Item 6. Selected Financial Data

The following tables set forth summary financial and operating information for Essex and the Operating Partnership from January 1, 2013 through December 31, 2017.

Essex Property Trust, Inc. and Subsidiaries



	Years Ended December 31,
	2017		2016		2015		2014		2013
	($ in thousands, except per share amounts)
OPERATING DATA:
Rental and other property	$	1,354,325	$	1,285,723	$	1,185,498	$	961,591	$	603,327
Management and other fees from affiliates	9,574		8,278		8,909		9,347		7,263
Income before discontinued operations	$	458,043	$	438,410	$	248,239	$	134,438	$	140,882
Income from discontinued operations	—		—		—		—		31,173
Net income	458,043		438,410		248,239		134,438		172,055
Net income available to common stockholders	$	433,059	$	411,124	$	226,865	$	116,859	$	150,811
Per share data:
Basic:
Income before discontinued operations available to common stockholders	$	6.58	$	6.28	$	3.50	$	2.07	$	3.26
Net income available to common stockholders	$	6.58	$	6.28	$	3.50	$	2.07	$	4.05
Weighted average common stock outstanding	65,829		65,472		64,872		56,547		37,249
Diluted:
Income before discontinued operations available to common stockholders	$	6.57	$	6.27	$	3.49	$	2.06	$	3.25
Net income available to common stockholders	$	6.57	$	6.27	$	3.49	$	2.06	$	4.04
Weighted average common stock outstanding	65,898		65,588		65,062		56,697		37,335
Cash dividend per common share	$	7.00	$	6.40	$	5.76	$	5.11	$	4.84



	As of December 31,
	2017		2016		2015		2014		2013
	($ in thousands)
BALANCE SHEET DATA:
Investment in rental properties (before accumulated depreciation)	$	13,348,831	$	12,676,306	$	12,331,469	$	11,244,681	$	5,443,757
Net investment in rental properties	10,579,534		10,364,760		10,381,577		9,679,875		4,188,871
Real estate under development	355,735		190,505		242,326		429,096		50,430
Co-investments	1,155,984		1,161,275		1,036,047		1,042,423		677,133
Total assets	12,495,706		12,217,408		12,008,384		11,530,299		5,164,171
Total indebtedness	5,689,126		5,563,260		5,318,757		5,084,256		3,010,856
Redeemable noncontrolling interest	39,206		44,684		45,452		23,256		—
Cumulative convertible preferred stock	—		—		—		—		4,349
Cumulative redeemable preferred stock	—		—		73,750		73,750		73,750
Stockholders' equity	6,277,406		6,192,178		6,237,733		6,022,672		1,884,619



	As of and for the years ended December 31,
	2017			2016			2015			2014			2013
	($ in thousands, except per share amounts)
OTHER DATA:
Funds from operations (FFO)(1) attributable to common stockholders and unitholders:
Net income available to common stockholders	$	433,059		$	411,124		$	226,865		$	116,859		$	150,811
Adjustments:
Depreciation and amortization	468,881			441,682			453,423			360,592			193,518
Gains not included in FFO attributable to common stockholders and unitholders	(159,901		)	(167,607		)	(81,347		)	(50,064		)	(67,975		)
Deferred tax expense on sale of real estate and land - taxable REIT subsidiary activity	—			4,410			—			—			—
Depreciation and amortization add back from unconsolidated co-investments	55,531			50,956			49,826			33,975			15,748
Noncontrolling interest related to Operating Partnership units	14,825			14,089			7,824			4,911			8,938
Insurance reimbursements	—			—			(1,751		)	—			—
Depreciation attributable to third party ownership and other	(286		)	(9		)	(781		)	(1,331		)	(1,309		)
Funds from operations attributable to common stockholders and unitholders	$	812,109		$	754,645		$	654,059		$	464,942		$	299,731
Non-core items:
Merger and integration expenses	—			—			3,798			53,530			4,284
Acquisition and investment related costs	1,569			1,841			2,414			1,878			1,161
Gain on sale of marketable securities, note prepayment, and other investments	(1,909		)	(5,719		)	(598		)	(886		)	(2,519		)
Gain on sale of land	—			—			—			(2,533		)	(1,503		)
Interest rate hedge ineffectiveness (2)	(78		)	(250		)	—			—			—
Loss on early retirement of debt	1,796			606			6,114			268			300
Co-investment promote income	—			—			(192		)	(10,640		)	—
Income from early redemption of preferred equity investments	(356		)	—			(1,954		)	(5,250		)	(1,358		)
Excess of redemption value of preferred stock over carrying value	—			2,541			—			—			—
Insurance reimbursements, legal settlements, and other, net	(1,108		)	(4,470		)	(2,970		)	1,852			—
Core funds from operations (Core FFO) attributable to common stockholders and unitholders	$	812,023		$	749,194		$	660,671		$	503,161		$	300,096
Weighted average number of shares outstanding, diluted (FFO)(3)	68,194			67,890			67,310			58,921			39,501
Funds from operations attributable to common stockholders and unitholders per share - diluted	$	11.91		$	11.12		$	9.72		$	7.89		$	7.59
Core funds from operations attributable to common stockholders and unitholders per share - diluted	$	11.91		$	11.04		$	9.82		$	8.54		$	7.60


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

(1)

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

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

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


(a)	historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.

(a)

historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.


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

(b)

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

Management believes that it has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs' calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosure of FFO may not be comparable to the Company’s calculation.


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

(2)

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


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

Essex Portfolio, L.P. and Subsidiaries



	Years Ended December 31,
	2017		2016		2015		2014		2013
	($ in thousands, except per unit amounts)
OPERATING DATA:
Rental and other property	$	1,354,325	$	1,285,723	$	1,185,498	$	961,591	$	603,327
Management and other fees from affiliates	9,574		8,278		8,909		9,347		7,263
Income before discontinued operations	$	458,043	$	438,410	$	248,239	$	134,438	$	140,882
Income from discontinued operations	—		—		—		—		31,173
Net income	458,043		438,410		248,239		134,438		172,055
Net income available to common unitholders	$	447,884	$	425,213	$	234,689	$	121,726	$	159,749
Per unit data:
Basic:
Income before discontinued operations available to common unitholders	$	6.58	$	6.28	$	3.50	$	2.07	$	3.27
Net income available to common unitholders	$	6.58	$	6.28	$	3.50	$	2.07	$	4.06
Weighted average common units outstanding	68,082		67,696		67,054		58,772		39,380
Diluted:
Income before discontinued operations available to common unitholders	$	6.57	$	6.27	$	3.49	$	2.07	$	3.26
Net income available to common unitholders	$	6.57	$	6.27	$	3.49	$	2.07	$	4.05
Weighted average common units outstanding	68,151		67,812		67,244		58,921		39,467
Cash distributions per common unit	$	7.00	$	6.40	$	5.76	$	5.11	$	4.84



	As of December 31,
	2017		2016		2015		2014		2013
	($ in thousands)
BALANCE SHEET DATA:
Investment in rental properties (before accumulated depreciation)	$	13,348,831	$	12,676,306	$	12,331,469	$	11,244,681	$	5,443,757
Net investment in rental properties	10,579,534		10,364,760		10,381,577		9,679,875		4,188,871
Real estate under development	355,735		190,505		242,326		429,096		50,430
Co-investments	1,155,984		1,161,275		1,036,047		1,042,423		677,133
Total assets	12,495,706		12,217,408		12,008,384		11,530,299		5,164,171
Total indebtedness	5,689,126		5,563,260		5,318,757		5,084,256		3,010,856
Redeemable noncontrolling interest	39,206		44,684		45,452		23,256		—
Cumulative convertible preferred interest	—		—		—		—		4,349
Cumulative redeemable preferred interest	—		—		71,209		71,209		71,209
Partners' capital	6,330,415		6,244,364		6,287,381		6,073,433		1,932,108

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