-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MxPLvyHxtZx7MI9atTOYUFTt0lsaKuWNWkYwffu5Vwa4ztVI6jdEj8YmJtGTFJn2 uCCsXoKDFK3W4e1JXiz8TA== /in/edgar/work/20000814/0001012870-00-004412/0001012870-00-004412.txt : 20000921 0001012870-00-004412.hdr.sgml : 20000921 ACCESSION NUMBER: 0001012870-00-004412 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESSEX PROPERTY TRUST INC CENTRAL INDEX KEY: 0000920522 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 770369576 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13106 FILM NUMBER: 699629 BUSINESS ADDRESS: STREET 1: 925 EAST MEADOW DR CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 6504943700 MAIL ADDRESS: STREET 1: 925 EAST MEADOW DRIVE CITY: PALO ALTO STATE: CA ZIP: 94303 10-Q 1 0001.txt 10-Q FOR QUARTER END 6-30-2000 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File No. 1-13106 ESSEX PROPERTY TRUST, INC. (Exact name of Registrant as specified in its Charter) Maryland 77-0369576 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 925 East Meadow Drive, Palo Alto, California 94303 (Address of principal executive offices) (Zip code) (650) 494-3700 (Registrant's telephone number, including area code) 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 for such shorter period that the Registrant was required to file such report, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: 18,366,587 shares of Common Stock as of August 11, 2000 1 TABLE OF CONTENTS FORM 10-Q
Page No. -------- Part I Item 1 Financial Statements (Unaudited) 3 Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 4 Consolidated Statements of Operations for the three months ended June 30, 2000 and 1999 5 Consolidated Statements of Operations For the six months ended June 30, 2000 and 1999 6 Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2000 and the year ended December 31, 1999 7 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999 8 Notes to Consolidated Financial Statements 9 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3 Quantitative and Qualitative Disclosure About Market Risk 22 Part II Item 2 Changes in Securities and Use of Proceeds 23 Item 4 Submission of Matters to a Vote of Security Holders 23 Item 6 Exhibits and Reports on Form 8-K 24 Signatures 25
2 Part I Financial Information - ------ --------------------- Item 1: Financial Statements (Unaudited) -------------------------------- "Essex" or the "Company" means Essex Property Trust, Inc., a real estate investment trust incorporated in the State of Maryland, or where the context otherwise requires, Essex Portfolio, L.P., a limited partnership in which Essex Property Trust, Inc. is the sole general partner. The information furnished in the accompanying consolidated unaudited balance sheets, statements of operations, stockholders' equity and cash flows of the Company reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the aforementioned financial statements for the interim periods. The accompanying unaudited financial statements should be read in conjunction with the notes to such financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 3 ESSEX PROPERTY TRUST, INC. Consolidated Balance Sheets (Unaudited) (Dollars in thousands, except per share amounts)
June 30, December 31, 2000 1999 ---------- ---------- Assets Real estate: Rental properties: Land and land improvements $ 269,821 $ 234,497 Buildings and improvements 816,079 694,579 ---------- ---------- 1,085,900 929,076 Less accumulated depreciation (102,350) (96,605) ---------- ---------- 983,550 832,471 Investments 51,161 47,992 Real estate under development 32,319 120,414 ---------- ---------- 1,067,030 1,000,877 Cash and cash equivalents-unrestricted 5,237 12,348 Cash and cash equivalents-restricted 17,092 17,216 Notes and other related party receivables 46,681 13,654 Notes and other receivables 6,073 9,001 Prepaid expenses and other assets 4,513 3,495 Deferred charges, net 6,250 5,722 ---------- ---------- $1,152,876 $1,062,313 ========== ========== Liabilities and Stockholders' Equity Mortgage notes payable $ 403,486 $ 373,608 Line of credit 71,596 10,500 Accounts payable and accrued liabilities 22,007 28,379 Dividends payable 14,503 13,248 Other liabilities 6,242 5,594 Deferred gain 5,002 5,002 ---------- ---------- Total liabilities 522,836 436,331 Minority interests 238,710 238,289 Stockholders' equity: 8.75% Convertible Preferred Stock, Series 1996A: $.0001 par value, 184,687 and 1,600,000 authorized, 184,687 and 1,600,000 issued and outstanding 1 1 Common stock, $.0001 par value, 656,497,491 and 656,497,491 authorized, 18,130,317 and 18,049,952 issued and outstanding 2 2 Cumulative redeemable preferred stock; $.0001 par value, no shares issued and outstanding: 7.875% Series B 2,000,000 shares authorized - - 9.125% Series C 500,000 shares authorized - - 9.30% Series D 2,000,000 shares authorized - - 9.25% Series E 2,200,000 shares authorized - - Excess stock, $.0001 par value, 330,000,000 shares authorized and no shares issued and outstanding - - Additional paid-in capital 426,946 425,089 Distributions in excess of accumulated earnings (35,619) (37,399) ---------- ---------- Total stockholders' equity 391,330 387,693 ---------- ---------- $1,152,876 $1,062,313 ========== ==========
See accompanying notes to the consolidated unaudited financial statements. 4 ESSEX PROPERTY TRUST, INC. Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts)
Three months ended ---------------------------- June 30, June 30, 2000 1999 ---------- ---------- Revenues: Rental $ 39,056 $ 33,074 Other property 1,151 789 ---------- ---------- Total property 40,207 33,863 Interest and other 2,205 1,035 ---------- ---------- Total revenues 42,412 34,898 ---------- ---------- Expenses: Property operating expenses Maintenance and repairs 2,413 2,292 Real estate taxes 2,863 2,443 Utilities 1,967 2,013 Administrative 3,440 2,356 Advertising 515 492 Insurance 249 221 Depreciation and amortization 6,950 6,247 ---------- ---------- 18,397 16,064 ---------- ---------- Interest 6,467 5,250 Amortization of deferred financing costs 160 138 General and administrative 1,170 1,111 ---------- ---------- Total expenses 26,194 22,563 ---------- ---------- Income before gain on the sales of real estate, minority interests and extraordinary item 16,218 12,335 Gain on the sales of real estate - - ---------- ---------- Income before minority interests and extraordinary item 16,218 12,335 Minority interests (5,945) (3,369) ---------- ---------- Income before extraordinary item 10,273 8,966 Extraordinary item: Loss on early extinguishment of debt - (90) ---------- ---------- Net income 10,273 8,876 Preferred stock dividends (129) (236) ---------- ---------- Net income available to common stockholders $ 10,144 $ 8,640 ========== ========== Per share data: Basic: Income before extraordinary item $ 0.56 $ 0.51 Extraordinary item - debt extinguishment - (0.01) ---------- ---------- Net income $ 0.56 $ 0.50 ========== ========== Weighted average number of shares outstanding during the period 18,109,641 17,238,910 ========== ========== Diluted: Income before extraordinary item $ 0.55 $ 0.49 Extraordinary item - debt extinguishment - - ---------- ---------- Net income $ 0.55 $ 0.49 ========== ========== Weighted average number of shares outstanding during the period 18,617,756 18,447,710 ========== ========== Dividend per share $ 0.61 $ 0.55 ========== ==========
See accompanying notes to the consolidated unaudited financial statements. 5 ESSEX PROPERTY TRUST, INC. Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts)
Six months ended ---------------------------- June 30, June 30, 2000 1999 ---------- ---------- Revenues: Rental $ 75,902 $ 64,976 Other property 2,105 1,485 ---------- ---------- Total property 78,007 66,461 Interest and other 3,941 2,328 ---------- ---------- Total revenues 81,948 68,789 ---------- ---------- Expenses: Property operating expenses Maintenance and repairs 4,564 4,386 Real estate taxes 5,461 4,960 Utilities 4,024 4,008 Administrative 6,772 5,099 Advertising 1,011 1,001 Insurance 470 443 Depreciation and amortization 13,617 12,292 ---------- ---------- 35,919 32,189 ---------- ---------- Interest 12,275 10,184 Amortization of deferred financing costs 319 268 General and administrative 2,295 2,122 ---------- ---------- Total expenses 50,808 44,763 ---------- ---------- Income before gain on the sales of real estate, minority interests and extraordinary item 31,140 24,026 Gain on the sales of real estate 4,022 - ---------- ---------- Income before minority interests and extraordinary item 35,162 24,026 Minority interests (12,139) (6,607) ---------- ---------- Income before extraordinary item 23,023 17,419 Extraordinary item: Loss on early extinguishment of debt - (90) ---------- ---------- Net income 23,023 17,329 Preferred stock dividends (246) (1,067) ---------- ---------- Net income available to common stockholders $ 22,777 $ 16,262 ========== ========== Per share data: Basic: Income before extraordinary item $ 1.26 $ 0.96 Extraordinary item - debt extinguishment - (0.01) ---------- ---------- Net income $ 1.26 $ 0.95 ========== ========== Weighted average number of shares outstanding during the period 18,088,667 16,988,665 ========== ========== Diluted: Income before extraordinary item $ 1.24 $ 0.94 Extraordinary item - debt extinguishment - - ---------- ---------- Net income $ 1.24 $ 0.94 ========== ========== Weighted average number of shares outstanding during the period 18,556,332 18,527,629 ========== ========== Dividend per share $ 1.16 $ 1.05 ========== ==========
See accompanying notes to the consolidated unaudited financial statements. 6 ESSEX PROPERTY TRUST, INC. Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2000 and the year ended December 31, 1999 (Unaudited) (Dollars and shares in thousands)
Distributions Preferred stock Common stock Additional in excess of ----------------------- ---------------------- paid - in accumulated Shares Amount Shares Amount capital earnings Total ---------- ---------- --------- ---------- ------------- ------------- --------- Balances at December 31, 1998 1,600 $ 1 16,641 $ 2 $ 431,278 $ (41,481) $389,800 Shares issued from conversion of Convertible Preferred Stock (1,415) - 1,618 - - - - Shares purchased by Operating Partnership - - (262) - (7,119) - (7,119) Net proceeds from options exercised - - 53 - 930 - 930 Net income - - - - - 43,564 43,564 Dividends declared - - - - - (39,482) (39,482) ---------- ---------- --------- ---------- ------------- ------------- --------- Balances at December 31, 1999 185 1 18,050 2 425,089 (37,399) 387,693 Net proceeds from options exercised - 80 1,857 - 1,857 Net income - - - - - 23,023 23,023 Dividends declared - - - - - (21,243) (21,243) ---------- ---------- --------- ---------- ------------- ------------- --------- Balances at June 30, 2000 185 $ 1 18,130 $ 2 $ 426,946 $ (35,619) $391,330 ========== ========== ========= ========== ============= ============= =========
See accompanying notes to the consolidated unaudited financial statements 7 ESSEX PROPERTY TRUST, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
Six months ended ------------------------------------------- June 30, June 30, 2000 1999 ------------------ ------------------- Net cash provided by operating activities: $ 36,395 $ 37,825 ------------------ ------------------- Cash flows from investing activities: Additions to real estate (29,677) (29,557) Proceeds received from the disposition of real estate 31,302 - Decrease (Increase) in restricted cash 124 (1,069) Additions to related party notes and other receivables (36,135) (4,361) Repayment of related party notes and other receivables 3,566 8,493 Additions to real estate under development (16,888) (41,370) Net (contribution to) / distributions from investments in corporations and limited partnerships (2,281) 762 ------------------ ------------------- Net cash provided by investing activities (49,989) (67,102) ------------------ ------------------- Cash flows from financing activities: Proceeds from mortgage and other notes payable and lines of credit 88,596 117,650 Repayment of mortgage and other notes payable and lines of credit (51,522) (54,480) Additions to deferred charges (847) (934) Net proceeds from stock options exercised and shares issued through dividend reinvestment plan 1,857 362 Payment of offering related costs - (314) Shares purchased by Operating Partnership - (6,991) Distributions to minority interest/partners (11,449) (6,776) Redemption of operating partnership units (164) (1,438) Dividends paid (19,988) (18,555) ------------------ ------------------- Net cash provided by financing activities 6,483 28,524 ------------------ ------------------- Net (decrease) in cash and cash equivalents (7,111) (753) Cash and cash equivalents at beginning of period 12,348 2,548 ------------------ ------------------- Cash and cash equivalents at end of period $ 5,237 $ 1,795 ================== =================== Supplemental disclosure of cash flow information: Cash paid for interest, net of $1,356 and $2,682 capitalized $ 10,899 $ 7,193 ================== =================== Supplemental disclosure of non-cash investing and financing activities: Real estate under development transferred to rental properties $ 89,483 $ - ================== =================== Mortgage note payable assumed in connection with the purchase of real estate $ 53,900 $ 15,800 ================== =================== Contribution of Operating Partnership Units in connection with the purchase of real estate $ 2,365 $ 7,469 ================== ===================
See accompanying notes to consolidated unaudited financial statements. 8 Notes to Consolidated Financial Statements June 30, 2000 and 1999 (Unaudited) (Dollars in thousands, except for per share and per unit amounts) (1) Organization and Basis of Presentation -------------------------------------- The unaudited consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q. In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included and are normal and recurring in nature. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 1999. The unaudited consolidated financial statements for the three and six months ended June 30, 2000 and 1999 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, owning an 89.5%, 89.7% and 89.6% general partnership interest as of June 30, 2000, December 31, 1999 and June 30, 1999, respectively. As of June 30, 2000, the Company operates and has ownership interests in 75 multifamily properties (containing 16,431 units) and four commercial properties (with approximately 250,000 square feet) (collectively, the "Properties"). The Properties are located in Northern California (the San Francisco Bay Area), Southern California (Los Angeles, Ventura, Orange and San Diego counties), and the Pacific Northwest (the Seattle, Washington and Portland, Oregon metropolitan areas). All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. (2) Significant Transactions ------------------------ (A) Acquisition Activities --------------------------- On April 14, 2000 the Company purchased The Carlyle, a 132-unit apartment community located in San Jose, California, for a contract price of $18,500. The Company assumed a $18,224 variable rate construction loan in connection with this transaction. On June 14, 2000 the Company purchased Waterford Place, a 238-unit apartment community located in San Jose, California for a contract price of $35,000. The Company assumed a $31,386 variable rate construction loan in connection with this transaction. The interest rate on both variable rate loans are LIBOR plus 1.75% and they mature October 2000. A portion of the amount paid for The Carlyle and Waterford Place was funded through the issuance of units of limited partnership interest ("Units") in the Operating Partnership. Any time after one year from the date of issuance of the Units, the holders of the Units can require the Operating Partnership to redeem the Units for cash, or at the Company's option, an aggregate of 5,000 and 54,291 shares of the Company's common stock to the sellers of The Carlyle and Waterford Place, respectively. The contract prices noted above do not include contingent payments to be paid by the Company and to be determined within eighteen months from the acquisition date. The additional payment will be an amount which provides the Company with a targeted range of approximately 8.5-8.7% yield on the property. On May 2, 2000 the Company purchased Mariners Place, a 105-unit apartment community located in Oxnard, California, for a contract price of $7,600. The Company assumed a $4,300, 7.28% fixed rate, secured loan which matures in April 2009. 9 Notes to Consolidated Financial Statements June 30, 2000 and 1999 (Unaudited) (Dollars in thousands, except for per share and per unit amounts) On June 14, 2000 the Company purchased Linden Square, a 183-unit apartment community located in Seattle, Washington, for a contract price of $15,500. (B) Development Activities --------------------------- The Company defines development communities as new apartment properties that are being constructed or are newly constructed and in a phase of lease-up and have not yet reached stabilized operations. At June 30, 2000, the Company has ownership interests in four development communities, with an aggregate of 944 multifamily units. During the second quarter of 2000, the Company reached stabilized operations at three multifamily communities containing an aggregate of 558 units that were previously reported as development communities: The Carlyle, Waterford Place, and Mirabella. Also, during the second quarter, the Company announced one new development community, Kelvin Avenue. In connection with the properties currently under development, the Company has directly, or in some cases through its joint ventures, entered into contractual construction related commitments with unrelated third parties. At June 30, 2000, the Company, together with its joint venture partners, is committed to fund approximately $100,200 under these commitments. The Carlyle is a 132-unit apartment community located in San Jose, California. Waterford Place is a 238-unit apartment community located in San Jose, California. A third party performed the development, management and leasing of the Carlyle and Waterford Place. The Company purchased these communities upon stabilization in accordance with the terms of the contract with the third party. The total investment of approximately $54,560 is included in rental properties in the accompanying consolidated balance sheets at June 30, 2000. Mirabella is a 188-unit apartment community located in Marina del Rey, California. The total investment of approximately $32,860 is included in rental properties in the accompanying consolidated balance sheets at June 30, 2000. Kelvin Avenue is a new development community. In June 2000, the Company purchased a vacant land parcel in Irvine, California for $3,800 on which it intends to construct a 138-unit apartment community. No commitments have been entered into with third parties regarding construction of this community as of June 30, 2000. (C) Redevelopment Activities ----------------------------- The Company defines redevelopment communities as existing properties owned or recently acquired which have been targeted for investment by the Company with the expectation of increased financial returns through property improvement. Redevelopment communities typically have apartment units that are not available for rent and, as a result, may have less than stabilized operations. At June 30, 2000, the Company has ownership interests in eight redevelopment communities in Southern California, which contain an aggregate of 2,054 units with a total projected investment of $34,768 and approximately $15,333 remaining cost to complete. (D) Debt Transactions ---------------------- On June 30, 2000 the Company repaid the $22,500 construction loan secured by Fountain Court, a 320-unit apartment community in Seattle, Washington, and purchased the 49% minority interest in the joint venture, both with proceeds from its line of credit. On May 19, 2000 the Company replaced its unsecured line of credit. The new line in the aggregate committed amount of $120,000 bears interest at a rate which uses a tiered rate structure tied to the 10 Notes to Consolidated Financial Statements June 30, 2000 and 1999 (Unaudited) (Dollars in thousands, except for per share and per unit amounts) Company corporate ratings, if any, and leverage rating (7.7% at June 30, 2000), and matures in May 2002 with option to extend for an additional year. The Company incurred costs of approximately $800 in connection with this transaction. (E) Investments --------------- In the second quarter of 2000, the Company invested in two joint venture partnerships. Each partnership acquired one multifamily property: Barkley Apartments, a 161 - unit apartment community located in Anaheim, California and Brookside Oaks, a 170 - unit apartment community located in Sunnyvale, California. Barkley Apartments and Brookside Oaks were acquired by the joint venture partnerships for a contract price of $10,700 and $23,300, respectively. In connection with these transactions, the partnerships which acquired these properties assumed a $5,513, 6.63% fixed rate loan secured by Barkley Apartments which matures in December 2008 and a $8,309, 8.5% fixed rate secured loan secured by Brookside Apartments which matures in May 2002. The Partnerships acquired these properties through the issuance of partnership interests that can later be exchanged for shares of the Company's Common Stock, or redeemed for cash. The Company's interests in these properties are accounted for under the equity method of accounting. On May 1, 2000 the Company made an 11.5% subordinated loan to Mountain Vista Apartments, LLC in the amount of $9,500 which matures in April 2004. The Company is obligated to advance an additional $5,000 related to the redevelopment of the property under the same terms as the original loan. Additionally, under the terms of the loan, the Company is entitled to 25% of profits in excess of an 11.5% return on the property. This transaction was entered into with an entity that is controlled by a member of the Company's Board of Directors, following approval of the independent board members. These second quarter 2000 acquisitions, development and redevelopment activities, debt repayments, and investments were funded through assumed loans and the issuance of Operating Partnership units as noted above, and the Company's line of credit. (3) Related Party Transactions -------------------------- All general and administrative expenses of the Company and Essex Management Corporation, an unconsolidated preferred stock subsidiary of the Company ("EMC"), are initially borne by the Company, with a portion subsequently allocated to EMC. Expenses allocated to EMC for the three months ended June 30, 2000 and 1999 totaled $270 and $110, respectively and $503 and $212 for the six months ended June 30, 2000 and 1999, respectively. The allocation is reflected as a reduction in general and administrative expenses in the accompanying consolidated statements of operations. Other income includes interest income of $827and $86 for the three months ended June 30, 2000 and 1999, respectively, and $1,471 and $172 for the six months ended June 30, 2000 and 1999, respectively. The majority of interest income was earned on the notes receivable from related party partnerships in which the Company has an ownership interest. Other income also includes management fee income and investment income from the Company's related party partnerships of $706 and $150 for the three months ended June 30, 2000 and 1999, respectively and $1,344 and $310 for the six months ended June 30, 2000 and 1999, respectively. 11 Notes to Consolidated Financial Statements June 30, 2000 and 1999 (Unaudited) (Dollars in thousands, except for per share and per unit amounts) Notes and other related party receivables as of June 30, 2000 and December 31, 1999 consist of the following:
June 30, December 31, 2000 1999 ------- ------- Notes receivable from Joint Ventures: ------- ------- Note receivable from Highridge Apartments, secured, bearing interest at 9.4%, due March 2008 $ 1,047 $ 1,047 Note receivable from Highridge Apartments, secured, bearing interest at 10%, due on demand 2,950 2,950 Note receivable from Fidelity 1, secured bearing interest at 9.0%, due on demand 14,532 - Note receivable from Fidelity I and JSV, secured, bearing interest at 9.5-10%, due 2015 800 800 Note receivable from Mountain Vista, secured, bearing interest at 11.5%, due 2004 9,540 - Receivables from Joint Ventures: Barkley, non-interest bearing, due on demand 1,189 - Highridge, non-interest bearing, due on demand 4,337 3,624 Brookside Oaks, non-interest bearing, due on demand 5,312 - Las Hadas, non-interest bearing, due on demand 1,209 1,209 Anchor Village, non-interest bearing, due on demand 1,361 1,282 Other related party receivables: Loans to officers, secured, bearing interest at 8%, due April 2006 633 633 Other related party receivables, substantially due on demand 3,771 2,109 ------- ------- $46,681 $13,654 ======= =======
Other related party receivables consist primarily of accrued interest income on related party notes receivables and loans to officers, advances and accrued management fees from joint venture investees and unreimbursed expenses due from EMC. (4) Forward Treasury Contracts -------------------------- During the second quarter of 2000 the Company sold its one remaining treasury contract that was originally obtained in connection with specific anticipated future acquisition and development financings. The Company received proceeds of approximately $464. It is anticipated that these proceeds will be reflected as a reduction in specific property future financing costs. (5) New Accounting Pronouncements ----------------------------- In June 1998, the FASB issued Financial Accounting Statement No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities. The Company will adopt SFAS 133 for interim periods beginning in 2001, the effective date of SFAS 133, as amended. Management believes that the adoption of these statements will not have a material impact on the Company's financial position or results of operations. 12 Notes to Consolidated Financial Statements June 30, 2000 and 1999 (Unaudited) (Dollars in thousands, except for per share and per unit amounts) (6) Segment Information ------------------- The Company defines its reportable operating segments as the three geographical regions in which it's multifamily residential properties are located: Northern California, Southern California and the Pacific Northwest. Non-segment property revenues and net operating income included in the following schedule consists of revenue generated from the Company's commercial property. Excluded from segment revenues are interest and other corporate income. Other non-segment assets include investments, real estate under development, cash, receivables and other assets. The revenues, net operating income, and assets for each of the reportable operating segments are summarized as follows for the periods presented.
Three months ended June 30, 2000 June 30, 1999 ------------------- -------------- Revenues Northern California $13,555 $11,617 Southern California 16,771 13,301 Pacific Northwest 9,881 8,373 ------- ------- Total segment revenues 40,207 33,291 Non-segment property revenues - 572 Interest and other income 2,205 1,035 ------- ------- Total revenues $42,412 $34,898 ======= ======= Net operating income: Northern California $10,610 8,957 Southern California 11,904 9,130 Pacific Northwest 6,805 5,695 ------- ------- Total segment net operating income 29,319 23,782 Non-segment net operating income (559) 264 Interest and other income 2,205 1,035 Depreciation and amortization (6,950) (6,247) Interest (6,467) (5,250) Amortization of deferred financing costs (160) (138) General and administrative (1,170) (1,111) ------- ------- Income before gain on the sales of real estate, minority interests and extraordinary item $16,218 $12,335 ======= =======
Six months ended June 30, 2000 June 30, 1999 -------------- -------------- Revenues Northern California $ 26,191 $ 22,905 Southern California 32,544 25,810 Pacific Northwest 19,272 16,489 -------- -------- Total segment revenues 78,007 65,204 Non-segment property revenues - 1,257 Interest and other income 3,941 2,328 -------- -------- Total revenues $ 81,948 $ 68,789 ======== ======== Net operating income: Northern California $ 20,456 $ 17,520 Southern California 22,685 17,462 Pacific Northwest 13,238 11,070 -------- -------- Total segment net operating income 56,379 46,052 Non-segment net operating income (674) 512 Interest and other income 3,941 2,328 Depreciation and amortization (13,617) (12,292) Interest (12,275) (10,184) Amortization of deferred financing costs (319) (268) General and administrative (2,295) (2,122) -------- -------- Income before gain on the sales of real estate, minority interests and extraordinary item $ 31,140 $ 24,026 ======== ========
13 Notes to Consolidated Financial Statements June 30, 2000 and 1999 (Unaudited) (Dollars in thousands, except for per share and per unit amounts) (6) Segment Information (continued) -------------------------------
June 30, 2000 December 31, 1999 ------------- ----------------- Assets: Northern California $ 288,124 $ 216,946 Southern California 446,721 415,374 Pacific Northwest 243,551 195,011 ---------- ---------- Total segment net real estate assets 978,396 827,331 Non-segment net real estate assets 5,154 5,140 ---------- ---------- Net real estate assets 983,550 832,471 Non-segment assets 169,326 229,842 ---------- ---------- Total assets $1,152,876 $1,062,313 ========== ==========
(7) Net Income Per Share -------------------- Basic net income per share in the accompanying consolidated statements of operations is calculated for the three months ended June 30, 2000 and 1999, respectively, by dividing net income available to common stockholders of $10,144 and $8,640 by the weighted average shares outstanding during the period. The diluted weighted average shares outstanding is calculated by adding all dilutive shares to the basic weighted average shares outstanding. The Company's convertible preferred stock of 211,071 and 1,011,484 equivalent common shares and options of 297,044 and 197,316 were dilutive and were added to the basic weighted average shares outstanding for the three months ended June 30, 2000 and 1999, respectively. Basic net income per share in the accompanying consolidated statements of operations is calculated for the six months ended June 30, 2000 and 1999, respectively, by dividing net income available to common stockholders of $22,777 and $16,262 by the weighted average shares outstanding during the period. The diluted weighted average shares outstanding is calculated by adding all dilutive shares to the basic weighted average shares outstanding. The Company's convertible preferred stock of 211,071 and 1,371,362 equivalent common shares and options of 256,594 and 167,602 were dilutive and were added to the basic weighted average shares outstanding for the six months ended June 30, 2000 and 1999, respectively. Convertible limited partnership units are not included in the diluted weighted average shares outstanding for the three and six months ended June 30, 2000 and 1999 as they were anti-dilutive. 14 Item 2: Management's Discussion and Analysis of Financial Condition and ---------------------------------------------------------------- Results of Operations --------------------- The following discussion is based primarily on the consolidated unaudited financial statements of Essex Property Trust, Inc. ("Essex" or the "Company") for the three and six months ended June 30, 2000 and 1999. This information should be read in conjunction with the accompanying consolidated unaudited 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. Substantially all of the assets of the Company are held by, and substantially all operations are conducted through, Essex Portfolio, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership and, as of June 30, 2000, December 31, 1999 and June 30, 1999, owned an 89.5%, 89.7% and 89.6% general partnership interest in the Operating Partnership, respectively. The Company has elected to be treated as a real estate investment trust (a "REIT") for federal income tax purposes. Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in the quarterly report on Form 10-Q 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 expectation as to the timing of completion of current development projects, beliefs as to the adequacy of future cash flows to meet operating requirements, and to provide for dividend payments in accordance with REIT requirements and expectations as to the amount of non-revenue generating capital expenditures for the year ended December 31, 2000, potential acquisitions and developments, the anticipated performance of existing properties, future acquisitions and developments and statements regarding the Company's financing activities. Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, that the actual completion of development projects will be subject to delays, that such development projects will not be completed, 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, as well as those risks, special considerations, and other factors discussed under the caption "Other Matters/Risk Factors" in Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and those other 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. General Background The Company's property revenues are generated primarily from multifamily property operations, which accounted for greater than 99% of its property revenues for the three and six months ended June 30, 2000 and 1999. The Company's multifamily properties (the "Properties") are located in Northern California (the San Francisco Bay Area), Southern California (Los Angeles, Ventura, Orange and San Diego counties) and the Pacific Northwest (the Seattle, Washington and Portland, Oregon metropolitan areas). The average occupancy levels of the Company's portfolio has exceeded 95% for the last five years. The Company has elected to be treated as a real estate investment trust ("REIT") for federal income tax purposes, commencing with the year ended December 31, 1994. The Company provides some of its fee-based asset management and disposition services as well as third-party property management and leasing services through Essex Management Corporation ("EMC"), in order to maintain compliance with REIT tax rules. The Company owns 100% of EMC's 19,000 shares of non-voting Preferred Stock. Executives of the Company own 100% of EMC's 1,000 shares of Common Stock. 15 Since the Company's initial public offering (the "IPO") in June 1994, the Company has acquired ownership interests in 64 multifamily residential properties and its headquarters building. Of the multifamily properties acquired since the IPO, 15 are located in Northern California, 31 are located in Southern California, 17 are located in the Seattle, Washington metropolitan area and one is located in the Portland, Oregon metropolitan area. In total, these acquisitions consist of 12,875 multifamily units with total capitalized acquisition costs of approximately $1,062.5 million. Additionally since its IPO, the Company has developed and has ownership interests in nine multifamily development properties that have reached stabilized operations. These development properties consist of 1,778 units with total capitalized development costs of $221.4 million. As part of its active portfolio management strategy, the Company has disposed of, since its IPO, 12 multifamily residential properties (seven in Northern California, four in Southern California and one in the Pacific Northwest) consisting of a total of 1,748 units, six retail shopping centers in the Portland, Oregon metropolitan area and one commercial property in Northern California at an aggregate gross sales price of approximately $190.7 million resulting in total net realized gains of approximately $29.6 million and a deferred gain of $5.0 million. The Company is developing four multifamily residential communities, with an aggregate of 944 multifamily units. In connection with these development projects, the Company has directly, or in some cases through its joint venture partners, entered into contractual construction related commitments with unrelated third parties for approximately $162.0 million. As of June 30, 2000, together with its joint venture partners, the Company's remaining development commitment is approximately $100.2 million. Results of Operations Comparison of the Three Months Ended June 30, 2000 to the Three Months Ended - ---------------------------------------------------------------------------- March 31,1999. - -------------- Average financial occupancy rates of the Company's multifamily Quarterly Same Store Properties (properties owned by the Company for each of the three months ended June 30, 2000 and 1999) increased to 97.2% for the three months ended June 30, 2000 from 96.5%, for the three months ended June 30, 1999. "Financial Occupancy" is defined as the percentage resulting from dividing actual rental income by total possible rental income. Total possible rental income is determined by valuing occupied units at contractual rents and vacant units at market rents. The regional breakdown of financial occupancy for the multifamily Quarterly Same Store Properties for the three months ended June 30, 2000 and 1999 are as follows:
June 30, June 30, 2000 1999 ---- ---- Northern California 98.3% 97.3% Southern California 96.4% 96.3% Pacific Northwest 96.7% 95.6%
16 Total Revenues increased by $7,514,000 or 21.5% to $42,412,000 in the second quarter of 2000 from $34,898,000 in the second quarter of 1999. The following table sets forth a breakdown of these revenue amounts, including the revenues attributable to the Quarterly Same Store Properties.
Three Months Ended June 30, Number of ----------------- Dollar Percentage Properties 2000 1999 Change Change ---------- ------- ------- ------ ---------- Revenues Property revenues Quarterly Same Store Properties Northern California 12 $10,932 $ 9,877 $1,055 10.7% Southern California 13 9,453 8,813 640 7.3 Pacific Northwest 19 8,716 8,373 343 4.1 -- ------- ------- ------ ---------- Properties 44 29,101 27,063 2,038 7.5 == Property revenues properties acquired/disposed of subsequent to March 31, 1999 11,106 6,800 4,306 63.3 ------- ------- ------ ---------- Total property revenues 40,207 33,863 6,344 18.7 ------- ------- ------ ---------- Interest and other income 2,205 1,035 1,170 113.0 ------- ------- ------ ---------- Total revenues $42,412 $34,898 $7,514 21.5% ======= ======= ====== ==========
As set forth in the above table, $4,306,000 of the $7,514,000 net increase in total revenues is attributable to properties acquired or disposed of subsequent to March 31, 1999, redevelopment communities and development communities and one commercial property. During this period, the Company acquired interests in fifteen multifamily properties and reached stabilized operations at eight development communities (the "Quarterly Acquisition Properties"), disposed of six multifamily properties, and one commercial property (the "Quarterly Disposition Properties"). Of the increase in total revenues, $2,038,000 is attributable to increases in property revenues from the Quarterly Same Store Properties. Property revenues from the Quarterly Same Store Properties increased by approximately 7.5% to $29,101,000 in the second quarter of 2000 from $27,063,000 in the second quarter of 1999. The majority of this increase was attributable to the 12 Quarterly Same Store Properties located in Northern California. The property revenues of the Quarterly Same Store Properties in Northern California increased by $1,055,000 or 10.7% to $10,932,000 in the second quarter of 2000 from $9,877,000 in the second quarter of 1999. This $1,055,000 increase is primarily attributable to rental rate increases and an increase in financial occupancy to 98.3% in the second quarter of 2000 from 97.3% in the second quarter of 1999. The 13 Quarterly Same Store Properties located in Southern California accounted for the next largest regional component of the Quarterly Same Store Property revenue increase. The property revenues of these properties increased by $640,000 or 7.3% to $9,453,000 in the second quarter of 2000 from $8,813,000 in the second quarter of 1999. The $640,000 increase is attributable to rental rate increases and an increase in financial occupancy to 96.4% in the second quarter of 2000 from 96.3% in the second quarter of 1999. The 19 multifamily residential properties located in the Pacific Northwest also contributed to the Quarterly Same Store Properties property revenues increase. The property revenues of these properties increased by $343,000 or 4.1% to $8,716,000 in the second quarter of 2000 from $8,373,000 in the second quarter of 1999. The $343,000 increase is primarily attributable to rental rate increase and an increase in financial occupancy to 96.7% in the second quarter of 2000 from 95.6% in the second quarter of 1999. The increase in total revenue also reflected an increase of $1,170,000 attributable to interest and other income, which primarily relates to interest income on outstanding notes receivables and income earned on the Company's joint venture investments. Total Expenses increased by $3,631,000 or approximately 16.1% to $26,194,000 in the second quarter of 2000 from $22,563,000 in the second quarter of 1999. Interest expense increased by $1,217,000 or 23.2% to $6,467,000 in the second quarter from $5,250,000 in the second quarter of 1999. Such increase was primarily due to the net addition of outstanding mortgage debt in connection with property and investment acquisitions which was offset in part by capitalization of interest charges relating to the Company's development and redevelopment communities. Property operating expenses, exclusive of depreciation and amortization, increased by $1,630,000 or 16.6% to $11,447,000 in the second quarter of 2000 from 17 $9,817,000 in the second quarter of 1999. Of such increase, $1,522,000 was attributable to the Quarterly Acquisition Properties and the Disposition Properties. General and administrative expenses represent the costs of the Company's various acquisition and administrative departments as well as partnership administration and non-operating expenses. Such expenses increased by $59,000 in the second quarter of 2000 from the amount for the second quarter of 1999. This increase is largely due to additional staffing requirements resulting from the growth of the Company as offset by an increase in the allocation of general and administrative expenses to EMC. Net income increased by $1,397,000 to $10,273,000 in the second quarter of 2000 from $8,876,000 in the second quarter of 1999. This increase is a result of the net contribution of the Quarterly Acquisition Properties and the increase in net operating income from the Quarterly Same Store Properties. Results of Operations Comparison of the Six Months Ended June 30, 2000 to the Six Months Ended June - ----------------------------------------------------------------------------- 30,1999. - -------- Average financial occupancy rates of the Company's multifamily Same Store Properties (properties owned by the Company for each of the six months ended June 30, 2000 and 1999) increased to 96.8% for the six months ended June 30, 2000 from 96.1% for the six months ended June 30, 1999. "Financial Occupancy" is defined as the percentage resulting from dividing actual rental income by total possible rental income. Total possible rental income is determined by valuing occupied units at contractual rents and vacant units at market rents. The regional breakdown of financial occupancy for the multifamily Same Store Properties for the six months ended June 30, 2000 and 1999 are as follows:
June 30, June 30, 2000 1999 -------- -------- Northern California 98.0% 96.8% Southern California 96.4% 96.5% Pacific Northwest 95.7% 94.9%
Total Revenues increased by $13,159,000 or 19.1% to $81,948,000 for the first six months of 2000 from $68,789,000 for the first six months of 1999. The following table sets forth a breakdown of these revenue amounts, including the revenues attributable to the Same Store Properties.
Six Months Ended June 30, Number of ---------------- Dollar Percentage Properties 2000 1999 Change Change ---------- ------- ------- ------- ---------- Revenues Property revenues Same Store Properties Northern California 12 $21,461 $19,542 $ 1,919 9.8% Southern California 13 18,813 17,515 1,298 7.4 Pacific Northwest 19 17,126 16,489 637 3.9 -- ------- ------- ------- ---------- Same Store Properties 44 57,400 53,546 3,854 7.2 == Property revenues properties acquired/disposed of subsequent to December 31, 1998 20,607 12,915 7,692 59.6 ------- ------- ------- ---------- Total property revenues 78,007 66,461 11,546 17.4 ------- ------- ------- ---------- Interest and other income 3,941 2,328 1,613 69.3 ------- ------- ------- ---------- Total revenues $81,948 $68,789 $13,159 19.1% ======= ======= ======= ==========
As set forth in the above table, $7,692,000 of the $13,159,000 net increase in total revenues is attributable to properties acquired or disposed of subsequent to December 31, 1998, redevelopment communities and development communities and one commercial property. During this period, the Company acquired fifteen multifamily properties and reached stabilized operations at eight development communities (the 18 "Post 1998 Acquisition Properties"), and disposed of six multifamily properties, and one commercial property (the "Post 1998 Disposition Properties"). Of the increase in total revenues, $3,854,000 is attributable to increases in property revenues from the Same Store Properties. Property revenues from the Same Store Properties increased by approximately 7.2% to $57,400,000 in the first six months of 2000 from $53,546,000 in the first six months of 1999. The majority of this increase was attributable to the 12 Same Store Properties located in Northern California The property revenues of these properties increased by $1,919,000 or 9.8% to $21,461,000 in the first six months of 2000 from $19,542,000 in the first six months of 1999. The $1,919,000 increase is attributable to rental rate increases which and an increase in financial occupancy to 98.0% in the first six months of 2000 from 96.8% in the first six months of 1999. The 13 multifamily Same Store Properties located in Southern California accounted for the next largest regional component of the Same Store Properties property revenues increase. The property revenues of the Same Store Properties in Southern California increased by $1,298,000 or 7.4% to $18,813,000 in the first six months of 2000 from $17,515,000 in the fist six months of 1999. This $1,298,000 increase is primarily attributable to rental rate increases as offset by a slight decrease in financial occupancy to 96.4% in the first six months of 2000 from 96.5% in the first six months of 1999. The 19 multifamily residential properties located in the Pacific Northwest also contributed to the Same Store Properties property revenues increase. The property revenues of these properties increased by $637,000 or 3.9% to $17,126,000 in the first six months of 2000 from $16,489,000 in the first six months of 1999. The $637,000 increase is primarily attributable to rental rate increase and an increase in financial occupancy to 95.7% in the first six months of 2000 from 94.9% in the first six months of 1999. The increase in total revenue also reflected an increase of $1,613,000 attributable to interest and other income, which primarily relates to interest income on outstanding notes receivables and income earned on the Company's joint venture investments. Total Expenses increased by $6,045,000 or approximately 13.5% to $50,808,000 in the first six months of 2000 from $44,763,000 in the first six months of 1999. Interest expense increased by $2,091,000 or 20.5% to $12,275,000 in the first six months from $10,184,000 in the first six months of 1999. Such increase was primarily due to the net addition of outstanding mortgage debt in connection with property and investment acquisitions which was offset in part by capitalization of interest charges relating to the Company's development and redevelopment communities. Property operating expenses, exclusive of depreciation and amortization, increased by $2,405,000 or 12.1% to $22,302,000 in the first six months of 2000 from $19,897,000 in the first six months of 1999. Of such increase, $2,493,000 was attributable to the Post 1998 Acquisition Properties and the Post 1998 Disposition Properties. The aggregate property operating expense increase is less than the amount of such increase for the Post 1998 Acquisition and the Post 1998 Disposition Properties due to a decrease in property operating expenses of the Same Store Properties. General and administrative expenses represent the costs of the Company's various acquisition and administrative departments as well as partnership administration and non-operating expenses. Such expenses increased by $173,000 in the first six months of 2000 from the amount for the first six months of 1999. This increase is largely due to additional staffing requirements resulting from the growth of the Company as offset by an increase in the allocation of general and administrative expenses to EMC. Net income increased by $5,694,000 to $23,023,000 in the first six months of 2000 from $17,329,000 in the first six months of 1999. Net income for the first six months of 2000 included a gain on the sales of real estate of $4,022,000. No gain on sales were recognized in the first six months of 1999. The remainder of the increase is a result of the net contribution of the Post 1998 Acquisition Properties and the increase in net operating income from the Same Store Properties. Liquidity and Capital Resources At June 30, 2000 the Company had $5,237,000 of unrestricted cash and cash equivalents. The Company expects to meet its short-term liquidity requirements by using its working capital, cash generated from operations and amounts available under lines of credit. The Company believes that its current net cash flows will be adequate to meet operating requirements and to provide for payment of dividends by the Company in accordance with REIT qualification requirements. The Company expects to meet its long-term funding requirements relating to property acquisition and development (beyond the next 12 months) by 19 using working capital, amounts available from its line of credit, net proceeds from public and private debt and equity issuances, and proceeds from the disposition of properties that may be sold from time to time. There can, however, be no assurance that the Company will have access to the debt and equity markets in a timely fashion to meet such future funding requirements or that future working capital, and borrowings under its line of credit will be available, or if available, will be sufficient to meet the Company's requirements or that the Company will be able to dispose of properties in a timely manner and under terms and conditions that the Company deems acceptable. In May 2000, the Company replaced its line of credit. The new unsecured $120,000,000 line of credit matures in May 2002, with an option to extend it for one year thereafter. Outstanding balances under the line of credit bear interest at a rate which uses a tiered rate structure tied to the Company corporate ratings, if any, and leverage rating (7.7% at June 30, 2000). At June 30, 2000 the Company had $71,596,000 outstanding on its line of credit. During the quarter ended June 30, 2000, the Company had outstanding balances which bore interest rates ranging from 7.2% to 9.5%. In addition to the unsecured line of credit, the Company had $403,486,000 of secured indebtedness at June 30, 2000. Such indebtedness consisted of $295,056,000 in fixed rate debt with interest rates varying from 6.4% to 8.8% and maturity dates ranging from 2000 to 2026. The indebtedness also included $58,820,000 of debt represented by tax exempt variable rate demand bonds with interest rates paid during the second quarter of 2000 ranging from 5.0% to 6.0% and maturity dates ranging from 2020 to 2026. The tax exempt variable rate demand bonds are capped at a maximum interest rates ranging from 7.1% to 7.3%. The Company also had $49,610,000 in variable rate debt with interest rates at LIBOR plus 1.75% and maturing in October 2000. The interest rate on the LIBOR based variable rate debt ranged from 8.3% to 8.5%. The Company's unrestricted cash balance decreased by $7,111,000 from $12,348,000 as of December 31, 1999 to $5,237,000 as of June 30, 2000. This decrease was primarily a result of $49,989,000 of net cash used in investing activities, which was offset by $36,395,000 of net cash provided by operating activities and $6,483,000 of net cash provided by financing activities. The $49,989,000 of net cash used in investing activities was primarily a result of $29,677,000 of cash used to purchase and upgrade rental properties, $16,888,000 used to fund real estate under development and $36,135,000 of additions to related party notes and other receivables, which was offset by $31,302,000 of proceeds were received from the disposition of real estate. Of the $6,483,000 net cash provided by financing activities, $88,596,000 of proceeds were received from mortgage and other notes payable and lines of credit which was offset by $51,522,000 of repayments of mortgage and other notes payable and lines of credit and $31,437,000 of dividends/distributions paid. Non-revenue generating capital expenditures are improvements and upgrades that extend the useful life of the property and are not related to preparing a multifamily property unit to be rented to a tenant. The Company expects to incur approximately $320 per weighted average occupancy unit in non-revenue generating capital expenditures for the year ended December 31, 2000. These expenditures do not include the improvements required in connection with the origination of mortgage loans, expenditures for renovations and improvements on recently acquired properties which are expected to generate additional revenue, and renovation expenditures required pursuant to tax-exempt bond financings. 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 2000 and/or the funding thereof will not be significantly different than the Company's current expectations. The Company is developing four multifamily residential communities, with an aggregate of 944 multifamily units. Such projects involve certain risks inherent in real estate development. See "Other Matters/Risk Factors - Risks That Development Activities Will Be Delayed or Not Completed" in Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999. In connection with these development projects, the Company has directly, or in some cases through its joint venture partners, entered into contractual construction related commitments with unrelated third parties for a total amount of approximately $162,100,000. As of June 30, 2000, the Company's remaining commitment to fund the estimated cost to complete is approximately $100,200,000. The Company expects to fund such commitments with a combination of its working capital, operating cash flows, amounts available on its 20 lines of credit, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of properties, which may be sold from time to time. During the second quarter of 2000, the Company reached stabilized occupancy at three communities that were previously reported as development communities, and announced two new development projects. Pursuant to existing shelf registration statements, the Company has the capacity to issue up to $342,000,000 of equity securities and the Operating Partnership has the capacity to issue up to $250,000,000 of debt securities. 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 short-term investment grade securities or is used by the Company to reduce balances outstanding under its line of credit. Funds from Operations Industry analysts generally consider funds from operations, ("Funds From Operations"), an appropriate measure of performance of an equity REIT. Generally, Funds From Operations adjusts the net income of equity REITs for non- cash charges such as depreciation and amortization of rental properties and non- recurring gains or losses. Management considers Funds from Operations to be a useful financial performance measurement of an equity REIT because, together with net income and cash flows, Funds from Operations provides investors with an additional basis to evaluate the ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures. Funds From Operations does not represent net income or cash flows from operations as defined by generally accepted accounting principles ("GAAP") and is not intended to indicate whether cash flows will be sufficient to fund cash needs. It should not be considered as an alternative to net income as an indicator of the REIT's operating performance or to cash flows as a measure of liquidity. Funds From Operations does not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to shareholders. Funds From Operations also does not represent cash flows generated from operating, investing or financing activities as defined under GAAP. Further, Funds from Operations as disclosed by other REITs may not be comparable to the Company's presentation of Funds From 21 Operations. The following table sets forth the Company's calculation of Funds from Operations for the three and six months ended June 30, 2000 and 1999.
Three months ended Six months ended ---------------------------- ------------------------------ June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 ----------- ------------- ------------- ------------- Income before gain on the sales of real estate, minority interests and extraordinary item $16,218,000 $12,335,000 $31,140,000 $24,026,000 Adjustments: Depreciation and amortization 6,950,000 6,247,000 13,617,000 12,292,000 Unconsolidated joint ventures 1,054,000 366,000 2,063,000 732,000 Minority interests (1) (4,778,000) (2,397,000) (9,504,000) (4,760,000) ----------- ----------- ----------- ----------- Funds From Operations $19,444,000 $16,551,000 $37,316,000 $32,290,000 =========== =========== =========== =========== Weighted average number shares outstanding diluted (1) 20,708,639 20,476,092 20,641,343 20,478,496 =========== =========== =========== ===========
(1) Assumes conversion of all outstanding operating partnership interests in the Operating Partnership and Convertible Preferred Stock, Series 1996 A, into shares of the Company's Common Stock. Minority interests have been adjusted to reflect such conversion. Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 and sensitivity to interest rate changes. The Company believes that the principal amounts of the Company's mortgage notes payable and line of credit approximate fair value as of June 30, 2000 as interest rates are consistent with yields currently available to the Company for similar instruments.
For Year Ended: 2000 2001 2002 2003 2004 Thereafter Total - ----------------------------------------- ------- ----- ------ ------ ----- ---------- --------- Fixed rate debt (In thousands) Amount $19,265 2,916 11,396 20,855 2,888 237,736 $295,056 Average interest rate 7.1% 6.6% 6.6% 6.9% 6.9% 6.9% Variable rate LIBOR debt (In thousands) Amount $49,610 - 71,596 - - 58,820(1) $180,026 Average interest 8.3% - 7.7% - - 5.50%
(1) Capped at interest rates ranging from 7.1% to 7.3%. During the second quarter of 2000, the Company sold its one remaining forward treasury contract. The Company does not have any exposures related to forward contracts at June 30, 2000. 22 Part II Other Information - ------- ----------------- Item 2: Changes in Securities and Use of Proceeds During the second quarter of 2000, Essex Management Corporation, a California corporation ("EMC") and an affiliate of the Company, as general partner, and Essex Portfolio, L.P., a California limited partnership (the "Operating Partnerships"), as to which the Company is the general partner), as special limited partner, entered into (a) an Amended and Restated Agreement of Limited Partnership of San Pablo Medical Investors LTD, a California Limited Partnership and (b) an Amended and Restated Agreement of Limited Partnership of Gilroy Associates, a California limited Partnership (collectively, the "Barkley Partnerships"), pursuant to which the existing Barkley Partnerships were reorganized for the purposes of acquiring the property, the Barkley Apartments in Anaheim, California, owned by the Barkley Partnerships. In connection with the reorganization, 88,804 units of limited partnership interest ("Units") in the Barkley Partnerships were issued to the existing partners of the Barkley Partnerships, all of whom the Company believes qualify as accredited investors, pursuant to an exemption from registration provided in Regulation D under the Securities Act. During the second quarter of 2000, Essex Management Corporation, a California corporation ("EMC") and an affiliate of the Company, as general partner, and Essex Portfolio, L.P., a California limited partnership (the "Operating Partnerships"), as to which the Company is the general partner), as special limited partner, entered into (a) a Second Amended and Restated Agreement of Limited Partnership of The Oakbrook Company, an Ohio limited Partnership (the "Brookside Oaks Partnership"), pursuant to which the existing Brookside Oaks Partnership was reorganized for the purposes of acquiring the property, the Brookside Oaks Apartments in Sunnyvle, California, owned by the Brookside Oaks Partnership. In connection with the reorganization, 237,355 units of limited partnership interest ("Units") in the Brookside Oaks Partnership were issued to the existing partners of the Brookside Oaks Partnership, all of whom the Company believes qualify as accredited investors, pursuant to an exemption from registration provided in Regulation D under the Securities Act. Under the terms of the agreements of limited partnership of the Partnerships noted above, the holders of Units have the right to require the applicable partnership to redeem their Units for cash, subject to certain conditions. Subject to certain conditions, the Company may, however, elect to deliver an equivalent number of unregistered shares of the Company's Common Stock to the holders of the Units in satisfaction of the applicable Partnership's obligation to redeem the units for cash, upon which delivery, the holders will have certain rights to require the Company to register the shares of Common Stock pursuant to the Securities Act. Item 4: Submission of Matters to a Vote of Security Holders At the Company's annual meeting, held on April 25, 2000 in Menlo Park, California, the following votes of security holders occurred: (a) The following persons were duly elected by the holders of the Company's Common Stock (the "Stockholders") as Class III directors of the Company, each for a three (3) year term (until 2003) and until their successors are elected and qualified: (1) George M. Marcus, 14,994,123 votes for and 660,946 votes withheld; (2) Gary P. Martin, 15,549,027 votes for and 106,042 votes withheld; and (3) William A. Millichap, 15,549,402 votes for and 105,667 votes withheld. (b) The Stockholders ratified and approved an amendment to the Essex Property Trust, Inc. 1994 Stock Incentive Plan by a vote of 9,537,990 votes for, 6,050,742 votes 23 against and 66,337 votes abstaining. This amendment increases the number of shares reserved for issuance under this Plan from 875,400 to 1,375,400 shares. (c) The Stockholders ratified the appointment of KPMG LLP as the Company's independent public auditors for the year ending December 31, 2000 by a vote of 15,382,043 for, 6,031 votes against and 266,995 votes abstaining. Item 6: Exhibits and Reports on Form 8-K A. Exhibits -------- 10.1 Essex Property Trust, Inc. 1994 Stock Incentive Plan, As Amended 27.1 Article 5 Financial Data Schedule (EDGAR Filing Only) B. Reports on Form 8-K ------------------- None 24 Signatures Pursuant to the requirements 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. /s/ MARK J. MIKL ----------------------------------------------- Mark J. Mikl, Vice President and Controller (Authorized Officer and Principal Accounting Officer) August 11, 2000 ------------------- Date 25 EX-10.1 2 0002.txt 1994 STOCK INCENTIVE PLAN, AS AMENDED Exhibit 10.1 ESSEX PROPERTY TRUST, INC. 1994 STOCK INCENTIVE PLAN, AS AMENDED (amended and restated as of February 15, 2000 and formerly known as the 1994 Employee Stock Incentive Plan) 1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of the Committees appointed ------------- to administer the Plan. (b) "Affiliate" and "Associate" shall have the respective meanings --------- --------- ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. All references to "Affiliates" in any Award Agreement issued prior to the date of adoption by the Board of this April 3, 1997 amendment and restatement of the Plan shall be deemed to refer to Parents and Subsidiaries. (c) "Applicable Laws" means the legal requirements relating to the --------------- administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein. (d) "Award" means the grant of an Option, SAR, Dividend Equivalent ----- Right, Restricted Stock, Performance Unit, Performance Share, or other right or benefit under the Plan. (e) "Award Agreement" means the written agreement evidencing the grant --------------- of an Award executed by the Company and the Grantee, including any amendments thereto. (f) "Board" means the Board of Directors of the Company. ----- (g) "Change in Control" means a change in ownership or control of the ----------------- Company effected through either of the following transactions: (i) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than twenty percent (20%) of the total combined voting power of the Company's outstanding securities, or (ii) a change in the composition of the Board over a calendar year or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors. (h) "Code" means the Internal Revenue Code of 1986, as amended. ---- (i) "Committee" means any committee appointed by the Board to --------- administer the Plan. All references to the "Committee" in any Award Agreement shall be deemed to refer to the Administrator. (j) "Common Stock" means the common stock of the Company. ------------ (k) "Company" means Essex Property Trust, Inc., a Maryland ------- corporation. (l) "Consultant" means any person who is engaged by the Company or any ---------- Related Entity to render consulting or advisory services as an independent contractor and is compensated for such services. (m) "Continuing Directors" means members of the Board who either (i) -------------------- have been Board members continuously for a period of at least a calendar year or (ii) have been Board members for less than a calendar year and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board. (n) "Continuous Status as an Employee, Director or Consultant" means -------------------------------------------------------- that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant, is not interrupted or terminated. Continuous Status as an Employee, Director or Consultant shall not be considered interrupted in the case of (i) any approved leave of absence or (ii) transfers between locations of the Company or among the Company, any Related Entity, or any successor in any capacity of Employee, Director or Consultant. An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. (o) "Corporate Transaction" means any of the following stockholder- --------------------- approved transactions to which the Company is a party: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with the complete liquidation or dissolution of the Company; or (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger. (p) "Covered Employee" means an Employee who is a "covered employee" ---------------- under Section 162(m)(3) of the Code. (q) "Director" means a member of the Board. -------- (r) "Dividend Equivalent Right" means a right entitling the Grantee to ------------------------- compensation measured by dividends paid with respect to Common Stock. (s) "Employee" means any person, including an Officer or Director, who -------- is an employee of the Company or any Related Entity. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (t) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (u) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) Where there exists a public market for the Common Stock, the Fair Market Value shall be (A) the closing price for a Share for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (ii) In the absence of an established market of the type described in (i), above, for the Common Stock, the Fair Market Value thereof shall be determined by the Administrator in good faith. (v) "Grantee" means an Employee, Director or Consultant who receives ------- an Award under the Plan . (w) "Incentive Stock Option" means an Option intended to qualify as an ---------------------- incentive stock option within the meaning of Section 422 of the Code. (x) "Non-Qualified Stock Option" means an Option not intended to -------------------------- qualify as an Incentive Stock Option. (y) "Officer" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (z) "Option" means a stock option granted pursuant to the Plan. ------ (aa) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (bb) "Performance - Based Compensation" means compensation qualifying -------------------------------- as "performance-based compensation" under Section 162(m) of the Code. (cc) "Performance Shares" means Shares or an award denominated in ------------------ Shares which may be earned in whole or in part upon attainment of performance criteria established by the Administrator. (dd) "Performance Units" means an award which may be earned in whole or ----------------- in part upon attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator. (ee) "Plan" means this 1994 Stock Incentive Plan, as amended and ---- restated. All references to the "1994 Employee Stock Incentive Plan" in any Award Agreement shall be deemed to refer to the Plan. (ff) "Related Entity" means any Parent, Subsidiary and any business, -------------- corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds an ownership interest, directly or indirectly, and including but not limited to Summerhill Development and Marcus & Millichap Real Estate Investment Brokerage Company. (gg) "Restricted Stock" means Shares issued under the Plan to the ---------------- Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator. (hh) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act ---------- or any successor thereto. (ii) "SAR" means a stock appreciation right entitling the Grantee to --- Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock. (jj) "Share" means a share of the Common Stock. ----- (kk) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. (ll) "Subsidiary Disposition" means the disposition by the Company of ---------------------- its equity holdings in any subsidiary corporation effected by a merger or consolidation involving that subsidiary corporation, the sale of all or substantially all of the assets of that subsidiary corporation or the Company's sale or distribution of substantially all of the outstanding capital stock of such subsidiary corporation. 3. Stock Subject to the Plan. ---------------------------- (a) Subject to the provisions of Section 10, below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is one million three hundred seventy-five thousand four hundred (1,375,400) Shares. The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock. (b) If an Award expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Award exchange program, or if any unissued Shares are retained by the Company upon exercise of an Award in order to satisfy the exercise price for such Award or any withholding taxes due with respect to such Award, such unissued or retained Shares shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. --------------------------- (a) Plan Administrator. ------------------ (i) Administration with Respect to Directors and Officers. With ----------------------------------------------------- respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. (ii) Administration With Respect to Consultants and Other --------------------------------------------------- Employees. With respect to grants of Awards to Employees or Consultants who are - ---------- neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time. (iii) Administration With Respect to Covered Employees. ------------------------------------------------ Notwithstanding the foregoing, grants of Awards to any Covered Employee intended to qualify as Performance-Based Compensation shall be made only by a Committee (or subcommittee of a Committee) which is comprised solely of two or more Directors eligible to serve on a committee making Awards qualifying as Performance-Based Compensation. In the case of such Awards granted to Covered Employees, references to the "Administrator" or to a "Committee" shall be deemed to be references to such Committee or subcommittee. (iv) Administration Errors. In the event an Award is granted in a ---------------------- manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws . (b) Powers of the Administrator. Subject to Applicable Laws and the --------------------------- provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion: (i) to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder; (ii) to determine whether and to what extent Awards are granted hereunder; (iii) to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder; (iv) to approve forms of Award Agreement for use under the Plan; (v) to determine the terms and conditions of any Award granted hereunder; (vi) to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee's rights under an outstanding Award shall not be made without the Grantee's written consent ; (vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan; (viii) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; and (ix) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate. (c) Effect of Administrator's Decision. All decisions, determinations ---------------------------------- and interpretations of the Administrator shall be conclusive and binding on all persons. 5. Eligibility. Awards other than Incentive Stock Options may be granted ----------- to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees of the Company, a Parent or a Subsidiary. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time. 6. Terms and Conditions of Awards. ------------------------------ (a) Type of Awards. The Administrator is authorized under the Plan to -------------- award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right with an exercise or conversion privilege at a fixed or variable price related to the Common Stock and/or the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or (iii) any other security with the value derived from the value of the Common Stock or other securities issued by a Related Entity. Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend Equivalent Rights, Performance Units or Performance Shares, and an Award may consist of one such security or benefit, or two or more of them in any combination or alternative. (b) Designation of Award. Each Award shall be designated in the Award -------------------- Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted. (c) Conditions of Award. Subject to the terms of the Plan, the ------------------- Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, increase in share price, earnings per share, total stockholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, personal management objectives, or other measure of performance selected by the Administrator. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement. (d) Deferral of Award Payment. The Administrator may establish one or ------------------------- more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program. (e) Award Exchange Programs. The Administrator may establish one or ----------------------- more programs under the Plan to permit selected Grantees to exchange an Award under the Plan for one or more other types of Awards under the Plan on such terms and conditions as determined by the Administrator from time to time. (f) Separate Programs. The Administrator may establish one or more ----------------- separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time. (g) Individual Option and SAR Limit. The maximum number of Shares with ------------------------------- respect to which Options and SARs may be granted to any Employee in any calendar year shall be one hundred thousand (100,000) Shares. The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization pursuant to Section 10, below. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation with respect to an Employee, if any Option or SAR is canceled, the canceled Option or SAR shall continue to count against the maximum number of Shares with respect to which Options and SARs may be granted to the Employee. (h) Early Exercise. The Award may, but need not, include a provision -------------- whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or to any other restriction the Administrator determines to be appropriate. (i) Term of Award. The term of each Award shall be the term stated in ------------- the Award Agreement, provided, however, that the term of an Incentive Stock Option shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement. (j) Transferability of Awards. Incentive Stock Options may not be ------------------------- sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee; provided, however, that the Grantee may designate a beneficiary of the Grantee's Incentive Stock Option in the event of the Grantee's death on a beneficiary designation form provided by the Administrator. Other Awards shall be transferable to the extent provided in the Award Agreement. (k) Time of Granting Awards. The date of grant of an Award shall for ----------------------- all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Award is so granted within a reasonable time after the date of such grant. 7. Award Exercise or Purchase Price, Consideration, Taxes and Reload ----------------------------------------------------------------- Options. - ------- (a) Exercise or Purchase Price. The exercise or purchase price, if -------------------------- any, for an Award shall be as follows: (i) In the case of an Incentive Stock Option: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (ii) In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant unless otherwise determined by the Administrator. (iii) In the case of Awards intended to qualify as Performance- Based Compensation, the exercise or purchase price, if any, shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (iv) In the case of other Awards, such price as is determined by the Administrator. (b) Consideration. Subject to Applicable Laws, the consideration to be ------------- paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following: (i) cash; (ii) check; (iii) delivery of Grantee's promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate; (iv) surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised (but only to the extent that such exercise of the Award would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator); (v) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Award and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or (vi) any combination of the foregoing methods of payment. (c) Taxes. No Shares shall be delivered under the Plan to any Grantee ----- or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any foreign, federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award, the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations. (d) Reload Options. In the event the exercise price or tax withholding -------------- of an Option is satisfied by the Company or the Grantee's employer withholding Shares otherwise deliverable to the Grantee, the Administrator may issue the Grantee an additional Option, with terms identical to the Award Agreement under which the Option was exercised, but at an exercise price as determined by the Administrator in accordance with the Plan. 8. Exercise of Award. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. ----------------------------------------------- (i) Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement. (ii) An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised has been received by the Company. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to an Award, notwithstanding the exercise of an Option or other Award. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Award Agreement or Section 10, below. (b) Exercise of Award Following Termination of Employment, Director or ------------------------------------------------------------------ Consulting Relationship. - ----------------------- (i) An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee's Continuous Status as an Employee, Director or Consultant only to the extent provided in the Award Agreement. (ii) Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee's Continuous Status as an Employee, Director or Consultant for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first. (iii) Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee's Continuous Status as an Employee, Director or Consultant shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement. (c) Buyout Provisions. The Administrator may at any time offer to buy ----------------- out for a payment in cash or Shares, an Award previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Grantee at the time that such offer is made. 9. Conditions Upon Issuance of Shares. ---------------------------------- (a) Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws. 10. Adjustments Upon Changes in Capitalization. Subject to any required ------------------------------------------ action by the stockholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, as well as the price per share of Common Stock covered by each such outstanding Award, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other similar event resulting in an increase or decrease in the number of issued shares of Common Stock. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award. 11. Corporate Transactions/Changes in Control/Subsidiary Dispositions. ----------------------------------------------------------------- (a) In the event of a Corporate Transaction, each Award which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any restrictions on transfer and repurchase or forfeiture rights, immediately prior to the specified effective date of such Corporate Transaction, for all of the Shares at the time represented by such Award. Effective upon the consummation of the Corporate Transaction, all outstanding Awards under the Plan shall terminate unless assumed by the successor company or its Parent. (b) In the event of a Change in Control (other than a Change in Control which also is a Corporate Transaction), each Award which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any restrictions on transfer and repurchase or forfeiture rights, immediately prior to the specified effective date of such Change in Control, for all of the Shares at the time represented by such Award. Each such Award shall remain so exercisable until the expiration or sooner termination of the applicable Award term. (c) In the event of a Subsidiary Disposition, each Award with respect to those Grantees who are at the time engaged primarily in Continuous Status as an Employee or Consultant with the subsidiary corporation involved in such Subsidiary Disposition which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any restrictions on transfer and repurchase or forfeiture rights, immediately prior to the specified effective date of such Subsidiary Disposition, for all of the Shares at the time represented by such Award Each such Award shall remain so exercisable until the expiration or sooner termination of the Award term. (d) Notwithstanding the foregoing, the Administrator, in its discretion, may prevent the acceleration of vesting and release from any restrictions on transfer and repurchase or forfeiture rights of any outstanding Award with respect to any Corporate Transaction, Change in Control or Subsidiary Disposition. (e) The portion of any Incentive Stock Option accelerated under this Section 11 in connection with a Corporate Transaction, Change in Control or Subsidiary Disposition shall remain exercisable as an Incentive Stock Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded. To the extent such dollar limitation is exceeded, the accelerated excess portion of such Option shall be exercisable as a Non-Qualified Stock Option. 12. Term of Plan. The Plan shall terminate on March 16, 2004 unless sooner ------------ terminated . - ----------- 13. Amendment, Suspension or Termination of the Plan. ------------------------------------------------ (a) The Board may at any time amend, suspend or terminate the Plan. To the extent necessary to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) No Award may be granted during any suspension of the Plan or after termination of the Plan. (c) Any amendment, suspension or termination of the Plan shall not affect Awards already granted, and such Awards shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company. 14. Reservation of Shares. ------------------------ (a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. (b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 15. No Effect on Terms of Employment. The Plan shall not confer upon any -------------------------------- Grantee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 16. Stockholder Approval. On February 15, 2000, the Board adopted and -------------------- approved an amendment to the Plan, subject to stockholder approval, to increase the maximum aggregate number of Shares that may be issued pursuant to Awards (the "Amendment"). The Amendment shall not be given effect until it shall have been approved by the Company's stockholders. EX-27.1 3 0003.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ESSEX PROPERTY TRUST, INC. REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2000. 1,000 3-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 22,329 0 52,754 0 0 79,596 1,118,219 102,350 1,152,876 42,752 475,082 2 0 1 391,327 1,152,876 0 81,948 0 35,919 2,614 0 12,275 23,023 0 23,023 0 0 0 23,023 1.26 1.24
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