ESSEX PROPERTY TRUST, INC.
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(MARK
ONE)
T
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2009
OR
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR
THE TRANSITION PERIOD FROM ___________ TO _____________
Commission
file number
1-13106
Essex
Property Trust, Inc.
(Exact
name of Registrant as Specified in its Charter)
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Maryland
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77-0369576
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification Number)
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925
East Meadow Drive
Palo Alto,
California 94303
(Address
of Principal Executive Offices including Zip Code)
(650)
494-3700
(Registrant's
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common
Stock, $.0001 par value
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
T
No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
o
No
T
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
T
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
o
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large
accelerated filer
T
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Accelerated
filer
o
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Non-accelerated
filer
o
(Do
not check if a smaller reporting company)
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Smaller
reporting company
o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes
o
No
T
As of
June 30, 2009, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately
$1,662,116,047. The aggregate market value was computed with
reference to the closing price on the New York Stock Exchange on such date.
Shares of common stock held by executive officers, directors and holders of more
than ten percent of the outstanding common stock have been excluded from this
calculation because such persons may be deemed to be affiliates. This exclusion
does not reflect a determination that such persons are affiliates for any other
purposes.
As of
February 24, 2010, 29,662,879 shares of common stock ($.0001 par value) were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
The
following document is incorporated by reference in Part III of the Annual Report
on Form 10-K: Proxy statement for the annual meeting of stockholders of Essex
Property Trust, Inc. to be held May 18, 2010.
ii
Essex
Property Trust, Inc.
2009
ANNUAL REPORT ON FORM 10-K
TABLE
OF CONTENTS
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Part
I.
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Page
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Item
1.
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1
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Item
1A.
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5
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Item
1B.
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15
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Item
2.
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15
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Item
3.
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21
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Item
4.
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21
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Part
II.
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Item
5.
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22
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Item
6.
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26
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Item
7.
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28
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Item
7A.
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39
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Item
8.
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41
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Item
9.
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41
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Item
9A.
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41
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Item
9B.
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41
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Part
III.
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Item
10.
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41
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Item
11.
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41
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Item
12.
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41
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Item
13.
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41
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Item
14.
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41
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Part
IV.
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Item
15.
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42
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F-1
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Forward
Looking Statements
This Form
10-K contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such forward-looking statements are described in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, in the section, “Forward Looking Statements.” Our actual
results could differ materially from those set forth in each forward-looking
statement. Certain factors that might cause such a difference are
discussed in this report, including Item 1A, Risk Factors of this Form
10-K.
OVERVIEW
Essex
Property Trust, Inc. (“Essex” or the “Company”) is a Maryland corporation that
operates as a self-administered and self-managed real estate investment trust
(“REIT”). The Company owns all of its interest in its real estate
investments directly or indirectly through Essex Portfolio, L.P. (the “Operating
Partnership”). The Company is the sole general partner of the
Operating Partnership and as of December 31, 2009 owns a 92.3% general
partnership interest. In this report, the terms “we,” “us” and
“our” refer to Essex Property Trust, its Operating Partnership and the Operating
Partnership’s subsidiaries.
The
Company has elected to be treated as a REIT for federal income tax purposes,
commencing with the year ended December 31, 1994 as the Company completed an
initial public offering on June 13, 1994. In order to maintain
compliance with REIT tax rules, the Company utilizes taxable REIT subsidiaries
for various revenue generating or investment activities. All taxable REIT
subsidiaries are consolidated by the Company.
We are
engaged primarily in the ownership, operation, management, acquisition,
development and redevelopment of predominantly apartment
communities. As of December 31, 2009, we owned or held an interest in
133 apartment communities, aggregating 27,248 units, located along the West
Coast, as well as five office buildings (totaling approximately 215,840 square
feet), and four active development projects with 581 units in various stages of
development (collectively, the “Portfolio”).
The
Company’s website address is
http://www.essexpropertytrust.com
. The
Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to those reports, and the Proxy Statement
for its Annual Meeting of Stockholders are available, free of charge, on our
website as soon as practicable after we file the reports with the Securities and
Exchange Commission (“SEC”).
BUSINESS
STRATEGIES
The
following is a discussion of our business strategies in regards to real estate
investment and management.
Business
Strategies
Research Driven
Approach
–
We
believe that successful real estate investment decisions and portfolio growth
begin with extensive regional economic research and local market
knowledge.
Utilizing
a proprietary research model that we have developed over the last two decades,
we continually assess markets where we currently operate, as well as markets
where we consider future investment opportunities by evaluating the
following:
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Markets
in major metropolitan areas that have regional population primarily in
excess of one million;
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Constraints
on new supply driven by: (i) low availability of developable land sites
where competing housing could be built; (ii) political growth barriers,
such as protected land, urban growth boundaries, and potential lengthy and
expensive development permit processes; and (iii) natural limitations to
development, such as mountains or
waterways;
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Rental
demand is enhanced by affordability of rents compared to expensive
for-sale housing; and
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Housing
demand that is based on proximity to jobs, high quality of life and
related commuting factors, as well as potential job
growth.
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Recognizing
that all real estate markets are cyclical, we regularly evaluate the results of
our regional economic, as well as our local market research, and adjust the
geographic focus of our portfolio accordingly. We seek to increase our portfolio
allocation in markets projected to have the strongest local economies and to
decrease such allocations in markets projected to have declining economic
conditions. Likewise, the Company also seeks to increase its
portfolio allocation in markets that have attractive property valuations and to
decrease such allocations in markets that have inflated valuations and low
relative yields.
Property
Operations
– We manage our communities by focusing on strategies that
will generate above-average rental growth, tenant retention/satisfaction and
long-term asset appreciation. We intend to achieve this by utilizing the
strategies set forth below:
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Property Management
–
The Chief
Operating Officer, Senior Vice President of Operations, Divisional
Managers, Regional Portfolio Managers and Area Managers are accountable
for the performance and maintenance of the communities. They supervise,
provide training for the on-site managers, review actual performance
against budget, monitor market trends and prepare operating and capital
budgets.
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Capital Preservation –
The Capital and Maintenance department is responsible for the planning,
budgeting and completion of major capital improvement projects at our
communities.
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Business Planning and Control
–
Comprehensive business plans are implemented in conjunction with
every investment decision. These plans include benchmarks for
future financial performance, based on collaborative discussions between
on-site managers and senior
management.
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Development and Redevelopment
–
We focus on acquiring and developing apartment communities in
supply constrained markets, and redeveloping our existing communities to
improve the financial and physical aspects of our
communities.
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CURRENT
BUSINESS ACTIVITIES
Acquisitions
of Real Estate
Acquisitions
are an important component of our business plan, and during 2009, we completed
the acquisition of two communities totaling $43.0 million.
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·
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In
December, the Company acquired Axis 2300 (formerly known as “DuPont
Lofts”), a 115-unit condominium development project in Irvine, California
for $27.0 million. The project is 85 percent complete and will
require an additional six months of construction and estimated remaining
costs of development are $9.1 million, consisting primarily of unit
interior finishes. Following construction, the Company intends
to operate the asset as an apartment community. All units
feature 11-foot ceilings, custom finishes, a washer and dryer and a
fireplace.
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·
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Also
during December, the Company acquired Regency at Encino, a 75-unit
community located in Encino, California for $16.0 million. The community
features upgraded appliances and finishes in 51 of the
units. The Company intends to renovate the additional 24 units
upon normal resident turnover. All units feature 9-foot
ceilings and a washer and dryer.
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In
November, the Company acquired a 3.6 acre site in Dublin, California for $5.0
million. The land parcel is located adjacent to the Dublin Bay Area
Rapid Transit station, and the Company intends to pursue entitlements on this
land parcel for future development.
The 2010
acquisition plan targets the purchase of up to $300 million of real
estate.
Dispositions
of Real Estate
As part
of our strategic plan to own quality real estate in supply-constrained markets
the Company continually evaluates all the communities and sell those which no
longer meet our strategic criteria. The Company may use the capital
generated from the dispositions to invest in higher-return communities or other
real estate investments, repurchase the Company’s common stock, or repay
debts. The Company believes that the sale of these communities will
not have a material impact on our future results of operations or cash flows nor
will their sale materially affect our ongoing operations. Generally, the Company
seeks to have any impact of earnings dilution resulting from these dispositions
offset by the positive impact of its acquisitions, development and redevelopment
activities.
In 2009,
in accordance with our strategic plan, the Company sold five apartment
communities for gross proceeds of $38.0 million for an aggregate gain of $8.6
million.
The 2010
disposition plan targets the sale of up to $100 million of real
estate.
Development
Pipeline
The
Company defines development activities as new communities that are in various
stages of active development, or the community is in lease-up and phases of the
project are not completed. As of December 31, 2009, the Company had
four development projects comprised of 581 units for an estimated cost of $216.1
million, of which $65.9 million remains to be expended.
The Joule
Broadway project, a 295-unit development in Seattle, Washington had $26.7
million in estimated costs remaining to be funded in 2010 and such costs will be
funded by a construction loan that is variable based on LIBOR plus 155 basis
points and matures in June 2011 with two one-year extension options, exercisable
at the Company’s option. The estimated remaining costs to be incurred
totaling $39.2 million for the other three active development projects including
Fourth & U, Tasman Retail Pad and Garage, and Axis 2300 will be financed by
the Company’s lines of credit.
The
following table sets forth information regarding the Company’s consolidated
development pipeline:
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As
of 12/31/09 ($ in millions)
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|||||||||||||||||
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Incurred
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Estimated
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Estimated
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Development
Pipeline
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Location
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Units
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Project
Cost
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Remaining
Cost
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Project
Cost
(1)
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Development Projects
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Fourth
& U
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Berkeley,
CA
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171 | $ | 49.5 | $ | 13.8 | $ | 63.3 | |||||||||
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Joule
Brodway
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Seattle,
WA
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295 | 68.1 | 26.7 | 94.8 | ||||||||||||
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Tasman
Retail Pad and Garage
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Sunnyvale,
CA
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- | 5.4 | 16.3 | 21.7 | ||||||||||||
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Axis
2300
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Irvine,
CA
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115 | 27.2 | 9.1 | 36.3 | ||||||||||||
| 581 | 150.2 | 65.9 | 216.1 | ||||||||||||||
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Predevelopment
projects
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various
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332 | 53.7 | 89.3 | 143.0 | ||||||||||||
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Land
held for future development or sale
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various
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1,329 | 71.1 | - | 71.1 | ||||||||||||
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Development
Pipeline
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2,242 | $ | 275.0 | $ | 155.2 | $ | 430.2 | ||||||||||
(1)
Includes incurred costs and
estimated costs to complete these development projects.
The
Company defines the predevelopment pipeline as proposed communities in
negotiation or in the entitlement process with a high likelihood of becoming
entitled development projects. As of December 31, 2009, the Company
had two development projects aggregating 332 units that were classified as
predevelopment projects. The estimated total cost of the
predevelopment pipeline at December 31, 2009 was $143.0 million, of which $89.3
million remains to be expended. The Company may also acquire
land for future development purposes or sale. The Company has
incurred $71.1 million in costs related to land held for future development or
sale aggregating 1,329 units as of December 31, 2009.
Redevelopment
Pipeline
The
Company defines redevelopment communities as existing properties owned or
recently acquired, which have been targeted for additional investment by the
Company with the expectation of increased financial returns through property
improvement. During redevelopment, apartment units may not be
available for rent and, as a result, may have less than stabilized
operations. As of December 31, 2009, the Company had ownership
interests in nine redevelopment communities aggregating 2,659 apartment units
with estimated redevelopment costs of $128.0 million, of which approximately
$41.6 million remains to be expended.
During
2009, the Company obtained fixed rate mortgage loans due in 10 years totaling
$176.6 million for an average interest rate of 5.8% and paid-off mortgage loans
totaling $23.6 million for an average interest rate of 6.9%.
Lines
of Credit
In the
fourth quarter, the Company entered into a new $200 million unsecured line of
credit facility and cancelled the existing $200 million unsecured facility which
was to mature in March 2010. The new unsecured facility has a one
year maturity with two one-year extension options, exercisable at the Company’s
option, and the underlying interest rate on this unsecured facility is based on
a tiered rate structure tied to the Company's corporate ratings and is currently
at LIBOR plus 3.00%.
Also in
the fourth quarter, the Company exercised its option to increase the borrowing
capacity of the secured line of credit facility from $150 million to $250
million which matures in December 2013.
Equity
and Noncontrolling Interest Transactions
During
the first quarter of 2009, the Company, under its stock repurchase program,
repurchased and retired 350,000 shares of its common stock for approximately
$20.3 million, at an average stock price of $57.89 per share.
During
2009, the Company issued 2,740,450 shares of common stock at an average share
price of $73.54 for $198.5 million, net of fees and commissions. The
Company used the net proceeds to invest in marketable securities and to fund the
development pipeline.
During
2009, the Company repurchased $145.0 million of 4.875% Series G Cumulative
Convertible Preferred Stock at a discount to par value of $50.0
million.
ESSEX
APARTMENT VALUE FUND II
Essex
Apartment Value Fund II, L.P. (“Fund II”) is an investment fund formed by the
Company to add value through rental growth and asset appreciation, utilizing the
Company's development, redevelopment and asset management
capabilities.
Fund II
has eight institutional investors, and the Company, with combined partner equity
commitments of $265.9 million which were fully contributed as of December
2008. The Company contributed $75.0 million to Fund II, which
represents a 28.2% interest as general partner and limited partner, and the
Company uses the equity method of accounting for its investment in Fund
II. Fund II utilized leverage equal to approximately 55% upon the
initial acquisition of the underlying real estate. Fund II invested
in apartment communities in the Company’s targeted West Coast markets and, as of
December 31, 2009, owned fourteen apartment communities. The
Company records revenue for its asset management, property management,
development and redevelopment services when earned, and promote income when
realized if Fund II exceeds certain financial return benchmarks.
OFFICES
AND EMPLOYEES
The
Company is headquartered in Palo Alto, California, and has regional offices in
Woodland Hills, California; Irvine, California; San Diego, California and
Bellevue, Washington. As of December 31, 2009, the Company had 938
employees.
INSURANCE
The
Company carries comprehensive liability, fire, extended coverage and rental loss
insurance for each of the communities. Insured risks for
comprehensive liabilities covers claims in excess of $25,000 per incident, and
property casualty insurance covers losses in excess of a $5.0 million deductible
per incident. There are, however, certain types of extraordinary losses, such
as, for example, losses from terrorism and earthquakes, for which the Company
does not have insurance. Substantially all of the communities are
located in areas that are subject to earthquakes.
The
Company believes it has a proactive approach to its potential earthquake
losses. The Company utilizes third-party seismic consultants for its
acquisitions and may perform seismic upgrades to those acquisitions that are
determined to have a higher level of potential loss from an
earthquake. The Company utilizes third-party loss models to help to
determine its exposure. The majority of the communities are lower
density garden-style apartments which may be less susceptible to material
earthquake damage. The Company will continue to monitor third-party
earthquake insurance pricing and conditions and may consider obtaining
third-party coverage if it deems it cost effective
.
Although
the Company may carry insurance for potential losses associated with its
communities, employees, residents, and compliance with applicable laws, it may
still incur losses due to uninsured risks, deductibles, co-payments or losses in
excess of applicable insurance coverage and those losses may be
material.
COMPETITION
There are
numerous housing alternatives that compete with the Company’s communities in
attracting residents. These include other apartment communities and
single-family homes that are available for rent in the markets in which the
apartment communities are located. The communities also compete for
residents with new and existing homes and condominiums that are for
sale. If the demand for our communities is reduced or if competitors
develop and/or acquire competing apartment communities on a more cost-effective
basis, rental rates and occupancy may drop which may have a material adverse
affect on our financial condition and results of operations.
The
Company faces competition from other real estate investment trusts, businesses
and other entities in the acquisition, development and operation of apartment
communities. Some competitors are larger and have greater financial
resources than the Company. This competition may result in increased
costs of apartment communities the Company acquires and/or
develops.
WORKING
CAPITAL
The
Company believes that cash flows generated by its operations, existing cash and
marketable securities balances, availability under existing lines of credit,
access to capital markets and the ability to generate cash from the disposition
of real estate are sufficient to meet all of our reasonably anticipated cash
needs during 2010. The timing, source and amounts of cash flows
provided by financing activities and used in investing activities are sensitive
to changes in interest rates and other fluctuations in the capital markets
environment, which can affect our plans for acquisitions, dispositions,
development and redevelopment activities.
ENVIRONMENTAL
CONSIDERATIONS
See the
discussion under the caption, “
The Company’s Portfolio may have
unknown environmental liabilities
” in Item 1A, Risk Factors, for
information concerning the potential effect of environmental regulations on our
operations.
OTHER
MATTERS
Certain
Policies of the Company
We intend
to continue to operate in a manner that will not subject us to regulation under
the Investment Company Act of 1940. The Company has in the past five years and
may in the future (i) issue securities senior to its common stock, (ii) fund
acquisition activities with borrowings under its line of credit and (iii) offer
shares of common stock and/or units of limited partnership interest in the
Operating Partnership or affiliated partnerships as partial consideration for
property acquisitions. The Company from time to time acquires partnership
interests in partnerships and joint ventures, either directly or indirectly
through subsidiaries of the Company, when such entities’ underlying assets are
real estate.
We invest
primarily in apartment communities that are located in predominantly coastal
markets within Southern California, the San Francisco Bay Area, and the Seattle
metropolitan area. The Company currently intends to continue to invest in
apartment communities in such regions. However, these practices may
be reviewed and modified periodically by management.
Our
business, operating results, cash flows and financial condition are subject to
various risks and uncertainties, including, without limitation, those set forth
below, any one of which could cause our actual results to vary materially from
recent results or from our anticipated future results.
We depend on our
key personnel.
Our success depends on our ability to attract
and retain executive officers, senior officers and company managers. There is
substantial competition for qualified personnel in the real estate industry and
the loss of any of our key personnel could have an adverse effect on the
Company.
Capital and
credit market conditions may affect our access to sources of capital and/or the
cost of capital, which could negatively affect our business, results of
operations, cash flows and financial condition.
Over the past
two years,
the
Company’s financing activities have been impacted by the instability and
tightening in the credit markets which has led to an increase in spreads and
pricing of secured debt, unsecured debt, and lines of credit. The
Company’s strong balance sheet, the debt capacity available on the unsecured
line of credit with a bank group and the secured line of credit with Freddie
Mac, and access to Fannie Mae and Freddie Mac secured debt financing have
provided some insulation to the Company from the turmoil being experienced by
many other real estate companies. The Company has benefited from
borrowing from Fannie Mae and Freddie Mac, and there are no assurances that
these entities will lend to the Company in the future. Continued
turmoil in the capital markets and further job losses could negatively impact
the Company’s ability to make acquisitions, develop communities, obtain new
financing, and refinance existing borrowing at competitive rates.
Debt financing
has inherent risks.
At December 31, 2009, we had approximately
$1.85 billion of indebtedness (including $490.6 million of variable rate
indebtedness, of which $197.1 million is subject to interest rate protection
agreements). We are subject to the risks normally associated with debt
financing, including the following:
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·
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cash
flow may not be sufficient to meet required payments of principal and
interest;
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·
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inability
to refinance maturing indebtedness on encumbered apartment
communities;
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·
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inability
to comply with debt covenants could cause an acceleration of the maturity
date; and
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·
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repaying
debt before the scheduled maturity date could result in prepayment
penalties.
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The Company is
uncertain about its ability to refinance balloon payments.
As
of December 31, 2009, we had approximately $1.85 billion of mortgage loans,
exchangeable bonds and line of credit borrowings, most of which are subject to
balloon payments (see Notes 7 and 8 to the Company’s consolidated financial
statements for more details). We do not expect to have sufficient
cash flows from operations to make all of these balloon payments.
We may
not be able to refinance such mortgage indebtedness, bonds, or lines of
credit. The communities subject to these mortgages could be
foreclosed upon or otherwise transferred to the lender. This could
cause us to lose income and asset value. We may be required to
refinance the debt at higher interest rates or on terms that may not be as
favorable as the terms of existing indebtedness.
Debt financing of
communities may result in insufficient cash flow to service
debt.
Where possible, we intend to continue to use leverage to
increase the rate of return on our investments and to provide for additional
investments that we could not otherwise make. There is a risk that
the cash flow from the communities will be insufficient to meet both debt
payment obligations and the distribution requirements of the real estate
investment trust provisions of the Internal Revenue Code. We may
obtain additional debt financing in the future through mortgages on some or all
of the communities. These mortgages may be recourse, non-recourse, or
cross-collateralized.
As of
December 31, 2009, the Company had 77 of its 118 consolidated communities
encumbered by debt. Of the 77 communities, 61 are secured by deeds of
trust relating solely to those communities. With respect to the
remaining 16 communities, there are 3 cross-collateralized mortgages secured by
11 communities, 3 communities, and 2 communities, respectively. The
holders of this indebtedness will have rights with respect to these communities
and, to the extent indebtedness is cross-collateralized, lenders may seek to
foreclose upon communities which are not the primary collateral for their
loan. This may accelerate other indebtedness secured by
communities. Foreclosure of communities would reduce our income and
net asset value.
Rising interest
rates may affect our costs of capital and financing activities and results of
operation.
Interest rates could increase rapidly, which could
result in higher interest expense on our variable rate
indebtedness. Prolonged interest rate increases could negatively
impact our ability to make acquisitions and develop apartment communities with
positive economic returns on investment and our ability to refinance existing
borrowings.
Interest rate
hedging arrangements may result in losses.
Periodically, we
have entered into agreements to reduce the risks associated with increases in
interest rates, and may continue to do so. Although these agreements
may partially protect against rising interest rates, they also may reduce the
benefits to us if interest rates decline. If a hedging arrangement is
not indexed to the same rate as the indebtedness that is hedged, we may be
exposed to losses to the extent that the rate governing the indebtedness and the
rate governing the hedging arrangement change independently of each
other. Finally, nonperformance by the other party to the hedging
arrangement may subject us to increased credit risks. In order to
minimize counterparty credit risk, our policy is to enter into hedging
arrangements only with A-rated financial institutions.
Bond compliance
requirements may limit income from certain communities.
At
December 31, 2009, we had approximately $214.1 million of variable rate
tax-exempt financing relating to the following apartment communities: Inglenook
Court, Wandering Creek, Boulevard, Huntington Breakers, Camarillo Oaks, Fountain
Park, Anchor Village, Hidden Valley and Belmont Station. This
tax-exempt financing subjects these communities to certain deed restrictions and
restrictive covenants. We expect to engage in tax-exempt financings
in the future. The Internal Revenue Code and rules and regulations
thereunder impose various restrictions, conditions and requirements excluding
interest on qualified bond obligations from gross income for federal income tax
purposes. The Internal Revenue Code also requires that at least 20%
of apartment units be made available to residents with gross incomes that do not
exceed a specified percentage, generally 50%, of the median income for the
applicable family size as determined by the Housing and Urban Development
Department of the federal government. In addition to federal
requirements, certain state and local authorities may impose additional rental
restrictions. These restrictions may limit income from the tax-exempt
financed communities if we are required to lower rental rates to attract
residents who satisfy the median income test. If the Company does not
reserve the required number of apartment homes for residents satisfying these
income requirements, the tax-exempt status of the bonds may be terminated, the
obligations under the bond documents may be accelerated and we may be subject to
additional contractual liability.
General real
estate investment risks may adversely affect property income and
values.
Real estate investments are subject to a variety of
risks. The yields available from equity investments in real estate
depend on the amount of income generated and expenses incurred. If
the communities do not generate sufficient income to meet operating expenses,
including debt service and capital expenditures, cash flow and the ability to
make distributions to stockholders will be adversely affected. Income
from the communities may be further adversely affected by, among other things,
the following factors:
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the
general economic climate;
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local
economic conditions in which the communities are located, such as
oversupply of housing or a reduction in demand for rental
housing;
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the
attractiveness of the communities to
tenants;
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competition
from other available housing; and
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the
Company’s ability to provide for adequate maintenance and
insurance.
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As leases
at the communities expire, tenants may enter into new leases on terms that are
less favorable to us. Income and real estate values also may be adversely
affected by such factors as applicable laws (e.g., the Americans with
Disabilities Act of 1990 and tax laws). Real estate investments are
relatively illiquid and, therefore, our ability to vary our portfolio promptly
in response to changes in economic or other conditions may be quite
limited.
National and
regional economic environments can negatively impact our operating
results.
During the past two years, a confluence of factors
has resulted in job losses, turmoil and volatility in the capital markets, and
caused a national and global recession. The Company's forecast for
the national economy assumes the return of growth, with estimated gross domestic
product growth of the national economy and the economies of the western
states. In the event of a continued recession, the Company could
incur continued reduction in rental rates, occupancy levels, property valuations
and increases in operating costs such as advertising and turnover
expenses.
Inflation/Deflation
may affect rental rates and operating expenses.
Substantial
inflationary or deflationary pressures could have a negative effect on rental
rates and property operating expenses.
Acquisitions of
communities may fail to meet expectations
. The Company intends
to continue to acquire apartment communities. However, there are
risks that acquisitions will fail to meet our expectations. The
Company’s estimates of future income, expenses and the costs of improvements or
redevelopment that are necessary to allow us to market an acquired apartment
community as originally intended may prove to be inaccurate. We
expect to finance future acquisitions, in whole or in part, under various forms
of secured or unsecured financing or through the issuance of partnership units
by the Operating Partnership or related partnerships or additional equity by the
Company. The use of equity financing, rather than debt, for future
developments or acquisitions could dilute the interest of the Company’s existing
stockholders. If we finance new acquisitions under existing lines of
credit, there is a risk that, unless we obtain substitute financing, the Company
may not be able to secure further lines of credit for new development or such
lines of credit may be not available on advantageous terms.
Development and
redevelopment activities may be delayed, not completed, and/or not achieve
expected results
. We pursue development and
redevelopment projects and these projects generally require various governmental
and other approvals, which have no assurance of being received. The
Company’s development and redevelopment activities generally entail certain
risks, including the following:
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funds
may be expended and management's time devoted to projects that may not be
completed;
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construction
costs of a project may exceed original estimates possibly making the
project economically unfeasible;
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projects
may be delayed due to, without limitation, adverse weather
conditions;
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occupancy
rates and rents at a completed project may be less than anticipated;
and
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expenses
at completed development projects may be higher than
anticipated.
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These
risks may reduce the funds available for distribution to the Company’s
stockholders. Further, the development and redevelopment of
communities is also subject to the general risks associated with real estate
investments. For further information regarding these risks, please see the risk
factor “
General real estate
investment risks may adversely affect property income and
values
.”
The geographic
concentration of the Company’s communities and fluctuations in local markets may
adversely impact our financial condition and operating
results
. The Company generated significant amounts of rental
revenues for the year ended December 31, 2009, from our communities concentrated
in Southern California (Los Angeles, Orange, Santa Barbara, San Diego, and
Ventura counties), Northern California (the San Francisco Bay Area), and the
Seattle metropolitan area. For the year ended December 31, 2009, 81% of the
Company’s rental revenues were generated from communities located in
California. This geographic concentration could present risks if
local property market performance falls below expectations. The economic
condition of these markets could affect occupancy, property revenues, and
expenses, from the communities and their underlying asset values. The
financial results of major local employers also may impact the cash flow and
value of certain of the communities. This could have a negative
impact on our financial condition and operating results, which could affect our
ability to pay expected dividends to our stockholders.
Competition in
the apartment community market may adversely affect operations and the rental
demand for our communities.
There are numerous housing
alternatives that compete with our communities in attracting
residents. These include other apartment communities and
single-family homes that are available for rent in the markets in which the
communities are located. If the demand for our communities is reduced
or if competitors develop and/or acquire competing apartment communities on a
more cost-effective basis, rental rates may drop, which may have a material
adverse affect on our financial condition and results of
operations. We also face competition from other real estate
investment trusts, businesses and other entities in the acquisition, development
and operation of apartment communities. This competition may result
in an increase in costs and prices of apartment communities that we acquire
and/or develop.
The price per
share of the Company’s stock may fluctuate significantly.
The
market price per share of the Company’s common stock may fluctuate significantly
in response to many factors, including:
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national
and global economic conditions;
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actual
or anticipated variations in our quarterly operating results or
dividends;
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changes
in our funds from operations or earnings
estimates;
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issuances
of common stock, preferred stock or convertible debt
securities;
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publication
of research reports about us or the real estate
industry;
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the
general reputation of real estate investment trusts and the attractiveness
of their equity securities in comparison to other equity securities
(including securities issued by other real estate based
companies);
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general
stock and bond market conditions, including changes in interest rates on
fixed income securities, that may lead prospective purchasers of our stock
to demand a higher annual yield from
dividends;
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availability
to credit markets and cost of
credit;
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a
change in analyst ratings or our credit ratings;
and
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terrorist
activity may adversely affect the markets in which our securities trade,
possibly increasing market volatility and causing erosion of business and
consumer confidence and spending.
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Many of
the factors listed above are beyond the Company’s control. These
factors may cause the market price of shares of the Company’s common stock to
decline, regardless of our financial condition, results of operations, or
business prospects.
The Company’s
future issuances of common stock, preferred stock or convertible debt securities
could adversely affect the market price of our common stock
.
In order to
finance our acquisition and development activities, we have issued and sold
common stock, preferred stock and convertible debt securities. For
example, during 2009 and 2008, the Company issued and sold 2,740,450 and
1,209,050 shares of common stock for $198.5 million and $142.8 million, net of
fees and commissions, respectively. The Company may in the future
sell further shares of common stock, including pursuant to its controlled equity
offering program with Cantor Fitzgerald & Co.
In 2007,
the Company filed a new shelf registration statement with the SEC, allowing the
Company to sell an undetermined number of equity and debt securities as defined
in the prospectus. Future sales of common stock, preferred stock or
convertible debt securities may dilute stockholder ownership in the Company and
could adversely affect the market price of the common stock.
The Company’s
Chairman is involved in other real estate activities and investments, which may
lead to conflicts of interest.
Our Chairman, George M.
Marcus is not an employee of the Company, and is involved in other real estate
activities and investments, which may lead to conflicts of interest. Mr. Marcus
owns interests in various other real estate-related businesses and
investments. He is the Chairman of The Marcus & Millichap Company
(“TMMC”), which is a holding company for certain real estate brokerage and
services companies. TMMC has an interest in Pacific Property Company,
a company that invests in apartment communities.
Mr.
Marcus has agreed not to divulge any information that may be received by him in
his capacity as Chairman of the Company to any of his affiliated companies and
that he will abstain his vote on any and all resolutions by the Company Board of
Directors regarding any proposed acquisition and/or development of an apartment
community where it appears that there may be a conflict of interest with any of
his affiliated companies. Notwithstanding this agreement, Mr. Marcus
and his affiliated entities may potentially compete with us in acquiring and/or
developing apartment communities, which competition may be detrimental to
us. In addition, due to such potential competition for real estate
investments, Mr. Marcus and his affiliated entities may have a conflict of
interest with us, which may be detrimental to the interests of the Company’s
stockholders.
The influence of
executive officers, directors and significant stockholders may be detrimental to
holders of common stock
. As of December 31, 2009, George M.
Marcus, the Chairman of our Board of Directors, wholly or partially owned
1,774,375 shares of common stock (including shares issuable upon exchange of
limited partnership interests in the Operating Partnership and certain other
partnerships and assuming exercise of all vested options). This represents
approximately 5.7% of the outstanding shares of our common stock. Mr. Marcus
currently does not have majority control over us. However, he
currently has, and likely will continue to have, significant influence with
respect to the election of directors and approval or disapproval of significant
corporate actions. Consequently, his influence could result in
decisions that do not reflect the interests of all our
stockholders.
Under the
partnership agreement of the Operating Partnership, the consent of the holders
of limited partnership interests is generally required for any amendment of the
agreement and for certain extraordinary actions. Through their
ownership of limited partnership interests and their positions with us, our
directors and executive officers, including Mr. Marcus, have substantial
influence on us. Consequently, their influence could result in
decisions that do not reflect the interests of all stockholders.
The voting rights
of preferred stock may allow holders of preferred stock to impede actions that
otherwise benefit holders of common stock.
In general, the holders
of our outstanding shares of preferred stock do not have any voting rights.
However, if full distributions are not made on any outstanding preferred stock
for six quarterly distributions periods, the holders of preferred stock who have
not received distributions, voting together as a single class, will have the
right to elect two additional directors to serve on our Board of
Directors.
These
voting rights continue until all distributions in arrears and distributions for
the current quarterly period on the preferred stock have been paid in full. At
that time, the holders of the preferred stock are divested of these voting
rights, and the term and office of the directors so elected immediately
terminates. While any shares of our preferred stock are outstanding, the Company
may not, without the consent of the holders of two-thirds of the outstanding
shares of each series of preferred stock, each voting separately as a single
class:
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authorize
or create any class or series of stock that ranks senior to such preferred
stock with respect to the payment of dividends, rights upon liquidation,
dissolution or winding-up of our
business;
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amend,
alter or repeal the provisions of the Company’s Charter or Bylaws,
including by merger or consolidation, that would materially and adversely
affect the rights of such series of preferred stock;
or
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in
the case of the preferred stock into which our preferred units are
exchangeable, merge or consolidate with another entity or transfer
substantially all of its assets to another entity, except if such
preferred stock remains outstanding with the surviving entity and has the
same terms and in certain other
circumstances.
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These
voting rights of the preferred stock may allow holders of preferred stock to
impede or veto actions that would otherwise benefit the holders of our common
stock.
The redemption
rights of the Series B preferred units and Series F preferred stock may be
detrimental to holders of the Company’s common stock.
Upon the
occurrence of one of the following events, the terms of the Operating
Partnership’s Series B Preferred Units require it to redeem all of such units
and the terms of the Company’s Series F Preferred Stock provide the holders of
the majority of the outstanding Series F Preferred Stock the right to require
the Company to redeem all of such stock:
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the
Company completes a “going private” transaction and its common stock is no
longer registered under the Securities Exchange Act of 1934, as
amended;
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the
Company completes a consolidation or merger or sale of substantially all
of its assets and the surviving entity’s debt securities do not possess an
investment grade rating;
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the
Company fails to qualify as a REIT.
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The
aggregate redemption price of the Series B Preferred Units would be $80 million
and the aggregate redemption price of the Series F Preferred Stock would be $25
million, plus, in each case, any accumulated distributions.
These
redemption rights may discourage or impede transactions that might otherwise be
in the interest of holders of common stock. Further, these redemption
rights might trigger situations where the Company needs to conserve its cash
reserves, in which event such redemption might adversely affect the Company and
its common holders.
The Maryland
business combination law may not allow certain transactions between the Company
and its affiliates to proceed without compliance with such law
.
Under Maryland
law, “business combinations” between a Maryland corporation and an interested
stockholder or an affiliate of an interested stockholder are prohibited for five
years after the most recent date on which the interested stockholder becomes an
interested stockholder. These business combinations include a merger,
consolidation, share exchange, or, in circumstances specified in the statute, an
asset transfer or issuance or reclassification of equity
securities. An interested stockholder is defined as any person (and
certain affiliates of such person) who beneficially owns ten percent or more of
the voting power of the then-outstanding voting stock. The law also
requires a supermajority stockholder vote for such transactions. This means that
the transaction must be approved by at least:
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80%
of the votes entitled to be cast by holders of outstanding voting shares;
and
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Two-thirds
of the votes entitled to be cast by holders of outstanding voting shares
other than shares held by the interested stockholder with whom the
business combination is to be
effected.
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The
statute permits various exemptions from its provisions, including business
combinations that are exempted by the board of directors prior to the time that
the interested stockholder becomes an interested stockholder. These
voting provisions do not apply if the stockholders receive a minimum price, as
defined under Maryland law. As permitted by the statute, the Board of
Directors of the Company irrevocably has elected to exempt any business
combination by the Company, George M. Marcus, who is the chairman of the
Company, and TMMC or any entity owned or controlled by Mr. Marcus and TMMC.
Consequently, the five-year prohibition and supermajority vote requirement
described above will not apply to any business combination between the Company,
Mr. Marcus, or TMMC. As a result, the Company may in the future enter
into business combinations with Mr. Marcus and TMMC, without compliance with the
supermajority vote requirements and other provisions of the Maryland General
Corporation Law.
Anti-takeover
provisions contained in the Operating Partnership agreement, charter, bylaws,
and certain provisions of Maryland law could delay, defer or prevent a change in
control
.
While the Company
is the sole general partner of the Operating Partnership, and generally has full
and exclusive responsibility and discretion in the management and control of the
Operating Partnership, certain provisions of the Operating Partnership agreement
place limitations on the Company’s ability to act with respect to the Operating
Partnership. Such limitations could delay, defer or prevent a
transaction or a change in control that might involve a premium price for our
stock or otherwise be in the best interest of the stockholders or that could
otherwise adversely affect the interest of the Company’s
stockholders. The partnership agreement provides that if the limited
partners own at least 5% of the outstanding units of partnership interest in the
Operating Partnership, the Company cannot, without first obtaining the consent
of a majority-in-interest of the limited partners in the Operating Partnership,
transfer all or any portion of our general partner interest in the Operating
Partnership to another entity. Such limitations on the Company’s
ability to act may result in our being precluded from taking action that the
Board of Directors believes is in the best interests of the Company’s
stockholders. As of December 31, 2009, the limited partners held or
controlled approximately 7.7% of the outstanding units of partnership interest
in the Operating Partnership, allowing such actions to be blocked by the limited
partners.
The
Company’s Charter authorizes the issuance of additional shares of common stock
or preferred stock and the setting of the preferences, rights and other terms of
such preferred stock without the approval of the holders of the common
stock. We may establish one or more series of preferred stock that
could delay, defer or prevent a transaction or a change in
control. Such a transaction might involve a premium price for our
stock or otherwise be in the best interests of the holders of common
stock. Also, such a class of preferred stock could have dividend,
voting or other rights that could adversely affect the interest of holders of
common stock.
The
Company’s Charter contains other provisions that may delay, defer or prevent a
transaction or a change in control that might be in the best interest of the
Company’s stockholders. The Charter contains ownership provisions
limiting the transferability and ownership of shares of capital stock, which may
have the effect of delaying, deferring or preventing a transaction or a change
in control. For example, subject to receiving an exemption from the
Board of Directors, potential acquirers may not purchase more than 6% in value
of the stock (other than qualified pension trusts which can acquire 9.9%). This
may discourage tender offers that may be attractive to the holders of common
stock and limit the opportunity for stockholders to receive a premium for their
shares of common stock.
The
Maryland General Corporations Law restricts the voting rights of shares deemed
to be “control shares.” Under the Maryland General Corporations
Law, “control shares” are those which, when aggregated with any other shares
held by the acquirer, entitle the acquirer to exercise voting power within
specified ranges. Although the Bylaws exempt the Company from the
control share provisions of the Maryland General Corporations Law, the Board of
Directors may amend or eliminate the provisions of the Bylaws at any time in the
future. Moreover, any such amendment or elimination of such provision of the
Bylaws may result in the application of the control share provisions of the
Maryland General Corporations Law not only to control shares which may be
acquired in the future, but also to control shares previously
acquired. If the provisions of the Bylaws are amended or eliminated,
the control share provisions of the Maryland General Corporations Law could
delay, defer or prevent a transaction or change in control that might involve a
premium price for the stock or otherwise be in the best interests of the
Company’s stockholders.
Our
Charter and bylaws also contain other provisions that may impede various actions
by stockholders without approval of our board of directors, which in turn may
delay, defer or prevent a transaction, including a change in
control. Those provisions include:
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the
Company’s directors have terms of office of three years and the board of
directors is divided into three classes with staggered terms; as a result,
less than a majority of directors are up for re-election to the board in
any one year;
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directors
may be removed, without cause, only upon a two-thirds vote of
stockholders, and with cause, only upon a majority vote of
stockholders;
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the
Company’s board can fix the number of directors and fill vacant
directorships upon the vote of a majority of the
directors;
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stockholders
must give advance notice to nominate directors or propose business for
consideration at a stockholders’ meeting;
and
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for
stockholders to call a special meeting, the meeting must be requested by
not less than a majority of all the votes entitled to be cast at the
meeting.
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The Company’s
joint ventures and joint ownership of communities and partial interests in
corporations and limited partnerships could limit the Company’s ability to
control such communities and partial interests
.
Instead of
purchasing apartment communities directly, we have invested and may continue to
invest in joint ventures. Joint venture partners often have shared
control over the operation of the joint venture assets. Therefore, it
is possible that a joint venture partner in an investment might become bankrupt,
or have economic or business interests or goals that are inconsistent with our
business interests or goals, or be in a position to take action contrary to our
instructions or requests, or our policies or
objectives. Consequently, a joint venture partners’ actions might
subject property owned by the joint venture to additional
risk. Although we seek to maintain sufficient influence over any
joint venture to achieve its objectives, we may be unable to take action without
our joint venture partners’ approval, or joint venture partners could take
actions binding on the joint venture without our
consent. Should a joint venture partner become bankrupt, we
could become liable for such partner’s share of joint venture
liabilities.
From time
to time, the Company, through the Operating Partnership, invests in
corporations, limited partnerships, limited liability companies or other
entities that have been formed for the purpose of acquiring, developing or
managing real property. In certain circumstances, the Operating
Partnership’s interest in a particular entity may be less than a majority of the
outstanding voting interests of that entity. Therefore, the Operating
Partnership’s ability to control the daily operations of such an entity may be
limited. Furthermore, the Operating Partnership may not have the power to remove
a majority of the board of directors (in the case of a corporation) or the
general partner or partners (in the case of a limited partnership) of such an
entity in the event that its operations conflict with the Operating
Partnership’s objectives. The Operating Partnership may not be able
to dispose of its interests in such an entity. In the event that such an entity
becomes insolvent, the Operating Partnership may lose up to its entire
investment in and any advances to the entity. We have, and in the
future may, enter into transactions that could require us to pay the tax
liabilities of partners, which contribute assets into joint ventures or the
Operating Partnership, in the event that certain taxable events, which are
within our control, occur. Although we plan to hold the contributed
assets or defer recognition of gain on their sale pursuant to the like-kind
exchange rules under Section 1031 of the Internal Revenue Code, we can provide
no assurance that we will be able to do so and if such tax liabilities were
incurred they can expect to have a material impact on our financial
position.
There are risks
that Fund II may operate in ways that may adversely impact the Company’s
interests.
The Company is the general partner of Fund II, and
with Fund II there are the following risks:
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the
Company’s partners in Fund II might remove the Company as the general
partner of Fund II;
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the
Company’s partners in Fund II might have economic or business
interests or goals that are inconsistent with our business interests or
goals; or
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the
Company’s partners in Fund II might fail to approve decisions regarding
Fund II that are in the Company’s best
interest.
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Investments in
mortgages and other real estate securities could affect our ability to make
distributions to stockholders
. The Company may invest in
securities related to real estate, which could adversely affect our ability to
make distributions to stockholders. The Company may purchase
securities issued by entities which own real estate and invest in mortgages or
unsecured debt obligations. These mortgages may be first, second or
third mortgages that may or may not be insured or otherwise
guaranteed. In general, investments in mortgages include the
following risks:
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that
the value of mortgaged property may be less than the amounts owed, causing
realized or unrealized losses;
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the
borrower may not pay indebtedness under the mortgage when due, requiring
us to foreclose, and the amount recovered in connection with the
foreclosure may be less than the amount
owed;
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that
interest rates payable on the mortgages may be lower than our cost of
funds; and
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in
the case of junior mortgages, that foreclosure of a senior mortgage could
eliminate the junior mortgage.
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If any of
the above were to occur, cash flows from operations and our ability to make
expected dividends to stockholders could be adversely affected.
Compliance with
laws benefiting disabled persons may require us to make significant
unanticipated expenditures or impact our investment strategy.
A number of
federal, state and local laws (including the Americans with Disabilities Act)
and regulations exist that may require modifications to existing buildings or
restrict certain renovations by requiring improved access to such buildings by
disabled persons and may require other structural features which add to the cost
of buildings under construction. Legislation or regulations adopted
in the future may impose further burdens or restrictions on us with respect to
improved access by disabled persons. The costs of compliance with
these laws and regulations may be substantial.
The Company’s
Portfolio may have unknown environmental liabilities.
Under
various federal, state and local laws, ordinances and regulations, an owner or
operator of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on, in, to or migrating from such
property. Such laws often impose liability without regard as to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances,
or the failure to properly remediate such substances, may adversely affect the
owner’s or operator’s ability to sell or rent such property or to borrow using
such property as collateral. Persons exposed to such substances,
either through soil vapor or ingestion of the substances may claim personal
injury damages. Persons who arrange for the disposal or treatment of
hazardous or toxic substances or wastes also may be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility
to which such substances or wastes were sent, whether or not such facility is
owned or operated by such person. Certain environmental laws impose liability
for release of asbestos-containing materials (“ACMs”) into the air, and third
parties may seek recovery from owners or operators of apartment communities for
personal injury associated with ACMs. In connection with the
ownership (direct or indirect), operation, management and development of
apartment communities, the Company could be considered an owner or operator of
such properties or as having arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, may be potentially liable for removal or
remediation costs, as well as certain other costs, including governmental fines
and costs related to injuries of persons and property.
Investments
in real property create a potential for environmental liabilities on the part of
the owner of such real property. We carry certain limited insurance
coverage for this type of environmental risk. We have conducted
environmental studies which revealed the presence of groundwater contamination
at certain communities. Such contamination at certain of these
apartment communities was reported to have migrated on-site from adjacent
industrial manufacturing operations. The former industrial users of
the communities were identified as the source of contamination. The
environmental studies noted that certain communities are located adjacent to
possible down gradient from sites with known groundwater contamination, the
lateral limits of which may extend onto such apartment
communities. The environmental studies also noted that at certain of
these apartment communities, contamination existed because of the presence of
underground fuel storage tanks, which have been removed. In general,
in connection with the ownership, operation, financing, management and
development of apartment communities we may be potentially liable for removal or
clean-up costs, as well as certain other costs and environmental
liabilities. The Company may also be subject to governmental fines
and costs related to injuries to persons and property.
There has
been a number of lawsuits in recent years against owners and managers of
apartment communities alleging personal injury and property damage caused by the
presence of mold in residential real estate. 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, of such matters. Insurance carriers have reacted to mold
related liability awards by excluding mold related claims from standard policies
and pricing mold endorsements at prohibitively high rates. The
Company has, however, purchased pollution liability insurance, which includes
some coverage for mold. The Company has adopted policies for promptly
addressing and resolving reports of mold when it is detected, and to minimize
any impact mold might have on residents of the property. The Company
believes its mold policies and proactive response to address any known
existence, reduces its risk of loss from these cases. There can be no
assurances that the Company has identified and responded to all mold
occurrences, but the company promptly addresses all known reports of
mold. 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, 2009,
potential liabilities for mold and other environmental liabilities are not
considered probable or the loss cannot be quantified or estimated.
California
has enacted legislation commonly referred to as “Proposition 65” requiring that
“clear and reasonable” warnings be given to consumers who are exposed to
chemicals known to the State of California to cause cancer or reproductive
toxicity, including tobacco smoke. Although we have sought to comply
with Proposition 65 requirements, we cannot assure you that we will not be
adversely affected by litigation relating to Proposition 65.
Methane
gas is a naturally-occurring gas that is commonly found below the surface in
several areas, particularly in the Southern California coastal
areas. Methane is a non-toxic gas, but can be ignitable in confined
spaces. Although naturally-occurring, methane gas is not regulated at
the state or federal level, however some local governments, such as the County
of Los Angeles, have imposed requirements that new buildings install detection
systems in areas where methane gas is known to be
located. Methane gas is also associated with certain
industrial activities, such as former municipal waste
landfills. Radon is also a naturally-occurring gas that is found
below the surface. The Company cannot assure you that it will not be
adversely affected by costs related to its compliance with methane or radon gas
related requirements or litigation costs related to methane or radon
gas.
The
Company has almost no indemnification agreements from third parties for
potential environmental clean-up costs at its communities. The
Company has no way of determining at this time the magnitude of any potential
liability to which it may be subject arising out of unknown environmental
conditions or violations with respect to communities formerly owned by the
Company. No assurance can be given that existing environmental
studies with respect to any of the communities reveal all environmental
liabilities, that any prior owner or operator of an apartment community did not
create any material environmental condition not known to the Company, or that a
material environmental condition does not exist as to any one or more of the
communities. The Company has limited insurance coverage for the types
of environmental liabilities described above.
The Company may
incur general uninsured losses.
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 for terrorism or earthquake,
for which the Company does not have insurance coverage. Substantially
all of the communities are located in areas that are subject to earthquake
activity. In January 2007, the Company canceled its then existing
earthquake policy and 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.
Although
the Company may carry insurance for potential losses associated with its
communities, employees, residents, and compliance with applicable laws, it may
still incur losses due to uninsured risks, deductibles, co-payments or losses in
excess of applicable insurance coverage and those losses may be
material. In the event of a substantial loss, insurance coverage may
not be able to cover the full replacement cost of the Company’s lost investment,
or the insurance carrier may become insolvent and not be able to cover the full
amount of the insured losses. Inflation, changes in building codes
and ordinances, environmental considerations and other factors might also affect
the Company’s ability to replace or renovate an apartment community after it has
been damaged or destroyed.
Changes in real
estate tax and other laws may adversely affect the Company’s results of
operations
. Generally we do not directly pass through costs
resulting from changes in real estate tax laws to residential property
tenants. We also do not generally pass through increases in income,
service or other taxes, to tenants under leases. These costs may adversely
affect funds from operations and the ability to make distributions to
stockholders. Similarly, compliance with changes in (i) laws
increasing the potential liability for environmental conditions existing on
apartment communities or the restrictions on discharges or other conditions or
(ii) rent control or rent stabilization laws or other laws regulating housing
may result in significant unanticipated decrease in revenue or increase in
expenditures, which would adversely affect funds from operations and the ability
to make distributions to stockholders.
Changes in the
Company’s financing policy may lead to higher levels of
indebtedness.
The Company has adopted a policy of maintaining
a limit on debt financing to a maximum of a 50% debt to total market
capitalization and to be consistent with the existing covenants required to
maintain the Company’s unsecured line of credit bank facility. The
Company’s organizational documents do not limit the amount or percentage of
indebtedness that may be incurred. If the Company changed this
policy, the Company could incur more debt, resulting in an increased risk
of default on our obligations and the obligations of the Operating Partnership,
and an increase in debt service requirements that could adversely affect our
financial condition and results of operations. Such increased debt
could exceed the underlying value of the communities.
The Company is
subject to various tax risks
. The Company has elected to be
taxed as a REIT under the Internal Revenue Code. The Company’s qualification as
a REIT requires it to satisfy numerous requirements (some on an annual and
quarterly basis) established under highly technical and complex Internal Revenue
Code provisions for which there are only limited judicial or administrative
interpretations, and involves the determination of various factual matters and
circumstances not entirely within the Company’s control. Although the Company
intends that its current organization and method of operation enables
it to qualify as a REIT, it cannot assure you that it so qualifies or
that it will be able to remain so qualified in the future. Future
legislation, new regulations, administrative interpretations or court decisions
(any of which could have retroactive effect) could adversely affect the
Company’s ability to qualify as a REIT or adversely affect our
stockholders. If the Company fails to qualify as a REIT in any
taxable year, the Company would be subject to U.S. federal income tax (including
any applicable alternative minimum tax) on our taxable income at corporate
rates, and the Company would not be allowed to deduct dividends paid to its
shareholders in computing its taxable income. The Company may also be
disqualified from treatment as a REIT for the four taxable years following the
year in which the Company failed to qualify. The additional tax
liability would reduce its net earnings available for investment or distribution
to stockholders, and the Company would no longer be required to make
distributions to its stockholders. Even if the Company continues to
qualify as a REIT, it will continue to be subject to certain federal, state and
local taxes on our income and property.
The
Company has established several taxable REIT subsidiaries
(“TRSs”). Despite its qualification as a REIT, the Company’s TRSs
must pay U.S. federal income tax on their taxable income. While the
Company will attempt to ensure that its dealings with its TRSs do not adversely
affect its REIT qualification, it cannot provide assurance that it will
successfully achieve that result. Furthermore, it may be subject to a
100% penalty tax, or its TRSs may be denied deductions, to the extent its
dealings with its TRSs are not deemed to be arm’s length in
nature. No assurances can be given that the Company’s dealings with
its TRSs will be arm’s length in nature.
From time
to time, the Company may transfer or otherwise dispose of some of its
Properties. Under the Internal Revenue Code, any gain resulting from
transfers of Properties that the Company holds as inventory or primarily for
sale to customers in the ordinary course of business would be treated as income
from a prohibited transaction subject to a 100% penalty tax. Since
the Company acquires properties for investment purposes, it does not believe
that its occasional transfers or disposals of property are prohibited
transactions. However, whether property is held for investment purposes is a
question of fact that depends on all the facts and circumstances surrounding the
particular transaction. The Internal Revenue Service may contend that
certain transfers or disposals of properties by the Company are prohibited
transactions. If the Internal Revenue Service were to argue
successfully that a transfer or disposition of property constituted a prohibited
transaction, then the Company would be required to pay a 100% penalty tax on any
gain allocable to it from the prohibited transaction and the Company’s ability
to retain future gains on real property sales may be
jeopardized. Income from a prohibited transaction might adversely
affect our ability to satisfy the income tests for qualification as a REIT for
U.S. federal income tax purposes. Therefore, no assurances can be given that we
will be able to satisfy the income tests for qualification as a
REIT.
The U.S.
federal tax rate on certain corporate dividends paid to individuals and other
non-corporate taxpayers is at a reduced rate of 15% (until December 31,
2010). It is uncertain whether this reduced rate will be continued
beyond the scheduled expiration date. Dividends paid by REITs to
individuals and other non-corporate stockholders are not eligible for the
reduced 15% rate, however. This may cause investors to view REIT
investments to be less attractive than investments in non-REIT corporations,
which in turn may adversely affect the value of stock in REITs, including our
stock.
None
.
The
Company’s Portfolio as of December 31, 2009 (including communities owned by Fund
II) was comprised of 133 apartment communities (comprising 27,248 apartment
units), of which 13,087 units are located in Southern California, 8,270 units
are located in the San Francisco Bay Area, and 5,891 units are located in the
Seattle metropolitan area. The Company’s apartment communities
accounted for 95.9% of the Company’s revenues for the year ended December 31,
2009.
Occupancy
Rates
The 133
apartment communities had an average Same-Properties occupancy (as defined in
Item 7), based on “financial occupancy,” during the year ended December 31,
2009, of approximately 97.0%. With respect to stabilized apartment
communities with sufficient operating history, occupancy figures are based on
financial occupancy (the percentage resulting from dividing actual rental
revenue by total possible rental revenue). Actual rental revenue
represents contractual revenue pursuant to leases without considering
delinquency and concessions. Total possible rental revenue represents the value
of all apartment units, with occupied units valued at contractual rental rates
pursuant to leases and vacant units valued at estimated market
rents. We believe that financial occupancy is a meaningful measure of
occupancy because it considers the value of each vacant unit at its estimated
market rate. Financial occupancy may not completely reflect
short-term trends in physical occupancy and financial occupancy rates as
disclosed by other REITs may not be comparable to our calculation of financial
occupancy.
With
respect to apartment communities which have not yet stabilized or have
insufficient operating history, occupancy figures are based on “physical
occupancy” which refers to the percentage resulting from dividing leased and
occupied units by rentable units. For the year ended December 31,
2009, none of the Company’s apartment communities had book values
equal to 10% or more of total assets of the Company or gross revenues equal to
10% or more of aggregate gross revenues of the Company.
Apartment
Communities
Our
apartment communities are generally suburban garden apartments and town homes
comprising multiple clusters of two and three story buildings situated on three
to fifteen acres of land. The apartment communities have an average
of approximately 205 units, with a mix of studio, one, two and some
three-bedroom units. A wide variety of amenities are available at the
Company’s communities, including covered parking, fireplaces, swimming pools,
clubhouses with fitness facilities, volleyball and playground areas and tennis
courts.
We
select, train and supervise on-site service and maintenance
personnel. We believe that the following primary factors enhance our
ability to retain tenants:
|
|
·
|
located
near employment centers;
|
|
|
·
|
attractive
communities that are well maintained;
and
|
|
|
·
|
proactive
customer service approach.
|
Office
and Other Commercial Buildings
The
Company’s corporate headquarters is located in two office buildings with
approximately 31,900 square feet located at 925/935 East Meadow Drive, Palo
Alto, California. The Company acquired the properties in 1997 and
2007, respectively. The Company also owns an office building in
Woodland Hills, California, comprised of approximately 38,940 square feet, of
which the Company occupies approximately 11,500 square feet at December 31,
2009. The Company acquired the Woodland Hills property in
2001. The Company owns a mortgage loan receivable on an office
building with approximately 110,000 square feet located in Irvine, California,
which is consolidated in accordance with GAAP. The Company acquired
Essex-Hollywood in 2006, a 35,000 square foot commercial building as a future
development site that is currently 100% leased as a production
studio.
The
following tables describe the Company’s Portfolio as of December 31, 2009. The
first table describes the Company’s apartment communities and the second table
describes the Company’s other real estate assets. (See Note 7
of the Company’s consolidated financial statements for more information about
the Company’s secured mortgage debt and Schedule III for a list of secured
mortgage loans related to the Company’s Portfolio.)
|
Rentable
|
||||||||||||
|
Square
|
Year
|
Year
|
||||||||||
|
Apartment
Communities
(1)
|
Location
|
Units
|
Footage
|
Built
|
Acquired
|
Occupancy
(2)
|
||||||
|
Southern
California
|
||||||||||||
|
Alpine
Country
|
Alpine,
CA
|
108
|
81,900
|
1986
|
2002
|
98%
|
||||||
|
Alpine
Village
|
Alpine,
CA
|
306
|
254,400
|
1971
|
2002
|
98%
|
||||||
|
Barkley,
The(3)(4)
|
Anaheim,
CA
|
161
|
139,800
|
1984
|
2000
|
98%
|
||||||
|
Bonita
Cedars
|
Bonita,
CA
|
120
|
120,800
|
1983
|
2002
|
97%
|
||||||
|
Camarillo
Oaks
|
Camarillo,
CA
|
564
|
459,000
|
1985
|
1996
|
95%
|
||||||
|
Camino
Ruiz Square
|
Camarillo,
CA
|
160
|
105,448
|
1990
|
2006
|
99%
|
||||||
|
Cielo
(5)
|
Chatsworth,
CA
|
119
|
125,400
|
2009
|
2009
|
90%
|
||||||
|
Cambridge
|
Chula
Vista, CA
|
40
|
22,100
|
1965
|
2002
|
95%
|
||||||
|
Woodlawn
Colonial
|
Chula
Vista, CA
|
159
|
104,500
|
1974
|
2002
|
95%
|
||||||
|
Mesa
Village
|
Clairemont,
CA
|
133
|
43,600
|
1963
|
2002
|
96%
|
||||||
|
Parcwood(5)
|
Corona,
CA
|
312
|
270,000
|
1989
|
2004
|
96%
|
||||||
|
Tierra
del Sol/Norte
|
El
Cajon, CA
|
156
|
117,000
|
1969
|
2002
|
98%
|
||||||
|
Regency
at Encino
|
Encino,
CA
|
75
|
78,487
|
1989
|
2009
|
100%
|
||||||
|
Valley
Park(6)
|
Fountain
Valley, CA
|
160
|
169,700
|
1969
|
2001
|
96%
|
||||||
|
Capri
at Sunny Hills(6)
|
Fullerton,
CA
|
100
|
128,100
|
1961
|
2001
|
97%
|
||||||
|
Wilshire
Promenade
|
Fullerton,
CA
|
149
|
128,000
|
1992(7)
|
1997
|
98%
|
||||||
|
Montejo(6)
|
Garden
Grove, CA
|
124
|
103,200
|
1974
|
2001
|
97%
|
||||||
|
CBC
Apartments
|
Goleta,
CA
|
148
|
91,538
|
1962
|
2006
|
97%
|
||||||
|
Chimney
Sweep Apartments
|
Goleta,
CA
|
91
|
88,370
|
1967
|
2006
|
91%
|
||||||
|
Hampton
Court
|
Glendale,
CA
|
83
|
71,500
|
1974(8)
|
1999
|
97%
|
||||||
|
Hampton
Place
|
Glendale,
CA
|
132
|
141,500
|
1970(9)
|
1999
|
97%
|
||||||
|
Devonshire
|
Hemet,
CA
|
276
|
207,200
|
1988
|
2002
|
94%
|
||||||
|
Huntington
Breakers
|
Huntington
Beach, CA
|
342
|
241,700
|
1984
|
1997
|
98%
|
||||||
|
Hillsborough
Park
|
La
Habra, CA
|
235
|
215,500
|
1999
|
1999
|
98%
|
||||||
|
Trabuco
Villas
|
Lake
Forest, CA
|
132
|
131,000
|
1985
|
1997
|
98%
|
||||||
|
Marbrisa
|
Long
Beach, CA
|
202
|
122,800
|
1987
|
2002
|
98%
|
||||||
|
Pathways
|
Long
Beach, CA
|
296
|
197,700
|
1975(10)
|
1991
|
96%
|
||||||
|
Belmont
Station
|
Los
Angeles, CA
|
275
|
225,000
|
2008
|
2008
|
99%
|
||||||
|
Bunker
Hill
|
Los
Angeles, CA
|
456
|
346,600
|
1968
|
1998
|
97%
|
||||||
|
Cochran
Apartments
|
Los
Angeles, CA
|
58
|
51,400
|
1989
|
1998
|
95%
|
||||||
|
Kings
Road
|
Los
Angeles, CA
|
196
|
132,100
|
1979(11)
|
1997
|
97%
|
||||||
|
Marbella,
The
|
Los
Angeles, CA
|
60
|
50,108
|
1991
|
2005
|
95%
|
||||||
|
Park
Place
|
Los
Angeles, CA
|
60
|
48,000
|
1988
|
1997
|
95%
|
||||||
|
Renaissance,
The(5)
|
|
Los
Angeles, CA
|
168
|
154,268
|
1990(12)
|
2006
|
97%
|
|||||
|
Windsor
Court
|
Los
Angeles, CA
|
58
|
46,600
|
1988
|
1997
|
95%
|
||||||
|
Marina
City Club(13)
|
|
Marina
Del Rey, CA
|
101
|
127,200
|
1971
|
2004
|
96%
|
|||||
|
Mirabella
|
|
Marina
Del Rey, CA
|
188
|
176,800
|
2000
|
2000
|
95%
|
|||||
|
Mira
Monte
|
Mira
Mesa, CA
|
355
|
262,600
|
1982(14)
|
2002
|
97%
|
||||||
|
Hillcrest
Park
|
Newbury
Park, CA
|
608
|
521,900
|
1973(15)
|
1998
|
97%
|
||||||
|
Fairways(16)
|
Newport
Beach, CA
|
74
|
107,100
|
1972
|
1999
|
94%
|
||||||
|
Country
Villas
|
Oceanside,
CA
|
180
|
179,700
|
1976
|
2002
|
97%
|
||||||
|
Mission
Hills
|
Oceanside,
CA
|
282
|
244,000
|
1984
|
2005
|
97%
|
||||||
|
Mariners
Place
|
Oxnard,
CA
|
105
|
77,200
|
1987
|
2000
|
97%
|
||||||
|
Monterey
Villas
|
Oxnard,
CA
|
122
|
122,100
|
1974(17)
|
1997
|
98%
|
||||||
|
Tierra
Vista
|
Oxnard,
CA
|
404
|
387,100
|
2001
|
2001
|
97%
|
||||||
|
Monterra
del Mar
|
Pasadena,
CA
|
123
|
74,400
|
1972(18)
|
1997
|
99%
|
||||||
|
Monterra
del Rey
|
Pasadena,
CA
|
84
|
73,100
|
1972(19)
|
1999
|
98%
|
||||||
|
Monterra
del Sol
|
Pasadena,
CA
|
85
|
69,200
|
1972(20)
|
1999
|
97%
|
||||||
|
Villa
Angelina(6)
|
Placentia,
CA
|
256
|
217,600
|
1970
|
2001
|
97%
|
||||||
|
(continued)
|
||||||||||||
|
Rentable
|
||||||||||||
|
Square
|
Year
|
Year
|
||||||||||
|
Apartment
Communities
(1)
|
Location
|
Units
|
Footage
|
Built
|
Acquired
|
Occupancy
(2)
|
||||||
|
Southern
California (continued)
|
||||||||||||
|
Fountain
Park
|
|
Playa
Vista, CA
|
705
|
608,900
|
2002
|
2004
|
95%
|
|||||
|
Highridge(6)
|
Rancho
Palos Verdes, CA
|
255
|
290,200
|
1972(21)
|
1997
|
95%
|
||||||
|
Bluffs
II, The(22)
|
San
Diego, CA
|
224
|
126,700
|
1974
|
1997
|
98%
|
||||||
|
Summit
Park
|
San
Diego, CA
|
300
|
229,400
|
1972
|
2002
|
97%
|
||||||
|
Vista
Capri - North
|
San
Diego, CA
|
106
|
51,800
|
1975
|
2002
|
95%
|
||||||
|
Brentwood(6)
|
Santa
Ana, CA
|
140
|
154,800
|
1970
|
2001
|
95%
|
||||||
|
Treehouse(6)
|
Santa
Ana, CA
|
164
|
135,700
|
1970
|
2001
|
96%
|
||||||
|
Hope
Ranch Collection
|
Santa
Barbara, CA
|
108
|
126,700
|
1965&73
|
2007
|
98%
|
||||||
|
Hidden
Valley(23)
|
|
Simi
Valley, CA
|
324
|
310,900
|
2004
|
2004
|
97%
|
|||||
|
Meadowood
|
Simi
Valley, CA
|
320
|
264,500
|
1986
|
1996
|
96%
|
||||||
|
Shadow
Point
|
Spring
Valley, CA
|
172
|
131,200
|
1983
|
2002
|
98%
|
||||||
|
Coldwater
Canyon
|
Studio
City, CA
|
39
|
34,125
|
1979
|
2007
|
97%
|
||||||
|
Studio
40-41 (5)
|
Studio
City, CA
|
149
|
127,238
|
2009
|
2009
|
95%
|
||||||
|
Lofts
at Pinehurst, The
|
Ventura,
CA
|
118
|
71,100
|
1971(24)
|
1997
|
97%
|
||||||
|
Pinehurst(25)
|
|
Ventura,
CA
|
28
|
21,200
|
1973
|
2004
|
99%
|
|||||
|
Woodside
Village
|
|
Ventura,
CA
|
145
|
136,500
|
1987
|
2004
|
98%
|
|||||
|
Walnut
Heights
|
Walnut,
CA
|
163
|
146,700
|
1964
|
2003
|
96%
|
||||||
|
Avondale
at Warner Center
|
Woodland
Hills, CA
|
446
|
331,000
|
1970(26)
|
1997
|
97%
|
||||||
|
13,087
|
10,952,982
|
97%
|
||||||||||
|
Northern
California
|
||||||||||||
|
Belmont
Terrace
|
Belmont,
CA
|
71
|
72,951
|
1974
|
2006
|
98%
|
||||||
|
Carlmont
Woods(5)
|
Belmont,
CA
|
195
|
107,200
|
1971
|
2004
|
98%
|
||||||
|
Davey
Glen(5)
|
Belmont,
CA
|
69
|
65,974
|
1962
|
2006
|
97%
|
||||||
|
Pointe
at Cupertino, The
|
Cupertino,
CA
|
116
|
135,200
|
1963(27)
|
1998
|
98%
|
||||||
|
Harbor
Cove(5)
|
Foster
City, CA
|
400
|
306,600
|
1971
|
2004
|
98%
|
||||||
|
Stevenson
Place
|
Fremont,
CA
|
200
|
146,200
|
1971(28)
|
1983
|
97%
|
||||||
|
Boulevard
|
Fremont,
CA
|
172
|
131,200
|
1978(29)
|
1996
|
98%
|
||||||
|
City
View
|
Hayward,
CA
|
560
|
462,400
|
1975(30)
|
1998
|
98%
|
||||||
|
Alderwood
Park(5)
|
Newark,
CA
|
96
|
74,624
|
1987
|
2006
|
97%
|
||||||
|
Bridgeport
|
Newark,
CA
|
184
|
139,000
|
1987(31)
|
1987
|
98%
|
||||||
|
The
Grand
|
Oakland,
CA
|
238
|
205,026
|
2009
|
2009
|
98%
|
||||||
|
Regency
Towers(5)
|
Oakland,
CA
|
178
|
140,900
|
1975(32)
|
2005
|
96%
|
||||||
|
San
Marcos
|
Richmond,
CA
|
432
|
407,600
|
2003
|
2003
|
98%
|
||||||
|
Mt
Sutro
|
San
Francisco, CA
|
99
|
64,000
|
1973
|
2001
|
98%
|
||||||
|
Carlyle,
The
|
San
Jose, CA
|
132
|
129,200
|
2000
|
2000
|
97%
|
||||||
|
Enclave,
The(5)
|
San
Jose, CA
|
637
|
525,463
|
1998
|
2005
|
98%
|
||||||
|
Esplanade
|
San
Jose, CA
|
278
|
279,000
|
2002
|
2004
|
98%
|
||||||
|
Waterford,
The
|
San
Jose, CA
|
238
|
219,600
|
2000
|
2000
|
99%
|
||||||
|
Hillsdale
Garden(33)
|
San
Mateo, CA
|
697
|
611,505
|
1948
|
2006
|
97%
|
||||||
|
Bel
Air
|
San
Ramon, CA
|
462
|
391,000
|
1988/2000(34)
|
1997
|
97%
|
||||||
|
Canyon
Oaks
|
San
Ramon, CA
|
250
|
237,894
|
2005
|
2007
|
98%
|
||||||
|
Foothill
Gardens
|
San
Ramon, CA
|
132
|
155,100
|
1985
|
1997
|
98%
|
||||||
|
Mill
Creek at Windermere
|
San
Ramon, CA
|
400
|
381,060
|
2005
|
2007
|
97%
|
||||||
|
Twin
Creeks
|
San
Ramon, CA
|
44
|
51,700
|
1985
|
1997
|
98%
|
||||||
|
Le
Parc Luxury Apartments
|
Santa
Clara, CA
|
140
|
113,200
|
1975(35)
|
1994
|
98%
|
||||||
|
Marina
Cove(36)
|
Santa
Clara, CA
|
292
|
250,200
|
1974(37)
|
1994
|
98%
|
||||||
|
Chestnut
Street
|
Santa
Cruz, CA
|
96
|
87,640
|
2002
|
2008
|
98%
|
||||||
|
Harvest
Park
|
Santa
Rosa, CA
|
104
|
116,628
|
2004
|
2007
|
97%
|
||||||
|
Bristol
Commons
|
Sunnyvale,
CA
|
188
|
142,600
|
1989
|
1997
|
99%
|
||||||
|
Brookside
Oaks(6)
|
Sunnyvale,
CA
|
170
|
119,900
|
1973
|
2000
|
98%
|
||||||
|
Magnolia
Lane(38)
|
Sunnyvale,
CA
|
32
|
31,541
|
2001
|
2007
|
99%
|
||||||
|
Montclaire,
The
|
Sunnyvale,
CA
|
390
|
294,100
|
1973(39)
|
1988
|
98%
|
||||||
|
Summerhill
Park
|
Sunnyvale,
CA
|
100
|
78,500
|
1988
|
1988
|
99%
|
||||||
|
Thomas
Jefferson(6)
|
Sunnyvale,
CA
|
156
|
110,824
|
1969
|
2007
|
99%
|
||||||
|
Windsor
Ridge
|
Sunnyvale,
CA
|
216
|
161,800
|
1989
|
1989
|
98%
|
||||||
|
Vista
Belvedere
|
Tiburon,
CA
|
76
|
78,300
|
1963
|
2004
|
97%
|
||||||
|
Tuscana
|
Tracy,
CA
|
30
|
29,088
|
2007
|
2007
|
97%
|
||||||
|
8,270
|
7,054,718
|
98%
|
||||||||||
|
(continued)
|
||||||||||||
|
Rentable
|
||||||||||||
|
Square
|
Year
|
Year
|
||||||||||
|
Apartment
Communities
(1)
|
Location
|
Units
|
Footage
|
Built
|
Acquired
|
Occupancy
(2)
|
||||||
|
Seattle,
Washington Metropolitan Area
|
||||||||||||
|
Cedar
Terrace
|
Bellevue,
WA
|
180
|
174,200
|
1984
|
2005
|
96%
|
||||||
|
Emerald
Ridge-North
|
Bellevue,
WA
|
180
|
144,000
|
1987
|
1994
|
97%
|
||||||
|
Foothill
Commons
|
Bellevue,
WA
|
388
|
288,300
|
1978(40)
|
1990
|
95%
|
||||||
|
Palisades,
The
|
Bellevue,
WA
|
192
|
159,700
|
1977(41)
|
1990
|
99%
|
||||||
|
Sammamish
View
|
Bellevue,
WA
|
153
|
133,500
|
1986(42)
|
1994
|
99%
|
||||||
|
Woodland
Commons
|
Bellevue,
WA
|
236
|
172,300
|
1978(43)
|
1990
|
97%
|
||||||
|
Canyon
Pointe
|
Bothell,
WA
|
250
|
210,400
|
1990
|
2003
|
97%
|
||||||
|
Inglenook
Court
|
Bothell,
WA
|
224
|
183,600
|
1985
|
1994
|
96%
|
||||||
|
Salmon
Run at Perry Creek
|
Bothell,
WA
|
132
|
117,100
|
2000
|
2000
|
98%
|
||||||
|
Stonehedge
Village
|
Bothell,
WA
|
196
|
214,800
|
1986
|
1997
|
97%
|
||||||
|
Highlands
at Wynhaven
|
Issaquah,
WA
|
333
|
424,674
|
2000
|
2008
|
96%
|
||||||
|
Park
Hill at Issaquah
|
Issaquah,
WA
|
245
|
277,700
|
1999
|
1999
|
97%
|
||||||
|
Wandering
Creek
|
Kent,
WA
|
156
|
124,300
|
1986
|
1995
|
98%
|
||||||
|
Bridle
Trails
|
Kirkland,
WA
|
108
|
99,700
|
1986(44)
|
1997
|
97%
|
||||||
|
Evergreen
Heights
|
Kirkland,
WA
|
200
|
188,300
|
1990
|
1997
|
97%
|
||||||
|
Laurels
at Mill Creek, The
|
Mill
Creek, WA
|
164
|
134,300
|
1981
|
1996
|
97%
|
||||||
|
Morning
Run(5)
|
Monroe,
WA
|
222
|
221,786
|
1991
|
2005
|
97%
|
||||||
|
Anchor
Village(6)
|
Mukilteo,
WA
|
301
|
245,900
|
1981
|
1997
|
97%
|
||||||
|
Castle
Creek
|
Newcastle,
WA
|
216
|
191,900
|
1997
|
1997
|
98%
|
||||||
|
Brighton
Ridge
|
Renton,
WA
|
264
|
201,300
|
1986
|
1996
|
97%
|
||||||
|
Fairwood
Pond
|
Renton,
WA
|
194
|
189,200
|
1997
|
2004
|
97%
|
||||||
|
Forest
View
|
Renton,
WA
|
192
|
182,500
|
1998
|
2003
|
97%
|
||||||
|
Cairns,
The
|
Seattle,
WA
|
100
|
70,806
|
2006
|
2007
|
95%
|
||||||
|
Eastlake
2851(5)
|
Seattle,
WA
|
127
|
234,086
|
2008
|
2008
|
97%
|
||||||
|
Fountain
Court
|
Seattle,
WA
|
320
|
207,000
|
2000
|
2000
|
98%
|
||||||
|
Linden
Square
|
Seattle,
WA
|
183
|
142,200
|
1994
|
2000
|
97%
|
||||||
|
Tower
@ 801(5)
|
Seattle,
WA
|
173
|
118,500
|
1970
|
2005
|
98%
|
||||||
|
Wharfside
Pointe
|
Seattle,
WA
|
142
|
119,200
|
1990
|
1994
|
97%
|
||||||
|
Echo
Ridge(5)
|
Snoqualmie,
WA
|
120
|
124,359
|
2000
|
2005
|
98%
|
||||||
|
5,891
|
5,295,611
|
98%
|
||||||||||
|
Total/Weighted
Average
|
27,248
|
23,303,311
|
97%
|
|
Rentable
|
||||||||||||
|
Square
|
Year
|
Year
|
||||||||||
|
Other
real estate assets
(1)
|
Location
|
Tenants
|
Footage
|
Built
|
Acquired
|
Occupancy
(2)
|
||||||
|
Office
Buildings
|
||||||||||||
|
925
/ 935 East Meadow Drive(45)
|
Palo
Alto, CA
|
1
|
31,900
|
1988
/ 1962
|
1997
/ 2007
|
100%
|
||||||
|
6230
Sunset Blvd(46)
|
Los
Angeles, CA
|
1
|
35,000
|
1938
|
2006
|
100%
|
||||||
|
17461
Derian Ave(47)
|
Irvine,
CA
|
8
|
110,000
|
1983
|
2000
|
100%
|
||||||
|
22110-22120
Clarendon Street(48)
|
Woodland
Hills, CA
|
9
|
38,940
|
1982
|
2001
|
87%
|
||||||
|
Total
Office Buildings
|
19
|
215,840
|
98%
|
Footnotes to the Company’s
Portfolio Listing as of December 31, 2009
|
|
(1)
|
Unless
otherwise specified, the Company has a 100% ownership interest in each
community.
|
|
|
(2)
|
For
apartment communities, occupancy rates are based on financial occupancy
for the year ended December 31, 2009; for the office buildings or
properties which have not yet stabilized, or have insufficient operating
history, occupancy rates are based on physical occupancy as of December
31, 2009. For an explanation of how financial occupancy and
physical occupancy are calculated, see “Properties-Occupancy Rates” in
this Item 2.
|
|
|
(3)
|
The
Company has a 30% special limited partnership interest in the entity that
owns this apartment community. This investment was made under arrangements
whereby Essex Management Corporation (“EMC”) became the general partner
and the existing partners were granted the right to require the applicable
partnership to redeem their interest for cash. Subject to
certain conditions, the Company may, however, elect to deliver an
equivalent number of shares of the Company’s common stock in satisfaction
of the applicable partnership's cash redemption
obligation.
|
|
|
(4)
|
The
community is subject to a ground lease, which, unless extended, will
expire in 2082.
|
|
|
(5)
|
This
community is owned by Fund II. The Company has a 28.2% interest in Fund II
which is accounted for using the equity method of
accounting.
|
|
|
(6)
|
The
Company holds a 1% special limited partner interest in the partnerships
which own these apartment communities. These investments were made under
arrangements whereby EMC became the 1% sole general partner and the other
limited partners were granted the right to require the applicable
partnership to redeem their interest for cash. Subject to certain
conditions, the Company may, however, elect to deliver an equivalent
number of shares of the Company’s common stock in satisfaction of the
applicable partnership’s cash redemption
obligation.
|
|
|
(7)
|
In
2002 the Company purchased an additional 21 units adjacent to this
apartment community for $3 million. This property was built in
1992.
|
|
|
(8)
|
The
Company completed a $1.6 million redevelopment in
2000.
|
|
|
(9)
|
The
Company completed a $2.3 million redevelopment in
2000.
|
|
|
(10)
|
The
Company is in the process of performing a $10.8 million
redevelopment.
|
|
|
(11)
|
The
Company completed a $6.2 million redevelopment in
2007.
|
|
|
(12)
|
Fund
II completed a $5.3 million redevelopment in
2008.
|
|
|
(13)
|
This
community is subject to a ground lease, which, unless extended, will
expire in 2067.
|
|
|
(14)
|
The
Company completed a $6.1 million redevelopment in
2007.
|
|
|
(15)
|
The
Company completed an $11.0 million redevelopment in 2001 and an additional
$3.6 million redevelopment in 2005.
|
|
|
(16)
|
This
community is subject to a ground lease, which, unless extended, will
expire in 2027.
|
|
|
(17)
|
The
Company completed a $3.2 million redevelopment in
2002.
|
|
|
(18)
|
The
Company completed a $1.9 million redevelopment in
2000.
|
|
|
(19)
|
The
Company completed a $1.9 million redevelopment in
2001.
|
|
|
(20)
|
The
Company completed a $1.7 million redevelopment in
2001.
|
|
|
(21)
|
The
Company is in the process of performing a $16.6 million
redevelopment.
|
|
|
(22)
|
The
Company had an 85% controlling limited partnership interest as of December
31, 2006, and during January 2007 the Company acquired the remaining 15%
partnership interest.
|
|
|
(23)
|
The
Company and EMC have a 74.0% and a 1% member interest,
respectively.
|
|
|
(24)
|
The
Company completed a $3.5 million redevelopment in
2002.
|
|
|
(25)
|
The
community is subject to a ground lease, which, unless extended, will
expire in 2028.
|
|
|
(26)
|
The
Company is in the process of performing a $14.1 million
redevelopment.
|
|
|
(27)
|
The
Company completed a $2.7 million redevelopment in
2001.
|
|
|
(28)
|
The
Company completed a $4.5 million redevelopment in
1998.
|
|
|
(29)
|
The
Company completed an $8.9 million redevelopment in
2008.
|
|
|
(30)
|
The
Company completed a $9.4 million redevelopment in
2009.
|
|
|
(31)
|
The
Company is in the process of performing a $4.6 million
redevelopment.
|
|
|
(32)
|
Fund
II completed a $4.5 million redevelopment in
2008.
|
|
|
(33)
|
In
the second quarter of 2007, the Company entered into a joint venture
partnership with a third-party, and the Company contributed the
improvements for an 81.5% interest and the joint venture partner
contributed the title to the land for an 18.5% interest in the
partnership.
|
|
|
(34)
|
The
Company completed construction of 114 units of the 462 total units in
2000.
|
|
|
(35)
|
The
Company completed a $3.4 million redevelopment in
2002.
|
|
|
(36)
|
A
portion of this community on which 84 units are presently located is
subject to a ground lease, which, unless extended, will expire in
2028.
|
|
|
(37)
|
The
Company is in the process of performing a $9.9 million
redevelopment.
|
|
|
(38)
|
The
community is subject to a ground lease, which, unless extended, will
expire in 2070.
|
|
|
(39)
|
The
Company is in the process of performing a $15.1 million
redevelopment.
|
|
|
(40)
|
The
Company is in the process of performing a $36.3 million redevelopment,
including the construction of 28 in-fill
units.
|
|
|
(41)
|
The
Company completed a $7.0 million redevelopment in
2007.
|
|
|
(42)
|
The
Company completed a $3.9 million redevelopment in
2007.
|
|
|
(43)
|
The
Company is in the process of performing an $11.8 million
redevelopment.
|
|
|
(44)
|
The
Company completed a $5.1 million redevelopment and completed construction
of 16 units of the community’s 108 units in
2006.
|
|
|
(45)
|
The
Company occupies 100% of this
property.
|
|
|
(46)
|
The
property is leased through July 2012 to a single tenant and was
reclassified out of the Company’s predevelopment pipeline in December
2008.
|
|
|
(47)
|
The
Company has a mortgage receivable, and consolidates this property in
accordance with GAAP. The Company occupies 4.6% of this
property.
|
|
|
(48)
|
The
Company occupies 30% of this
property.
|
Recently
there has been an increasing number of lawsuits against owners and managers of
apartment communities alleging personal injury and property damage caused by the
presence of mold in residential real estate. 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, of such matters. Insurance carriers have reacted to mold
related liability awards by excluding mold related claims from standard policies
and pricing mold endorsements at prohibitively high rates. The
Company has, however, purchased pollution liability insurance, which includes
some coverage for mold. The Company has adopted policies for promptly
addressing and resolving reports of mold when it is detected, and to minimize
any impact mold might have on residents of the property. The Company
believes its mold policies and proactive response to address any known
existence, reduces its risk of loss from these cases. There can be no
assurances that the Company has identified and responded to all mold
occurrences, but the Company promptly addresses all known reports of
mold. 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, 2009,
potential liabilities for mold and other environmental liabilities are not
considered probable or the loss cannot be quantified or estimated.
The
Company is subject to various other lawsuits in the normal course of its
business operations. Such lawsuits are not expected to have a
material adverse effect on the Company’s financial condition, results of
operations or cash flows.
During
the fourth quarter of 2009, no matters were submitted to a vote of security
holders.
The
shares of the Company’s common stock are traded on the New York Stock Exchange
(“NYSE”) under the symbol ESS.
Market
Information
The
Company’s common stock has been traded on the NYSE since June 13, 1994. The
high, low and closing price per share of common stock reported on the NYSE for
the quarters indicated are as follows:
|
Quarter Ended
|
High
|
Low
|
Close
|
|||||||||
| December 31, 2009 | $ | 88.35 | $ | 73.28 | $ | 83.65 | ||||||
| September 30, 2009 | $ | 86.49 | $ | 55.96 | $ | 79.58 | ||||||
| June 30, 2009 | $ | 71.84 | $ | 55.42 | $ | 62.23 | ||||||
| March 31, 2009 | $ | 77.77 | $ | 49.19 | $ | 57.34 | ||||||
| December 31, 2008 | $ | 117.77 | $ | 60.77 | $ | 76.75 | ||||||
| September 30, 2008 | $ | 129.57 | $ | 100.63 | $ | 118.33 | ||||||
| June 30, 2008 | $ | 124.33 | $ | 105.12 | $ | 106.50 | ||||||
|
March
31, 2008
|
$ | 117.51 | $ | 84.59 | $ | 113.98 | ||||||
The
closing price as of February 24, 2010 was $85.22.
Holders
The
approximate number of holders of record of the shares of the Company’s common
stock was 267 as of February 24, 2010. This number does not include stockholders
whose shares are held in trust by other entities. The Company
believes the actual number of stockholders is greater than the number of holders
of record.
Return
of Capital
Under
provisions of the Internal Revenue Code of 1986, as amended, the portion of the
cash dividend, if any, that exceeds earnings and profits is considered a return
of capital. The return of capital is generated due to a variety of factors,
including the deduction of non-cash expenses, primarily depreciation, in the
determination of earnings and profits.
The
status of the cash dividends distributed for the years ended December 31, 2009,
2008 and 2007 related to common stock, and Series F and Series G preferred stock
for tax purposes are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Ordinary
income
|
79.82 | % | 98.95 | % | 75.65 | % | ||||||
|
Capital
gain
|
15.76 | % | 1.05 | % | 24.35 | % | ||||||
|
Unrecaptured
section 1250 capital gain
|
4.42 | % | 0.00 | % | 0.00 | % | ||||||
|
Return
of capital
|
0.00 | % | 0.00 | % | 0.00 | % | ||||||
| 100.00 | % | 100.00 | % | 100.00 | % | |||||||
Dividends
and Distributions
Since its
initial public offering on June 13, 1994, the Company has paid regular quarterly
dividends to its stockholders. The Company has paid the following dividends per
share of common stock:
|
Year
Ended
|
Annual
Dividend
|
Quarter
Ended
|
2009
|
2008
|
2007
|
||||||||||||
|
1994
|
$ | 0.915 |
March
31,
|
$ | 1.030 | $ | 1.020 | $ | 0.930 | ||||||||
|
1995
|
$ | 1.685 |
June
30,
|
1.030 | 1.020 | 0.930 | |||||||||||
|
1996
|
$ | 1.720 |
September
30,
|
1.030 | 1.020 | 0.930 | |||||||||||
|
1997
|
$ | 1.770 |
December
31,
|
1.030 | 1.020 | 0.930 | |||||||||||
|
1998
|
$ | 1.950 |
Annual
Dividend
|
$ | 4.120 | $ | 4.080 | $ | 3.720 | ||||||||
|
1999
|
$ | 2.150 | |||||||||||||||
|
2000
|
$ | 2.380 | |||||||||||||||
|
2001
|
$ | 2.800 | |||||||||||||||
|
2002
|
$ | 3.080 | |||||||||||||||
|
2003
|
$ | 3.120 | |||||||||||||||
|
2004
|
$ | 3.160 | |||||||||||||||
|
2005
|
$ | 3.240 | |||||||||||||||
|
2006
|
$ | 3.360 | |||||||||||||||
Future
distributions by the Company will be at the discretion of the Board of Directors
and will depend on the actual cash flows from operations of the Company, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the Internal Revenue Code, applicable legal
restrictions and such other factors as the Board of Directors deem
relevant. There are currently no contractual restrictions on the
Company’s present or future ability to pay dividends.
On
February 24, 2010, the Company announced the Board of Directors approved a $0.01
per share increase to the annualized cash dividend. Accordingly,
the first quarter dividend distribution, payable on April 15, 2010 to
stockholders as of record as of March 31, 2010, will be $1.0325 per
share. On an annualized basis, the dividend represents a distribution
of $4.13 per common share.
Dividend
Reinvestment and Share Purchase Plan
The
Company has adopted a dividend reinvestment and share purchase plan designed to
provide holders of common stock with a convenient and economical means to
reinvest all or a portion of their cash dividends in shares of common stock and
to acquire additional shares of common stock through voluntary
purchases. Computershare, LLC, which serves as the Company’s transfer
agent, administers the dividend reinvestment and share purchase plan. For a copy
of the plan, contact Computershare, LLC at (312) 360-5354.
Securities
Authorized for Issuance under Equity Compensation Plans
See our
disclosure in the 2010 Proxy Statement under the heading “Equity Compensation
Plan Information”, which disclosure is incorporated herein by reference.
Issuance
of Registered Equity Securities
During
April through December 2009, the Company sold 2,740,450 shares of common stock
for proceeds of $198.5 million, net of fees and commissions. These
sales were pursuant to a registration statement and the Company used the net
proceeds from the stock offerings to pay down debt, repurchase preferred stock,
fund redevelopment and development pipelines, fund acquisitions, and invest in
marketable securities.
Issuer
Purchases of Equity Securities – Common Stock and Series G Cumulative
Convertible Preferred Stock
In
August 2007, the Company’s Board of Directors authorized a stock repurchase plan
to allow the Company to acquire shares in an aggregate of up to $200
million. The program supersedes the common stock repurchase plan that
the Company announced on May 16, 2001. During 2007 the Company
repurchased and retired 323,259 shares of its common stock for approximately
$32.6 million. During January 2008, the Company repurchased and
retired 143,400 shares of its common stock for approximately $13.7
million. During February 2009, the Company repurchased and retired
350,000 shares of its common stock for approximately $20.3
million. Since the Company announced the inception of the stock
repurchase plan, the Company has repurchased and retired 816,659 shares for
$66.6 million at an average stock price of $81.56 per share, including
commissions as of December 31, 2009.
During
2009, under the authorization of the stock repurchase plan the Company
repurchased $145.0 million in liquidation value of 4.875% Series G Cumulative
Convertible Preferred Stock at a discount to par value for cash paid of $91.6
million, including the repurchase of $1.5 million of Series G Preferred Stock at
a discount to par value for cash paid of $1.1 million, during the fourth quarter
of 2009. The Company has the authorization to repurchase an additional $41.8
million of stock under the stock repurchase plan. The following table
summarizes stock repurchases for the fourth quarter of 2009:
|
Security
Type
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Total
Amount that May Yet be Purchased Under the Plans or
Programs
|
|||||||||||||||
|
Series
G
|
11/9/09
|
60,000 | $ | 18.13 | 60,000 | $ | 41,785,740 | |||||||||||||
Performance
Graph
The line
graph below compares the cumulative total stockholder return on the Company’s
common stock for the last five years with the cumulative total return on the
S&P 500 and the NAREIT All Equity REIT index over the same
period. This comparison assumes that the value of the investment in
the common stock and each index was $100 on December 31, 2004 and that all
dividends were reinvested (1).
|
Period
Ending
|
||||||||||||||||||||||||
|
Index
|
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
12/31/08
|
12/31/09
|
||||||||||||||||||
|
Essex
Property Trust, Inc.
|
100.00 | 114.43 | 165.12 | 128.64 | 105.47 | 121.92 | ||||||||||||||||||
|
NAREIT
All Equity REIT Index
|
100.00 | 112.16 | 151.49 | 127.72 | 79.53 | 101.79 | ||||||||||||||||||
|
S&P
500
|
100.00 | 104.91 | 121.48 | 128.16 | 80.74 | 102.11 | ||||||||||||||||||
(1)
Common stock performance data is provided by SNL Financial.
The graph
and other information furnished under the above caption “Performance Graph” in
this Part II Item 5 of this Form 10-K shall not deemed to be “soliciting
material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or
to the liabilities of the Exchange Act, as amended.
The
following tables set forth summary financial and operating information for the
Company from January 1, 2005 through December 31, 2009.
|
Years
Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
(1)
|
2007
(1)
|
2006
(1)
|
2005
(1)
|
||||||||||||||||
|
($
in thousands, except per share amounts)
|
||||||||||||||||||||
|
OPERATING
DATA:
|
||||||||||||||||||||
|
REVENUES
|
||||||||||||||||||||
|
Rental
and other property
|
$ | 407,064 | $ | 403,268 | $ | 369,659 | $ | 324,934 | $ | 293,828 | ||||||||||
|
Management
and other fees from affiliates
|
4,325 | 5,166 | 5,090 | 5,030 | 10,951 | |||||||||||||||
| 411,389 | 408,434 | 374,749 | 329,964 | 304,779 | ||||||||||||||||
|
EXPENSES
|
||||||||||||||||||||
|
Property
operating expenses
|
139,711 | 132,417 | 121,475 | 109,120 | 99,235 | |||||||||||||||
|
Depreciation
and amortization
|
118,027 | 109,701 | 96,598 | 76,109 | 72,891 | |||||||||||||||
|
Interest
|
86,016 | 85,063 | 85,896 | 78,705 | 72,696 | |||||||||||||||
|
General
and administrative
|
23,704 | 26,984 | 26,673 | 22,759 | 21,686 | |||||||||||||||
|
Impairment
and other charges
|
17,442 | 1,350 | 800 | 1,770 | 5,827 | |||||||||||||||
| 384,900 | 355,515 | 331,442 | 288,463 | 272,335 | ||||||||||||||||
|
Earnings
from operations
|
26,489 | 52,919 | 43,307 | 41,501 | 32,444 | |||||||||||||||
|
Interest
and other income
|
13,040 | 11,337 | 10,310 | 6,176 | 8,524 | |||||||||||||||
|
Gain
on early retirement of debt
|
4,750 | 3,997 | - | - | - | |||||||||||||||
|
Equity
income (loss) in co-investments
|
670 | 7,820 | 3,120 | (1,503 | ) | 18,553 | ||||||||||||||
|
Gain
on the sales of real estate
|
103 | 4,578 | - | - | 6,391 | |||||||||||||||
|
Income
before discontinued operations
|
45,052 | 80,651 | 56,737 | 46,174 | 65,912 | |||||||||||||||
|
Income
from discontinued operations
|
8,687 | 3,744 | 146,324 | 34,399 | 36,644 | |||||||||||||||
|
Net
income
|
53,739 | 84,395 | 203,061 | 80,573 | 102,556 | |||||||||||||||
|
Net
income attributable to noncontrolling interest
|
(16,631 | ) | (22,255 | ) | (90,961 | ) | (21,168 | ) | (23,384 | ) | ||||||||||
|
Net
income attributable to controlling interest
|
37,108 | 62,140 | 112,100 | 59,405 | 79,172 | |||||||||||||||
|
Dividends
to preferred stockholders
|
(4,860 | ) | (9,241 | ) | (9,174 | ) | (5,145 | ) | (1,953 | ) | ||||||||||
|
Excess
of the carrying amount of preferred stock redeemed over the cash paid to
redeem preferred stock
|
49,952 | - | - | - | - | |||||||||||||||
|
Net
income available to common stockholders
|
$ | 82,200 | $ | 52,899 | $ | 102,926 | $ | 54,260 | $ | 77,219 | ||||||||||
|
Per
share data:
|
||||||||||||||||||||
|
Basic:
|
||||||||||||||||||||
|
Income
before discontinued operations available to common
stockholders
|
$ | 2.72 | $ | 1.96 | $ | 1.14 | $ | 0.98 | $ | 1.88 | ||||||||||
|
Net
income available to common stockholders
|
$ | 3.01 | $ | 2.10 | $ | 4.19 | $ | 2.35 | $ | 3.35 | ||||||||||
|
Weighted
average common stock outstanding
|
27,270 | 25,205 | 24,548 | 23,082 | 23,039 | |||||||||||||||
|
Diluted:
|
||||||||||||||||||||
|
Income
before discontinued operations available to common
stockholders
|
$ | 2.61 | $ | 1.95 | $ | 1.11 | $ | 0.96 | $ | 1.85 | ||||||||||
|
Net
income available to common stockholders
|
$ | 2.91 | $ | 2.09 | $ | 4.10 | $ | 2.30 | $ | 3.30 | ||||||||||
|
Weighted
average common stock outstanding
|
29,747 | 25,347 | 25,101 | 23,551 | 23,389 | |||||||||||||||
|
Cash
dividend per common share
|
$ | 4.12 | $ | 4.08 | $ | 3.72 | $ | 3.36 | $ | 3.24 | ||||||||||
|
As
of December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
($
in thousands)
|
||||||||||||||||||||
|
BALANCE
SHEET DATA:
|
||||||||||||||||||||
|
Investment
in rental properties (before accumulated Depreciation)
|
$ | 3,412,930 | $ | 3,279,788 | $ | 3,117,759 | $ | 2,669,187 | $ | 2,431,629 | ||||||||||
|
Net
investment in rental properties
|
2,663,466 | 2,639,762 | 2,575,772 | 2,204,172 | 2,042,589 | |||||||||||||||
|
Real
estate under development
|
274,965 | 272,273 | 233,445 | 107,620 | 54,416 | |||||||||||||||
|
Total
assets
|
3,254,637 | 3,164,823 | 2,980,323 | 2,485,840 | 2,239,290 | |||||||||||||||
|
Total
secured indebtedness
|
1,832,549 | 1,588,931 | 1,362,873 | 1,186,554 | 1,129,918 | |||||||||||||||
|
Total
unsecured indebtedness
|
14,893 | 165,457 | 282,486 | 208,765 | 205,077 | |||||||||||||||
|
Cumulative
convertible preferred stock
|
4,349 | 145,912 | 145,912 | 145,912 | - | |||||||||||||||
|
Cumulative
redeemable preferred stock
|
25,000 | 25,000 | 25,000 | 25,000 | 25,000 | |||||||||||||||
|
Stockholders'
equity
|
1,053,096 | 852,227 | 803,417 | 628,846 | 600,946 | |||||||||||||||
|
As
of and for the years ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
(1)
|
2007
(1)
|
2006
(1)
|
2005
(1)
|
||||||||||||||||
|
OTHER
DATA:
|
||||||||||||||||||||
|
Net
income
|
$ | 53,739 | $ | 84,395 | $ | 203,061 | $ | 80,573 | $ | 102,556 | ||||||||||
|
Interest
expense
|
86,016 | 85,063 | 85,896 | 78,705 | 72,696 | |||||||||||||||
|
Tax
expense
|
- | - | 396 | 525 | 2,538 | |||||||||||||||
|
Depreciation
and amortization
|
118,422 | 113,294 | 102,250 | 83,034 | 80,149 | |||||||||||||||
|
EBITDA
(2)
|
258,177 | 282,752 | 391,603 | 242,837 | 257,939 | |||||||||||||||
|
Same-property
gross operating margin
(3)(4)
|
66 | % | 67 | % | 67 | % | 67 | % | 66 | % | ||||||||||
|
Average
same-property monthly rental rate per apartment unit
(4)(5)
|
$ | 1,349 | $ | 1,401 | $ | 1,314 | $ | 1,225 | $ | 1,149 | ||||||||||
|
Average
same-property monthly operating expenses per apartment unit
(4)(6)
|
$ | 470 | $ | 456 | $ | 437 | $ | 421 | $ | 395 | ||||||||||
|
Total
apartment units (at end of period)
|
27,248 | 26,992 | 27,489 | 27,553 | 26,587 | |||||||||||||||
|
Same-property
occupancy rate
(7)
|
97 | % | 96 | % | 96 | % | 96 | % | 97 | % | ||||||||||
|
Total
communities (at end of period)
|
133 | 134 | 134 | 130 | 126 | |||||||||||||||
|
|
(1)
|
The
results of operations for 2008, 2007, 2006 and 2005 have been revised to
reflect discontinued operations for properties sold subsequent to December
31, 2008 along with the retrospective adoption of accounting standards
adopted on January 1, 2009 for noncontrolling interests and exchangeable
bonds.
|
|
|
(2)
|
EBITDA
is defined as net income before interest expense, income taxes,
depreciation and amortization. EBITDA, as defined by the
Company, is not a recognized measurement under U.S. generally accepted
accounting principles, or GAAP. This measurement should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or
liquidity. The Company’s definition may not be comparable to
that of other companies.
|
|
(3)
|
Gross
operating margin represents rental revenues and other property income less
property operating expenses, exclusive of depreciation and amortization,
divided by rental revenues and other property
income.
|
|
(4)
|
A
stabilized apartment community, or “Same-Property” apartment units (as
defined in Item 7), are those units in communities that the Company has
consolidated for the entire two years as of the end of the period set
forth. The number of apartment units in such properties may
vary at each year-end. Percentage changes in averages per unit
do not correspond to total Same-Property revenues and expense percentage
changes which are discussed in Item 7—Management’s Discussion and Analysis
of Financial Condition and Results of
Operations.
|
|
(5)
|
Average
Same-Property monthly rental rate per apartment unit represents total
scheduled rent for the same property apartment units for the period
(actual rental rates on occupied apartment units plus market rental rates
on vacant apartment units) divided by the number of such apartment units
and further divided by the number of months in the
period.
|
|
|
(6)
|
Average
Same-Property monthly expenses per apartment unit represents total monthly
operating expenses, exclusive of depreciation and amortization, for the
same property apartment units for the period divided by the total number
of such apartment units and further divided by the number of months in the
period.
|
|
|
(7)
|
Occupancy
rates are based on financial occupancy. For an explanation of
how financial occupancy is calculated, see Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The
following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and notes
thereto. These consolidated financial statements include all
adjustments which are, in the opinion of management, necessary to reflect a fair
statement of the results and all such adjustments are of a normal recurring
nature.
OVERVIEW
The
Company is a self-administered and self-managed REIT that acquires, develops,
redevelops and manages apartment communities in selected residential areas
located primarily in the West Coast of the United States. The Company
owns all of its interests in its real estate investments, directly or
indirectly, through the Operating Partnership. The Company is the
sole general partner of the Operating Partnership and, as of December 31, 2009,
had an approximately 92.3% general partner interest in the Operating
Partnership.
Our
investment strategy has two components: constant monitoring of existing markets,
and evaluation of new markets to identify areas with the characteristics that
underlie rental growth. Our strong financial condition supports our
investment strategy by enhancing our ability to quickly shift our acquisition,
development, and disposition activities to markets that will optimize the
performance of the portfolio.
As of
December 31, 2009, we had ownership interests in 133 apartment communities,
comprising 27,248 apartment units. Our apartment communities are
located in the following major West Coast regions:
Southern
California
(Los Angeles, Orange, Riverside, Santa Barbara, San Diego, and
Ventura counties)
Northern
California
(the San Francisco Bay Area)
Seattle
Metro
(Seattle metropolitan area)
As of
December 31, 2009, we also had ownership interests in four office buildings
(with approximately 215,840 square feet).
As of
December 31, 2009, our consolidated development pipeline was comprised of four
development projects, two predevelopment projects and five land parcels held for
future development or sale aggregating 2,242 units, with total incurred costs of
$275.0 million, and estimated remaining project costs of approximately $155.2
million for total estimated project costs of $430.2 million.
By
region, the Company's operating results for 2008 and 2009 projected new housing
supply, job growth, and market rent analysis are as follows:
Southern
California Region
: As of December 31, 2009, this region
represented 51% of the Company’s consolidated apartment units. During
the year ended December 31, 2009, Same-Property (as defined below) revenues
decreased 2.9% in 2009 as compared to 2008. The Company expects in
2010 new residential supply of 3,300 multifamily and 5,050 single family homes
and which represents a total new supply of 0.2% of existing
stock. The Company assumes a return to growth in this region with an
increase of 28,500 jobs or 0.4% growth, and to experience an increase in market
rents of 1.1% in 2010.
Northern
California Region
: As of December 31, 2009, this region
represented 28% of the Company’s consolidated apartment
units. Same-Property revenues decreased 1.9% in 2009 as compared to
2008. The Company expects in 2010 new residential supply of 1,600
multifamily and 3,500 single family homes which represents a total new supply of
0.2% of existing stock. The Company assumes a slight return to growth
in this region with an increase of 10,000 jobs and to experience an increase in
market rents of 0.2% in 2010.
Seattle Metro
Region
:
As of
December 31, 2009, this region represented 21% of the Company’s consolidated
apartment units. Same-Property revenues decreased 4.0% in 2009 as
compared to 2008. The Company expects in 2010 new residential supply
of 2,500 multifamily and 3,500 single family homes which represents a total new
supply of 0.5% of existing stock. The Company assumes a slight return
to growth in this region with an increase of 7,500 jobs, but to experience a
further reduction in market rents of 2.5% in 2010.
Despite
the Company’s 2010 forecast for market rents to be flat for its Portfolio, the
Company expects 2010 same-property revenues to decline approximately 5.5%
compared to 2009 results, as existing leases lower to market rents during
2010.
The
Company’s consolidated apartment communities are as follows:
|
As
of December 31, 2009
|
As
of December 31, 2008
|
|||||||||||||||
|
Apartment
Units
|
%
|
Apartment
Units
|
%
|
|||||||||||||
|
Southern
California
|
12,339 | 51 | % | 12,500 | 51 | % | ||||||||||
|
Northern
California
|
6,695 | 28 | % | 6,457 | 27 | % | ||||||||||
|
Seattle
Metro
|
5,249 | 21 | % | 5,338 | 22 | % | ||||||||||
|
Total
|
24,283 | 100 | % | 24,295 | 100 | % | ||||||||||
Co-investments
including Fund II communities and communities in discontinued operations are not
included in the table presented above for both years.
RESULTS
OF OPERATIONS
Comparison
of Year Ended December 31, 2009 to the Year Ended December 31, 2008
Our
average financial occupancies for the Company’s stabilized apartment communities
or “2009/2008 Same-Properties” (stabilized properties consolidated by the
Company for the years ended December 31, 2009 and 2008) increased 70 basis
points to 97.0% for 2009 from 96.3% for 2008. Financial
occupancy is defined as the percentage resulting from dividing actual rental
revenue by total possible rental revenue. Actual rental revenue
represents contractual rental revenue pursuant to leases without considering
delinquency and concessions. Total possible rental revenue represents the value
of all apartment units, with occupied units valued at contractual rental rates
pursuant to leases and vacant units valued at estimated market
rents. We believe that financial occupancy is a meaningful measure of
occupancy because it considers the value of each vacant unit at its estimated
market rate. Financial occupancy may not completely reflect
short-term trends in physical occupancy and financial occupancy rates as
disclosed by other REITs may not be comparable to our calculation of financial
occupancy.
The
regional breakdown of the Company’s 2009/2008 Same-Property portfolio for
financial occupancy for the years ended December 31, 2009 and 2008 is as
follows:
|
Years
ended
|
||||||||
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Southern
California
|
96.6 | % | 95.6 | % | ||||
|
Northern
California
|
97.7 | % | 97.4 | % | ||||
|
Seattle
Metro
|
97.2 | % | 96.7 | % | ||||
The
following table provides a breakdown of revenue amounts, including the revenues
attributable to 2009/2008 Same-Properties.
|
Years
Ended
|
||||||||||||||||||||
|
Number
of
|
December
31,
|
Dollar
|
Percentage
|
|||||||||||||||||
|
Properties
|
2009
|
2008
|
Change
|
Change
|
||||||||||||||||
|
Property
Revenues
($
in thousands)
|
||||||||||||||||||||
|
2009/2008
Same-Properties:
|
||||||||||||||||||||
|
Southern
California
|
55 | $ | 183,246 | $ | 188,807 | $ | (5,561 | ) | (2.9 | ) % | ||||||||||
|
Northern
California
|
24 | 104,316 | 106,301 | (1,985 | ) | (1.9 | ) | |||||||||||||
|
Seattle
Metro
|
22 | 58,041 | 60,430 | (2,389 | ) | (4.0 | ) | |||||||||||||
|
Total
2009/2008 Same-Property revenues
|
101 | 345,603 | 355,538 | (9,935 | ) | (2.8 | ) | |||||||||||||
|
2009/2008
Non-Same Property Revenues (1)
|
61,461 | 47,730 | 13,731 | 28.8 | ||||||||||||||||
|
Total
property revenues
|
$ | 407,064 | $ | 403,268 | $ | 3,796 | 0.9 | % | ||||||||||||
(1) Includes
three communities acquired after January 1, 2008, eight redevelopment
communities, two development communities, and three commercial
buildings.
2009/2008 Same-Property
Revenues
decreased by $9.9 million or 2.8% to $345.6 million for 2009
compared to $355.5 million in 2008. The decrease was primarily
attributable to a decrease in scheduled rents of $13.9 million or a decrease of
3.9%. Average monthly rental rates for the 2009/2008 Same-Property
communities were $1,349 per unit for 2009 compared to $1,368 per unit for
2008. Scheduled rents decreased in all regions including a decrease
in scheduled rents of 4.3%, 2.5%, and 5.5% in Southern California, Northern
California, and Seattle Metro, respectively. The decrease in
scheduled rents was partially offset by an increase of occupancy of 70 basis
points or $3.2 million, from 96.3% for 2008 to 97.0% for 2009, ratio utility
billing system (“RUBS”) income increased $1.3 million, and other income, rent
concessions and bad debt expense were consistent between years. The
Company forecasts that although market rents are expected to be flat during
2010, Same-Property revenues will continue to decrease in 2010 by 5.5%, due to
an anticipated decrease in scheduled rents compared to 2009.
2009/2008 Non-Same Property
Revenues
increased by $13.7 million or 28.8% to $61.5 million for 2009
from $47.7 million for 2008. The increase was primarily due to three
new communities acquired since January 1, 2008, two development communities in
lease-up and eight communities that are in redevelopment and classified in
non-same property results.
Management and other fees from
affiliates
decreased $0.8 million to $4.3 million in 2009 compared to
$5.2 million in 2008. Property management fees earned from Fund II
increased by $0.3 million in 2009 compared to 2008, and the increase was offset
by a decrease of $1.1 million in development and redevelopment fees earned from
Fund II during 2009 compared to 2008.
Property operating expenses,
excluding real estate taxes
increased $3.6 million or 3.7% for 2009
compared to 2008, primarily due to the acquisition of three new properties, and
the completion of two development properties. 2009/2008 Same-Property
operating expenses excluding real estate taxes increased slightly by $0.4
million or 0.5% for 2009 compared to 2008.
Real estate taxes
increased
$3.7 million or 11.1% for 2009 compared to 2008, primarily due to the
acquisition of three new communities, the completion of two development
properties and increases in real estate taxes in the Seattle Metro area of $0.6
million or 13.1% for the Seattle Metro 2009/2008 Same-Property region compared
to 2008. Also there were increases in assessments for the Company’s
California communities that are limited to 2% per year.
Total
2009/2008 Same-Property real estate taxes increased $1.1 million or 3.9%
compared to 2008.
Depreciation expense
increased by $8.3 million or 7.6% for 2009 compared to 2008, due to the
acquisition of three new communities, and the completion of two development
properties. Depreciation expense also increased due to the capitalization of
approximately $55.6 million in additions to rental properties during 2009
including $26.7 million spent on redevelopment and revenue generating capital
expenditures along with a full year of depreciation expense in 2009 versus a
partial year of depreciation expense in 2008 for 2008 improvements
capitalized.
General and administrative expense
decreased $3.3 million or 12.2% for 2009 compared to 2008, primarily due
to a workforce reduction of corporate employees in the fourth quarters of 2009
and 2008 along with other cost control measures implemented by the
Company.
Impairment and other charges
were $17.4 million for 2009 due to the write-off of development costs
totaling $6.7 million related to two land parcels that will no longer be
developed by the Company, $3.8 million of non-cash expense related to
cancellation of the Outperformance Plan, and the write-off of $5.8 million
investment in a predevelopment joint venture, $0.6 million recorded for
additional loan loss reserves related a note receivable secured by an apartment
community in the Portland Metropolitan Area, and $0.6 million for severance
charges related to a workforce reduction. During 2008, the company
recorded impairment and other charges of $1.4 million consisting of $0.7 million
for loan loss reserves for a note receivable, and $0.7 million for severance
charges related to a workforce reduction.
Gain on early retirement of debt
was $4.8 million for 2009 and $4.0 million for 2008, due to the
repurchase of 3.625% exchangeable bonds totaling $166.7 million in 2009 and
$53.3 million in 2008 at a discount to par value. As of December 31,
2009, only $5.0 million of the original $225.0 exchangeable bonds issuance was
outstanding.
Gain on sale of real estate
of $0.1 million for 2009 related to the sale of the remaining condominium
units at Eastridge. Gain of sale of real estate of $4.6 million for
2008 resulted from the recognition of a gain on sale of $1.8 million and $0.9
million related to the sale of Green Valley and Circle RV parks, respectively,
$1.5 million gain that was previously deferred on the gain on sale of the 2005
sale of Eastridge Apartments, gain of $0.2 million on the sale of the 90 Archer
land parcel, and a gain of $0.1 million on the sale of three
condominiums. The Eastridge $1.5 million gain recognized is equal to
the estimated fair value of seven condominium units received in satisfaction of
the note receivable issued in connection with the sale of Eastridge
Apartments.
Interest and other income
increased by $1.7 million for 2009 due to a variety factors including an
increase in interest income of approximately $7.0
million as a result of significant increases in the average balances
for marketable securities held in 2009 compared to 2008, a $1.0 million gain
generated from the sale of marketable securities, and $0.7 million generated
from TRS activities. These increases were partially offset by a $6.3
million decrease in lease income due to the sale of the Company’s remaining RV
parks in 2008, and the lease for the Cadence campus expiring in January 2009
along with a decrease of interest on structured finance loans of $0.6 million
for 2009 compared to 2008.
Equity income in co-investments
decreased by $7.2 million for 2009 compared to 2008 due primarily to the
$6.3 million of preferred income recognized in 2008 from the Mountain Vista
joint venture. In 2009 the Company was no longer
invested in this joint venture. The remainder of the
difference in equity income for 2009 compared to 2008 is due to a decrease in
equity income of $0.9 million earned from Essex Apartment Value Fund
II.
Income from discontinued
operations
for 2009 includes operating results of the apartment
communities sold in 2009 including Maple Leaf which sold for a gain of $2.9
million, Spring Lake which was sold for a gain of $2.5 million, Carlton Heights
and Grand Regency which sold for a combined gain of $2.5 million, and Mountain
View which was sold for a gain of $0.8 million. Discontinued
operations for 2008 includes the operating results of the apartment communities
sold in 2009 along with those sold in 2008 including Coral Gardens which sold
for a gain of $3.4 million, and Cardiff by the Sea and St. Cloud which sold for
a combined gain of $46,000.
Comparison
of Year Ended December 31, 2008 to the Year Ended December 31, 2007
Our
average financial occupancies for the Company’s stabilized apartment communities
or “2008/2007 Same-Properties” (stabilized properties consolidated by the
Company for the years ended December 31, 2008 and 2007) increased 50 basis
points to 96.3% for 2008 from 95.8% for 2007.
The
regional breakdown of the Company’s stabilized 2008/2007 Same-Property portfolio
for financial occupancy for the years ended December 31, 2008 and 2007 is as
follows:
|
Years
ended
|
||||||||
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Southern
California
|
95.5 | % | 95.5 | % | ||||
|
Northern
California
|
97.5 | % | 96.5 | % | ||||
|
Seattle
Metro
|
96.9 | % | 96.1 | % | ||||
The
following table provides a breakdown of revenue amounts, including the revenues
attributable to 2008/2007 Same-Properties.
|
Years
Ended
|
||||||||||||||||||||
|
Number
of
|
December
31,
|
Dollar
|
Percentage
|
|||||||||||||||||
|
Properties
|
2008
|
2007
|
Change
|
Change
|
||||||||||||||||
|
Property
Revenues
($
in thousands)
|
||||||||||||||||||||
|
2008/2007
Same-Properties:
|
||||||||||||||||||||
|
Southern
California
|
53 | $ | 184,222 | $ | 181,417 | $ | 2,805 | 1.5 | % | |||||||||||
|
Northern
California
|
18 | 79,389 | 72,611 | 6,778 | 9.3 | |||||||||||||||
|
Seattle
Metro
|
21 | 61,007 | 56,616 | 4,391 | 7.8 | |||||||||||||||
|
Total
2008/2007 Same-Property revenues
|
92 | 324,618 | 310,644 | 13,974 | 4.5 | |||||||||||||||
|
2008/2007
Non-Same Property Revenues (1)
|
78,650 | 59,015 | 19,635 | 33.3 | ||||||||||||||||
|
Total
property revenues
|
$ | 403,268 | $ | 369,659 | $ | 33,609 | 9.1 | % | ||||||||||||
(1) Includes
ten communities acquired subsequent to January 1, 2007, ten redevelopment
communities, three office buildings and two development
communities.
2008/2007 Same-Property
Revenues
increased by $14.0 million or 4.5% to $324.6 million for 2008
compared to $310.6 million for 2007. The increase was primarily
attributable to an increase in scheduled rents of $12.0 million or 3.8% as
compared to 2007. Average monthly rental rates for 2008/2007
Same-Property communities were $1,401 per unit for 2008 compared to $1,349 per
unit for 2007. The increase in occupancy of 50 basis points in 2008
compared to 2007 increased revenues by $0.9 million. Bad debt
expense and rent concessions modestly decreased by $0.1 million, ratio utility
billing system (“RUBS”) income increased $0.8 million, and ancillary property
income increased $0.4 million for 2008 compared to 2007.
2008/2007 Non-Same Property
Revenues
increased by $19.6 million or 33.3% to $78.7 million for 2008
compared to $59.0 million for 2007. The increase was primarily due to
ten communities acquired since January 1, 2007, and the lease-up of two
development communities.
Management and other fees from
affiliates
increased only slightly by $0.1 million to $5.2 million in
2008. These fees consist of $5.2 million in fee income from Fund II
in 2008, and $4.8 million in fee income from Fund II and $0.3 million in promote
income from Fund I in 2007.
Property operating expenses,
excluding real estate taxes
increased $9.1 million or 10.1% for 2008
compared to 2007, primarily due to the acquisition of ten communities, and the
completion of two development communities. 2008/2007 Same-Property
operating expenses excluding real estate taxes increased by $4.6 million or 6.1%
for 2008 compared to 2007, due mainly to an increase in repairs and maintenance
and turnover expenses compared to 2008.
Real estate taxes
increased
$1.8 million or 5.9% for 2008 compared to 2007, primarily due to the acquisition
of ten communities since January 1, 2007, and the completion of two development
communities along with increases in assessments for the Company’s California
communities that are limited to 2% per year and large increases in assessments
experienced in 2008 for communities located in the Seattle metropolitan
area.
Depreciation expense
increased by $13.1 million or 13.6% for 2008 compared to 2007, due to the
acquisition of ten communities, and the completion of two development community,
and the capitalization of approximately $88.0 million in additions to rental
properties during 2008 including $55.5 million spent on redevelopment and
revenue generating capital expenditures along with a full year of depreciation
expense in 2008 versus a partial year of depreciation expense in 2007 for 2007
improvements capitalized..
Impairment and other charges
of $1.4 million for 2008 consists of $0.7 million for loan loss reserve
on a note receivable related to an apartment community located in the Portland
metropolitan area, and a $0.7 million severance charged related to a workforce
reduction of corporate employees in the fourth quarter 2008. Other
charges totaling $0.8 million for 2007 relate to a loan loss reserve of $0.5
million on a note receivable related to a condominium projected located in
Sherman Oaks, California, and a $0.3 million accrual for unpaid business taxes
related to the sale of Essex on Lake Merritt in 2004.
Gain on sale of real estate
was $4.6 million for 2008 compared to $0 for 2007 resulting from the
recognition of a gain on sale of $1.8 million and $0.9 million related to the
sale of Green Valley and Circle RV parks, respectively, $1.5 million gain that
was previously deferred on the gain on sale of the 2005 sale of Eastridge
Apartments, gain of $0.2 million on the sale of the 90 Archer land parcel, and a
gain of $0.1 million on the sale of three condominiums. The Eastridge
$1.5 million gain recognized is equal to the estimated fair value of seven
condominium units received in satisfaction of the note receivable issued in
connection with the sale of Eastridge Apartments.
Gain on early retirement of debt
was $4.0 million for 2008 compared to $0 for 2007 resulting from the
repurchase of $53.3 million of 3.625% exchangeable bonds due in 2025 at a
discount to par value.
Interest and other income
increased by $1.0 million or 10.0% to $11.3 million for 2008 from $10.3 million
for 2007 due primarily to an increase in investment income generated from an
increase of short-term debt investments classified as marketable securities
compared to 2007, and $21.4 million in cash held by a 1031 exchange facilitator
related to the 2008 sale of Coral Gardens and the RV parks.
Equity income in co-investments
increased by $4.7 million to $7.8 million for 2008 compared to $3.1
million for 2007, due primarily to $6.3 million of preferred income from the
retirement of the Company’s investment in the Mountain Vista, LLC joint
venture. In 2007, the Company recorded $2.0 million from the partial
sale of the Company’s interest in the Mountain Vista, LLC joint
venture.
Income from discontinued
operations
for 2008 includes the operating results for communities sold
in 2009 and the operating results and gain on sale of $3.4 million from the 2008
sale of Coral Gardens, the operating results and gain on sale of Cardiff by the
Sea and St. Cloud for a combined gain of $46,000. For 2007, income
from discontinued operations includes the operating results for communities sold
in 2009 and 2008 and the operating results and a gain from the sale of four
communities in the Portland metropolitan region of $52.9 million, sale of the
City Heights joint venture property for a gain of $78.3 million, $10.3 million
in fees from the joint venture partner, the net gain on sale of 21 condominiums
at Peregrine Point for $1.0 million. The Company’s share of the
gain on City Heights was $13.7 million. The joint venture partners’
share of this gain was $64.6 million which is included in net income
attributable to noncontrolling interest in the consolidated statement of
operations for 2007.
Liquidity
and Capital Resources
In June
2009, Standard and Poor's (“S&P”) reaffirmed its corporate credit rating of
BBB/Stable for Essex Property Trust, Inc. and Essex Portfolio, L.P.
At
December 31, 2009, the Company had $20.7 million of unrestricted cash and cash
equivalents and $134.8 million in marketable securities held available for
sale. The Company believes that cash flows generated by its
operations, existing cash and marketable securities balances, availability under
existing lines of credit, access to capital markets and the ability to generate
cash from the disposition of real estate are sufficient to meet all of our
reasonably anticipated cash needs during 2010. The timing, source and
amounts of cash flows provided by financing activities and used in investing
activities are sensitive to changes in interest rates and other fluctuations in
the capital markets environment, which can affect our plans for acquisitions,
dispositions, development and redevelopment activities.
The
Company has two outstanding lines of credit in the aggregate of $450.0 million
committed as of December 31, 2009. The Company has a $200.0 million
unsecured line of credit and, as of December 31, 2009, there was a $10.0 million
balance on this unsecured line at an average interest rate of
3.4%. The underlying interest rate on the $200.0 million line is
based on a tiered rate structure tied to an S&P rating on the credit
facility (currently BBB-) at LIBOR plus 3.0%, and the line matures in December
2010 with two one-year extensions, exercisable by the Company. The
Company also has a credit facility from Freddie Mac which was expanded from
$150.0 million to $250.0 million during the fourth quarter of 2009, which
matures in December 2013. This line is secured by eleven apartment
communities. As of December 31, 2009, the Company had $229.0 million
outstanding under this line of credit at an average interest rate of
1.7%. The underlying interest rate on this line is between 99 and 150
basis points over the Freddie Mac Reference Rate and the interest rate is
subject to change by the lender in November 2011. The Company’s
unsecured line of credit agreements contain debt covenants related to
limitations on indebtedness and liabilities, maintenance of minimum levels of
consolidated earnings before depreciation, interest, and
amortization. The Company was in compliance with the line of credit
covenants as of December 31, 2009 and 2008.
The
Company sold 5,980,000 shares of 4.875% Series G Cumulative Convertible
Preferred Stock (“Series G Preferred Stock”) for gross proceeds of $149.5
million during 2006.
During
2009, the Company repurchased $145.0 million in liquidation value of Series G
Preferred Stock at a discount to par value for cash paid of $50.0 million, and
the carrying value of the remaining Series G Preferred Stock was $4.3 million as
of December 31, 2009. The Company may continue to repurchase Series G
Preferred Stock.
In August
2007, the Company’s Board of Directors authorized a stock repurchase plan to
allow the Company to acquire shares in an aggregate of up to $200.0
million. The program supersedes the common stock repurchase plan that
the Company announced on May 16, 2001. During the first quarter of
2009, the Company under its stock repurchase program repurchased 350,000 shares
of common stock for $20.3 million, net of fees and commissions, and in the first
quarter of January 2008, the Company under its stock repurchase program
repurchased 143,400 shares of common stock for $13.7 million, net of fees and
commissions. As of December 31, 2009, after the Series G
Preferred Stock repurchases described above, the Company has
authorization to repurchase an additional $41.8 million of stock under the
stock repurchase plan.
The
Company, through its Operating Partnership, in 2005 issued $225.0 million of
outstanding exchangeable bonds (the “Bonds”) with a coupon of 3.625% due
2025. The Bonds are senior unsecured obligations of the Operating
Partnership, and are fully and unconditionally guaranteed by the
Company. During 2008, the Company repurchased $53.3 million of these
Bonds at a discount to par value, and in 2009 the Company repurchased $166.7
million of these bonds at a discount to par value. As of December
2009, the carrying value of the Bonds outstanding totaled $4.9
million.
During
the first quarter of 2007, the Company filed a new shelf registration statement
with the SEC, allowing the Company to sell an undetermined number or amount of
certain equity and debt securities as defined in the prospectus.
As of
December 31, 2009, the Company’s mortgage notes payable totaled $1.60 billion
which consisted of $1.4 billion in fixed rate debt with interest rates varying
from 4.87% to 8.29% and maturity dates ranging from 2010 to 2019 and $251.6
million of variable rate debt including $214.1 million of tax-exempt variable
rate demand bonds with a weighted average interest rate of 2.1%. The tax-exempt
variable rate demand bonds have maturity dates ranging from 2020 to 2039, and
$197.1 million is subject to interest rate caps.
The
Company pays quarterly dividends from cash available for distribution. Until it
is distributed, cash available for distribution is invested by the Company
primarily in bank money market accounts and short-term investment grade
securities or is used by the Company to reduce balances outstanding under its
lines of credit.
Derivative
Activity
As of
December 31, 2009 the Company had seven forward-starting interest rate swap
contracts totaling a notional amount of $375.0 million with interest rates
ranging from 5.1% to 5.9% and settlements dates ranging from October 2010 to
October 2011. These derivatives qualify for hedge accounting as they
are expected to economically hedge the cash flows associated with future
financing of debt between 2010 and 2011. The Company had twelve
interest rate cap contracts totaling a notional amount of $197.1 million that
qualify for hedge accounting as they effectively limit the Company’s exposure to
interest rate risk by providing a ceiling on the underlying variable interest
rate for the Company’s $251.6 million of tax exempt variable rate
debt. At December 31, 2009 the aggregate carrying value of the
forward-starting interest rate swap contracts was a net liability of $30.5
million and the aggregate carrying value of the interest rate cap contracts was
an asset of $0.3 million. The overall fair value of the derivatives
changed by $43.0 million during the year ended December 31, 2009 to a net
liability of $30.2 million as of December 31, 2009, and the derivative liability
was recorded in cash flow hedge liabilities in the Company’s consolidated
financial statements. The changes in the fair values of the
derivatives are reflected in other comprehensive (loss) income in the
accompanying consolidated financial statements. No hedge
ineffectiveness on cash flow hedges was recognized during the years ended
December 31, 2009 and 2008.
Issuance
of Common Stock
Pursuant
to its controlled equity offering program with Cantor Fitzgerald & Co., in
2009, Company issued 2,740,450 shares of common stock for $198.5 million, net of
fees and commissions, and in 2008, the Company issued 1,209,050 shares of common
stock for $142.8 million, net of fees and commissions. Under this
controlled equity offering program, the Company may from time to time sell
shares of common stock into the existing trading market at current market
prices, and the Company anticipates using the net proceeds to pay down debt and
fund the development pipeline.
Capital
Expenditures
Non-revenue
generating capital expenditures are improvements and upgrades that extend the
useful life of the property. For the year ended December 31, 2009,
non-revenue generating capital expenditures totaled approximately $1,080 per
unit. The Company expects to incur approximately $1,100 per unit in non-revenue
generating capital expenditures for the year ended December 31,
2010. These expenditures do not include the improvements required in
connection with the origination of mortgage loans, expenditures for deferred
maintenance on acquisition properties, expenditures for property renovations and
improvements which are expected to generate additional revenue. The
Company expects that cash from operations and/or its lines of credit will fund
such expenditures. However, there can be no assurance that the actual
expenditures incurred during 2009 and/or the funding thereof will not be
significantly different than the Company’s current expectations.
Development
and Predevelopment Pipeline
The
Company defines development activities as new communities that are in various
stages of active development, or the community is in lease-up and phases of the
project are not completed. As of December 31, 2009, excluding
development projects owned by Fund II, the Company had four development projects
comprised of 581 units for an estimated cost of $216.1 million, of which $65.9
million remains to be expended. See discussion in the section, “
Development and redevelopment
activities may delayed, not completed, and/or not achieve expected
results
” in Item 1A, Risk Factors, of this Form 10-K.
The
Company defines the predevelopment pipeline as proposed communities in
negotiation or in the entitlement process with a high likelihood of becoming
entitled development projects. As of December 31, 2009, the Company
had two development projects aggregating 332 units that were classified as
predevelopment projects. The estimated total cost of the
predevelopment pipeline at December 31, 2009 was $143.0 million, of which $89.3
million remains to be expended. The Company may also acquire
land for future development purposes or sale. The Company has
incurred $71.1 million in costs related to land held for future development or
sale aggregating 1,329 units as of December 31, 2009.
The
Company expects to fund the development and predevelopement pipeline by using a
combination of some or all of the following sources: its working capital,
amounts available on its lines of credit, construction loans, net proceeds from
public and private equity and debt issuances, and proceeds from the disposition
of properties, if any.
Redevelopment
Pipeline
The
Company defines redevelopment communities as existing properties owned or
recently acquired, which have been targeted for additional investment by the
Company with the expectation of increased financial returns through property
improvement. During redevelopment, apartment units may not be
available for rent and, as a result, may have less than stabilized
operations. As of December 31, 2009, the Company had ownership
interests in nine major redevelopment communities aggregating 2,659 apartment
units with estimated redevelopment costs of $128.0 million, of which
approximately $41.6 million remains to be expended.
Alternative
Capital Sources
Essex
Apartment Value Fund II, L.P. (“Fund II”), has eight institutional investors,
and the Company, with combined partner equity commitments of $265.9 million
which were fully contributed in 2008. The Company contributed $75.0
million to Fund II, which represents a 28.2% interest as general partner and
limited partner. Fund II utilized debt as leverage equal to
approximately 55% upon the initial acquisition of the underlying real
estate. Fund II invested in apartment communities in the Company’s
targeted West Coast markets with an emphasis on investment opportunities in the
Seattle metropolitan area and the San Francisco Bay Area. As of
October 2006, Fund II was fully invested and closed for any future acquisitions
or development. As of December 31, 2009, Fund II owned fourteen
apartment communities. No communities have been sold by Fund
II. The Company records revenue for its asset management, property
management, development and redevelopment services when earned, and promote
income when realized if Fund II exceeds certain financial return
benchmarks.
Contractual
Obligations and Commercial Commitments
The
following table summarizes the maturation or due dates of our contractual
obligations and other commitments at December 31, 2009, and the effect such
obligations could have on our liquidity and cash flow in future
periods:
|
2011
and
|
2013
and
|
|||||||||||||||||||
|
($
in thousands)
|
2010
|
2012
|
2014
|
Thereafter
|
Total
|
|||||||||||||||
|
Mortgage
notes payable
|
$ | 155,869 | $ | 205,411 | $ | 251,154 | $ | 991,116 | $ | 1,603,549 | ||||||||||
|
Exchangeable
bonds
|
4,893 | - | - | - | 4,893 | |||||||||||||||
|
Lines
of credit
|
10,000 | - | 229,000 | - | 239,000 | |||||||||||||||
|
Interest
on indebtedness (1)
|
87,213 | 136,461 | 101,822 | 206,319 | 531,815 | |||||||||||||||
|
Development
commitments
|
65,900 | - | - | - | 65,900 | |||||||||||||||
|
Redevelopment
commitments
|
36,198 | - | - | - | 36,198 | |||||||||||||||
| $ | 360,073 | $ | 341,872 | $ | 581,976 | $ | 1,197,435 | $ | 2,481,355 | |||||||||||
(1)
Interest on indebtedness for variable debt was calculated using interest rates
as of December 31, 2009.
Variable
Interest Entities
In
accordance with the Financial Accounting Standards Board (“FASB”) accounting
standard entitled, “
Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51
”, the Company consolidates 19
DownREIT limited partnerships (comprising twelve communities), an office
building that is subject to loans made by the Company, and 55 low income housing
units. The Company consolidates these entities because it is deemed
the primary beneficiary. The total assets and liabilities related to
these variable interest entities (VIEs), net of intercompany eliminations, were
approximately $237.9 million and $164.4 million as of December 31,
2009 and $256.0 million and $169.1 million as of December 31, 2008,
respectively. Interest holders in VIEs consolidated by the Company
are allocated net income equal to the cash payments made to those interest
holders for services rendered or distributions from cash flow. The
remaining results of operations are generally allocated to the
Company. As of December 31, 2009, the Company did not have any VIE’s
of which it was not deemed to be the primary beneficiary.
Critical
Accounting Policies and Estimates
The
preparation of consolidated financial statements, in accordance with U.S.
generally accepted accounting principles requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosures of contingent assets and
liabilities. The Company defines critical accounting policies as
those accounting policies that require the Company's management to exercise
their most difficult, subjective and complex judgments. The Company’s
critical accounting policies relate principally to the following key areas: (i)
consolidation under applicable accounting standards of various entities; (ii)
assessing the carrying values of the Company's real estate and investments in
and advances to joint ventures and affiliates; and (iii) internal cost
capitalization. The Company bases its estimates on historical
experience, current market conditions, and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results may differ
from those estimates made by management.
The
Company assesses each entity in which it has an investment or contractual
relationship to determine if it may be deemed to be a VIE. If such an
entity is a VIE, then the Company performs an analysis to determine who is the
primary beneficiary. If the Company is the primary beneficiary, then
the entity is consolidated. The analysis required to identify VIEs
and primary beneficiaries is complex and judgmental, and the analysis must be
applied to various types of entities and legal structures.
The
Company assesses the carrying value of its real estate investments by monitoring
investment market conditions and performance compared to budget for operating
properties and joint ventures, and by monitoring estimated costs for properties
under development. Local market knowledge and data is used to assess
carrying values of properties and the market value of acquisition
opportunities. Whenever events or changes in circumstances indicate
that the carrying amount of a property held for investment may not be fully
recoverable, the carrying amount is evaluated. If the sum of the
property’s expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the property, then the Company will
recognize an impairment loss equal to the excess of the carrying amount over the
fair value of the property. Adverse changes in market conditions or
poor operating results of real estate investments could result in impairment
charges. When the Company determines that a property is held for
sale, it discontinues the periodic depreciation of that property. The
criteria for determining when a property is held for sale requires judgment and
has potential financial statement impact as depreciation would cease and an
impairment loss could occur upon determination of held for sale
status. Assets held for sale are reported at the lower of the
carrying amount or estimated fair value less costs to sell. With
respect to investments in and advances to joint ventures and affiliates, the
Company looks to the underlying properties to assess performance and the
recoverability of carrying amounts for those investments in a manner similar to
direct investments in real estate properties. Further the Company
evaluates whether its co-investments have other than temporary impairment and,
if so, records an additional write down.
The
Company capitalizes all direct and certain indirect costs, including interest
and real estate taxes, incurred during development and redevelopment activities.
Interest is capitalized on real estate assets that require a period of time to
get them ready for their intended use. The amount of interest
capitalized is based upon the average amount of accumulated development
expenditures during the reporting period. Included in capitalized
costs are management’s accounting estimates of the direct and incremental
personnel costs and indirect project costs associated with the Company's
development and redevelopment activities. Indirect project costs
consist primarily of personnel costs associated with construction administration
and development accounting, legal fees, and various office costs that clearly
relate to projects under development.
The
Company bases its accounting estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances. Actual results may vary from those estimates and those
estimates could be different under different assumptions or
conditions.
Forward
Looking Statements
Certain
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and elsewhere in this Annual Report on Form 10-K
which are not historical facts may be considered forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, including
statements regarding the Company's expectations, hopes, intentions, beliefs and
strategies regarding the future. Forward looking statements include
statements regarding the Company's expectations as to the timing of completion
of current development and redevelopment projects and the stabilization dates of
such projects, its 2010 acquisition plan and its 2010 disposition
plan, expectation as to the total projected costs of development and
redevelopment projects, beliefs as to the adequacy of future cash flows to meet
operating requirements and anticipated cash needs and to provide for
dividend payments in accordance with REIT requirements, expectations as to the
amount of capital expenditures, expectations as to the amount of non-revenue
generating capital expenditures, future acquisitions, the Company's and
development and redevelopment pipeline, the anticipated performance of existing
properties, anticipated property and growth trends in various geographic
regions, statements regarding the Company's financing activities, and the use of
proceeds from such activities.
Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors including, but not limited to, that the Company will fail to
achieve its business objectives, that the actual completion of development and
redevelopment projects will be subject to delays, that the stabilization dates
of such projects will be delayed, that the total projected costs of current
development and redevelopment projects will exceed expectations, that such
development and redevelopment projects will not be completed, that development
and redevelopment projects and acquisitions will fail to meet expectations, that
estimates of future income from an acquired property may prove to be inaccurate,
that future cash flows will be inadequate to meet operating requirements and/or
will be insufficient to provide for dividend payments in accordance with REIT
requirements, that the actual non-revenue generating capital expenditures will
exceed the Company's current expectations, that there may be a downturn in the
markets in which the Company's communities are located, that the terms of any
refinancing may not be as favorable as the terms of existing indebtedness, as
well as those risks, special considerations, and other factors discussed under
the caption “Potential Factors Affecting Future Operating
Results” below and
those discussed in Item 1A, Risk Factors, of this Form 10-K, and those risk
factors and special considerations set forth in the Company’s other filings with
the Securities and Exchange Commission (the "SEC") which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. All forward-looking statements are
made as of today, and the Company assumes no obligation to update this
information.
Potential
Factors Affecting Future Operating Results
Many
factors affect the Company’s actual financial performance and may cause the
Company’s future results to be different from past performance or
trends. These factors include those set forth under the caption “Risk
Factors” in Item 1A of this Annual Report on Form 10-K.
Funds
from Operations ("FFO")
FFO is a
financial measure that is commonly used in the REIT industry. The
Company presents funds from operations as a supplemental performance
measure. FFO is not used by the Company, nor should it be considered
to be, as an alternative to net earnings computed under GAAP as an indicator of
the Company’s operating performance or as an alternative to cash from operating
activities computed under GAAP as an indicator of the Company's ability to fund
its cash needs.
FFO is
not meant to represent a comprehensive system of financial reporting and does
not present, nor does the Company intend it to present, a complete picture of
its financial condition and operating performance. The Company believes that net
earnings computed under GAAP remains the primary measure of performance and that
FFO is only meaningful when it is used in conjunction with net earnings.
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 REITs (“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. Essex
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.
|
|
(b)
|
REITs
were created as a legal form of organization in order to encourage public
ownership of real estate as an asset class through investment in firms
that were in the business of long-term ownership and management of real
estate. The exclusion, in NAREIT’s definition of FFO, of gains
from the sales of previously depreciated operating real estate assets
allows investors and analysts to readily identify the operating results of
the long-term assets that form the core of a REIT’s activity and assists
in comparing those operating results between
periods.
|
Management
has consistently applied the NAREIT definition of FFO to all periods
presented. However, other REITs in calculating FFO may vary from the
NAREIT definition for this measure, and thus their disclosure of FFO may not be
comparable to Essex’s calculation.
The
following table sets forth the Company’s calculation of FFO for 2009 and
2008.
|
For
the year
|
||||||||||||||||||||
|
ended
|
For
the quarter ended
|
|||||||||||||||||||
|
12/31/09
|
12/31/09
|
9/30/09
|
6/30/09
|
3/31/09
|
||||||||||||||||
|
Net
income available to common stockholders
|
$ | 82,200,000 | $ | 6,781,000 | $ | 21,739,000 | $ | 11,415,000 | $ | 42,265,000 | ||||||||||
|
Adjustments:
|
||||||||||||||||||||
|
Depreciation
and amortization
|
118,522,000 | 30,349,000 | 29,895,000 | 29,073,000 | 29,204,000 | |||||||||||||||
|
Gains
not included in FFO, net of internal disposition cost
|
(7,943,000 | ) | (2,852,000 | ) | (2,237,000 | ) | (626,000 | ) | (2,225,000 | ) | ||||||||||
|
Noncontrolling
interests and co-investments
(1)
|
7,607,000 | 1,510,000 | 1,394,000 | 2,141,000 | 2,563,000 | |||||||||||||||
|
Funds
from operations
|
$ | 200,386,000 | $ | 35,788,000 | $ | 50,791,000 | $ | 42,003,000 | $ | 71,807,000 | ||||||||||
|
Weighted
average number of shares outstanding diluted
(2)
|
29,746,614 | 30,893,169 | 30,070,076 | 29,303,695 | 28,692,959 | |||||||||||||||
|
For
the year
|
||||||||||||||||||||
|
ended
|
For
the quarter ended
|
|||||||||||||||||||
|
12/31/08
|
12/31/08
|
9/30/08
|
6/30/08
|
3/31/08
|
||||||||||||||||
|
Net
income available to common stockholders
|
$ | 52,899,000 | $ | 17,954,000 | $ | 11,421,000 | $ | 8,744,000 | $ | 14,780,000 | ||||||||||
|
Adjustments:
|
||||||||||||||||||||
|
Depreciation
and amortization
|
113,293,000 | 28,296,000 | 28,581,000 | 28,682,000 | 27,734,000 | |||||||||||||||
|
Gains
not included in FFO
|
(7,849,000 | ) | (5,356,000 | ) | (2,493,000 | ) | - | - | ||||||||||||
|
Noncontrolling
interests and co-investments
(1)
|
9,181,000 | 2,733,000 | 2,134,000 | 1,808,000 | 2,312,000 | |||||||||||||||
|
Funds
from operations
|
$ | 167,524,000 | $ | 43,627,000 | $ | 39,643,000 | $ | 39,234,000 | $ | 44,826,000 | ||||||||||
|
Weighted
average number of shares outstanding diluted
(2)
|
27,807,946 | 28,663,993 | 27,910,297 | 27,623,939 | 27,398,605 | |||||||||||||||
(1) Amount
includes the following: (i) minority interest related to Operating Partnership
units, and (ii) add back of depreciation expense from unconsolidated
co-investments and less depreciation attributable to third-party ownership of
consolidated co-investments.
(2) Assumes
conversion of all dilutive outstanding operating partnership interests in the
Operating Partnership.
The
following table sets forth the Company’s cash flows for 2009 and 2008 ($ in
thousands).
|
For
the year
|
||||||||||||||||||||
|
ended
|
For
the quarter ended
|
|||||||||||||||||||
|
12/31/09
|
12/31/2009
|
9/30/2009
|
6/30/2009
|
3/31/2009
|
||||||||||||||||
|
Cash
flow provided by (used in):
|
||||||||||||||||||||
|
Operating
activities
|
$ | 173,587 | $ | 25,925 | $ | 58,428 | $ | 34,171 | $ | 55,063 | ||||||||||
|
Investing
activities
|
(218,958 | ) | (75,453 | ) | (48,864 | ) | (91,044 | ) | (3,597 | ) | ||||||||||
|
Financing
activities
|
24,122 | (11,754 | ) | 6,943 | 57,096 | (28,163 | ) | |||||||||||||
|
For
the year
|
||||||||||||||||||||
|
ended
|
For
the quarter ended
|
|||||||||||||||||||
|
12/31/08
|
12/31/2008
|
9/30/2008
|
6/30/2008
|
3/31/2008
|
||||||||||||||||
|
Cash
flow provided by (used in):
|
||||||||||||||||||||
|
Operating
activities
|
$ | 181,241 | $ | 38,193 | $ | 53,315 | $ | 42,498 | $ | 47,235 | ||||||||||
|
Investing
activities
|
(285,023 | ) | (41,054 | ) | (148,104 | ) | (69,849 | ) | (26,016 | ) | ||||||||||
|
Financing
activities
|
135,735 | 11,366 | 107,198 | 37,989 | (20,818 | ) | ||||||||||||||
Interest
Rate Hedging Activities
The
Company’s objective in using derivatives is to add stability to interest expense
and to manage its exposure to interest rate movements or other identified
risks. To accomplish this objective, the Company uses interest rate
forward-starting swaps as part of its cash flow hedging strategy. As
of December 31, 2009, we have entered into seven forward-starting swap contracts
to mitigate the risk of changes in the interest-related cash outflows on
forecasted issuance of long-term debt. The forward-starting swaps are
cash flow hedges of the variability of forecasted interest payments associated
with expected financings between 2010 and 2011. As of December 31,
2009, the Company also had $490.6 million of variable rate indebtedness, of
which $197.1 million is subject to interest rate cap
protection. All of our derivative instruments are designated as
cash flow hedges, and the Company does not have any fair value hedges as of
December 31, 2009. The following table summarizes the notional
amount, carrying value, and estimated fair value of our derivative instruments
used to hedge interest rates as of December 31, 2009. The
notional amount represents the aggregate amount of a particular security that is
currently hedged at one time, but does not represent exposure to credit,
interest rates or market risks. The table also includes a sensitivity
analysis to demonstrate the impact on our derivative instruments from an
increase or decrease in 10-year Treasury bill interest rates by 50 basis points,
as of December 31, 2009.
|
Carrying
and
|
Estimated Carrying Value | |||||||||||||||||||
|
Notional
|
Maturity
|
Estimate
Fair
|
+ 50 | - 50 | ||||||||||||||||
|
($
in thousands
)
|
Amount
|
Date
Range
|
Value
|
Basis
Points
|
Basis
Points
|
|||||||||||||||
|
Cash
flow hedges:
|
||||||||||||||||||||
|
Interest
rate forward-starting swaps
|
$ | 375,000 | 2010-2011 | $ | (30,473 | ) | $ | (14,751 | ) | $ | (47,676 | ) | ||||||||
|
Interest
rate caps
|
197,114 | 2010-2014 | 317 | 581 | 162 | |||||||||||||||
|
Total
cash flow hedges
|
$ | 572,114 | 2010-2013 | $ | (30,156 | ) | $ | (14,170 | ) | $ | (47,514 | ) | ||||||||
Interest
Rate Sensitive Liabilities
The
Company is exposed to interest rate changes primarily as a result of its line of
credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company’s real estate investment portfolio and
operations. The Company’s interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives the Company borrows primarily
at fixed rates and may enter into derivative financial instruments such as
interest rate swaps, caps and treasury locks in order to mitigate its interest
rate risk on a related financial instrument. The Company does not enter into
derivative or interest rate transactions for speculative purposes.
The
Company’s interest rate risk is monitored using a variety of techniques. The
table below presents the principal amounts and weighted average interest rates
by year of expected maturity to evaluate the expected cash flows. Management
believes that the carrying amounts of its unsecured bank line debt approximates
fair value as of December 31, 2008 because interest rates, yields and other
terms for these instruments are consistent with yields and other terms currently
available to the Company for similar instruments. Management has estimated that
the fair value of the Company’s $1.36 billion of fixed rate mortgage notes
payable at December 31, 2009 approximates its fair value and the Company’s
$490.6 million of variable rate debt at December 31, 2009 is $458.7 million
based on the terms of existing mortgage notes payable and variable rate demand
notes compared to those available in the marketplace.
|
For
the Years Ended December 31,
|
||||||||||||||||||||||||||||||||
|
2010
(1)
|
2011
(2)
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
Fair
value
|
|||||||||||||||||||||||||
|
($
in thousands)
|
||||||||||||||||||||||||||||||||
|
Fixed
rate debt
|
$ | 149,262 | $ | 148,122 | $ | 31,303 | $ | 188,882 | $ | 62,272 | $ | 777,004 | $ | 1,356,845 | $ | 1,360,574 | ||||||||||||||||
|
Average
interest rate
|
7.8 | % | 6.4 | % | 5.4 | % | 5.8 | % | 5.7 | % | 5.7 | % | ||||||||||||||||||||
|
Variable
rate debt
|
$ | 21,500 | $ | 25,985 | $ | - | $ | 229,000 | $ | - | $ | 214,112 | (3) | $ | 490,597 | $ | 458,696 | |||||||||||||||
|
Average
interest rate
|
3.4 | % | 1.8 | % | - | 1.7 | % | - | 2.1 | % | ||||||||||||||||||||||
(1) $150
million covered by three forward-starting swaps with fixed rates ranging from
5.099% to 5.824%, with a settlement date on or before
January
1, 2011.
(2) $125
million covered by forward-starting swaps with fixed rates ranging from 5.655%
to 5.8795%, with a settlement date on or before February 1, 2011. $50
million covered by a forward-starting swap with a fixed rate of 5.535%, with a
settlement date on or before July, 1 2011. $50 million covered by a
forward-starting swap with a fixed rate of 5.343%, with a settlement date on or
before October 1, 2011. The Company intends to encumber certain
unencumbered assets during 2011 in conjunction with the settlement of these
forward-starting swaps.
(3)
$197.1 million subject to interest rate caps.
The table
incorporates only those exposures that exist as of December 31, 2009; it does
not consider those exposures or positions that could arise after that
date. As a result, our ultimate realized gain or loss, with respect
to interest rate fluctuations and hedging strategies would depend on the
exposures that arise during the period.
The
response to this item is submitted as a separate section of this Form 10-K. See
Item 15.
Not
applicable.
As of
December 31, 2009, we carried out an evaluation, under the supervision and with
the participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rules 13a-15 of the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that as of
December 31, 2009, our disclosure controls and procedures are effective in
timely alerting management to material information relating to the Company that
is required to be included in our periodic filings with the Securities and
Exchange Commission. There were no changes in the Company’s internal
control over financial reporting, that occurred during the quarter ended
December 31, 2009, that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended). Our management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2009. In making this assessment, our management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control-Integrated Framework. Our management has concluded that, as
of December 31, 2009, our internal control over financial reporting was
effective based on these criteria. Our independent registered public accounting
firm, KPMG LLP, has issued an audit report on the effectiveness of our internal
control over financial reporting, which is included herein.
None.
The
information required by Item 10 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 18, 2010.
The
information required by Item 11 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 18, 2010.
The
information required by Item 12 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 18, 2010.
The
information required by Item 13 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 18, 2010.
The
information required by Item 14 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 18, 2010.
(A)
Financial Statements
|
(1)
|
Consolidated
Financial Statements
|
Page
|
|
Reports
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Consolidated
Balance Sheets:
|
||
|
As
of December 31, 2009 and 2008
|
F-4
|
|
|
Consolidated
Statements of Operations:
|
||
|
Years
ended December 31, 2009, 2008 and 2007
|
F-5
|
|
|
Consolidated
Statements of Stockholders’ Equity, Noncontrolling Interest and
Comprehensive Income:
|
||
|
Years
ended December 31, 2009, 2008 and 2007
|
F-6
|
|
|
Consolidated
Statements of Cash Flows:
|
||
|
Years
ended December 31, 2009, 2008 and 2007
|
F-7
|
|
|
Notes
to the Consolidated Financial Statements
|
F-9
|
|
|
(2)
|
Financial
Statement Schedule - Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 2009
|
F-32
|
|
(3)
|
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)(3) above.
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, 2009, based on criteria established in Internal
Control–Integrated Framework 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 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, 2009,
based on criteria established in Internal Control–Integrated Framework 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, 2009 and 2008, and the
related consolidated statements of operations, stockholders’ equity,
noncontrolling interest and comprehensive income, and cash flows for each of the
years in the three-year period ended December 31, 2009, and our report dated
February 25, 2010, expressed an unqualified opinion on those consolidated
financial statements.
|
/S/ KPMG LLP
|
|
|
KPMG
LLP
|
San
Francisco, California
February
25, 2010
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, 2009 and 2008, and the related
consolidated statements of operations, stockholders’ equity, noncontrolling
interest and comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 2009. 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, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2009, 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.
As
discussed in Note 2 to the consolidated financial statements, effective January
1, 2009 Essex Property Trust, Inc. has changed its methods of accounting for
exchangeable bonds and for noncontrolling interests. These changes
were made on a retrospective basis for all periods presented in the accompanying
consolidated financial statements as a result of adoption of new accounting
standards issued by the Financial Accounting Standards Board entitled
“Accounting for Convertible Debt Instruments That May be Settled in Cash Upon
Conversion” and “Noncontrolling Interests in Consolidated Financial
Statements.”
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, 2009, based on criteria established
in Internal Control–Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February
25, 2010 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
25, 2010
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
December
31, 2009 and 2008
(Dollars
in thousands, except share amounts)
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Real
estate:
|
||||||||
|
Rental
properties:
|
||||||||
|
Land
and land improvements
|
$ | 684,955 | $ | 683,876 | ||||
|
Buildings
and improvements
|
2,727,975 | 2,595,912 | ||||||
| 3,412,930 | 3,279,788 | |||||||
|
Less
accumulated depreciation
|
(749,464 | ) | (640,026 | ) | ||||
| 2,663,466 | 2,639,762 | |||||||
|
Real
estate under development
|
274,965 | 272,273 | ||||||
|
Co-investments
|
70,783 | 76,346 | ||||||
| 3,009,214 | 2,988,381 | |||||||
|
Cash
and cash equivalents-unrestricted
|
20,660 | 41,909 | ||||||
|
Cash
and cash equivalents-restricted
|
17,274 | 12,810 | ||||||
|
Marketable
securities
|
134,844 | 23,886 | ||||||
|
Funds
held by 1031 exchange facilitator
|
- | 21,424 | ||||||
|
Notes
and other receivables
|
36,305 | 47,637 | ||||||
|
Prepaid
expenses and other assets
|
21,349 | 17,430 | ||||||
|
Deferred
charges, net
|
14,991 | 11,346 | ||||||
|
Total
assets
|
$ | 3,254,637 | $ | 3,164,823 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY AND
NONCONTROLLING INTEREST
|
||||||||
|
Mortgage
notes payable
|
$ | 1,603,549 | $ | 1,468,931 | ||||
|
Lines
of credit
|
239,000 | 120,000 | ||||||
|
Exchangeable
bonds
|
4,893 | 165,457 | ||||||
|
Accounts
payable and accrued liabilities
|
38,514 | 38,223 | ||||||
|
Construction
payable
|
10,327 | 18,605 | ||||||
|
Dividends
payable
|
33,750 | 32,124 | ||||||
|
Cash
flow hedge liabilities
|
30,156 | 73,129 | ||||||
|
Other
liabilities
|
16,558 | 16,444 | ||||||
|
Total
liabilities
|
1,976,747 | 1,932,913 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Cumulative
convertible preferred stock; $.0001 par value:
|
||||||||
|
4.875%
Series G - 5,890,000 issued, and 178,249 and 5,890,000
outstanding
|
4,349 | 145,912 | ||||||
|
Stockholders'
equity and noncontrolling interest:
|
||||||||
|
Common
stock; $.0001 par value, 649,702,178 shares authorized;
|
||||||||
|
28,849,779
and 26,395,807 shares issued and outstanding
|
3 | 3 | ||||||
|
Cumulative
redeemable preferred stock; $.0001 par value:
|
||||||||
|
7.8125%
Series F - 1,000,000 shares authorized, issued and outstanding,
liquidation value
|
25,000 | 25,000 | ||||||
|
Excess
stock, $.0001 par value, 330,000,000 shares authorized and no shares
issued or outstanding
|
- | - | ||||||
|
Additional
paid-in capital
|
1,275,251 | 1,043,984 | ||||||
|
Distributions
in excess of accumulated earnings
|
(222,952 | ) | (141,336 | ) | ||||
|
Accumulated
other comprehensive (loss) income
|
(24,206 | ) | (75,424 | ) | ||||
|
Total
stockholders' equity
|
1,053,096 | 852,227 | ||||||
|
Noncontrolling
interest
|
220,445 | 233,771 | ||||||
|
Total
stockholders' equity and noncontrolling interest
|
1,273,541 | 1,085,998 | ||||||
|
Total
liabilities, stockholders' equity and noncontrolling
interest
|
$ | 3,254,637 | $ | 3,164,823 | ||||
See
accompanying notes to consolidated financial statements.
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Years
ended December 31, 2009, 2008 and 2007
(Dollars
in thousands, except per share and share amounts)
|
2009
|
2008
|
2007
|
||||||||||
|
Revenues:
|
||||||||||||
|
Rental
and other property
|
$ | 407,064 | $ | 403,268 | $ | 369,659 | ||||||
|
Management
and other fees from affiliates
|
4,325 | 5,166 | 5,090 | |||||||||
| 411,389 | 408,434 | 374,749 | ||||||||||
|
Expenses:
|
||||||||||||
|
Property
operating, excluding real estate taxes
|
102,939 | 99,310 | 90,211 | |||||||||
|
Real
estate taxes
|
36,772 | 33,107 | 31,264 | |||||||||
|
Depreciation
and amortization
|
118,027 | 109,701 | 96,598 | |||||||||
|
Interest
|
86,016 | 85,063 | 85,896 | |||||||||
|
General
and administrative
|
23,704 | 26,984 | 26,673 | |||||||||
|
Impairment
and other charges
|
17,442 | 1,350 | 800 | |||||||||
| 384,900 | 355,515 | 331,442 | ||||||||||
|
Earnings
from operations
|
26,489 | 52,919 | 43,307 | |||||||||
|
Interest
and other income
|
13,040 | 11,337 | 10,310 | |||||||||
|
Gain
on early retirement of debt
|
4,750 | 3,997 | - | |||||||||
|
Equity
income in co-investments
|
670 | 7,820 | 3,120 | |||||||||
|
Gain
on sale of real estate
|
103 | 4,578 | - | |||||||||
|
Income
before discontinued operations
|
45,052 | 80,651 | 56,737 | |||||||||
|
Income
from discontinued operations
|
8,687 | 3,744 | 146,324 | |||||||||
|
Net
income
|
53,739 | 84,395 | 203,061 | |||||||||
|
Net
income attributable to noncontrolling interest
|
(16,631 | ) | (22,255 | ) | (90,961 | ) | ||||||
|
Net
income attributable to controlling interest
|
37,108 | 62,140 | 112,100 | |||||||||
|
Dividends
to preferred stockholders
|
(4,860 | ) | (9,241 | ) | (9,174 | ) | ||||||
|
Excess
of the carrying amount of preferred stock redeemed over the cash paid to
redeem preferred stock
|
49,952 | - | - | |||||||||
|
Net
income available to common stockholders
|
$ | 82,200 | $ | 52,899 | $ | 102,926 | ||||||
|
Per
share data:
|
||||||||||||
|
Basic:
|
||||||||||||
|
Income
before discontinued operations available to common
stockholders
|
$ | 2.72 | $ | 1.96 | $ | 1.14 | ||||||
|
Income
from discontinued operations available to common
stockholders
|
0.29 | 0.14 | 3.05 | |||||||||
|
Net
income available to common stockholders
|
$ | 3.01 | $ | 2.10 | $ | 4.19 | ||||||
|
Weighted
average number of shares outstanding during the year
|
27,269,547 | 25,205,367 | 24,548,003 | |||||||||
|
Diluted:
|
||||||||||||
|
Income
before discontinued operations available to common
stockholders
|
$ | 2.61 | $ | 1.95 | $ | 1.11 | ||||||
|
Income
from discontinued operations available to common
stockholders
|
0.30 | 0.14 | 2.99 | |||||||||
|
Net
income available to common stockholders
|
$ | 2.91 | $ | 2.09 | $ | 4.10 | ||||||
|
Weighted
average number of shares outstanding during the year
|
29,746,614 | 25,346,520 | 25,100,974 | |||||||||
See
accompanying notes to consolidated financial statements.
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated
Statements of Stockholders’ Equity, Noncontrolling Interest and Comprehensive
Income
Years
ended December 31, 2009, 2008 and 2007
(Dollars
and shares in thousands)
|
Distributions
|
Accumulated
|
|||||||||||||||||||||||||||||||||||
|
Series
F
|
Additional
|
in
excess of
|
other
|
|||||||||||||||||||||||||||||||||
|
Preferred
stock
|
Common
stock
|
paid-in
|
accumulated
|
comprehensive
|
Noncontrolling
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
capital
|
earnings
|
(loss)
income
|
Interest
|
Total
|
||||||||||||||||||||||||||||
|
Balances
at December 31, 2006
|
1,000 | 25,000 | 23,416 | 3 | 686,937 | (97,457 | ) | (2,273 | ) | - | 612,210 | |||||||||||||||||||||||||
|
Adoption
of new accounting pronouncements
|
- | - | - | - | 20,523 | (3,887 | ) | - | 235,720 | 252,356 | ||||||||||||||||||||||||||
|
Balances
at December 31, 2006 (revised)
|
1,000 | 25,000 | 23,416 | 3 | 707,460 | (101,344 | ) | (2,273 | ) | 235,720 | 864,566 | |||||||||||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | 112,100 | - | 90,961 | 203,061 | |||||||||||||||||||||||||||
|
Settlement
of forward-starting swap
|
- | - | - | - | - | - | 1,311 | - | 1,311 | |||||||||||||||||||||||||||
|
Change
in fair value of cash flow hedges and amortization of gain on settlement
of swap
|
- | - | - | - | - | - | (8,026 | ) | - | (8,026 | ) | |||||||||||||||||||||||||
|
Comprehensive
(loss) income
|
196,346 | |||||||||||||||||||||||||||||||||||
|
Issuance
of common stock under stock-based compensation plans
|
- | - | 87 | - | 5,648 | - | - | - | 5,648 | |||||||||||||||||||||||||||
|
Issuance
of common stock
|
- | - | 1,671 | - | 213,672 | - | - | - | 213,672 | |||||||||||||||||||||||||||
|
Retirement
of common stock
|
- | - | (323 | ) | - | (32,644 | ) | - | - | - | (32,644 | ) | ||||||||||||||||||||||||
|
Conversion/reallocation
of noncontrolling interest
|
- | - | 26 | - | (16,504 | ) | - | - | 16,504 | - | ||||||||||||||||||||||||||
|
Contributions
from noncontrolling interest
|
- | - | - | - | - | - | - | 33,267 | 33,267 | |||||||||||||||||||||||||||
|
Redemptions
of noncontrolling interest
|
- | - | - | - | - | - | - | (12,550 | ) | (12,550 | ) | |||||||||||||||||||||||||
|
Distributions
to noncontrolling interest
|
- | - | - | - | - | - | - | (82,715 | ) | (82,715 | ) | |||||||||||||||||||||||||
|
Common
and preferred stock dividends declared
|
- | - | - | - | - | (100,986 | ) | - | - | (100,986 | ) | |||||||||||||||||||||||||
|
Balances
at December 31, 2007
|
1,000 | 25,000 | 24,877 | 3 | 877,632 | (90,230 | ) | (8,988 | ) | 281,187 | 1,084,604 | |||||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | 62,140 | - | 22,255 | 84,395 | |||||||||||||||||||||||||||
|
Settlement
of forward-starting swap
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
|
Change
in fair value of cash flow hedges and amortization of settlement of
swaps
|
- | - | - | - | - | - | (66,436 | ) | - | (66,436 | ) | |||||||||||||||||||||||||
|
Comprehensive
(loss) income
|
17,959 | |||||||||||||||||||||||||||||||||||
|
Issuance
of common stock under stock-based compensation plans
|
- | - | 80 | - | 6,064 | - | - | - | 6,064 | |||||||||||||||||||||||||||
|
Issuance
of common stock
|
- | - | 1,209 | - | 142,751 | - | - | - | 142,751 | |||||||||||||||||||||||||||
|
Issuance
of common stock in conjunction with:
|
||||||||||||||||||||||||||||||||||||
|
Retirement
of Series D Preferred
|
- | - | 363 | - | 36,625 | - | - | - | 36,625 | |||||||||||||||||||||||||||
|
Retirement
of common stock
|
- | - | (143 | ) | - | (13,723 | ) | - | - | - | (13,723 | ) | ||||||||||||||||||||||||
|
Retirement
of exchangeable bonds
|
- | - | - | - | (2,575 | ) | - | - | - | (2,575 | ) | |||||||||||||||||||||||||
|
Contribution
from noncontrolling interest
|
- | - | - | - | - | - | - | 10,500 | 10,500 | |||||||||||||||||||||||||||
|
Conversion/reallocation
of noncontrolling interest
|
- | - | 10 | - | (2,790 | ) | - | - | 2,790 | - | ||||||||||||||||||||||||||
|
Redemptions
of noncontrolling interest
|
- | - | - | - | - | - | - | (58,747 | ) | (58,752 | ) | |||||||||||||||||||||||||
|
Distributions
to noncontrolling interest
|
- | - | - | - | - | - | - | (24,214 | ) | (24,214 | ) | |||||||||||||||||||||||||
|
Common
and preferred stock dividends declared
|
- | - | - | - | - | (113,246 | ) | - | - | (113,246 | ) | |||||||||||||||||||||||||
|
Balances
at December 31, 2008
|
1,000 | 25,000 | 26,396 | $ | 3 | $ | 1,043,984 | $ | (141,336 | ) | $ | (75,424 | ) | 233,771 | 1,085,998 | |||||||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | 37,108 | - | 16,631 | 53,739 | |||||||||||||||||||||||||||
|
Changes
in fair value of cash flow hedges and amortization of settlement
swaps
|
- | - | - | - | - | - | 39,354 | 3,534 | 42,888 | |||||||||||||||||||||||||||
|
Changes
in fair value of marketable securities
|
- | - | - | - | - | - | 11,864 | 1,066 | 12,930 | |||||||||||||||||||||||||||
|
Comprehensive
income
|
109,557 | |||||||||||||||||||||||||||||||||||
|
Issuance
of common stock under:
|
||||||||||||||||||||||||||||||||||||
|
Stock
option plans
|
- | - | 62 | - | 943 | - | - | - | 943 | |||||||||||||||||||||||||||
|
Sale
of common stock
|
- | - | 2,741 | - | 198,511 | - | - | - | 198,511 | |||||||||||||||||||||||||||
|
Equity
based compensation costs
|
- | - | - | - | 6,859 | - | - | 276 | 7,135 | |||||||||||||||||||||||||||
|
Retirement
of Series G Preferred
|
- | - | - | - | 49,952 | - | - | - | 49,952 | |||||||||||||||||||||||||||
|
Retirement
of common stock
|
- | - | (350 | ) | - | (20,271 | ) | - | - | - | (20,271 | ) | ||||||||||||||||||||||||
|
Retirement
of exchangeable bonds
|
- | - | - | - | (4,727 | ) | - | - | - | (4,727 | ) | |||||||||||||||||||||||||
|
Purchase
of noncontrolling interest
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
|
Redemptions
of noncontrolling interest
|
- | - | - | - | - | - | - | (12,725 | ) | (12,720 | ) | |||||||||||||||||||||||||
|
Distributions
to noncontrolling interest
|
- | - | - | - | - | - | - | (22,108 | ) | (22,108 | ) | |||||||||||||||||||||||||
|
Common
and preferred stock dividends declared
|
- | - | - | - | - | (118,724 | ) | - | - | (118,724 | ) | |||||||||||||||||||||||||
|
Balances
at December 31, 2009
|
1,000 | 25,000 | 28,849 | $ | 3 | $ | 1,275,251 | $ | (222,952 | ) | $ | (24,206 | ) | $ | 220,445 | $ | 1,273,541 | |||||||||||||||||||
See
accompanying notes to consolidated financial statements.
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Years
ended December 31, 2009, 2008 and 2007
(Dollars
in thousands)
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$ | 53,739 | $ | 84,395 | $ | 203,061 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Company's
share of gain on the sales of real estate
|
(8,729 | ) | (7,995 | ) | (66,574 | ) | ||||||
|
Joint
venture partner's share of gain on the sales of real
estate
|
- | - | (64,818 | ) | ||||||||
|
Company's
share of gain on the sales of co-investments assets
|
- | - | (2,046 | ) | ||||||||
|
Gain
on early retirement of debt
|
(4,750 | ) | (3,997 | ) | - | |||||||
|
Amortization
of discount on exchangeable bonds
|
1,985 | 3,977 | 3,903 | |||||||||
|
Amortization
of discount on marketable securities
|
(3,605 | ) | - | - | ||||||||
|
Impairment
loss and reserve for loan loss
|
13,452 | 650 | 500 | |||||||||
|
Non-cash
expense due to cancellation of outperformance plan
|
3,807 | - | - | |||||||||
|
Gain
on sale of marketable securities
|
(1,014 | ) | - | - | ||||||||
|
Gain
on co-investment
|
(530 | ) | - | - | ||||||||
|
Equity
income in co-investments excluding gain on sales of real
estate
|
(670 | ) | (7,644 | ) | (320 | ) | ||||||
|
Depreciation
and amortization
|
118,522 | 113,294 | 102,250 | |||||||||
|
Amortization
of deferred financing costs
|
2,964 | 3,001 | 3,071 | |||||||||
|
Stock-based
compensation
|
3,412 | 3,940 | - | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Prepaid
expenses and other assets
|
(2,212 | ) | (1,791 | ) | 2,458 | |||||||
|
Accounts
payable and accrued liabilities
|
(2,898 | ) | (7,453 | ) | 8,138 | |||||||
|
Other
liabilities
|
114 | 864 | 1,254 | |||||||||
|
Net
cash provided by operating activities
|
173,587 | 181,241 | 190,877 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Additions
to real estate:
|
||||||||||||
|
Acquisitions
of real estate
|
(16,000 | ) | (87,533 | ) | (336,312 | ) | ||||||
|
Improvements
to recent acquisitions
|
(3,210 | ) | (7,048 | ) | (5,145 | ) | ||||||
|
Redevelopment
|
(25,812 | ) | (48,941 | ) | (38,618 | ) | ||||||
|
Revenue
generating capital expenditures
|
(855 | ) | (6,537 | ) | (11,044 | ) | ||||||
|
Non-revenue
generating capital expenditures
|
(25,722 | ) | (25,205 | ) | (22,620 | ) | ||||||
|
Additions
to real estate under development
|
(120,844 | ) | (124,126 | ) | (142,967 | ) | ||||||
|
Dispositions
of real estate
|
38,178 | 58,078 | 218,069 | |||||||||
|
Changes
in restricted cash and refundable deposits
|
11,995 | (20,515 | ) | 467 | ||||||||
|
Purchases
of marketable securities
|
(116,402 | ) | (83,261 | ) | (7,776 | ) | ||||||
|
Sales
of marketable securities
|
22,964 | 60,915 | 5,759 | |||||||||
|
Proceeds
from tax investor
|
3,762 | - | - | |||||||||
|
Advances
under notes and other receivables
|
(3,424 | ) | (2,501 | ) | (36,145 | ) | ||||||
|
Collections
of notes and other receivables
|
15,728 | 5,695 | 3,724 | |||||||||
|
Contributions
to co-investments
|
(270 | ) | (14,346 | ) | (21,647 | ) | ||||||
|
Distributions
from co-investments
|
954 | 10,302 | 16,385 | |||||||||
|
Net
cash used in investing activities
|
(218,958 | ) | (285,023 | ) | (377,870 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Borrowings
under mortgage notes payable and lines of credit
|
453,570 | 896,471 | 866,397 | |||||||||
|
Repayment
of mortgage notes payable and lines of credit
|
(199,979 | ) | (682,069 | ) | (678,383 | ) | ||||||
|
Additions
to deferred charges
|
(3,935 | ) | (3,264 | ) | (1,800 | ) | ||||||
|
(Payments)
proceeds from settlement of derivative instruments
|
- | (3,083 | ) | 1,311 | ||||||||
|
Retirement
of exchangeable bonds
|
(161,084 | ) | (49,258 | ) | - | |||||||
|
Retirement
of common stock
|
(20,271 | ) | (13,723 | ) | (32,644 | ) | ||||||
|
Retirement
of Series D preferred units, and Series G Preferred stock
|
(91,703 | ) | (10,065 | ) | - | |||||||
|
Net
proceeds from stock options exercised
|
943 | 4,884 | 4,321 | |||||||||
|
Net
proceeds from issuance of common stock
|
198,511 | 142,751 | 213,672 | |||||||||
|
Contributions
from noncontrolling interest partners
|
- | - | 4,000 | |||||||||
|
Distributions
to noncontrolling interest partners
|
(22,108 | ) | (24,214 | ) | (82,715 | ) | ||||||
|
Redemption
of noncontrolling interest limited partnership units
|
(12,720 | ) | (13,205 | ) | (9,233 | ) | ||||||
|
Dividends
paid
|
(117,102 | ) | (109,490 | ) | (97,639 | ) | ||||||
|
Net
cash provided by financing activities
|
24,122 | 135,735 | 187,287 | |||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(21,249 | ) | 31,953 | 294 | ||||||||
|
Cash
and cash equivalents at beginning of year
|
41,909 | 9,956 | 9,662 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 20,660 | $ | 41,909 | $ | 9,956 | ||||||
(Continued)
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
Years
ended December 31, 2009, 2008 and 2007
(Dollars
in thousands)
|
2009
|
2008
|
2007
|
||||||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Cash
paid for interest, net of $10,463, $10,908 and $5,134 capitalized in 2009,
2008 and 2007, respectively
|
$ | 81,878 | $ | 78,343 | $ | 79,531 | ||||||
|
Supplemental
disclosure of noncash investing and financing activities:
|
||||||||||||
|
Mortgage
notes assumed by buyer in connection with sales of real
estate
|
- | 59,068 | - | |||||||||
|
Mortgage
notes assumed in connection with purchases of real estate
|
- | - | $ | 43,839 | ||||||||
|
Land
contributed by a partner in a consolidated joint venture
|
- | $ | 10,500 | $ | 22,200 | |||||||
|
Issuance
of DownREIT units in connection with purchase of real
estate
|
- | - | $ | 7,067 | ||||||||
|
Redemption
of Series D Units for common stock
|
- | $ | 36,625 | - | ||||||||
|
Change
in accrual of dividends
|
$ | 1,626 | $ | 3,603 | $ | 3,611 | ||||||
|
Change
in fair value of cash flow hedge liabilities
|
$ | 42,973 | $ | 64,201 | $ | 8,026 | ||||||
|
Change
in fair value of marketable securities
|
$ | 12,900 | $ | - | $ | - | ||||||
|
Reclassification
between stockholder's equity and noncontrolling interest resulting from
conversions and equity transactions
|
- | $ | 2,790 | $ | 16,504 | |||||||
|
Change
in construction payable
|
$ | 8,278 | $ | 13,240 | $ | 8,703 | ||||||
See
accompanying notes to consolidated financial statements.
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(1)
Organization
The
accompanying consolidated financial statements present the accounts of Essex
Property Trust, Inc. (the “Company”), which include the accounts of the Company
and Essex Portfolio, L.P. (the
“
Operating
Partnership
”
,
which holds the operating assets of the Company).
The
Company is the sole general partner in the Operating Partnership with a 92.3%
general partner interest and the limited partners owned a 7.7% interest as of
December 31, 2009. The limited partners may convert their Operating
Partnership units into an equivalent number of shares of common
stock. Total Operating Partnership units outstanding were 2,398,479
and 2,413,078 as of December 31, 2009 and 2008, respectively, and the redemption
value of the units, based on the closing price of the Company’s common stock
totaled $200.6 million and $185.2 million, as of December 31, 2009 and 2008,
respectively. The Company has reserved shares of common stock for such
conversions. These conversion rights may be exercised by the limited partners at
any time through 2024.
As of
December 31, 2009, the Company owned or had ownership interests in 133 apartment
communities, (aggregating 27,248 units), five office and commercial buildings,
and four active development projects (collectively, the
“Portfolio”). The communities are located in Southern California (Los
Angeles, Orange, Riverside, Santa Barbara, San Diego, and Ventura counties),
Northern California (the San Francisco Bay Area) and the Seattle metropolitan
area.
(2)
Summary of Critical and Significant Accounting Policies
(a)
Principles of Consolidation
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. All significant inter-company accounts and
transactions have been eliminated.
The
Company consolidates 19 DownREIT limited partnerships (comprising twelve), an
office building that is subject to loans made by the Company, and 55 low income
housing units since the Company is the primary beneficiary of these variable
interest entities (“VIEs”). As of December 31, 2008, the consolidated
VIEs included a development joint venture, which is no longer a VIE as of
December 31, 2009 as a result of the Company’s buyout of almost all of the
co-investment’s interests. The Company consolidates these entities
because it is deemed the primary beneficiary. The consolidated total
assets and liabilities related to these VIEs, net of intercompany eliminations,
were approximately $237.9 million and $164.4 million, respectively, as of
December 31, 2009, and $256.0 million and $169.1
million, respectively,
as of December 31, 2008.
The
DownREIT VIEs collectively own twelve 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 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 the above
arrangements. 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 1,129,205 and 1,148,510
as of December 31, 2009 and 2008 respectively, and the redemption value of the
units, based on the closing price of the Company’s common stock totaled $94.5
million and $88.1 million, as of December 31, 2009 and 2008, respectively.
As of December 31, 2009 and 2008, the carrying value of the other limited
partners' interests is presented at their historical cost and is classified
within noncontrolling interest in the accompanying consolidated balance
sheets.
Noncontrolling
interest includes the 7.7% and 8.4% limited partner interests in the Operating
Partnership not held by the Company at December 31, 2009 and 2008, respectively
and also includes the Operating Partnership’s vested long term incentive
plan units (see Note 13). The noncontrolling interest balance also
includes the Operating Partnership’s cumulative redeemable preferred units (see
Note 11).
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 for services
rendered or distributions from cash flow. The remaining results of
operations are generally allocated to the Company.
As of
December 31, 2009 and 2008, the Company did not have any VIE’s of which it was
not deemed to be the primary beneficiary.
(b)
Real Estate Rental Properties
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
unit improvements
|
5
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 are put on hold.
The
Company allocates the purchase price of real estate to land and building, and
identifiable intangible assets, such as the value of above, below and at-market
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. The value of
acquired at-market leases are amortized to expense over the term the Company
expects to retain the acquired tenant, which is generally 20
months.
For
acquired in-place leases, the Company performs the following evaluation for
communities acquired:
|
|
(1)
|
estimate
the value of the real estate “as if vacant” as of the acquisition
date;
|
|
|
(2)
|
allocate
that value among land and building;
|
|
|
(3)
|
compute
the value of the difference between the “as if vacant” value and the
purchase price, which will represent the total intangible
assets;
|
|
|
(4)
|
compute
the value of the above and below market leases and determine the
associated life of the above market/ below market
leases;
|
|
|
(5)
|
compute
the value of the at-market in-place leases or 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 property’s
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount (including intangible assets) of the property, then the
Company will recognize an impairment loss equal to the excess of the carrying
amount over the fair value of the property. Such 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, 2009
and 2008, no communities were classified as held for sale.
During
the third quarter 2009, the Company wrote-off development costs totaling $6.7
million related to two land parcels that will no longer be developed by the
Company. The costs were included in impairment and other charges in
the accompanying consolidated statement of operations.
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. In accordance with the standard, the Company
presents income and gains/losses on communities sold as discontinued operations.
Real estate investments accounted for under the equity method of accounting
remain classified in continuing operations upon disposition. (See
Note 6 for a description of the Company’s discontinued operations for 2009,
2008, and 2007).
(c)
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 these co-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.
Asset management fees and promote fees are reflected in interest and other
income and equity income in co-investments, respectively, in the accompanying
consolidated statements of operations.
(d)
Revenues and Gains on Sale of Real Estate
Revenues
from tenants renting or leasing apartment units 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. Units are rented under
short-term leases (generally, lease terms of 6 to 12 months) and may provide no
rent for one or two months, depending on the market conditions and leasing
practices of the Company’s competitors in each sub-market at the time the leases
are executed. 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 in the property.
(e)
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.
(f) Marketable
Securities
As of
December 31, 2009 marketable securities consisted primarily of investment-grade
unsecured bonds and to a lesser extent investment funds that invest in U.S.
treasury or agency securities. As of December 31, 2009 and 2008 the
Company had classified the marketable securities as available for sale and the
Company reports these securities at fair value, based on quoted market prices
(Level 2 for the unsecured bonds and Level 1 for the investment funds, as
defined by the Financial Accounting Standards Board (“FASB”) standard for fair
value measurements as discussed in Note 2i), and any unrealized gain or loss is
recorded as other comprehensive income (loss). Realized gains and
losses and interest income are included in interest and other income on the
consolidated statement of operations. Amortization of unearned
discounts is included in interest income.
(g)
Notes Receivable
Notes
receivable relate to real estate financing arrangements including mezzanine and
bridge loans that exceed one year and are secured by real
estate. Interest is recognized over the life of the
note.
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 principal and interest
contractually due. The Company does not accrue interest when a note
is considered impaired and a loan allowance is recorded for any principal that
is not believed to be collectable. 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.
(h)
Interest and Other Income
Interest
income is generated primarily from cash balances and marketable securities as
well as notes receivables. Other income includes gains on sales of
marketable securities and rental income from office buildings classified as real
estate under development. Other income also includes for 2008 and
2007 rental income for RV parks and a manufactured housing community, all of
which were sold during 2008. Total interest and other income are comprised of
the following for the years ended December 31:
|
(
$ in
thousands
)
|
2009
|
2008
|
2007
|
|||||||||
|
Interest
income
|
$ | 11,841 | $ | 4,817 | $ | 3,947 | ||||||
|
Rental
income
|
185 | 6,520 | 6,363 | |||||||||
|
Gains
on sales of marketable securities
|
1,014 | - | - | |||||||||
| $ | 13,040 | $ | 11,337 | $ | 10,310 | |||||||
(i)
Fair Value of Financial Instruments
The
Company adopted an accounting standard issued by the FASB entitled “
Fair Value Measurements and
Disclosures”
as of January 1, 2008, which provides guidance on using fair
value to measure assets and liabilities. The Company values its
financial instruments based on the fair value hierarchy of valuation techniques
described in this standard. 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 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. The Company uses
Level 2 inputs for its investments in unsecured bonds, notes receivable, notes
payable, and cash flow hedges. These inputs include interest rates
for similar financial instruments. The Company’s valuation
methodology for cash flow hedges is described in more detail in Note
9. The Company does not use Level 3 inputs to estimate fair values of
any of its financial instruments. 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 its amounts outstanding under lines of
credit, notes receivable and other receivables from related parties, and notes
and other receivables approximate fair value as of December 31, 2009 and
December 31, 2008, 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
the Company’s $1.36 billion and $1.39 billion of fixed rate debt at December 31,
2009 and 2008, respectively, approximates its cost basis. Management
has estimated the fair value of the Company’s $490.6 million and $371.1 million
of variable rate debt at December 31, 2009 and 2008, respectively, is $458.7
million and $371.1 million based on the terms of existing mortgage notes payable
and variable rate demand notes 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,
other liabilities and dividends payable approximate fair value as of December
31, 2009 and 2008 due to the short-term maturity of these
instruments. Marketable securities and cash flow hedge liabilities
are carried at fair value as of December 31, 2009 and 2008, as discussed above
and in Note 9.
(j)
Interest Rate Protection, Swap, and Forward Contracts
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. The Company records all
derivatives on its consolidated balance sheet 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 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 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 as hedges, changes in fair value are recognized in
earnings. All of the Company’s interest rate swaps and caps are
considered cash flow hedges, and the Company did not have any fair value hedges
during the years end December 31, 2009, 2008 and 2007.
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 rated forward-starting swaps as part of its cash flow hedging
strategy. The Company is hedging its exposure to the variability in
future cash flows for a portion of its forecasted transactions over a maximum
period of 47 months as of December 31, 2009.
(k)
Deferred Charges
Deferred
charges are principally comprised of loan fees and related costs which are
amortized over the terms of the related borrowing in a manner which approximates
the effective interest method.
(l)
Income Taxes
Generally
in any year in which the Company 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 three years in the period ended December
31, 2009, as the Company 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 the Company 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. The activities and tax related
provisions, assets and liabilities are not material.
The
status of cash dividends distributed for the years ended December 31, 2009,
2008, and 2007 related to common stock, Series F, and Series G preferred stock
are classified for tax purposes as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Ordinary
income
|
79.82 | % | 98.95 | % | 75.65 | % | ||||||
|
Capital
gain
|
15.76 | % | 1.05 | % | 24.35 | % | ||||||
|
Unrecaptured
section 1250 capital gain
|
4.42 | % | 0.00 | % | 0.00 | % | ||||||
|
Return
of capital
|
0.00 | % | 0.00 | % | 0.00 | % | ||||||
| 100.00 | % | 100.00 | % | 100.00 | % | |||||||
(m)
Preferred Stock
The
Company’s Series G Cumulative Convertible Preferred Stock (“ Series G Preferred
Stock”) contains fundamental change provisions that allow the holder
to redeem the preferred stock for cash if certain events occur. The
redemption under these provisions is not solely within the Company’s control,
thus the Company has classified the Series G Preferred Stock as temporary equity
in the accompanying consolidated balance sheets.
The
Company’s Series F Cumulative Redeemable Preferred Stock (“Series F Preferred
Stock”) contains fundamental change provisions that allow the holder to redeem
the preferred stock for cash if certain events occur. The redemption
under these provisions is within the Company’s control, and thus the Company has
classified the Series F Preferred Stock as permanent equity in the accompanying
consolidated balance sheets.
(n)
Stock-based Compensation
The
Company accounts for share based compensation using the fair value method of
accounting. 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 13) are being amortized over the
expected service periods.
(o)
Accounting Estimates and Reclassifications
The
preparation of consolidated financial statements, in accordance with U.S.
generally accepted accounting principles (“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, its notes receivable and its qualification as a
REIT. 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.
Reclassifications
for discontinued operations have been made to prior year statements of
operations balances in order to conform to the current year
presentation. Such reclassifications have no impact on reported
earnings, total assets or total liabilities.
(p)
New Accounting Standards
In July
2009, the FASB established a codification as the single source of authoritative
nongovernmental GAAP (except for SEC rules and interpretive releases) which is
effective for interim and annual reporting periods ending after September 15,
2009 (the “Codification”). The Codification is intended to
reorganize, rather than change, existing GAAP. However, all existing
accounting standard documents are superseded by the Codification and all
accounting literature excluded from the Codification became nonauthoritative
upon the effective date in September 2009. Accordingly, references to
legacy accounting standards have been removed and replaced with references to
the Codification or plain English explanations of our accounting
policies. The adoption of the Codification did not have any impact on
the Company’s financial position or results of operations.
In
December 2007, the FASB issued a standard entitled “
Noncontrolling Interests in
Consolidated Financial Statements
” which establishes accounting and
reporting standards that require the ownership interests in subsidiaries held by
parties other than the parent be clearly identified, labeled, and presented in
the consolidated balance sheet within equity, but separate from the parent’s
equity; the amount of consolidated net income attributable to the parent and to
the noncontrolling interest be clearly identified and presented on the face of
the consolidated statement of operations; changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently; when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary be
initially measured at fair value; and entities provide sufficient disclosures
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. The standard is
effective for fiscal years beginning on or after December 15,
2008. As summarized in the table below, the accompanying 2008 and
2007 consolidated financial statements have been revised to record the impact of
the adoption of the standard.
In May
2008, the FASB issued a standard entitled “
Accounting for Convertible Debt
Instruments That May be Settled in Cash Upon Conversion,”
which requires
the issuer of certain convertible debt instruments that may be settled in cash
(or other assets) upon conversion to separately account for the liability (debt)
and equity (conversion option) components of the instruments in a manner that
reflects the issuer’s nonconvertible debt borrowing rate. This
standard requires the initial debt proceeds from the sale of a company’s
convertible debt instrument to be allocated between the liability component and
the equity component. The resulting debt discount will be amortized
over the period during which the debt is expected to be outstanding (i.e.,
through the first optional redemption dates) as additional non-cash interest
expense. The standard is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. Accounting for the Company’s $225.0 million exchangeable bonds
(the “Bonds”) with a coupon rate of 3.625% due November 2025, which were issued
in the fourth quarter of 2005, was impacted by the standard. During
the fourth quarter of 2008, the Company repurchased $53.3 million of the Bonds,
and during the year ended December 31, 2009 the Company repurchased most of the
remaining Bonds.
On
January 1, 2009, the Company retrospectively adopted the standard discussed
above for the Bonds. The Company estimated that the market interest
rate for the debt only portion of the Bonds as of the date of issuance was
5.75%, compared to the coupon rate of 3.625%. The Company computed
the estimated fair value of the debt portion of the Bonds as the present value
of the expected cash flows discounted at 5.75%. The difference
between the fair value of the debt portion of the Bonds and the carrying value
as previously reported was added to additional paid in capital as of the date of
issuance. The discount on the debt is amortized over the period from
issuance to the date of the first call option by the holders of the Bonds, which
occurs in November 2010, resulting in non-cash interest expense in addition to
the interest expense calculated based on the coupon rate. This
resulted in non-cash interest charges of $2.0 million, $4.0 million
and $3.9 million for the years ended December 31, 2009, 2008, and 2007
respectively. The standard requires that the fair value of the debt
portion of any bonds that are retired early be estimated to calculate the gain
on retirement. The difference between the estimated fair value
of the debt portion of the Bonds and the standard carrying value of the debt
portion of the Bonds is recorded as gain on early retirement of debt
and additional paid in capital is reduced to reflect the remaining portion
of the total amount paid to retire the Bonds.
The
following is a summary of the impact to the consolidated balance sheet as of
December 31, 2008 and consolidated statements of operations for the years ended
December 31, 2008 and 2007 from amounts previously reported to amounts included
in the accompanying consolidated financial statements as a result of the
retrospective adoption of the new accounting standards discussed above (in
thousands except per share amounts):
|
As
reported
December
31,
|
Noncontrolling
Interest Retrospective Adjustments
|
Bonds
Retrospective Adjustment
|
Revised
December 31,
|
|||||||||||||
|
Selected
balance sheet data:
|
||||||||||||||||
|
Exchangeable
bonds
|
$ | 171,716 | $ | - | $ | (6,259 | ) | $ | 165,457 | |||||||
|
Minority
interests
|
234,821 | (233,771 | ) | (1,050 | ) | - | ||||||||||
|
Additional
paid-in-capital
|
1,026,036 | - | 17,948 | 1,043,984 | ||||||||||||
|
Distributions
in excess of accumulated earnings
|
(130,697 | ) | - | (10,639 | ) | (141,336 | ) | |||||||||
|
Noncontrolling
interest
|
- | 233,771 | - | 233,771 | ||||||||||||
|
Year
Ended December 31, 2008
|
||||||||||||||||
|
As
reported
|
Noncontrolling
Interest Retrospective Adjustments
|
Bonds
Retrospective Adjustment
|
Revised
|
|||||||||||||
|
Interest
expense
|
$ | 81,086 | - | 3,977 | $ | 85,063 | ||||||||||
|
Gain
on early retirement of debt
|
3,517 | - | 480 | 3,997 | ||||||||||||
|
Noncontrolling
interest
|
22,395 | 142 | (282 | ) | 22,255 | |||||||||||
|
Earnings
per diluted share
|
2.21 | - | (0.12 | ) | 2.09 | |||||||||||
|
Year
Ended December 31, 2007
|
||||||||||||||||
|
As
reported
|
Noncontrolling
Interest Retrospective Adjustments
|
Bonds
Retrospective Adjustment
|
Revised
|
|||||||||||||
|
Interest
expense
|
$ | 81,993 | - | 3,903 | $ | 85,896 | ||||||||||
|
Noncontrolling
interest
|
19,999 | 71,327 | (365 | ) | 90,961 | |||||||||||
|
Earnings
per diluted share
|
4.24 | - | (0.14 | ) | 4.10 | |||||||||||
In June
2009, the FASB issued a standard entitled, “
Business Combinations
” which
establishes principles and requirements for how the acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; recognizes
and measures the goodwill acquired in a business combination or a gain from a
bargain purchase; and determines what information to disclose to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination. This standard is effective for business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The
adoption of this standard on January 1, 2009 did not have any impact on the
Company’s consolidated financial position, results of operations or cash flows
as it relates only to business combinations for the Company that take place on
or after January 1, 2009.
In June
2009, the FASB issued a standard entitled, "
Amendments to FASB Interpretation
No. 46(R)
”, which amends existing standards to replace the
quantitative-based risks and rewards calculation for determining which
enterprise, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which enterprise has the power to
direct the activities of a variable interest entity that most significantly
impact the entity’s economic performance and (1) the obligation to absorb losses
of the entity or (2) the right to receive benefits from the entity. An approach
that is expected to be primarily qualitative will be more effective for
identifying which enterprise has a controlling financial interest in a variable
interest entity. This Statement has not been incorporated into the
FASB Accounting Standards Codification as of December 31, 2009. The
new standard shall be effective as of the beginning of each reporting entity’s
first annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. Earlier application is prohibited. Management does
not believe that adoption of this standard will have a material impact to the
Company’s consolidated financial statements.
In May
2009, the FASB issued a standard entitled “
Subsequent Events
” which
defines subsequent events as events or transactions that occur after the balance
sheet date but before financial statements are issued or available to be issued.
Under the standard, the requirements for disclosing subsequent events remain
unchanged from the previous requirements. However, the standard contains an
additional requirement that companies must disclose the date through which
subsequent events have been evaluated and the rationale for selecting that
date. The Company has adopted the provisions of the
standard and has evaluated subsequent events for the period ended
January 1, 2010 through February 25, 2010, the date the financial statements
were issued. There were no events or transactions subsequent to
December 31, 2009 that require recognition or disclosure in the financial
statements.
(3)
Real Estate Investments
(a)
Sales of Real Estate investments
During
the fourth quarter of 2009, the Company sold Maple Leaf, a 48-unit community
located in Seattle, Washington for $6.4 million resulting in a gain of $2.9
million.
During
the third quarter of 2009, the Company sold Spring Lake, a 69-unit community
located in Seattle, Washington for $5.7 million and recognized a gain of $2.5
million.
During
the second quarter of 2009, the Company sold Mountain View Apartments, a
106-unit community located in Camarillo, California for $14.0 million and
recognized a gain of $0.8 million.
During
the first quarter of 2009, the Company sold Carlton Heights Villas, a 70-unit
community located in Santee, California for $6.9 million and recognized a gain
of approximately $1.6 million. Also in the first quarter of 2009, the
company sold Grand Regency, a 60-unit property in Escondido, California for $5.0
million and recognized a gain of approximately $0.9 million.
During
the fourth quarter of 2008, the Company sold Coral Gardens, a 200-unit property
located in El Cajon, California for $19.8 million resulting in a gain of $3.4
million. The Company also sold Green Valley, a manufactured
housing community located in Vista, California for $8.9 million resulting in a
gain of $1.8 million.
During
the third quarter of 2008, the Company sold Cardiff by the Sea Apartments,
located in Cardiff, California for $71.0 million resulting in a gain of $46,000
and St. Cloud Apartments, located in Houston, Texas for $8.8 million resulting
in no gain on sale. The Company also sold the Circle recreational
vehicle (“RV”) park located in El Cajon, California for $5.4 million resulting
in a gain of $0.9 million, and the Company sold the Vacationer RV park located
in El Cajon, California for $4.6 million. The gain on sale of $0.8
million resulting from the sale of Vacationer was deferred due to the fact the
Company loaned $4.1 million to the buyer at a fixed rate of 6.5% due in August
2011.
In
December 2007, the Company sold four communities (875-units) in the Portland
metropolitan area for $97.5 million, resulting in a gain of $52.9
million. The proceeds from the sale were used in a tax-free reverse
exchange for the purchase of Mill Creek at Windermere in September
2007.
In
February 2007, the Company sold the joint venture property City Heights
Apartments, a 687-unit community located in Los Angeles, California for $120
million. The Company’s share of the proceeds from the sale totaled
$33.9 million, resulting in a $13.7 million gain on sale, net of the joint
venture partner’s share of the gain, to the Company, and an additional $10.3
million for fees from the joint venture partner, both of which are included in
income from discontinued operations.
(b)
Acquisitions of Real
Estate
In
December, the Company acquired Axis 2300 (formerly known as “DuPont Lofts”), a
115-unit condominium development project in Irvine, California for $27.0
million. The project is 85 percent complete and will require an
additional six months of construction and the estimated remaining costs of
development are $9.1 million, consisting primarily of unit interior
finishes. Following construction, the Company intends to operate the
asset as an apartment community.
Also
during December 2009, the Company acquired Regency at Encino, a 75-unit
community located in Encino, California for $16.0 million.
In July
2008, the Company acquired Chestnut Street Apartments, a 96-unit apartment
community located in Santa Cruz, California, for $22.1 million.
In August
2008, the Company acquired The Highlands at Wynhaven, a 333-unit apartment
community located in Issaquah, Washington for $66.3 million.
(c)
Co-investments
The
Company has joint venture investments in co-investments which are accounted for
under the equity method. The joint ventures own and operate apartment
communities.
Essex
Apartment Value Fund II, L.P. (“Fund II”), has eight institutional investors
combined partner equity commitments of $265.9 million was fully contributed in
2008. The Company contributed $75.0 million to Fund II, which
represents a 28.2% interest as general partner and limited
partner. Fund II utilized debt as leverage equal to approximately 55%
upon the initial acquisition of the underlying real estate. Fund II
invested in apartment communities in the Company’s targeted West Coast markets
with an emphasis on investment opportunities in the Seattle metropolitan area
and the San Francisco Bay Area. As of October 2006, Fund II was fully
invested and closed for any future acquisitions or development. As of
December 31, 2009, Fund II owned fourteen apartment communities. No communities
have been sold by Fund II.
During
2006, the Company made a contribution to a development joint venture totaling
$3.4 million, and over the past three years the Company made additional
contributions and capitalized costs to this joint venture totaling $2.4 million
for a total investment of $5.8 million. This joint venture was to
obtain entitlements and make option payments towards the purchase of land
parcels in Marina del Rey, California for a proposed development
project. During the first quarter of 2009, the Company wrote-off its
investment in the joint venture development project of $5.8 million, and the
write-off of these costs is included in impairment and other charges in the
accompanying consolidated statements of operations.
During
March 2007, the Mountain Vista Apartments, LLC, a joint venture that owns the
Waterstone at Fremont apartments in Fremont, California, was recapitalized with
the inclusion of a new joint venture partner, and as part of this transaction
the Company received $7.7 million in net distributions from the joint
venture. The Company accounted for this transaction as a partial sale
of the Company’s investment and recorded a gain of $2.0 million which is
included in equity income in co-investments for the year ended December 31, 2007
as a result of this transaction. The Company’s carrying value of its
remaining investment in the amended and restated Mountain Vista Apartments, LLC
joint venture was $1.2 million and during January 2008, the Company collected
$7.5 million in connection with the return of its remaining interest in the
joint venture and recognized income of $6.3 million from its preferred
interest.
|
2009
|
2008
|
|||||||
|
Investments
in joint ventures accounted for under the equity method of
accounting:
|
||||||||
|
(
$ in
thousands
)
|
||||||||
|
Limited
partnership interest of 27.2% and general partner
interest of 1% in
Essex Apartment Value Fund II, L.P
|
$ | 70,283 | $ | 70,469 | ||||
|
Development
joint venture
|
- | 5,377 | ||||||
| 70,283 | 75,846 | |||||||
|
Investments
accounted for under the cost method of accounting:
|
||||||||
|
Series
A Preferred Stock interest in Multifamily Technology Solutions,
Inc
|
500 | 500 | ||||||
|
Total
investments
|
$ | 70,783 | $ | 76,346 | ||||
The
combined summarized financial information of co-investments, which are accounted
for under the equity method, is as follows:
|
December
31,
|
||||||||||||
|
(
$ in
thousands)
|
2009
|
2008
|
||||||||||
|
Balance
sheets:
|
||||||||||||
|
Rental
properties and real estate under development
|
$ | 489,352 | $ | 526,906 | ||||||||
|
Other
assets
|
30,458 | 40,877 | ||||||||||
|
Total
assets
|
$ | 519,810 | $ | 567,783 | ||||||||
|
Mortgage
notes payable
|
$ | 312,859 | $ | 308,853 | ||||||||
|
Other
liabilities
|
6,645 | 8,481 | ||||||||||
|
Partners'
equity
|
200,306 | 250,449 | ||||||||||
|
Total
liabilities and partners' equity
|
$ | 519,810 | $ | 567,783 | ||||||||
|
Company's
share of equity
|
$ | 70,283 | $ | 75,846 | ||||||||
|
Years
ended
|
||||||||||||
|
December
31,
|
||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Statements
of operations:
|
||||||||||||
|
Property
revenues
|
$ | 47,201 | $ | 46,879 | $ | 46,559 | ||||||
|
Property
operating expenses
|
(18,450 | ) | (17,621 | ) | (18,551 | ) | ||||||
|
Net
operating income
|
28,751 | 29,258 | 28,008 | |||||||||
|
Interest
expense
|
(10,805 | ) | (12,210 | ) | (13,888 | ) | ||||||
|
Depreciation
and amortization
|
(15,656 | ) | (13,926 | ) | (14,116 | ) | ||||||
|
Net
income
|
$ | 2,290 | $ | 3,122 | $ | 4 | ||||||
|
Company's
share of operating net income
|
670 | 1,502 | 1,074 | |||||||||
|
Company's
preferred interest/gain - Mt. Vista
(A)
|
- | 6,318 | 2,046 | |||||||||
|
Company's
share of net income
|
$ | 670 | $ | 7,820 | $ | 3,120 | ||||||
(A) The investment is held
in an entity that includes an affiliate of The Marcus & Millichap Company
(“TMMC”), and is the general partner. TMMC’s Chairman is also the
Chairman of the Company
.
(c)
Real Estate Under Development
The
Company defines real estate under development activities as new communities that
are in various stages of active development, or the community is in lease-up and
phases of the project are not completed. As of December 31, 2009, the
Company had four active development projects comprised of 581 units for an
estimated cost of $216.1 million, of which $65.9 million remains to be
expended.
The
Company defines the predevelopment pipeline as new communities in negotiation or
in the entitlement process with a high likelihood of becoming development
activities. As of December 31, 2009, the Company had two development
communities aggregating 332 units that were classified as predevelopment
projects. The estimated total cost of the predevelopment pipeline at
December 31, 2009 is $143.0 million, of which $89.3 million remains to be
expended. The Company owns land in various stages of entitlement that
is being held for future development or sale aggregating 1,329 units as of
December 31, 2009. The Company had incurred $71.1 million in costs
related to this land held for future development or sale.
(4)
Notes and Other Receivables
Notes
receivables, secured by real estate, and other receivables consist of the
following as December 31, 2009 and 2008 ($ in thousands):
|
2009
|
2008
|
|||||||
|
Note
receivable, secured, bearing interest at LIBOR + 3.69%, due June
2010
|
$ | 6,742 | $ | 7,325 | ||||
|
Note
receivable, secured, bearing interest at 8.0%, due November
2010
|
971 | 965 | ||||||
|
Note
receivable, secured, bearing interest at LIBOR + 3.25%, due December
2010
|
12,551 | 14,043 | ||||||
|
Note
receivable, secured, bearing interest at LIBOR + 4.75%, due March
2011
|
7,317 | 7,294 | ||||||
|
Note
receivable, secured, bearing interest at 6.5%, due August
2011
|
3,199 | 4,070 | ||||||
|
Non-performing
note receivable, secured
|
- | 13,448 | ||||||
|
Other
receivables
|
5,525 | 1,192 | ||||||
|
Allowance
for loan losses
|
- | (700 | ) | |||||
| $ | 36,305 | $ | 47,637 | |||||
In
September 2007, the Company originated a loan to the owners of an apartment
community under development in Vancouver, Washington, with a maturity date of
February 2009. The proceeds from the loan refinanced the property and
provided funding for the completion of the 146-unit apartment
community. In July 2008, the Company ceased recording interest income
and issued a notice of monetary default to the borrower, and the borrower filed
for bankruptcy. During the fourth quarter of 2008, the Company
recorded a loan loss reserve in the amount of $0.7 million with an additional
reserve of $0.4 million and $0.6 million recorded during the second and third
quarters of 2009, respectively, on this non-performing note
receivable. In October, the property was sold through the bankruptcy
trustee and the loan was repaid at no additional loss to the
Company.
(5) Related Party
Transactions
Management
and other fees from affiliates includes management, development and
redevelopment fees from Fund II totaling $4.3 million, $5.2 million, and $5.1
million for the years ended December 31, 2009, 2008, and 2007,
respectively.
The
Company’s Chairman, George Marcus, is the Chairman of TMMC, which owns a real
estate brokerage firm. During the years ended December 31, 2009,
2008, and 2007, the Company paid brokerage commissions totaling $0.0, $0.2
million, and $1.3 million, respectively to TMMC on the purchase and sales of
real estate. As discussed in Note 3, in January 2008, the Company
received $7.5 million from an investment held in an affiliate of TMMC and
recognized $6.3 million of preferred income which is included in equity (loss)
income from co-investments. For the year ended December 31, 2007, the
Company recognized income of $2.0 million from this investment in an affiliate
of TMMC.
(6)
Discontinued Operations
During
the fourth quarter of 2009, the Company sold Maple Leaf, a 48-unit community
located in Seattle, Washington for $6.4 million resulting in a $2.9 million
gain.
During
the third quarter of 2009, the Company sold Spring Lake, a 69-unit community
located in Seattle, Washington for $5.7 million resulting in a $2.5 million
gain.
During
the second quarter of 2009, the Company sold Mountain View Apartments, a
106-unit community located in Camarillo, California for $14.0 million resulting
in a $0.8 million gain.
During
the first quarter of 2009, the Company sold Carlton Heights Villas, a 70-unit
property located in Santee, California for $6.9 million resulting in a $1.6
million gain and Grand Regency, a 60-unit property in Escondido, California, for
$5.0 million resulting in a $0.9 million gain.
During
the fourth quarter of 2008, the Company sold Coral Gardens, a 200-unit property
located in El Cajon, California for $19.8 million resulting in a gain of $3.4
million.
During
the third quarter of 2008, the Company sold Cardiff by the Sea Apartments,
located in Cardiff, California for $71.0 million resulting in a gain of $46,000
and St. Cloud Apartments, located in Houston, Texas for $8.8 million resulting
in no gain on sale.
In
December 2007, the Company sold four communities (875-units) in the Portland
metropolitan area for $97.5 million, resulting in a gain of $52.9
million.
During
the first three quarters of 2007, the Company sold the 21 remaining condominium
units at the Peregrine Point community resulting in a gain of $1.0 million net
of taxes and expenses, and during 2006, the Company sold 45 units at Peregrine
Point resulting in a gain of $2.0 million net of taxes and
expenses.
In
February 2007, City Heights Apartments, a 687-unit community located in Los
Angeles was sold to a third-party for $120.0 million, resulting in a $78.3
million gain, and an additional $10.3 million for fees from the City Heights
joint venture partner.
The
Company has recorded the gains and operations for these various assets sold
described above as part of discontinued operations in the accompanying
consolidated statements of operations. The components of discontinued
operations are outlined below and include the results of operations for the
respective periods that the Company owned such assets, as described
above.
|
(
$ in
thousands
)
|
2009
|
2008
|
2007
|
|||||||||
|
Rental
revenues
|
$ | 1,991 | $ | 11,526 | $ | 21,725 | ||||||
|
Interest
and other income
|
- | - | 290 | |||||||||
|
Revenues
|
1,991 | 11,526 | 22,015 | |||||||||
|
Property
operating expenses
|
(752 | ) | (5,396 | ) | (9,020 | ) | ||||||
|
Interest
expense, secured mortgage debt
|
- | (2,210 | ) | (2,489 | ) | |||||||
|
Depreciation
and amortization
|
(495 | ) | (3,593 | ) | (5,652 | ) | ||||||
|
Expenses
|
(1,247 | ) | (11,199 | ) | (17,161 | ) | ||||||
|
Income
from real estate sold
|
744 | 327 | 4,854 | |||||||||
|
Gain
on sale of real estate
|
8,626 | 3,417 | 52,874 | |||||||||
|
Gain
on sale of real estate - City Heights
|
- | - | 78,306 | |||||||||
|
Promote
interest and fees
|
- | - | 10,290 | |||||||||
| 8,626 | 3,417 | 141,470 | ||||||||||
|
Internal
disposition costs
|
(683 | ) | - | - | ||||||||
|
Income
from discontinued operations
|
$ | 8,687 | $ | 3,744 | $ | 146,324 | ||||||
(7)
Mortgage Notes Payable and Exchangeable Bonds
Mortgage
notes payable and exchangeable bonds consist of the following as of December 31,
2009 and 2008:
|
($ in thousands except per
share amounts
)
|
2009
|
2008
|
||||||
|
Mortgage
notes payable secured by deeds of trust, bearing interest at rates ranging
from 7.84% to 8.29%, principal and interest payments due monthly, and
maturity dates ranging through October 2010. Under certain conditions a
portion of these loans can be converted to an unsecured note
payable. Two loans are are cross-collateralized by a total of
five communities
|
$ | 130,579 | $ | 132,595 | ||||
|
Mortgage
notes payable, secured by deeds of trust, bearing interest at ranges
ranging from 4.87% to 7.90%, principal and interest payments due monthly,
and maturity dates ranging from October 2010 through October
2019
|
1,221,374 | 1,085,210 | ||||||
|
Multifamily
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 2.1% at
December 2009 and 4.0% at December 2008), plus credit enhancement and
underwriting fees ranging from approximately 1.2% to 1.9%. The bonds are
primarily convertible to a fixed rate at the Company's option. Among the
terms imposed on the properties, which are security for the bonds, is a
requirement that 20% of the units are subject to tenant income criteria.
Principal balances are due in full at various maturity dates from March
2010 through December 2039. Of these bonds $197.1 million are
subject to various interest rate cap agreements which limit the maximum
interest rate to such bonds
|
251,596 | 251,126 | ||||||
|
Exchangeable
bonds, unsecured obligations of the Operating Partnership and guaranteed
by the Company, bearing interest at 3.625% per year, payable November 1
and May 1 of each year, which mature on November 1, 2025. The
bonds are exchangeable at the option of the holder into cash and, in
certain circumstances at the Company's option, shares of the Company's
common stock at an initial exchange price of $103.25 per share subject to
certain adjustments. These bonds will also be exchangeable prior to
November 1, 2020 under certain circumstances. The bonds are
redeemable at the Company's option for cash at any time on or after
November 4, 2010 and are subject to repurchase for cash at the option of
the holder on November 1
st
in years 2010, 2015, and 2020 or upon the occurrence of certain
events
|
4,893 | 165,457 | ||||||
| $ | 1,608,442 | $ | 1,634,388 | |||||
The
aggregate scheduled principal payments of mortgage notes payable and
exchangeable bonds are as follows:
|
($
in thousands)
|
||||
|
2010
|
$ | 160,762 | ||
|
2011
|
174,107 | |||
|
2012
|
31,303 | |||
|
2013
|
188,882 | |||
|
2014
|
62,272 | |||
|
Thereafter
|
991,116 | |||
| $ | 1,608,442 | |||
For the
Company’s mortgage notes payable as of December 31, 2009, monthly interest
expense and principal amortization, excluding balloon payments, totaled
approximately $6.1 million and $1.6 million, respectively. Second
deeds of trust accounted for $90.5 million of the $1.4 billion in mortgage notes
payable as of December 31, 2009. 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. (See
Schedule III for a list of mortgage loans related to each community in the
Company’s Portfolio.)
The
Company has repurchased all but $4.9 million of the exchangeable bonds as of
December 31, 2009 and recognized gains on these early extinguishments of debt of
$4.8 million and $4.0 million for the years ended December 31, 2009 and 2008
respectively.
(8)
Lines of Credit
The
Company has two outstanding lines of credit in the aggregate of $450 million
committed as of December 31, 2009. In December, the Company entered into a new
$200 million unsecured line of credit facility and cancelled the existing $200
million unsecured facility which was to mature in March 2010. The new
unsecured facility has a one year maturity with two one-year extensions,
exercisable at the Company’s option and the underlying interest rate on this
unsecured facility is based on a tiered rate structure tied to the Company's
corporate ratings and is currently at LIBOR plus 3.00%.
During
the fourth quarter 2008, the Company entered into a new five-year secured line
of credit facility with Freddie Mac to replace the prior secured line of credit
facility which matures in December 2013. The new secured facility
expanded the existing secured facility from $100 million to $150 million, and
the new facility is expandable to $250 million during the first two years. In
the fourth quarter of 2009, the Company exercised its option to increase the
borrowing capacity of the secured line of credit facility from $150 million to
$250 million which matures in December 2013. The underlying interest
rate on this line is between 99 and 150 basis points over the Freddie Mac
Reference Rate, and the interest rate on the secured line of credit is subject
to change by the lender in November 2011. The secured line of credit
is secured by eleven communities. As of December 31, 2009 and 2008,
$229.0 million and $120.0 million were outstanding under this line of credit,
respectively, with an average interest rate of 1.7% and 3.0% for balances
outstanding as of December 31, 2009 and 2008, respectively.
The line
of credit agreements contain debt covenants related to limitations on
indebtedness and liabilities, maintenance of minimum levels of consolidated
earnings before depreciation, interest, and amortization. The Company
was in compliance with the line of credit covenants as of December 31, 2009 and
2008.
(9)
Derivative Instruments and Hedging Activities
In
November 2008, in conjunction with obtaining a mortgage loan secured by
Montclaire, the Company settled a $25.0 million forward starting swap for a $1.2
million payment to the counterparty, which increased the effective interest on
this loan to 6.4%.
In June
2008, in conjunction with obtaining the mortgage loan secured by Hampton Place,
the Company settled a $20.0 million forward-starting swap for a $0.1 million
payment to the counterparty, which increased the effective interest rate on the
mortgage loan to 6.2%.
In April
2008, in conjunction with obtaining the mortgage loan secured by Park Hill at
Issaquah, the Company settled a $30 million forward-starting swap for a $1.7
million payment to the counterparty, which increased the effective interest rate
on the mortgage loan to 6.1%.
As of
December 31, 2009, the Company had seven forward-starting interest rate swap
contracts totaling a notional amount of $375.0 million with interest rates
ranging from 5.1% to 5.9% and settlements dates ranging from October 2010 to
October 2011. These derivatives qualify for hedge accounting as they
are expected to economically hedge the cash flows associated with future
financing of debt between 2010 and 2011. The Company had twelve
interest rate cap contracts totaling a notional amount of $197.1 million that
qualify for hedge accounting as they effectively limit the Company’s exposure to
interest rate risk by providing a ceiling on the underlying variable interest
rate for the Company’s $251.6 million of tax exempt variable rate
debt. The aggregate carrying value of the forward-starting interest
rate swap contracts was a net liability of $30.5 million and the aggregate
carrying value of the interest rate cap contracts was an asset of $0.3
million. The overall fair value of the derivatives changed by $43.0
million during the year ended December 31, 2009 to a net liability of $30.2
million as of December 31, 2009, and the derivative liability was recorded in
cash flow hedge liabilities in the Company’s consolidated financial
statements. The changes in the fair values of the derivatives are
reflected in other comprehensive (loss) income in the accompanying consolidated
financial statements. No hedge ineffectiveness on cash flow hedges
was recognized during the years ended December 31, 2009 and 2008.
(10)
Lease Agreements
Cadence
Campus, is an office property currently classified as land held for future
development or sale, and Essex-Hollywood, a rental property purchased for future
development, is a commercial building currently utilized as a production
studio. A single tenant leased the Cadence Campus during 2008 and the
lease expired in January 2009. Essex-Hollywood is leased to a single
tenant through 2012 and due to the length of this lease, during the fourth
quarter of 2008 when this lease was executed, the Company reclassified this
property from the predevelopment pipeline to rental property on the Company’s
consolidated balance sheet. Interest expense is not being capitalized
on these properties, and depreciation expense is being recorded.
The
Company is also a lessor for two office buildings located in Southern
California. The tenants’ lease terms expire at various times through 2014 with
average annual lease payments of approximately $1.3 million. The
future minimum non-cancelable base rent to be received under the Essex-Hollywood
and the two office buildings in Southern California operating leases for each of
the years ending after December 31 is summarized as follows:
|
Minimum
|
||||
|
(
$ in
thousands
)
|
Rent
|
|||
|
2010
|
$ | 3,325 | ||
|
2011
|
2,940 | |||
|
2012
|
1,994 | |||
|
2013
|
816 | |||
|
2014
|
751 | |||
|
Thereafter
|
1,173 | |||
| $ | 10,999 | |||
(11)
Equity and Noncontrolling Interest Transactions
Preferred
Securities Offerings
As of
December 31, 2009, the Company, either directly or through the Operating
Partnership, has the following cumulative preferred securities
outstanding:
|
Liquidation
|
|||||||
|
Description
|
Issue
Date
|
Preference
|
|||||
|
7.875%
Series B
|
February
1998
|
1,200,000
units
|
$ | 60,000 | |||
|
7.875%
Series B
|
April
1998
|
400,000
units
|
$ | 20,000 | |||
|
7.8125%
Series F
|
September
2003
|
1,000,000
shares
|
$ | 25,000 | |||
|
4.875%
Series G
|
July
2006
|
178,249
shares
|
$ | 4,456 | |||
Dividends
on the preferred securities are payable quarterly. The holders of the securities
have limited voting rights if the required dividends are in
arrears. The preferred units are included in noncontrolling interests
in the accompanying consolidated balance sheets.
As of
December 31, 2007, 2,000,000 units of 7.875% Series D Units were
outstanding. In November 2008, the holders of the Series D units,
with a par value of $50 million, exchanged the units for 363,000 shares of
common stock and $10 million in cash plus accrued dividends. Series B
Units can be redeemed at the Company's option anytime after December 31,
2009.
In
September 2003, the Company issued 1,000,000 shares of its Series F Cumulative
Redeemable Preferred Stock (“Series F Preferred Stock”) at a fixed price of
$24.664 per share, a discount from the $25.00 per share liquidation value of the
shares. The shares pay quarterly distributions at an annualized rate
of 7.8125% per year of the liquidation value and are redeemable by the Company
on or after September 23, 2008. The shares were issued pursuant to
the Company’s existing shelf registration statement. The Company used
the net proceeds from this sale of Series F Preferred Stock to redeem all of the
9.125% Series C Cumulative Redeemable Preferred Units of Essex Portfolio, L.P.,
of which the Company is the general partner.
During
the third quarter of 2006, the Company sold 5,980,000 shares of 4.875% Series G
Cumulative Convertible Preferred Stock (“Series G Preferred Stock”) for gross
proceeds of $149.5 million. Holders may convert Series G Preferred
Stock into shares of the Company’s common stock subject to certain
conditions. The conversion rate was initially .1830 shares of common
stock per the $25 share liquidation preference, which is equivalent to an
initial conversion price of approximately $136.62 per share of common stock (the
conversion rate will be subject to adjustment upon the occurrence of specified
events). On or after July 31, 2011, the Company may, under certain
circumstances, cause some or all of the Series G Preferred Stock to be converted
into that number of shares of common stock at the then prevailing conversion
rate. During the year ended December 31, 2009, the Company
repurchased $145.0 million of Series G Preferred Stock at a discount to par
value of $50.0 million. As of December 31, 2009, shares of Series G
Preferred Stock with an aggregate liquidation value of $4.5 million were
currently outstanding.
Common
Stock Offerings
During
2009 and 2008, the Company issued and sold 2,740,450 and 1,209,050 shares of
common stock for $198.5 million and $142.8 million, net of fees and commissions,
respectively. The Company used the net proceeds from such sales to
pay down debt, repurchase preferred stock, fund redevelopment and development
pipelines, fund acquisitions and invest in marketable securities.
Common
Stock Repurchases
In August
2007, the Company’s Board of Directors authorized a stock repurchase plan to
allow the Company to acquire shares in an aggregate of up to $200
million. The program supersedes the common stock repurchase plan that
the Company announced on May 16, 2001. During January 2008, the
Company repurchased and retired 143,400 shares of its common stock for
approximately $13.7 million. During February 2009, the Company
repurchased and retired 350,000 shares of its common stock for approximately
$20.3 million at a average stock price of $57.89.
(12)
Net Income Per Common Share
Basic and
diluted income from continuing operations per share are calculated as follows
for the years ended December 31
($ in thousands, except share and
per share amounts
):
|
2009
|
2008
|
2007
|
||||||||||||||||||||||||||||||||||
|
Weighted-
|
Per
|
Weighted-
|
Per
|
Weighted-
|
Per
|
|||||||||||||||||||||||||||||||
|
average
|
Common
|
average
|
Common
|
average
|
Common
|
|||||||||||||||||||||||||||||||
|
Common
|
Share
|
Common
|
Share
|
Common
|
Share
|
|||||||||||||||||||||||||||||||
|
Income
|
Shares
|
Amount
|
Income
|
Shares
|
Amount
|
Income
|
Shares
|
Amount
|
||||||||||||||||||||||||||||
|
Basic:
|
||||||||||||||||||||||||||||||||||||
|
Income
from continuing operations available to common
stockholders
|
$ | 74,229 | 27,269,547 | $ | 2.72 | $ | 49,340 | 25,205,367 | $ | 1.96 | $ | 27,929 | 24,548,003 | $ | 1.14 | |||||||||||||||||||||
|
Income
from discontinued operations
|
7,971 | 27,269,547 | 0.29 | 3,559 | 25,205,367 | 0.14 | 74,997 | 24,548,003 | 3.05 | |||||||||||||||||||||||||||
|
available
to common stockholders
|
82,200 | 3.01 | 52,899 | 2.10 | 102,926 | 4.19 | ||||||||||||||||||||||||||||||
|
Effect
of Dilutive Securities (1)
|
4,224 | 2,477,067 | - | 141,153 | - | 552,971 | ||||||||||||||||||||||||||||||
|
Diluted:
|
||||||||||||||||||||||||||||||||||||
|
Income
from continuing operations available to common stockholders
(1)
|
$ | 74,229 | 49,340 | $ | 27,929 | |||||||||||||||||||||||||||||||
|
Add:
noncontrolling interests OP unitholders
|
3,508 | - | - | |||||||||||||||||||||||||||||||||
|
Adjusted
income from continuing operations available to common stockholders
(1)
|
77,737 | 29,746,614 | $ | 2.61 | 49,340 | 25,346,520 | $ | 1.95 | 27,929 | 25,100,974 | $ | 1.11 | ||||||||||||||||||||||||
|
Income
(loss) from discontinued operations available to common
stockholders
|
7,971 | 3,559 | 74,997 | |||||||||||||||||||||||||||||||||
|
Add:
noncontrolling interests OP unitholders
|
716 | - | - | |||||||||||||||||||||||||||||||||
|
Adjusted
income from discontinued operations available to common
stockholders
|
8,687 | 29,746,614 | 0.30 | 3,559 | 25,346,520 | 0.14 | 74,997 | 25,100,974 | 2.99 | |||||||||||||||||||||||||||
| $ | 86,424 | $ | 2.91 | $ | 52,899 | $ | 2.09 | $ | 102,926 | $ | 4.10 | |||||||||||||||||||||||||
|
|
(1)
|
Weighted
convertible limited partnership units of 2,160,654 for the year ended
December 31, 2009, and vested Series Z incentive units of 287,097 for the
year ended December 31, 2009, were included in the determination of
diluted EPS because they were dilutive. Weighted convertible
limited partnership units of 2,210,808 and 2,282,568 and vested Series Z
incentive units of 250,618 and 213,126 for the year ended December 31,
2008 and December 31, 2007, respectively, were excluded in the
determination of diluted EPS because they were
anti-dilutive. The Company has the ability to redeem DownREIT
limited partnership units for cash and does not consider them to be
potentially dilutive securities.
|
On or
after November 1, 2020, the holders of the $5.0 million exchangeable bonds may
exchange, at the then applicable exchange rate, the bonds for cash and, at
Essex’s option, a portion of the bonds may be exchanged for Essex common stock;
the original exchange rate was $103.25 per share of Essex common
stock. The exchangeable bonds will also be exchangeable prior to
November 1, 2020, but only upon the occurrence of certain specified
events. During the year ended December 31, 2009, the weighted average
common stock price did not exceed the strike price (which was $101.07 as of
December 31, 2009) and therefore common stock issuable upon exchange of the
exchangeable notes was not included in the diluted share count as the effect was
anti-dilutive. During 2008 and 2007, the weighted average common
stock price exceeded the $103.25 strike price and therefore common stock
issuable upon exchange of the exchangeable bonds was included in the diluted
share count. The treasury method was used to determine the shares to
be added to the denominator for the calculation of earnings per diluted
share.
Stock
options of 260,736, 150,369 and 25,326 for the years ended December 31, 2009,
2008, and 2007, respectively, were not included in the diluted earnings per
share calculation because the exercise price of the options were greater than
the average market price of the common shares for the years ended and,
therefore, were anti-dilutive.
All
shares of cumulative convertible preferred stock Series G have been excluded
from diluted earnings per share for the years ended 2009, 2008, and 2007
respectively, as the effect was anti-dilutive.
(13)
Stock Based Compensation Plans
Stock
Options and Restricted Stock
The Essex
Property Trust, Inc. 2004 Stock Incentive Plan provides incentives to attract
and retain officers, directors and key employees. The Stock Incentive
Plan provides for the grants of options to purchase a specified number of shares
of common stock or grants of restricted shares of common stock. Under
the Stock Incentive Plan, the total number of shares available for grant is
approximately 1,200,000. The 2004 Stock Incentive Plan is
administered by the Compensation Committee of the Board of
Directors. The Compensation Committee 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 ten
years. Option grants for officers and employees fully vest between
one year and five years after the grant date.
Stock-based
compensation expense for options and restricted stock under the fair value
method totaled $1.2 million for each of the years ended December 31, 2009, 2008
and 2007. Stock-based compensation capitalized for options totaled
$0.2 million for each of the years ended December 31, 2009, 2008 and
2007. The intrinsic value of the options exercised totaled $0.5
million, $4.2 million, and $6.3 million, for the years ended December 31, 2009,
2008 and 2007, respectively. The intrinsic value of the options
outstanding and fully vested totaled $4.1 million, $3.7 million, and $9.9
million, for the years ended December 31, 2009, 2008 and 2007,
respectively.
Total
unrecognized compensation cost related to unvested share-based compensation
granted under the stock option totaled $0.4 million as of December 31,
2009. The unrecognized compensation cost is expected to be recognized
over a weighted-average period of 2 to 5 years for the stock option
plans.
The
average fair value of stock options granted for the years ended December 31,
2009, 2008, and 2007 was $5.24, $0 and $11.58 per share, respectively, and was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants:
|
2009
|
2008
|
2007
|
|||
|
Stock
price
|
$66.05-$84.90
|
-
|
$95.34-$126.73
|
||
|
Risk-free
interest rates
|
4.58%
|
-
|
3.52%-4.58%
|
||
|
Expected
lives
|
10
years
|
-
|
7-9
years
|
||
|
Volatility
|
20.00%
|
-
|
18.52%-20.31%
|
||
|
Dividend
yield
|
4.85%
|
-
|
3.99%-5.26%
|
A summary
of the status of the Company’s stock option plans as of December 31, 2009, 2008,
and 2007 and changes during the years ended on those dates is presented
below:
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||
|
average
|
average
|
average
|
||||||||||||||||||||||
|
exercise
|
exercise
|
exercise
|
||||||||||||||||||||||
|
Shares
|
price
|
Shares
|
price
|
Shares
|
price
|
|||||||||||||||||||
|
Outstanding
at beginning of year
|
393,443 | $ | 80.63 | 493,703 | $ | 79.83 | 570,542 | $ | 72.60 | |||||||||||||||
|
Granted
|
32,259 | 76.68 | - | - | 29,250 | 119.98 | ||||||||||||||||||
|
Exercised
|
(18,407 | ) | 38.31 | (78,000 | ) | 62.62 | (86,056 | ) | 50.23 | |||||||||||||||
|
Forfeited
and canceled
|
(28,753 | ) | 85.11 | (22,260 | ) | 97.38 | (20,033 | ) | 94.29 | |||||||||||||||
|
Outstanding
at end of year
|
378,542 | 82.02 | 393,443 | 80.63 | 493,703 | 79.83 | ||||||||||||||||||
|
Options
exercisable at year end
|
329,909 | 81.37 | 285,128 | 74.28 | 288,889 | 64.69 | ||||||||||||||||||
The
following table summarizes information about stock options outstanding as of
December 31, 2009, 2008 and 2007:
|
outstanding
|
average
|
Weighted-
|
exercisable
|
Weighted-
|
|||||||||||||
|
as
of
|
remaining
|
average
|
as
of
|
average
|
|||||||||||||
|
Range
of
|
December
31,
|
contractual
|
exercise
|
December
31,
|
exercise
|
||||||||||||
|
exercise
prices
|
2009
|
life
|
price
|
2009
|
price
|
||||||||||||
|
$38.06
- 57.57
|
85,997 |
2.1
years
|
$ | 50.01 | 85,997 | $ | 50.01 | ||||||||||
|
61.58
- 95.34
|
165,612 |
6.1
years
|
76.98 | 131,598 | 77.05 | ||||||||||||
|
101.01
- 132.62
|
126,933 |
6.6
years
|
110.29 | 112,314 | 110.44 | ||||||||||||
| 378,542 |
5.4
years
|
82.02 | 329,909 | 81.37 | |||||||||||||
During
2009 and 2008, the Company issued 18,954 and 18,122 shares of restricted stock,
respectively. The unrecognized compensation cost granted under the
restricted stock program of $3.3 million as of December 31, 2009 is expected to
be recognized straight-line over a period of 7 years.
The
following table summarizes information about restricted stock outstanding as of
December 31, 2009, 2008 and 2007 and changes during ths years
ended:
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||
|
average
|
average
|
average
|
||||||||||||||||||||||
|
grant
|
grant
|
grant
|
||||||||||||||||||||||
|
Shares
|
price
|
Shares
|
price
|
Shares
|
price
|
|||||||||||||||||||
|
Unvested
at beginning of year
|
30,304 | $ | 119.31 | 17,178 | $ | 123.23 | - | $ | - | |||||||||||||||
|
Granted
|
18,954 | 75.77 | 18,122 | 116.01 | 17,178 | 123.23 | ||||||||||||||||||
|
Vested
|
(5,647 | ) | 108.49 | (2,262 | ) | 123.58 | - | - | ||||||||||||||||
|
Forfeited
and canceled
|
(5,884 | ) | 116.89 | (2,734 | ) | 118.58 | - | - | ||||||||||||||||
|
Unvested
at end of year
|
37,727 | 99.43 | 30,304 | 119.31 | 17,178 | 123.23 | ||||||||||||||||||
Long
Term Incentive Plan – Z Units
The Company has adopted an
incentive program involving the issuance of 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 at the beginning of the year 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 may have marketability restrictions. The estimated fair
value of a Z Unit is determined on the grant date and considers the company's
current stock price, 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 taking annual
vesting increases multiplied by the estimated fair value as of the grant date
less its $1.00 purchase price.
Stock-based
compensation expense for Z Units under the fair value method totaled
approximately $1.5 million for the years ended December 31, 2009, 2008 and 2007,
respectively. Stock-based compensation capitalized for Z Units
totaled approximately $0.4 million, $0.6 million and $0.4 million, for the years
ended December 31, 2009, 2008 and 2007, respectively. The intrinsic
value of the Z Units vested totaled $9.0 million as of December 31,
2009. Total unrecognized compensation cost related to Z Units
unvested under the Z Units plans totaled $4.6 million as of December 31,
2009. The unamortized cost is expected to be recognized over the next
2 to 10 years subject to the achievement of the stated performance
criteria.
The
issuance of Z Units is administered by the Compensation Committee which has the
authority to select participants and determine the awards to be made up to a
maximum of 600,000 Z Units. The conversion ratchet (accounted for as
vesting) of the Z Units into common units, will increase by up to 10% (up to 20%
in certain circumstances following their initial issuance) effective January 1
of each year for each participating executive who remains employed by the
Company if the Company has met a specified “funds from operations” per share
target, or such other target as the Compensation Committee deems appropriate,
for the prior year, up to a maximum conversion ratchet of 100%. The Operating
Partnership has the option to redeem Z Units held by any executive whose
employment has been terminated with either common units of the Operating
Partnership or shares of the Company’s common stock based on the then-effective
conversion ratchet.
During
2001, the Operating Partnership issued 200,000 Series Z Incentive Units of
limited partner interest to eleven senior executives of the Company in exchange
for a capital commitment of $1.00 per Series Z Incentive Unit.
During
2004, the Operating Partnership issued 95,953 Series Z-1 Incentive Units of
limited partner interest to fourteen senior executives of the Company in
exchange for cash or a capital commitment of $1.00 per Series Z-1 Incentive
Units. In 2005 an additional 27,000 Z-1 Units were granted to two
senior executives pursuant to the 2004 grant.
During
2005, the Operating Partnership issued 89,999 Series Z-1 Incentive Units of
limited partner interest to fourteen senior executives of the Company in
exchange for cash or a capital commitment of $1.00 per Series Z-1 Incentive
Unit.
The
following table summarizes information about the Z Units outstanding as of
December 31, 2009:
|
Weighted-
|
|||||||||||||||||||||
|
Weighted-
|
average
|
||||||||||||||||||||
|
Total
|
Aggregate
|
Total
|
Total
|
average
|
remaining
|
||||||||||||||||
|
Vested
|
intrinsic
|
Unvested
|
Outstanding
|
grant-date
|
contractual
|
||||||||||||||||
|
Units
|
value
|
Units
|
Units
|
fair
value
|
life
|
||||||||||||||||
|
Balance,
December 2006
|
175,481 | $ | 13,400 | 237,471 | 412,952 | $ | 39.36 |
11.2
years
|
|||||||||||||
|
Vested
|
37,724 | (37,724 | ) | - | |||||||||||||||||
|
Balance,
December 2007
|
213,205 | 15,963 | 199,747 | 412,952 | 39.36 |
10.2
years
|
|||||||||||||||
|
Vested
|
37,723 | (37,723 | ) | - | |||||||||||||||||
|
Balance,
December 2008
|
250,928 | 17,723 | 162,024 | 412,952 | 39.36 |
9.2
years
|
|||||||||||||||
|
Vested
|
37,723 | (37,723 | ) | - | |||||||||||||||||
|
Balance,
December 2009
|
288,651 | $ | 8,984 | 124,301 | 412,952 | $ | 39.36 |
8.2
years
|
|||||||||||||
Long
Term Incentive Plan – Outperformance Plan
Stock-based
compensation expense for the Outperformance Plan, (the “OPP”) adopted in
December 2007 under the fair value method totaled approximately $0.9 million,
$1.2 million and $0.1 million for years ended December 31, 2009, 2008, and 2007
respectively. During the third quarter 2009, the Company
elected to effectively cancel the Outperformance Plan (the “OPP”) for senior
officers and non-employee directors and recognized a non-cash expense of $3.8
million in unamortized costs related to the OPP. The costs were
included in impairment and other charges in the accompanying consolidated
statement of operations for the year ending December 31, 2009.
(14)
Segment Information
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 are
communities classified in discontinued operations, 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 which are primarily office
buildings. Other non-segment assets include investments, real estate
under development, cash and cash equivalents, marketable securities, notes
receivable, other assets and deferred charges.
The
revenues and net operating income for each of the reportable operating segments
are summarized as follows for the years ended December 31, 2009, 2008, and
2007:
|
Years
Ended December 31,
|
||||||||||||
|
(
$ in
thousands
)
|
2009
|
2008
|
2007
|
|||||||||
|
Revenues:
|
||||||||||||
|
Southern
California
|
$ | 206,834 | $ | 207,694 | $ | 205,236 | ||||||
|
Northern
California
|
121,660 | 119,886 | 99,378 | |||||||||
|
Seattle
Metro
|
71,270 | 70,348 | 62,645 | |||||||||
|
Other
real estate assets
|
7,300 | 5,340 | 2,400 | |||||||||
|
Total
property revenues
|
$ | 407,064 | $ | 403,268 | $ | 369,659 | ||||||
|
Net
operating income:
|
||||||||||||
|
Southern
California
|
$ | 137,799 | $ | 142,134 | $ | 141,910 | ||||||
|
Northern
California
|
80,352 | 78,528 | 65,142 | |||||||||
|
Seattle
Metro
|
44,814 | 46,614 | 41,348 | |||||||||
|
Other
real estate assets
|
4,388 | 3,575 | (216 | ) | ||||||||
|
Total
net operating income
|
267,353 | 270,851 | 248,184 | |||||||||
|
Depreciation
and amortization:
|
||||||||||||
|
Southern
California
|
(53,932 | ) | (50,556 | ) | (45,362 | ) | ||||||
|
Northern
California
|
(37,714 | ) | (34,844 | ) | (27,852 | ) | ||||||
|
Seattle
Metro
|
(22,813 | ) | (19,014 | ) | (15,182 | ) | ||||||
|
Other
real estate assets
|
(3,568 | ) | (5,287 | ) | (8,202 | ) | ||||||
| (118,027 | ) | (109,701 | ) | (96,598 | ) | |||||||
|
Interest:
|
||||||||||||
|
Southern
California
|
(36,682 | ) | (31,576 | ) | (29,550 | ) | ||||||
|
Northern
California
|
(29,699 | ) | (24,157 | ) | (18,741 | ) | ||||||
|
Seattle
Metro
|
(10,782 | ) | (9,159 | ) | (6,892 | ) | ||||||
|
Other
real estate assets
|
(8,853 | ) | (20,171 | ) | (30,713 | ) | ||||||
| (86,016 | ) | (85,063 | ) | (85,896 | ) | |||||||
|
Management
and other fees from affiliates
|
4,325 | 5,166 | 5,090 | |||||||||
|
General
and administrative
|
(23,704 | ) | (26,984 | ) | (26,673 | ) | ||||||
|
Impairment
and other charges
|
(17,442 | ) | (1,350 | ) | (800 | ) | ||||||
|
Interest
and other income
|
13,040 | 11,337 | 10,310 | |||||||||
|
Gain
on early retirement of debt
|
4,750 | 3,997 | - | |||||||||
|
Equity
income in co-investments
|
670 | 7,820 | 3,120 | |||||||||
|
Gain
on sale of real estate
|
103 | 4,578 | - | |||||||||
|
Income
before discontinued operations
|
$ | 45,052 | $ | 80,651 | $ | 56,737 | ||||||
Total
assets for each of the reportable operating segments are summarized as follow as
of December 31, 2009 and 2008:
|
($ in
thousands
)
|
As
of December 31,
|
|||||||
|
Assets:
|
2009
|
2008
|
||||||
|
Southern
California
|
$ | 1,239,657 | $ | 1,291,850 | ||||
|
Northern
California
|
923,103 | 850,170 | ||||||
|
Seattle
Metro
|
417,708 | 431,041 | ||||||
|
Other
real estate assets
|
82,998 | 66,701 | ||||||
|
Net
reportable operating segments - real estate assets
|
2,663,466 | 2,639,762 | ||||||
|
Real
estate under development
|
274,965 | 272,273 | ||||||
|
Co-investments
|
70,783 | 76,346 | ||||||
|
Cash
and cash equivalents, including restricted cash
|
37,934 | 54,719 | ||||||
|
Marketable
securities
|
134,844 | 23,886 | ||||||
|
Funds
held by 1031 exchange facilitator
|
- | 21,424 | ||||||
|
Notes
and other receivables
|
36,305 | 47,637 | ||||||
|
Other
non-segment assets
|
36,340 | 28,776 | ||||||
|
Total
assets
|
$ | 3,254,637 | $ | 3,164,823 | ||||
(15)
401(k) Plan
The
Company has a 401(k) benefit plan (the “Plan”) for all full-time employees who
have completed six months of service. Employee contributions
are limited by the maximum allowed under Section 401(k) of the Internal
Revenue Code. The Company matches the employee contributions for non-highly
compensated personnel, up to 50% of their contribution up to a specified
maximum. Company contributions to the Plan were approximately $0.2 million, $0.3
million, and $0.3 million for the years ended December 31, 2009, 2008, and 2007,
respectively.
(16)
Commitments and Contingencies
At
December 31, 2009, the Company had six non-cancelable ground leases for certain
apartment communities and buildings that expire between 2027 and
2080. Land lease payments are typically the greater of a stated
minimum or a percentage of gross rents generated by these apartment
communities. Total minimum lease commitments, under land leases and
operating leases, are approximately $1.6 million per year for the next five
years.
The
Company has a performance guarantee with a commercial bank related to the Joule
Broadway development project.
To the
extent that an environmental matter arises or is identified in the future that
has other than a remote risk, as defined in SFAS 5, of having a material impact
on the financial statements, the Company will disclose the estimated range of
possible outcomes, and, if an outcome is probable, accrue appropriate liability
for remediation and other potential liability. The Company will consider whether
such occurrence results in an impairment of value on the affected property and,
if so, impairment will be recognized.
Except
with respect to three communities, the Company has no indemnification agreements
from third parties for potential environmental clean-up costs at its
communities. The Company has no way of determining at this time the
magnitude of any potential liability to which it may be subject arising out of
unknown environmental conditions or violations with respect to the communities
formerly owned by the Company. No assurance can be given that
existing environmental studies with respect to any of the communities reveal all
environmental liabilities, that any prior owner or operator of a Property did
not create any material environmental condition not known to the Company, or
that a material environmental condition does not otherwise exist as to any one
or more of the communities. The Company has limited insurance
coverage for the types of environmental liabilities described
above.
The
Company may enter into transactions that could 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 to have a
material impact on the Company’s financial position.
Recently
there has been an increasing number of lawsuits against owners and managers of
apartment communities alleging personal injury and property damage caused by the
presence of mold in residential real estate. 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, of such matters. Insurance carriers have reacted to mold
related liability awards by excluding mold related claims from standard policies
and pricing mold endorsements at prohibitively high rates. The
Company has, however, purchased pollution liability insurance, which includes
some coverage for mold. The Company has adopted policies for promptly
addressing and resolving reports of mold when it is detected, and to minimize
any impact mold might have on residents of the property. The Company
believes its mold policies and proactive response to address any known
existence, reduces its risk of loss from these cases. There can be no
assurances that the Company has identified and responded to all mold
occurrences, but the company promptly addresses all known reports of
mold. 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, 2009,
potential liabilities for mold and other environmental liabilities are not
considered probable or the loss cannot be quantified or estimated.
The
Company carries comprehensive liability, fire, extended coverage and rental loss
insurance for each of the communities. Insured risks for
comprehensive liabilities covers claims in excess of $25,000 per incident, and
property casualty insurance covers losses in excess of a $5.0 million deductible
per incident. There are, however, certain types of extraordinary losses, such
as, for example, losses from terrorism and earthquake, for which the Company
does not have insurance. Substantially all of the communities are located in
areas that are subject to earthquakes.
The
Company is subject to various other lawsuits in the normal course of its
business operations. Such lawsuits are not expected to have a
material adverse effect on the Company’s financial condition, results of
operations or cash flows.
(18)
Quarterly Results of Operations (Unaudited)
The
following is a summary of quarterly results of operations for 2009 and 2008
(
$ in thousands, except per
share and dividend amounts
):
|
Quarter
ended
|
Quarter
ended
|
Quarter
ended
|
Quarter
ended
|
|||||||||||||
|
December
31
(1)
|
September
30
(1)
|
June
30
(1)
|
March
31
(1)
|
|||||||||||||
|
2009:
|
||||||||||||||||
|
Total
property revenues
|
$ | 100,004 | $ | 100,670 | $ | 102,476 | $ | 103,914 | ||||||||
|
Income
before discontinued operations
|
$ | 7,687 | $ | 23 | $ | 16,559 | $ | 20,783 | ||||||||
|
Net
income
|
$ | 10,600 | $ | 2,350 | $ | 17,452 | $ | 23,337 | ||||||||
|
Net
income available to common stockholders
|
$ | 6,781 | $ | 21,740 | $ | 11,414 | $ | 42,265 | ||||||||
|
Per
share data:
|
||||||||||||||||
|
Net
income:
|
||||||||||||||||
|
Basic
|
$ | 0.24 | $ | 0.79 | $ | 0.43 | $ | 1.61 | ||||||||
|
Diluted
|
$ | 0.24 | $ | 0.74 | $ | 0.43 | $ | 1.53 | ||||||||
|
Market
price:
|
||||||||||||||||
|
High
|
$ | 88.35 | $ | 86.49 | $ | 71.84 | $ | 77.77 | ||||||||
|
Low
|
$ | 73.28 | $ | 55.96 | $ | 55.42 | $ | 49.19 | ||||||||
|
Close
|
$ | 83.65 | $ | 79.58 | $ | 62.23 | $ | 57.34 | ||||||||
|
Dividends
declared
|
$ | 1.03 | $ | 1.03 | $ | 1.03 | $ | 1.03 | ||||||||
|
2008:
|
||||||||||||||||
|
Total
property revenues
|
$ | 103,711 | $ | 101,784 | $ | 99,792 | $ | 97,981 | ||||||||
|
Income
before discontinued operations
|
$ | 22,021 | $ | 19,451 | $ | 16,415 | $ | 22,764 | ||||||||
|
Net
income
|
$ | 25,964 | $ | 19,264 | $ | 16,318 | $ | 22,849 | ||||||||
|
Net
income available to common stockholders
|
$ | 17,954 | $ | 11,421 | $ | 8,744 | $ | 14,780 | ||||||||
|
Per
share data:
|
||||||||||||||||
|
Net
income:
|
||||||||||||||||
|
Basic
|
$ | 0.69 | $ | 0.45 | $ | 0.35 | $ | 0.60 | ||||||||
|
Diluted
|
$ | 0.68 | $ | 0.45 | $ | 0.35 | $ | 0.59 | ||||||||
|
Market
price:
|
||||||||||||||||
|
High
|
$ | 117.77 | $ | 129.57 | $ | 124.33 | $ | 117.51 | ||||||||
|
Low
|
$ | 60.77 | $ | 100.63 | $ | 105.12 | $ | 84.59 | ||||||||
|
Close
|
$ | 76.75 | $ | 118.33 | $ | 106.50 | $ | 113.98 | ||||||||
|
Dividends
declared
|
$ | 1.02 | $ | 1.02 | $ | 1.02 | $ | 1.02 | ||||||||
|
|
(1)
|
Net
earnings from discontinued operations have been reclassified for all
periods presented.
|
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Financial
Statement Schedule III
Real
Estate and Accumulated Depreciation
December
31, 2009
(Dollars
in thousands)
|
Costs
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Initial
cost
|
capitalized
|
Gross
amount carried at close of period
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Buildings
and
|
subsequent
to
|
Land
and
|
Buildings
and
|
Accumulated
|
Date
of
|
Date
|
Lives
|
||||||||||||||||||||||||||||||||||||||||||
|
Property
|
Units
|
Location
|
Encumbrance
|
Land
|
improvements
|
acquisition
|
improvements
|
improvements
|
Total
(1)
|
depreciation
|
construction
|
acquired
|
(years)
|
||||||||||||||||||||||||||||||||||||
|
Encumbered
apartment communities
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Fountain
Court
|
320 |
Seattle,
WA
|
$ | 6,702 | $ | 27,306 | $ | 2,499 | $ | 6,985 | $ | 29,522 | $ | 36,507 | $ | 10,184 | 2000 | 03/00 | 3-30 | ||||||||||||||||||||||||||||||
|
Hillcrest
Park
|
608 |
Newbury
Park, CA
|
15,318 | 40,601 | 13,508 | 15,755 | 53,672 | 69,427 | 20,752 | 1973 | 03/98 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Hillsborough
Park
|
235 |
La
Habra, CA
|
6,291 | 15,455 | 1,135 | 6,272 | 16,609 | 22,881 | 6,046 | 1999 | 09/99 | 3-30 | |||||||||||||||||||||||||||||||||||||
| 74,345 | 28,311 | 83,362 | 17,142 | 29,012 | 99,803 | 128,815 | 36,982 | ||||||||||||||||||||||||||||||||||||||||||
|
Bel
Air
|
462 |
San
Ramon, CA
|
12,105 | 18,252 | 19,738 | 12,682 | 37,413 | 50,095 | 16,010 | 1988 | 01/97 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Waterford,
The
|
238 |
San
Jose, CA
|
11,808 | 24,500 | 12,107 | 15,165 | 33,250 | 48,415 | 10,269 | 2000 | 06/00 | 3-30 | |||||||||||||||||||||||||||||||||||||
| 56,373 | 23,913 | 42,752 | 31,845 | 27,847 | 70,663 | 98,510 | 26,279 | ||||||||||||||||||||||||||||||||||||||||||
|
Bonita
Cedars
|
120 |
Bonita,
CA
|
2,496 | 9,913 | 1,299 | 2,503 | 11,205 | 13,708 | 2,897 | 1983 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Bristol
Commons
|
188 |
Sunnyvale,
CA
|
5,278 | 11,853 | 2,995 | 5,293 | 14,833 | 20,126 | 7,200 | 1989 | 01/97 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Bunker
Hill
|
456 |
Los
Angeles, CA
|
11,498 | 27,871 | 4,680 | 11,639 | 32,410 | 44,049 | 14,048 | 1968 | 03/98 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Castle
Creek
|
216 |
Newcastle,
WA
|
4,149 | 16,028 | 2,738 | 4,834 | 18,081 | 22,915 | 8,151 | 1997 | 12/97 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Forest
View
|
192 |
Renton,
WA
|
3,731 | 14,530 | 912 | 3,731 | 15,442 | 19,173 | 3,448 | 1998 | 10/03 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Meadowood
|
320 |
Simi
Valley, CA
|
7,852 | 18,592 | 4,452 | 7,898 | 22,998 | 30,896 | 11,162 | 1986 | 11/96 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Mira
Monte
|
355 |
Mira
Mesa, CA
|
7,165 | 28,459 | 7,115 | 7,186 | 35,553 | 42,739 | 9,754 | 1982 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Mission
Hills
|
282 |
Oceanside,
CA
|
10,099 | 38,778 | 3,190 | 10,167 | 41,900 | 52,067 | 6,841 | 1984 | 7/05 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Trabucco
Villas
|
132 |
Lake
Forest, CA
|
3,638 | 8,640 | 1,941 | 3,890 | 10,329 | 14,219 | 4,845 | 1985 | 10/97 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Walnut
Heights
|
163 |
Walnut,
CA
|
4,858 | 19,168 | 1,716 | 4,887 | 20,855 | 25,742 | 4,494 | 1964 | 10/03 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Windsor
Ridge
|
216 |
Sunnyvale,
CA
|
4,017 | 10,315 | 4,578 | 4,021 | 14,889 | 18,910 | 9,855 | 1989 | 03/89 | 3-30 | |||||||||||||||||||||||||||||||||||||
| 229,000 | 64,781 | 204,147 | 35,615 | 66,048 | 238,495 | 304,543 | 82,695 | ||||||||||||||||||||||||||||||||||||||||||
|
Alpine
Village
|
306 |
Alpine,
CA
|
16,391 | 4,967 | 19,728 | 2,969 | 4,982 | 22,682 | 27,664 | 5,686 | 1971 | 12/02 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Anchor
Village
|
301 |
Mukilteo,
WA
|
10,750 | 2,498 | 10,595 | 9,567 | 2,823 | 19,837 | 22,660 | 9,034 | 1981 | 01/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Avondale
at Warner Center
|
446 |
Woodland
Hills, CA
|
48,570 | 10,536 | 24,522 | 15,885 | 10,601 | 40,342 | 50,943 | 15,602 | 1970 | 01/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Bridgeport
|
184 |
Newark,
CA
|
22,657 | 1,608 | 7,582 | 6,769 | 1,525 | 14,434 | 15,959 | 8,920 | 1987 | 07/87 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Barkley,
The
(2)
|
161 |
Anaheim,
CA
|
17,442 | - | 8,520 | 4,647 | 2,353 | 10,814 | 13,167 | 4,127 | 1984 | 04/00 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Belmont
Station
|
275 |
Los
Angeles, CA
|
30,045 | 8,100 | 66,666 | 2,437 | 8,267 | 68,936 | 77,203 | 3,848 | 2008 | 12/08 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Brentwood
|
140 |
Santa
Ana, CA
|
20,198 | 2,833 | 11,303 | 4,799 | 3,503 | 15,433 | 18,935 | 4,022 | 1970 | 11/01 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Brighton
Ridge
|
264 |
Renton,
WA
|
15,511 | 2,623 | 10,800 | 4,318 | 2,656 | 15,085 | 17,741 | 7,479 | 1986 | 12/96 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Brookside
Oaks
|
170 |
Sunnyvale,
CA
|
13,651 | 7,301 | 16,310 | 18,221 | 10,328 | 31,504 | 41,832 | 7,700 | 1973 | 06/00 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Cairns,
The
|
100 |
Seattle,
WA
|
11,323 | 6,937 | 20,679 | 183 | 6,939 | 20,860 | 27,799 | 1,782 | 2006 | 06/07 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Camarillo
Oaks
|
564 |
Camarillo,
CA
|
50,962 | 10,953 | 25,254 | 6,125 | 11,075 | 31,257 | 42,332 | 16,422 | 1985 | 07/96 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Camino
Ruiz Square
|
160 |
Camarillo,
CA
|
21,110 | 6,871 | 26,119 | 420 | 6,932 | 26,479 | 33,410 | 2,679 | 1990 | 12/06 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Canyon
Oaks
|
250 |
San
Ramon, CA
|
30,127 | 19,088 | 44,473 | 454 | 19,088 | 44,927 | 64,015 | 3,985 | 2005 | 05/07 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Canyon
Pointe
|
250 |
Bothell,
WA
|
15,243 | 4,692 | 18,288 | 2,456 | 4,693 | 20,743 | 25,436 | 4,464 | 1990 | 10/03 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Capri
at Sunny Hills
|
100 |
Fullerton,
CA
|
18,673 | 3,337 | 13,320 | 5,780 | 4,048 | 18,389 | 22,437 | 4,902 | 1961 | 09/01 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Carlyle,
The
|
132 |
San
Jose, CA
|
14,935 | 3,954 | 15,277 | 9,582 | 5,801 | 23,012 | 28,813 | 6,970 | 2000 | 04/00 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
City
View
|
560 |
Hayward,
CA
|
49,846 | 9,883 | 37,670 | 19,915 | 10,349 | 57,119 | 67,468 | 22,404 | 1975 | 03/98 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Coldwater
Canyon
|
39 |
Studio
City, CA
|
5,781 | 1,674 | 6,640 | 1,046 | 1,676 | 7,684 | 9,360 | 841 | 1979 | 05/07 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Devonshire
|
276 |
Hemet,
CA
|
10,672 | 3,470 | 13,786 | 1,983 | 3,482 | 15,758 | 19,239 | 4,309 | 1988 | 12/02 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Emerald
Ridge - North
|
180 |
Bellevue,
WA
|
10,366 | 3,449 | 7,801 | 3,605 | 3,449 | 11,406 | 14,855 | 6,220 | 1987 | 11/94 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Esplanade
|
278 |
San
Jose, CA
|
47,529 | 18,170 | 40,086 | 4,258 | 18,429 | 44,085 | 62,514 | 8,043 | 2002 | 11/04 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Evergreen
Heights
|
200 |
Kirkland,
WA
|
10,549 | 3,566 | 13,395 | 2,922 | 3,649 | 16,233 | 19,883 | 7,200 | 1990 | 06/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
(Continued)
|
|||||||||||||||||||||||||||||||||||||||||||||||||
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Real
Estate and Accumulated Depreciation
December
31, 2009
(Dollars
in thousands)
|
Costs
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Initial
cost
|
capitalized
|
Gross
amount carried at close of period
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Buildings
and
|
subsequent
to
|
Land
and
|
Buildings
and
|
Accumulated
|
Date
of
|
Date
|
Lives
|
||||||||||||||||||||||||||||||||||||||||||
|
Property
|
Units
|
Location
|
Encumbrance
|
Land
|
improvements
|
acquisition
|
improvements
|
improvements
|
Total
(1)
|
depreciation
|
construction
|
acquired
|
(years)
|
||||||||||||||||||||||||||||||||||||
|
Encumbered
apartment communities (continued)
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Fairwood
Pond
|
194 |
Renton,
WA
|
14,070 | 5,296 | 15,564 | 1,082 | 5,297 | 16,645 | 21,942 | 3,105 | 1997 | 10/04 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Fountain
Park
|
705 |
Playa
Vista, CA
|
98,256 | 25,073 | 94,980 | 18,955 | 25,203 | 113,805 | 139,008 | 22,954 | 2002 | 02/04 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Harvest
Park
|
104 |
Santa
Rosa, CA
|
11,271 | 6,700 | 15,479 | 499 | 6,690 | 15,988 | 22,678 | 1,550 | 2004 | 03/07 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Hampton
Place
|
132 |
Glendale,
CA
|
22,167 | 4,288 | 11,081 | 2,596 | 4,307 | 13,658 | 17,965 | 5,008 | 1970 | 06/99 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Hidden
Valley
|
324 |
Simi
Valley, CA
|
32,240 | 14,174 | 34,065 | 603 | 11,663 | 37,178 | 48,842 | 6,867 | 2004 | 12/04 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Highridge
|
255 |
Rancho
Palos Verdes, CA
|
44,807 | 5,419 | 18,347 | 15,188 | 6,072 | 32,882 | 38,954 | 12,404 | 1972 | 05/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Highlands
at Wynhaven
|
333 |
Issaquah,
WA
|
34,820 | 16,271 | 48,932 | 2,190 | 16,271 | 51,122 | 67,393 | 2,351 | 2000 | 08/08 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Huntington
Breakers
|
342 |
Huntington
Beach, CA
|
40,415 | 9,306 | 22,720 | 4,368 | 9,315 | 27,078 | 36,394 | 11,749 | 1984 | 10/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Inglenook
Court
|
224 |
Bothell,
WA
|
8,300 | 3,467 | 7,881 | 6,975 | 3,474 | 14,849 | 18,323 | 7,527 | 1985 | 10/94 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Kings
Road
|
196 |
Los
Angeles, CA
|
30,928 | 4,023 | 9,527 | 6,471 | 4,031 | 15,990 | 20,021 | 6,387 | 1979 | 06/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Le
Pac Luxury Apartments
|
140 |
Santa
Clara, CA
|
13,227 | 3,090 | 7,421 | 11,100 | 3,092 | 18,518 | 21,611 | 6,405 | 1975 | 02/94 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Marbrisa
|
202 |
Long
Beach, CA
|
20,197 | 4,700 | 18,605 | 2,002 | 4,760 | 20,547 | 25,307 | 5,379 | 1987 | 09/02 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Mirabella
|
188 |
Marina
Del Rey, CA
|
48,676 | 6,180 | 26,673 | 11,632 | 6,270 | 38,215 | 44,485 | 10,306 | 2000 | 05/00 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Mill
Creek at Windermere
|
400 |
San
Ramon, CA
|
52,197 | 29,551 | 70,430 | 850 | 29,551 | 69,481 | 99,032 | 5,346 | 2005 | 09/07 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Montclaire,
The
|
390 |
Sunnyvale,
CA
|
49,137 | 4,842 | 19,776 | 22,460 | 4,997 | 42,081 | 47,078 | 22,685 | 1973 | 12/88 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Montejo
|
124 |
Garden
Grove, CA
|
5,618 | 1,925 | 7,685 | 2,115 | 2,195 | 9,530 | 11,725 | 2,805 | 1974 | 11/01 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Monterey
Villas
|
122 |
Oxnard,
CA
|
13,319 | 2,349 | 5,579 | 4,657 | 2,424 | 10,161 | 12,585 | 4,018 | 1974 | 07/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Park
Place/Windsor Cout/Cochran
|
176 |
Los
Angeles, CA
|
21,179 | 4,965 | 11,806 | 6,398 | 5,015 | 18,153 | 23,169 | 7,734 | 1988 | 08/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Park
Hill at Issaquah
|
245 |
Issaquah,
CA
|
30,844 | 7,284 | 21,937 | 1,169 | 7,284 | 23,106 | 30,390 | 4,292 | 1999 | 02/99 | (3) | 3-30 | |||||||||||||||||||||||||||||||||||
|
Palisades,
The
|
192 |
Bellevue,
WA
|
22,187 | 1,560 | 6,242 | 10,053 | 1,565 | 16,290 | 17,855 | 8,765 | 1969/1977 | (4) | 05/90 | 3-30 | |||||||||||||||||||||||||||||||||||
|
Pathways
|
296 |
Long
Beach, CA
|
39,720 | 4,083 | 16,757 | 19,126 | 6,239 | 33,728 | 39,966 | 16,992 | 1975 | 02/91 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Pointe
at Cupertino, The
|
116 |
Cupertino,
CA
|
12,631 | 4,505 | 17,605 | 1,014 | 4,505 | 18,619 | 23,124 | 3,716 | 1963 | 08/98 | (5) | 3-30 | |||||||||||||||||||||||||||||||||||
|
Sammamish
View
|
153 |
Bellevue,
WA
|
10,421 | 3,324 | 7,501 | 6,124 | 3,331 | 13,617 | 16,949 | 6,606 | 1986 | 11/94 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
San
Marcos
|
432 |
Richmond,
CA
|
47,617 | 15,563 | 36,204 | 24,921 | 22,866 | 53,823 | 76,688 | 11,266 | 2003 | 11/03 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Stevenson
Place
|
200 |
Fremont,
CA
|
22,849 | 996 | 5,582 | 9,575 | 1,001 | 15,152 | 16,153 | 10,026 | 1971 | 04/83 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Stonehedge
Village
|
196 |
Bothell,
WA
|
13,372 | 3,167 | 12,603 | 3,789 | 3,201 | 16,358 | 19,559 | 6,941 | 1986 | 10/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Summit
Park
|
300 |
San
Diego, CA
|
20,326 | 5,959 | 23,670 | 2,678 | 5,977 | 26,330 | 32,307 | 6,937 | 1972 | 12/02 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Thomas
Jefferson
|
156 |
Sunnyvale,
CA
|
19,092 | 8,190 | 19,306 | 921 | 8,191 | 20,226 | 28,417 | 1,564 | 1969 | 09/07 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Tierra
Vista
|
404 |
Oxnard,
CA
|
60,353 | 13,652 | 53,336 | 1,367 | 13,661 | 54,694 | 68,355 | 10,517 | 2001 | 01/01 | (5) | 3-30 | |||||||||||||||||||||||||||||||||||
|
Treehouse
|
164 |
Santa
Ana, CA
|
7,564 | 2,626 | 10,485 | 2,589 | 2,957 | 12,743 | 15,700 | 3,757 | 1970 | 11/01 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Boulevard
|
172 |
Fremont,
CA
|
9,800 | 3,520 | 8,182 | 10,967 | 3,580 | 19,089 | 22,669 | 7,655 | 1978 | 01/96 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Valley
Park
|
160 |
Fountain
Valley, CA
|
9,582 | 3,361 | 13,420 | 3,441 | 3,761 | 16,461 | 20,222 | 4,793 | 1969 | 11/01 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Villa
Angelina
|
256 |
Placentia,
CA
|
12,958 | 4,498 | 17,962 | 3,414 | 4,962 | 20,912 | 25,874 | 5,914 | 1970 | 11/01 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Vista
Belvedere
|
76 |
Tiburon,
CA
|
10,920 | 5,573 | 11,901 | 3,031 | 5,573 | 14,932 | 20,505 | 2,966 | 1963 | 08/04 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Wandering
Creek
|
156 |
Kent,
WA
|
5,300 | 1,285 | 4,980 | 4,079 | 1,296 | 9,047 | 10,344 | 4,776 | 1986 | 11/95 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Wilshire
Promenade
|
149 |
Fullerton,
CA
|
19,087 | 3,118 | 7,385 | 5,722 | 3,797 | 12,428 | 16,225 | 5,616 | 1992 | 01/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Wharfside
Pointe
|
142 |
Seattle,
WA
|
7,568 | 2,245 | 7,020 | 6,586 | 2,258 | 13,594 | 15,851 | 6,100 | 1990 | 06/94 | 3-30 | ||||||||||||||||||||||||||||||||||||
| 1,795,064 | 499,643 | 1,537,704 | 453,648 | 526,187 | 1,963,009 | 2,489,196 | 576,371 |
(Continued)
|
|||||||||||||||||||||||||||||||||||||||||
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Real
Estate and Accumulated Depreciation
December
31, 2009
(Dollars
in thousands)
|
Costs
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Initial
cost
|
capitalized
|
Gross
amount carried at close of period
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Buildings
and
|
subsequent
to
|
Land
and
|
Buildings
and
|
Accumulated
|
Date
of
|
Date
|
Lives
|
||||||||||||||||||||||||||||||||||||||||||
|
Property
|
Units
|
Location
|
Encumbrance
|
Land
|
improvements
|
acquisition
|
improvements
|
improvements
|
Total
(1)
|
depreciation
|
construction
|
acquired
|
(years)
|
||||||||||||||||||||||||||||||||||||
|
Unencumbered
apartment communities
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Alpine
Country
|
108 |
Alpine,
CA
|
1,741 | 6,914 | 775 | 1,746 | 7,684 | 9,430 | 1,952 | 1986 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Bluffs
II, The
|
224 |
San
Diego, CA
|
3,405 | 7,743 | 6,393 | 3,442 | 14,100 | 17,541 | 4,888 | 1974 | 06/97 | (6) | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Belmont
Terrace
|
71 |
Belmont,
CA
|
4,446 | 10,290 | 1,874 | 4,473 | 12,137 | 16,610 | 1,628 | 1974 | 10/06 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Bridle
Trails
|
108 |
Kirkland,
WA
|
1,500 | 5,930 | 5,626 | 1,531 | 11,525 | 13,056 | 4,435 | 1986 | 10/97 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Cambridge
|
40 |
Chula
Vista, CA
|
497 | 1,973 | 286 | 498 | 2,258 | 2,756 | 571 | 1965 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
CBC
Apartments
|
148 |
Goleta,
CA
|
6,283 | 24,000 | 1,199 | 6,288 | 25,195 | 31,482 | 3,461 | 1962 | 01/06 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Cedar
Terrace
|
180 |
Bellevue,
WA
|
5,543 | 16,442 | 2,979 | 5,652 | 19,312 | 24,964 | 3,534 | 1984 | 01/05 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Chimney
Sweep Apartments
|
91 |
Goleta,
CA
|
5,558 | 21,320 | 1,626 | 5,618 | 22,886 | 28,504 | 3,687 | 1967 | 01/06 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Chestnut
Street
|
96 |
Santa
Cruz, CA
|
6,582 | 15,689 | 560 | 6,582 | 16,249 | 22,831 | 747 | 2002 | 07/08 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Country
Villas
|
180 |
Oceanside,
CA
|
4,174 | 16,583 | 2,338 | 4,187 | 18,908 | 23,095 | 5,003 | 1976 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Monterra
del Sol
|
85 |
Pasadena,
CA
|
2,202 | 4,794 | 4,810 | 2,824 | 8,982 | 11,806 | 3,027 | 1972 | 04/99 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Fairways
(7)
|
74 |
Newport
Beach, CA
|
- | 7,850 | 3,610 | 9 | 11,451 | 11,460 | 4,938 | 1972 | 06/99 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Foothill
Commons
|
360 |
Bellevue,
WA
|
2,435 | 9,821 | 26,877 | 2,440 | 36,693 | 39,133 | 12,509 | 1978 | 03/90 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Foothill
Gardens/Twin Creeks
|
176 |
San
Ramon, CA
|
5,875 | 13,992 | 3,885 | 5,964 | 17,788 | 23,752 | 8,647 | 1985 | 02/97 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Hampton
Court
|
83 |
Glendale,
CA
|
2,407 | 5,672 | 1,780 | 2,426 | 7,434 | 9,859 | 2,621 | 1974 | 06/99 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Hillsdale
Garden Apartments
|
697 |
San
Mateo, CA
|
22,000 | 94,681 | 5,620 | 22,244 | 100,058 | 122,301 | 10,935 | 1948 | 09/06 | (8) | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Hope
Ranch Collection
|
108 |
Santa
Barbara, CA
|
16,877 | 4,078 | 899 | 4,208 | 17,646 | 21,854 | 1,407 | 1965 | 03/07 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Linden
Square
|
183 |
Seattle,
WA
|
4,374 | 11,588 | 1,902 | 4,202 | 13,662 | 17,864 | 4,528 | 1994 | 06/00 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Lofts
at Pinehurst, The
|
118 |
Ventura,
CA
|
1,570 | 3,912 | 4,190 | 1,618 | 8,054 | 9,672 | 3,157 | 1971 | 06/97 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Magnolia
Lane
(9)
|
32 |
Sunnyvale,
CA
|
- | 5,430 | 117 | - | 5,547 | 5,547 | 469 | 2001 | 06/07 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Marbella,
The
|
60 |
Los
Angeles, CA
|
2,826 | 11,269 | 2,815 | 2,871 | 14,039 | 16,910 | 2,322 | 1991 | 09/05 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Marina
City Club
(10)
|
101 |
Marina
Del Rey, CA
|
- | 28,167 | 3,714 | - | 31,881 | 31,881 | 6,548 | 1971 | 01/04 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Marina
Cove
(11)
|
292 |
Santa
Clara, CA
|
5,320 | 16,431 | 8,468 | 5,324 | 24,895 | 30,219 | 12,655 | 1974 | 06/94 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Mariners
Place
|
105 |
Oxnard,
CA
|
1,555 | 6,103 | 1,818 | 1,562 | 7,914 | 9,476 | 2,879 | 1987 | 05/00 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Mesa
Village
|
133 |
Clairemont,
CA
|
1,888 | 7,498 | 733 | 1,894 | 8,226 | 10,119 | 1,983 | 1963 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Monterra
del Mar
|
123 |
Pasadena,
CA
|
2,188 | 5,263 | 4,173 | 2,735 | 8,888 | 11,624 | 3,669 | 1972 | 09/97 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Monterra
del Rey
|
84 |
Pasadena,
CA
|
2,312 | 4,923 | 4,508 | 2,825 | 8,918 | 11,743 | 3,229 | 1972 | 04/99 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Mt.
Sutro
|
99 |
San
Francisco, CA
|
2,334 | 8,507 | 2,270 | 2,809 | 10,302 | 13,111 | 4,088 | 1973 | 06/01 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Pinehurst
(12)
|
28 |
Ventura,
CA
|
355 | 1,356 | 326 | 6 | 2,032 | 2,037 | 451 | 1973 | 12/04 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Regency
at Encino
|
75 |
Encino,
CA
|
3,184 | 12,737 | 7 | 3,184 | 12,743 | 15,927 | 18 | 1989 | 12/09 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Salmon
Run at Perry Creek
|
132 |
Bothell,
WA
|
3,717 | 11,483 | 655 | 3,801 | 12,054 | 15,855 | 3,766 | 2000 | 10/00 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Shadow
Point
|
172 |
Spring
Valley, CA
|
2,812 | 11,170 | 1,670 | 2,820 | 12,832 | 15,652 | 3,445 | 1983 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Summerhill
Park
|
100 |
Sunnyvale,
CA
|
2,654 | 4,918 | 1,311 | 2,656 | 6,227 | 8,883 | 4,475 | 1988 | 09/88 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
The
Laurels at Mill Creek
|
164 |
Mill
Creek, WA
|
1,559 | 6,430 | 5,422 | 1,595 | 11,816 | 13,411 | 4,649 | 1981 | 12/96 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
The
Grand
|
238 |
Oakland,
CA
|
4,531 | 89,208 | 2,145 | 4,531 | 91,353 | 95,884 | 2,077 | 2009 | 01/09 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Tierra
del Sol/Norte
|
156 |
El
Cajon, CA
|
2,455 | 9,753 | 1,041 | 2,463 | 10,786 | 13,249 | 2,754 | 1969 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Tuscana
|
30 |
Tracy,
CA
|
2,828 | 6,599 | 151 | 2,870 | 6,708 | 9,578 | 588 | 2007 | 02/07 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Vista
Capri - North
|
106 |
San
Diego, CA
|
1,663 | 6,609 | 620 | 1,668 | 7,224 | 8,892 | 1,713 | 1975 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Woodlawn
Colonial
|
159 |
Chula
Vista, CA
|
2,344 | 9,311 | 1,262 | 2,351 | 10,566 | 12,917 | 2,751 | 1974 | 12/02 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Woodland
Commons
|
236 |
Bellevue,
WA
|
2,040 | 8,727 | 7,733 | 2,044 | 16,456 | 18,500 | 8,831 | 1978 | 03/90 | 3-30 | |||||||||||||||||||||||||||||||||||||
|
Woodside
Village
|
145 |
Ventura,
CA
|
5,331 | 21,036 | 1,882 | 5,341 | 22,908 | 28,249 | 3,918 | 1987 | 12/04 | 3-30 | |||||||||||||||||||||||||||||||||||||
| 24,255 | 1,795,064 | 651,008 | 2,113,903 | 583,720 | 667,489 | 2,679,343 | 3,346,832 | 735,320 | |||||||||||||||||||||||||||||||||||||||||
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Real
Estate and Accumulated Depreciation
December
31, 2009
(Dollars
in thousands)
|
Costs
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Rentable
|
Initial
cost
|
capitalized
|
Gross
amount carried at close of period
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Square
|
Buildings
and
|
subsequent
to
|
Land
and
|
Buildings
and
|
Accumulated
|
Date
of
|
Date
|
Lives
|
|||||||||||||||||||||||||||||||||||||||||
|
Property
|
Footage
|
Location
|
Encumbrance
|
Land
|
improvements
|
acquisition
|
improvements
|
improvements
|
Total
(1)
|
depreciation
|
construction
|
acquired
|
(years)
|
||||||||||||||||||||||||||||||||||||
|
Other
real estate assets
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Office
Buildings
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Essex
Hollywood
|
35,000 |
Los
Angeles, CA
|
- | 10,200 | 13,800 | 2,023 | 10,200 | 15,823 | 26,023 | 2,559 | 1938 | 07/06 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
925
East Meadow
|
17,400 |
Palo
Alto, CA
|
- | 1,401 | 3,172 | 1,287 | 1,857 | 4,003 | 5,860 | 2,612 | 1988 | 11/97 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
935
East Meadow
|
14,500 |
Palo
Alto, CA
|
- | 1,290 | 3,078 | 3,390 | 1,290 | 6,468 | 7,758 | 451 | 1962 | 12/07 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
17461
Derian
|
110,000 |
Irvine,
CA
|
- | 3,079 | 12,315 | 5,283 | 3,105 | 17,572 | 20,677 | 6,415 | 1983 | 07/00 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
22120
Clarendon
|
38,900 |
Woodland
Hills, CA
|
- | 903 | 3,600 | 1,277 | 1,015 | 4,765 | 5,780 | 2,108 | 1982 | 03/01 | 3-30 | ||||||||||||||||||||||||||||||||||||
|
Total
apartment communities and other real estate assets
|
$ | 1,795,064 | $ | 667,881 | $ | 2,149,868 | $ | 596,980 | $ | 684,955 | $ | 2,727,975 | $ | 3,412,930 | $ | 749,464 |
(Continued)
|
||||||||||||||||||||||||||||||||
|
Costs
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Initial
cost
|
capitalized
|
Gross
amount carried at close of period
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Buildings
and
|
subsequent
to
|
Land
and
|
Buildings
and
|
Accumulated
|
Date
of
|
Date
|
Lives
|
||||||||||||||||||||||||||||||||||||||||||
|
Property
|
Units
|
Location
|
Encumbrance
|
Land
|
improvements
|
acquisition
|
improvements
|
improvements
|
Total
(1)
|
depreciation
|
construction
|
acquired
|
(years)
|
||||||||||||||||||||||||||||||||||||
|
Other
real estate assets (continued)
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Development
Projects
(13)
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Fourth
& U
|
171 |
Berkeley,
CA
|
$ | - | $ | 9,772 | $ | - | $ | 39,697 | $ | 49,469 | $ | - | $ | 49,469 | $ | - | 04/08 | 12/07 | - | ||||||||||||||||||||||||||||
|
Joule
Broadway
|
295 |
Seattle,
WA
|
25,985 | 14,500 | - | 53,629 | 68,129 | - | 68,129 | - | 05/08 | 05/08 | - | ||||||||||||||||||||||||||||||||||||
|
Tasman
Retail Pad and Garage
|
- |
Sunnyvale,
CA
|
- | 22,000 | - | 11,174 | 33,174 | - | 33,174 | - | 07/09 | 04/08 | - | ||||||||||||||||||||||||||||||||||||
|
AXIS
2300
|
115 |
Irvine,
CA
|
27,000 | 248 | 27,248 | 27,248 | 02/10 | 12/09 | - | ||||||||||||||||||||||||||||||||||||||||
|
Predevelopment
Projects
|
332 |
various
|
11,500 | 16,300 | - | 8,975 | 25,275 | - | 25,275 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
|
Land
held for future development
|
1,329 |
various
|
- | 56,531 | - | 15,139 | 71,670 | - | 71,670 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
|
Consolidated
Development Pipeline
|
2,242 | $ | 37,485 | $ | 146,103 | $ | - | $ | 128,862 | $ | 274,965 | $ | - | $ | 274,965 | $ | - | ||||||||||||||||||||||||||||||||
(1) The
aggregate cost for federal income tax purposes is approximately $2.75 billion
(unaudited).
(2) The
land is leased pursuant to a ground lease expiring 2082.
(3) The
Company's initial ownership was 45%, and the remaining 55% interest was acquired
in 2004.
(4) Phase
I was built in 1969 and Phase II was built in 1977.
(5) The
Company's initial ownership was 20%, and the remaining 80% interest was acquired
in 2004.
(6) The
Company's initial ownership was 85%, and the remaining 15% interest was acquired
in 2007.
(7) The
land is leased pursuant to a ground lease expiring 2027.
(8)
In the second quarter of 2007, the Company entered into a joint venture
with a third-party, and the Company contributed the improvements for an 81.5%
interest in the joint venture.
(9) The
land is leased pursuant to a ground lease expiring 2070.
(10) The
land is leased pursuant to a ground lease expiring 2067.
(11) A
portion of land is leased pursuant to a ground lease expiring in
2028.
(12) The
land is leased pursuant to a ground lease expiring in 2028.
(13) All
construction costs are reflected as real estate under development in the
Company's consolidated balance sheets during active development, or the project
is in lease-up.
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Real
Estate and Accumulated Depreciation
December
31, 2009
(Dollars
in thousands)
|
A
summary of activity for rental properties and accumulated depreciation is
as follows:
|
|||||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
||||||||||||||||||||
|
Rental
properties:
|
Accumulated
depreciation:
|
||||||||||||||||||||||||
|
Balance
at beginning of year
|
$ | 3,279,788 | $ | 3,117,759 | $ | 2,669,187 |
Balance
at beginning of year
|
$ | 640,026 | $ | 541,987 | $ | 465,015 | ||||||||||||
|
Improvements
|
79,094 | 87,490 | 105,673 |
Depreciation
expense - Acquisitions
|
18 | 1,252 | 4,838 | ||||||||||||||||||
|
Acquisition
of real estate
|
16,000 | 89,120 | 388,051 |
Depreciation
expense - Development
|
- | 557 | 5,540 | ||||||||||||||||||
|
Development
of real estate
|
74,590 | 103,792 | 9,554 |
Depreciation
expense - Discontinued operations
|
495 | 3,593 | 5,652 | ||||||||||||||||||
|
Disposition
of real estate
|
(36,542 | ) | (118,373 | ) | (54,706 | ) |
Depreciation
and amortization expense - Rental properties
|
116,762 | 104,437 | 79,442 | |||||||||||||||
|
Balance
at the end of year
|
$ | 3,412,930 | $ | 3,279,788 | $ | 3,117,759 |
Dispositions
|
(7,837 | ) | (11,800 | ) | (18,500 | ) | ||||||||||||
|
Balance
at the end of year
|
$ | 749,464 | $ | 640,026 | $ | 541,987 | |||||||||||||||||||
See
accompanying report of independent registered public accounting
firm.
Pursuant
to the requirements of Section 13 of 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
ESSEX
PROPERTY TRUST, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
Date:
February 25, 2010
|
|
|
By: /S/ MICHAEL T.
DANCE
|
|
|
|
Michael
T. Dance
|
|
|
Executive
Vice President, Chief Financial Officer
(Authorized
Officer, Principal Financial Officer)
|
|
By: /S/ BRYAN G.
HUNT
|
|
|
Bryan
G. Hunt
|
|
|
Vice
President, Chief Accounting Officer
|
KNOWN ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Keith R. Guericke and Michael T. Dance, 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 the Registrant and in the
capacity and on the date indicated.
|
Signature
|
Title
|
Date
|
||
|
/S/ KEITH R. GUERICKE
Keith
R. Guericke
|
Chief
Executive Officer and President, Director, and Vice Chairman of the
Board
(Principal
Executive Officer)
|
February
25, 2010
|
||
|
/S/ MICHAEL J. SCHALL
Michael
J. Schall
|
Senior
Executive Vice President, Director, and Chief Operating
Officer
|
February
25, 2010
|
||
|
/S/ GEORGE M. MARCUS
George
M. Marcus
|
Director
and Chairman of the Board
|
February
25, 2010
|
||
|
/S/ DAVID W. BRADY
David
W. Brady
|
Director
|
February
25, 2010
|
||
|
/S/ ROBERT E. LARSON
Robert
E. Larson
|
Director
|
February
25, 2010
|
||
|
/S/ GARY P. MARTIN
Gary
P. Martin
|
Director
|
February
25, 2010
|
|
Signature
|
Title
|
Date
|
||
|
/S/ ISSIE N. RABINOVITCH
Issie
N. Rabinovitch
|
Director
|
February
25, 2010
|
||
|
/S/ THOMAS E. RANDLETT
Thomas
E. Randlett
|
Director
|
February
25, 2010
|
||
|
/S/ WILLARD H. SMITH, JR.
Willard
H. Smith, Jr.
|
Director
|
February
25, 2010
|
EXHIBIT
INDEX
|
Exhibit No.
|
Document
|
|
|
3.1
|
Articles
of Amendment and Restatement of Essex dated June 22, 1995, attached as
Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by
reference.
|
|
|
3.2
|
Articles
Supplementary of Essex Property Trust, Inc. for the 8.75% Convertible
Preferred Stock, Series 1996A, attached as Exhibit 3.1 to the Company’s
Current Report on Form 8-K, filed July 16, 1996, and incorporated herein
by reference.
|
|
|
3.3
|
First
Amendment to Articles of Amendment and Restatement of Essex Property
Trust, Inc., attached as Exhibit 3.1 to the Company’s 10-Q for the quarter
ended September 30, 1996, and incorporated herein by
reference.
|
|
|
3.4
|
Certificate
of Correction to Exhibit 3.2 dated December 20, 1996; attached as Exhibit
3.4 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by
reference.
|
|
|
3.5
|
Articles
Supplementary reclassifying 2,000,000 shares of Common Stock as 2,000,000
shares of 7.875% Series B Cumulative Redeemable Preferred Stock, filed
with the State of Maryland on February 10, 1998, attached as Exhibit 3.1
to the Company’s Current Report on Form 8-K, filed March 3, 1998, and
incorporated herein by reference.
|
|
|
3.6
|
Articles
Supplementary reclassifying 500,000 shares of Common Stock as 500,000
shares of 9 1/8% Series C Cumulative Redeemable Preferred Stock, filed
with the State of Maryland on November 25, 1998, attached as Exhibit 3.8
to the Company’s Annual Report on Form 10-K for the year ended December
31, 1998, and incorporated herein by reference.
|
|
|
3.7
|
Certificate
of Correction to Exhibit 3.2 dated February 12, 1999, attached as Exhibit
3.9 to the Company’s Current Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by
reference.
|
|
|
3.8
|
Articles
Supplementary reclassifying 6,617,822 shares of Common Stock as 6,617,822
shares of Series A Junior Participating Preferred Stock, filed with the
State of Maryland on November 13, 1998, attached as Exhibit 4.0 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1998,
and incorporated herein by reference.
|
|
|
3.9
|
Articles
Supplementary reclassifying 2,000,000 shares of Common Stock as 2,000,000
shares of 9.30% Series D Cumulative Redeemable Preferred Stock, filed with
the State of Maryland on July 30, 1999, attached as Exhibit 3.1 to the
Company’s 10-Q for the quarter ended June 30, 1999 and incorporated herein
by reference.
|
|
|
3.10
|
Articles
Supplementary reclassifying 2,200,000 shares of Common Stock as 2,200,000
shares of 9.25% Series E Cumulative Redeemable Preferred Stock, filed with
the State of Maryland on September 9, 1999, attached as Exhibit 3.1 to the
Company’s 10-Q for the quarter ended September 30, 1999 and incorporated
herein by reference.
|
|
|
3.11
|
Certificate
of Correction to Articles Supplementary reclassifying 2,000,000 shares of
Common Stock as 2,000,000 shares of 9.30% Series D Cumulative Redeemable
Preferred Stock, attached as Exhibit 3.1 to the Company’s Form 10-Q for
the quarter ended March 31, 2000, and incorporated herein by
reference.
|
|
|
3.12
|
Articles
Supplementary relating to the 7.8125% Series F Cumulative Redeemable
Preferred Stock, attached as Exhibit 3.1 to the Company's Current Report
on Form 8-K, filed September 19, 2003, and incorporated herein by
reference.
|
|
|
3.13
|
Articles
Supplementary reclassifying 2,000,000 shares of 7.875% Series B Cumulative
Redeemable Preferred Stock as 2,000,000 shares of Series B Cumulative
Redeemable Preferred Stock, filed with the State of Maryland on January
14, 2004, attached as Exhibit 3.16 to the Company’s Form 10-K for the year
ended December 31, 2003, and incorporated herein by
reference.
|
|
|
3.14
|
Articles
Supplementary reclassifying 2,000,000 shares of 9.30% Series D Cumulative
Redeemable Preferred Stock as 2,000,000 shares of Series D Cumulative
Redeemable Preferred Stock, filed with the State of Maryland on January
14, 2004, attached as Exhibit 3.17 to the Company’s Form 10-K for the year
ended December 31, 2003, and incorporated herein by
reference.
|
|
3.15
|
Articles
Supplementary of Essex Property Trust, Inc. reclassifying 5,980,000 shares
of Common Stock as 5,980,000 shares of 4.875% Series G Cumulative
Convertible Preferred Stock, attached as Exhibit 3.1 to the Company’s
Current Report on Form 8-K, filed July 27, 2006, and incorporated herein
by reference.
|
|
|
3.16
|
Second
Amended and Restated Bylaws of Essex Property Trust, Inc., dated as of
September 16, 2008, attached as Exhibit 3.1 to the Company’s Current
Report on Form 8-K, filed September 22, 2008, and incorporated herein by
reference.
|
|
|
4.1
|
Form
of 4.875% Series G Cumulative Convertible Preferred Stock Certificate,
attached as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed
July 27, 2006, and incorporated herein by reference.
|
|
|
10.1
|
Essex
Property Trust, Inc. 1994 Stock Incentive Plan, (amended and restated),
attached as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended
June 30, 2000 and incorporated herein by reference.*
|
|
|
10.2
|
Form
of Essex Property Trust, Inc. 1994 Non-Employee and Director Stock
Incentive Plan, attached as Exhibit 10.3 to the Company’s Registration
Statement on Form S-11 (Registration No. 33-76578), which became effective
on June 6, 1994, and incorporated herein by reference.*
|
|
|
10.3
|
Form
of Indemnification Agreement between Essex and its directors and officers,
attached as Exhibit 10.7 to the Company’s Registration Statement on Form
S-11 (Registration No. 33-76578), which became effective on June 6, 1994,
and incorporated herein by reference.
|
|
|
10.4
|
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.
|
|
|
10.5
|
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. *
|
|
|
10.6
|
Indenture,
dated October 28, 2005, by and among Essex Property Trust, Inc., as
Guarantor, Essex Portfolio, L.P., as the Issuer, and Wells Fargo Bank,
N.A., attached as Exhibit 10.1 to the Company’s current report on Form
8-K, filed November 2, 2005, and incorporated herein by
reference.
|
|
|
10.7
|
Fourth
Amended and Restated Revolving Credit Agreement, dated as of March 24,
2006, among Essex Portfolio L.P., Bank of America and other lenders as
specified therein, attached as Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed March 31, 2006, and incorporated herein by
reference.
|
|
|
10.8
|
Supplemental
Indenture, dated November 1, 2006, to the Indenture, dated October 28,
2005, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and
Wells Fargo Bank, N.A., attached as Exhibit 10.3 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006,
and incorporated herein by reference.
|
|
|
10.9
|
First
Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated
as of September 28, 2007, among Essex Portfolio L.P., Bank of America 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, 2007, and incorporated herein by reference.
|
|
|
10.10
|
Agreement
to Restructure Partnership Between Western-Mountain View II Investors, a
California Limited Partnership and Essex Portfolio, L.P., a California
Limited Partnership and Essex Property Trust, Inc., a Maryland Corporation
and Essex Management Corporation, a California Corporation and General
Partners of the Partnership, attached as Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007,
and incorporated herein by reference. (The related agreement to
restructure the Western-San Jose IV Investors Limited Partnership, a
California Limited Partnership, has basically the same terms as the
exhibit and is not being filed, but will be furnished to the SEC upon
request.)
|
|
10.11
|
Certificate
of Amendment to the 2004 Non-Employee Director Option Program, dated as of
February 26, 2008, attached as Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed March 3, 2008, and incorporated herein by
reference.*
|
|
|
10.12
|
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.*
|
|
|
10.13
|
Executive
Severance Plan of Essex Property Trust, Inc., amended and restated
effective as of December 31, 2008, attached as Exhibit 10.2 to the
Company’s Current Report on Form 8-K, filed December 8, 2008, and
incorporated herein by reference.*
|
|
|
10.14
|
Credit
Agreement, dated as of November 17, 2008, by and between Essex CAL-WA,
L.P., as Borrower, and Northmarq Capital, Inc., as Lender, attached as
Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008, and incorporated herein by
reference.
|
|
|
10.15
|
Controlled
Equity Offering Sales Agreement, dated May 6, 2009, by and between Essex
Property Trust, Inc. and Cantor Fitzgerald & Co., attached as Exhibit
10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009, and incorporated herein by reference.
|
|
|
10.16
|
Second
Amended and Restated Agreement of Limited Partnership of Essex Portfolio,
L.P., dated as of May 27, 2009, attached as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed May 27, 2009, and incorporated herein by
reference.
|
|
|
10.17
|
Revolving
Credit Agreement, dated as of December 18, 2009, by and among Essex
Portfolio, L.P., PNC Bank, National Association, as Administrative Agent,
Swing Line Lender and L/C Issuer, and other lenders as specified therein,
attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed December 21, 2009, and incorporated herein by
reference.
|
|
|
10.18
|
First
Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P., dated as of December 23, 2009,
attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed December 30, 2009, and incorporated herein by
reference.*
|
|
|
Schedule
of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends.
|
||
|
Code
of Business Conduct and Ethics.
|
||
|
List
of Subsidiaries of Essex Property Trust, Inc.
|
||
|
Consent
of KPMG LLP, Independent Registered Public Accounting
Firm.
|
||
|
24.1
|
Power
of Attorney (see signature page)
|
|
|
Certification
of Keith R. Guericke, Principal Executive Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
||
|
Certification
of Michael T. Dance, Principal Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
||
|
Certification
of Keith R. Guericke, Principal Executive Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
||
|
Certification
of Michael T. Dance, Principal Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
||
|
*
Management contract or compensatory plan or
arrangement.
|
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RisksItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules