trust, Inc.), attached as Exhibit 99.2 to Essex Property Trust, Inc.'s Registration Statement on Form S-8, filed April 1, 2014, and incorporated herein by reference.*

10.23	Form of Equity Distribution Agreement between Essex Property Trust, Inc. and various entities, dated March 8, 2016, attached as Exhibit 10.1 to the Company's Current Report of From 8-K, filed on March 9, 2016, and incorporated herein by reference.

10.24	Fifth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 22, 2015, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto, attached as Exhibit 10.27 to the Company's Annual Report on Form 10-K, filed March 2, 2015, and incorporated herein by reference.

10.25	Forms of Essex Property Trust, Inc., Essex Portfolio L.P., Long-Term Incentive Plan Award Agreements, attached as Exhibit 10.28 to the Company's Annual Report on Form 10-K, filed March 2, 2015, and incorporated herein by reference.*

10.26	Terms Agreement dated as of May 20, 2015, among Essex Property Trust, Inc. and Citigroup Global Markets Inc., attached as Exhibit 1.1 to the Company's Current Report on Form 8-K, filed on May 26, 2015, and incorporated herein by reference.

10.27	Sixth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 19, 2016, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto, attached as Exhibit 10.30 to the Company's Annual Report on Form 10-K, filed on February 26, 2016 and incorporated herein by reference.

10.28	Seventh Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 24, 2017, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto.

12.1	Schedule of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.

21.1	List of Subsidiaries of Essex Property Trust, Inc. and Essex Portfolio, L.P.

23.1	Consent of KPMG LLP, Independent Registered Public Accounting Firm.

23.2	Consent of KPMG LLP, Independent Registered Public Accounting Firm.

24.1	Power of Attorney (see signature page)

31.1	Certification of Michael J. Schall, Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Angela L. Kleiman, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3	Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.4	Certification of Angela L. Kleiman, Principal Financial Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Michael J. Schall, Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Angela L. Kleiman, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.3	Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



32.4	Certification of Angela L. Kleiman, Principal Financial Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

Management contract or compensatory plan or arrangement.

† The schedules and certain exhibits to this agreement, as set forth in the agreement, have not been filed herewith. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.

Previous: Item 14. Principal Accounting Fees and Services