The following discussion is based primarily on the consolidated unaudited financial statements of Essex Portfolio, L.P. (the "Operating Partnership") for the three and nine months ended September 30, 2003 and 2002. 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.  

The Company is the sole general partner of the Operating Partnership and, as of September 30, 2003, December 31, 2002 and September 30, 2002, with a 90.1%, 90.0% and 88.7% general partnership interest in the Operating Partnership, respectively.

General Background

The Operating Partnership's property revenues are generated primarily from multifamily property operations, which accounted for greater than 96% of its property revenues for the three and nine months ended September 30, 2003 and 2002. The Operating Partnership's multifamily properties (the "Properties") are located in Southern California (Los Angeles, Ventura, Orange and San Diego counties), Northern California (the San Francisco Bay Area), the Pacific Northwest (the Seattle, Washington and Portland, Oregon metropolitan areas) and other areas (Houston, Texas, Las Vegas, Nevada and Hemet, California).

Essex Apartment Value Fund, L.P. (the "Fund"), is an investment fund organized by the Operating Partnership in 2001 to add value through rental growth and asset appreciation, utilizing the Operating Partnership's development, redevelopment and asset management capabilities. Currently the Fund is considered fully invested based on its acquisitions to date and anticipated development and redevelopment expenditures. The Fund now expects to utilize leverage of approximately 61% of the value of the underlying real estate portfolio. The Operating Partnership is committed to invest 21.4% of the aggregate capital committed to the Fund. In addition, the Operating Partnership will be compensated by the Fund for its asset management, property management, development and redevelopment services and may receive incentive payments if the Fund exceeds certain financial return benchmarks. Since its formation, the Fund has acquired ownership interests in 17 multifamily residential properties, representing 4,926 apartment units with an aggregate purchase price of approximately $500 million, excluding redevelopment expenses, and disposed of two multifamily residential property, consisting of 530 apartment units at a gross sales price of approximately $73 million resulting in a net realized gain of approximately $5.7 million. In addition, three development land parcels, where approximately 612 apartment units are planned for construction, have been purchased by the Fund with a total estimated cost for the projects of approximately $107.5 million. As of September 30, 2003, the remaining commitments to fund these projects is approximately $48.8 million of which approximately $10.4 million is the Operating Partnership's commitment.  The 132-unit Kelvin Avenue development project in Irvine, California is still in the process of obtaining entitlements and its estimated total costs have not yet been finalized and is not included in the numbers above.

Since the Operating Partnership began operations in June 1994, the Operating Partnership has acquired ownership interests in 105 multifamily residential properties, its headquarters building, three Southern California office buildings, five recreational vehicle parks, and two manufactured housing communities. With respect to the multifamily residential properties that the Operating Partnership acquired, 14 are located in Northern California, 69 are located in Southern California, 15 are located in the Seattle Metropolitan Area, five are located in the Portland Metropolitan Area and two are located in other areas. In total, these acquisitions consist of 21,536 units with total capitalized acquisition costs of approximately $2,005.2 million. Additionally, since its IPO, the Operating Partnership has developed and has ownership interests in ten multifamily properties that have reached stabilized operations. These development properties consist of 2,406 units with total capitalized development costs of $309.5 million. As part of its active portfolio management strategy, the Operating Partnership has disposed of, since its IPO, twelve multifamily residential properties (six in Northern California, five in Southern California and one in the Pacific Northwest) consisting of a total of 2,014 units, six retail shopping centers in the Portland, Oregon metropolitan area and its former headquarters building located in Northern California at an aggregate gross sales price of approximately $259.5 million resulting in a net realized gain of approximately $53.8 million.

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The Operating Partnership (excluding the Fund's development communities) has ownership interests in and is developing three multifamily residential communities, with an aggregate of 756 multifamily units. In connection with these development projects, the Operating Partnership has directly entered into contractual construction related commitments with unrelated third parties and the total projected estimated cost for these projects is approximately $122.2 million. As of September 30, 2003, the remaining commitment to fund these projects is approximately $26.0 million.  

Results of Operations  

Comparison of the Three Months Ended September 30, 2003 to the Three Months Ended September 30, 2002  

Average financial occupancy rates of the Operating Partnership's multifamily Quarterly Same Store Properties (stabilized properties consolidated by the Operating Partnership for each of the three months ended September 30, 2003 and 2002) was 96.0% and 96.1%, for the three months ended September 30, 2003 and 2002, respectively. "Financial occupancy" is defined as the percentage resulting from dividing actual rental revenue by total possible rental revenue. Actual rental revenue represents contractual rental revenue pursuant to leases without considering delinquency and concessions. Total possible rental revenue represents the value of all apartment units, with occupied units valued at contractual rental rates pursuant to leases and vacant units valued at estimated market rents. We believe that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Financial occupancy rates disclosed by other REITs may not be comparable to our calculation of financial occupancy.

The regional breakdown of average financial occupancy for the multifamily Quarterly Same Store Properties for the three months ended September 30, 2003 and 2002 are as follows:

                                            Three months ended
                                               September 30,
                                          ----------------------
                                            2003        2002
                                          ---------  -----------
Southern California                           97.0%        96.3%
Northern California                           95.6%        96.8%
Pacific Northwest                             94.8%        94.8%

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Total Revenues increased by $9,442,000 or 19.4% to $58,237,000 in the third quarter of 2003 from $48,795,000 in the third quarter of 2002. The following table sets forth a breakdown of these revenue amounts, including the revenues attributable to the Quarterly Same Store Properties.

                                               Three Months Ended
                                                  September 30,
                                   Number of   --------------------   Dollar   Percentage
                                  Properties     2003       2002      Change     Change
                                  -----------  ---------  ---------  --------- -----------
Revenues:                                      (Dollars in thousands)
  Property revenues - quarterly
    Quarterly Same Store Properties
      Southern California                 22  $  17,914  $  17,263  $     651         3.8 %
      Northern California                 16     12,189     13,589     (1,400)      (10.3)
      Pacific Northwest                   23     10,032     10,534       (502)       (4.8)
                                  -----------  ---------  ---------  --------- -----------
          Properties                      61     40,135     41,386     (1,251)       (3.0)
  Property revenues - properties
    acquired subsequent to
    June 30, 2002 (1)                            15,120      2,243     12,877       574.1
                                               ---------  ---------  --------- -----------
      Total property revenues                    55,255     43,629     11,626        26.6
Interest and other income                         2,982      5,166     (2,184)      (42.3)
                                               ---------  ---------  --------- -----------
      Total revenues                          $  58,237  $  48,795  $   9,442        19.4 %
                                               =========  =========  ========= ===========

As set forth in the above table, the $9,442,000 net increase in total revenues was mainly attributable to an increase of $12,877,000 attributable to multifamily properties acquired subsequent to June 30, 2002, four office buildings, five recreational vehicle parks, two manufactured housing communities, redevelopment communities and development communities, which was offset in part by a decrease in interest and other income of $2,184,000 and a decrease in revenues from the Quarterly Same Store Properties of $1,251,000. Subsequent to June 30, 2002, the Operating Partnership acquired interests in 21 multifamily properties, two office buildings, five recreational vehicle parks, two manufactured housing communities and achieved stabilized operations in three redevelopment communities and one development community (the "Quarterly Acquisitions Properties").

Interest and other income decreased by $2,184,000 or 42.3% to $2,982,000 in the third quarter of 2003 from $5,166,000 in the third quarter of 2002. The decrease primarily relates to the repayment of notes receivable which resulted in a decrease in interest income on notes receivables and the sale of co- investment assets resulting in the decrease in income earned on the Operating Partnership's co-investments.

Property revenues from the Quarterly Same Store Properties decreased by $1,251,000 or 3.0% to $40,135,000 in the third quarter of 2003 from $41,386,000 in the third quarter of 2002. The majority of this decrease was attributable to the 16 Quarterly Same Store Properties located in Northern California and the 23 Quarterly Same Store Properties located in the Pacific Northwest. The property revenues of the Quarterly Same Store Properties in Northern California decreased by $1,400,000 or 10.3% to $12,189,000 in the third quarter of 2003 from $13,589,000 in the third quarter of 2002. The decrease in Northern California is primarily attributable to rental rate decreases and a decrease in financial occupancy to 95.6% in the third quarter of 2003 from 96.8% in the third quarter of 2002. The property revenues of the Quarterly Same Store Properties in the Pacific Northwest decreased by $502,000 or 4.8% to $10,032,000 in the third quarter of 2003 from $10,534,000 in the third quarter of 2002. The $502,000 decrease in the Pacific Northwest is primarily attributable to rental rate decreases. Financial occupancy remained constant at 94.8% in the third quarter of 2003 as compared to the third quarter of 2002. The 22 Quarterly Same Store Properties located in Southern California offset the net decrease in total property revenues from the other Quarterly Same Store Properties. The property revenues for these properties increased by $651,000 or 3.8% to $17,914,000 in the third quarter of 2003 from $17,263,000 in the third quarter of 2002. The $651,000 increase is primarily attributable to rental rate increases and an increase in financial occupancy to 97.0% in the third quarter of 2003 from 96.3% in the third quarter of 2002.

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Total Expenses increased by $11,156,000 or approximately 34.6% to $43,373,000 in the third quarter of 2003 from $32,217,000 in the third quarter of 2002. This increase was mainly due to an increase in property operating expenses of $8,867,000 or 40.4% to $30,834,000 in the third quarter of 2003 from $21,967,000 in the third quarter of 2002. Of such operating expense increase $9,443,000 was attributable to the Quarterly Acquisition Properties, which was offset by a small decrease in operating expense attributable to the Quarterly Same Store Properties. Interest expense increased by of $1,907,000 or 22.1% to $10,528,000 in the third quarter of 2003 from $8,621,000 in the third quarter of 2002. The increase in interest expense is due to increases in the mortgage notes payable and line of credit balances.

Net income decreased by $1,719,000 or 10.4% to $14,832,000 in the third quarter of 2003 from $16,551,000 in the third quarter of 2002. The decrease in net income is mainly attributable to the factors noted above.

Comparison of the Nine Months Ended September 30, 2003 to the Nine Months Ended September 30, 2002

Average financial occupancy rates of the Company's multifamily Same Store Properties (stabilized properties consolidated by the Company for each of the nine months ended September 30, 2003 and 2002) was 95.6% and 94.4%, for the nine months ended September 30, 2003 and 2002, respectively.

The regional breakdown of average financial occupancy for the multifamily Same Store Properties for the nine months ended September 30, 2003 and 2002 are as follows:

                                            Nine Months Ended
                                              September 30,
                                          ----------------------
                                            2003        2002
                                          ---------  -----------
Southern California                           96.0%        94.3%
Northern California                           95.6%        95.7%
Pacific Northwest                             94.8%        92.8%

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Total Revenues increased by $26,491,000 or 17.8% to $175,679,000 in the nine months ended September 30, 2003 from $149,188,000 in the nine months ended September 30, 2002. The following table sets forth a breakdown of these revenue amounts, including the revenues attributable to the Same Store Properties.

                                                Nine Months Ended
                                                  September 30,
                                   Number of   --------------------   Dollar   Percentage
                                  Properties     2003       2002      Change     Change
                                  -----------  ---------  ---------  --------- -----------
Revenues:                                      (Dollars in thousands)
  Property revenues
  Same Store Properties
    Southern California                   22  $  52,922  $  50,413  $   2,509         5.0 %
    Northern California                   16     38,182     42,165     (3,983)       (9.4)
    Pacific Northwest                     23     30,567     31,747     (1,180)       (3.7)
                                  -----------  ---------  ---------  --------- -----------
          Properties                      61    121,671    124,325     (2,654)       (2.1)
  Property revenues - properties
    acquired subsequent to
    December 31, 2001 (1)                        44,761      5,902     38,859       658.4
                                               ---------  ---------  --------- -----------
      Total property revenues                   166,432    130,227     36,205        27.8
Interest and other income                         9,247     18,961     (9,714)      (51.2)
                                               ---------  ---------  --------- -----------
      Total revenues                          $ 175,679  $ 149,188  $  26,491        17.8 %
                                               =========  =========  ========= ===========

As set forth in the above table, the $26,491,000 net increase in total revenues was mainly attributable to an increase of $38,859,000 attributable to multifamily properties acquired subsequent to December 31, 2001, four office buildings, five recreational vehicle parks, two manufactured housing communities, redevelopment communities and development communities, which was offset in part by a decrease in interest and other income of $9,714,000 and a decrease in revenue from the Same Store Properties of $2,654,000. Subsequent to December 31, 2001, the Operating Partnership acquired interests in 21 multifamily properties, two office buildings, five recreational vehicle parks, two manufactured housing communities and achieved stabilized operations in three redevelopment communities and one development community (the "Acquisitions Properties").

Interest and other income decreased by $9,714,000 or 51.2% to $9,247,000 in the nine months ended September 30, 2003 from $18,961,000 in the nine months ended September 30, 2002. The decrease primarily relates to the repayment or conversion to non-accrual of notes receivable which resulted in a decrease in interest income on notes receivables and the sale of co-investment assets resulting in the decrease in income earned on the Operating Partnership's co- investments.

Property revenues from the Same Store Properties decreased by $2,654,000 or 2.1% to $121,671,000 in the nine months ended September 30, 2003 from $124,325,000 in the nine months ended September 30, 2002. The majority of this decrease was attributable to the 16 Same Store Properties located in Northern California and the 23 Same Store Properties located in the Pacific Northwest. The property revenues of the Same Store Properties in Northern California decreased by $3,983,000 or 9.4% to $38,182,000 in the nine months ended September 30, 2003 from $42,165,000 in the nine months ended September 30, 2002. The decrease in Northern California is primarily attributable to rental rate decreases and a slight decrease in financial occupancy to 95.6% in the nine months ended September 30, 2003 from 95.7% in the nine months ended September 30, 2002. The property revenues of the Same Store Properties in the Pacific Northwest decreased by $1,180,000 or 3.7% to $30,567,000 in the nine months ended September 30, 2003 from $31,747,000 in the nine months ended September 30, 2002. The $1,180,000 decrease in the Pacific Northwest is primarily attributable to rental rate decreases offset by an increase in financial occupancy to 94.8% in the nine months ended September 30, 2003 from 92.8% in the nine months ended September 30, 2002. The 22 multifamily residential properties located in Southern California offset the net decrease in total property revenues from the other Same Store Properties. The property revenues for these properties increased by $2,509,000 or 5.0% to $52,922,000 in the nine months ended September 30, 2003 from $50,413,000 in the nine months ended September 30, 2002. The $2,509,000 increase is primarily attributable to rental rate increases and an increase in financial occupancy to 96.0% in the nine months ended September 30, 2003 from 94.3% in the nine months ended September 30, 2002.  

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Total Expenses increased by $32,399,000 or approximately 33.8% to $128,291,000 in the nine months ended September 30, 2003 from $95,892,000 in the nine months ended September 30, 2002. This increase was mainly due to an increase in property operating expenses of $25,759,000 or 39.8% to $90,400,000 in the nine months ended September 30, 2003 from $64,641,000 in the nine months ended September 30, 2002. Of such operating expense increase $25,256,000 was attributable to the Acquisition Properties. Interest expense increased by $5,796,000 or 22.2% to $31,858,000 in the nine months ended September 30, 2003 from $26,062,000 in the nine months ended September 30, 2002. The increase in interest expense is due to increases in the line of credit balance.

Discontinued operations decreased by $9,304,000 to $0 in the nine months ended September 30, 2003 from $9,304,000 in the nine months ended September 30, 2002. This decrease is due to the reduction of gain on sale of real estate and operating income from Tara Village, a 168-unit apartment community located in Tarzana, California, which was sold on June 18, 2002.

Net income decreased by $15,197,000 or 24.3% to $47,298,000 in the nine months ended September 30, 2003 from $62,495,000 in nine months ended September 30, 2002. The decrease in net income is mainly attributable to the factors noted above.

At September 30, 2003, the Operating Partnership had $10,400,000 of unrestricted cash and cash equivalents. The Operating Partnership expects to meet its short-term liquidity requirements by using its working capital, cash generated from operations, and amounts available under lines of credit or other financings. The Operating Partnership 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 Operating Partnership expects to meet its long-term liquidity requirements relating to property acquisitions and development (beyond the next 12 months) and balloon debt maturities by using a combination of some or all of the following sources: working capital, amounts available on lines 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 Operating Partnership 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 the lines of credit will be available, or if available, will be sufficient to meet the Operating Partnership's requirements or that the Operating Partnership will be able to dispose of properties in a timely manner and under terms and conditions that the Operating Partnership deems acceptable.

The Operating Partnership has two outstanding unsecured lines of credit for an aggregate amount of $215,000,000. The first line, in the amount of $185,000,000, matures in May 2004, with an option to extend it for one year thereafter. Outstanding balances under this line of credit bear interest at a rate, which uses a tiered rate structure tied to the Company's corporate ratings, if any, and leverage rating, which has been priced at LIBOR plus 1.10%. At September 30, 2003 the Operating Partnership had $132,700,000 outstanding on this line of credit. In July, 2003 the Operating Partnership expanded this line from $165,000,000 to $185,000,000. No other material terms of this facility were revised. A second line of credit in the amount of $30,000,000 matures in December 2003. Outstanding balances, if any, on this second line bear interest based on a tiered rate structure currently at LIBOR plus 1.10%. At September 30, 2003 the Operating Partnership had $30,000,000 outstanding on this line of credit. The outstanding balance on this line of credit was repaid subsequent to the end of the quarter. At September 30, 2003, these lines of credit bore interest rates of approximately 2.3%. The credit agreements contain debt covenants related to limitations on indebtedness and liabilities, maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization and maintenance of minimum tangible net worth.

In addition, the Fund, the investment fund managed by the Operating Partnership, has an unsecured line of credit for an aggregate amount of $50,000,000. In August, 2003 the Fund reduced this line from $125,000,000 to $50,000,000. This facility is directly tied to the remaining capital commitments of certain investors. As of September 30, 2003, the maximum amount available on this line was approximately $47,568,000. The line bears interest at LIBOR plus 0.875%. As of September 30, 2003, the line had an outstanding balance of $36,572,000. This line matures in December 2003. The Fund plans on using one or more of the following sources to repay the outstanding balance at maturity: working capital, secured mortgage financing, construction financing, calling undrawn equity commitments, and proceeds from the disposition of properties which may be sold from time to time. The line provides for debt covenants relating to limitations on mortgage indebtedness.

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In addition to the Operating Partnership's unsecured lines of credit, the Operating Partnership had $664,596,000 of secured indebtedness at September 30, 2003. Such indebtedness consisted of $595,024,000 in fixed rate debt with interest rates varying from 5.5% to 8.2% and maturity dates ranging from 2005 to 2026. The indebtedness also includes $69,572,000 of tax-exempt variable rate demand bonds with interest rates paid during the nine months ended September 30, 2003 which averaged 3.7% and maturity dates ranging from 2020 to 2032. The tax- exempt variable rate demand bonds are capped at interest rates ranging from 7.1% to 7.3%.

The Operating Partnership's unrestricted cash balance increased by $1,838,000 from $8,562,000 as of December 31,2002 to $10,400,000 as of September 30, 2003. The Operating Partnership generated $73,748,000 in cash from operating activities, used $58,553,000 cash in investing activities and used $13,357,000 cash in financing activities. The $58,553,000 net cash used in investing activities was primarily a result of $24,293,000 contributed to investments in corporations and limited partnerships, $20,119,000 used to fund real estate under development, $13,090,000 used to upgrade rental properties and $8,337,000 used to fund additions to notes receivables from investees, other related parties and other receivables. The $13,357,000 net cash used in financing activities was primarily a result of $66,618,000 of repayments of mortgages and other notes payable and lines of credit, $50,184,000 of distributions to the general partner, $15,389,000 of distributions to limited partners offset by $89,851,000 of proceeds from mortgages and other notes and line of credit and $24,664,000 contribution of general partner preferred equity.

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 Operating Partnership expects to incur approximately $375 per weighted average occupancy unit in non- revenue generating capital expenditures for the year ended December 31, 2003. These expenditures do not include the improvements required in connection with the origination of mortgage loans, expenditures for acquisition properties' renovations and improvements, which are expected to generate additional revenue, and renovation expenditures required pursuant to tax-exempt bond financings. The Operating Partnership 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 2003 and/or the funding thereof will not be significantly different than the Operating Partnership's current expectations.

The Operating Partnership is currently developing six multifamily residential projects, with an aggregate of 1,368 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 and/or Fail to Achieve Expected Results" in Item 1 of the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2002. In connection with these development projects, the Operating Partnership has directly, or in some cases through its joint venture partners entered into contractual construction related commitments with unrelated third parties and the total projected estimated cost for these projects is approximately $229,700,000. As of September 30, 2003, the remaining commitment to fund these development projects is approximately $74,800,000, of which approximately $36,400,000 is the Operating Partnership's commitment. The 132-unit Kelvin Avenue development project in Irvine, California is still in the process of obtaining entitlements and its estimated total costs have not yet been finalized and is not included in the numbers above. The Operating Partnership expects to fund such commitments by using a combination of some or all of the following sources: its working capital, amounts available on its lines of credit, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of properties, if any.

The Operating Partnership pays quarterly distributions and the Company pays quarterly dividends from cash available for distribution. Until it is distributed, cash available for distribution is invested by the Operating Partnership primarily in short-term investment grade securities or is used by the Operating Partnership to reduce balances outstanding under its line of credit.

Essex Apartment Value Fund, L.P. (the "Fund"), is an investment fund organized by the Operating Partnership in 2001 to add value through rental growth and asset appreciation, utilizing the Operating Partnership's development, redevelopment and asset management capabilities. Currently the Fund is considered fully invested based on its acquisitions to date and anticipated development and redevelopment expenditures. The Fund now expects to utilize leverage of approximately 61% of the value of the underlying real estate portfolio. The Operating Partnership is committed to invest 21.4% of the aggregate capital committed to the Fund. In addition, the Operating Partnership will be compensated by the Fund for its asset management, property management, development and redevelopment services and may receive incentive payments if the Fund exceeds certain financial return benchmarks.

25

Financing and equity issuances.  During the third quarter of 2003 and the early part of the fourth quarter of 2003, the Company undertook the following financing activities and equity issuances.

On July 30, 2003, in connection with the Operating Partnership's acquisition, by merger, of John M. Sachs, Inc. ("Sachs") that was completed on December 17,2002, and under the terms of the merger agreement, a final analysis was prepared, which indicated that the actual net liabilities of Sachs were less than the net liabilities of Sachs estimated to be outstanding as of the merger date.  Based on the final analysis and as a post-closing adjustment payment pursuant to the merger agreement, the Operating Partnership made a final payment of approximately $1,766,000 in cash and issued an additional 35,860 shares of the Company's common stock to certain of the pre-merger shareholders of Sachs.

On September 23, 2003, the Company issued 1,000,000 shares of its Series F Cumulative Redeemable Preferred Stock ("Series F Preferred Stock") at a fixed price of $24.664 per share, a discount from the $25.00 per share liquidation value of the shares. The shares do not begin to accrue a dividend until November 25, 2003 and following that date, will pay quarterly dividends at an annualized rate of 7.8125% per year of the liquidation value and will be redeemable by the Company on or after September 23, 2008. The Company will amortize the original discount in connection with the issuance of these shares in the fourth quarter of 2003, resulting in a charge of approximately $336,000. The shares were issued pursuant to the Company's existing shelf registration statement.  Essex contributed the net proceeds from the Series F Preferred Stock offering to the Operating Partnership and will receive a preferred distribution from the Operating Partnership equal to the quarterly dividends on the Series F Preferred Stock. The Operating Partnership intends to use the net proceeds from this sale of Series F Preferred Stock to redeem all of the 9.125% Series C Cumulative Redeemable Preferred Units (the "Series C Preferred Units") of the Operating Partnership.   On October 15, 2003, the Operating Partnership issued a notice of redemption to the holders of Series C Preferred Units.  The Operating Partnership expects to redeem all outstanding Series C Preferred Units on November 24, 2003, for a price of $50.00 per unit plus accrued and unpaid dividends.

On October 6, 2003, the Company sold 1.6 million newly issued shares of common stock and received offering proceeds (before expenses) of $60.67 per share, representing a 3.25% discount to the common stock's closing price on September 30, 2003, the date of the underwriting agreement between the Company and the underwriter, pursuant to which the shares were sold.  The shares were issued pursuant to the Company's existing shelf registration statement.  The net proceeds of the offering of approximately $96,772,000 were contributed to the Operating Partnership in exchange for an increased general partner interest in the Operating Partnership. The Operating Partnership expects to use the net proceeds for the acquisition of multifamily communities located in the Operating Partnership's targeted West Coast markets and may also be used for general corporate purposes, including the repayment of debt and the funding of development activities.

After the Company's equity issuances, the Company has the capacity pursuant to existing shelf registration statements to issue up to $219,455,250 in equity securities and the Operating Partnership has the capacity pursuant to such registration statements to issue up to $250,000,000 of debt securities.

The following table summarizes our contractual obligations and other commitments at September 30, 2003, and the effect such obligations could have on our liquidity and cash flow in future periods:

                                Less Than     2-3        4-5      Over 5
                                 1 Year      Years      Years      Years      Total
(In thousands)                  ---------  ---------  ---------  ---------  ---------
Mortgage notes payable         $   1,689  $  48,904  $  83,527  $ 530,476  $ 664,596
Lines of credit                   30,000    132,700         --         --    162,700
Development commitments(1)        36,400         --         --         --     36,400
Redevelopment commitments(2)       3,000         --         --         --      3,000
Essex Apartment Value Fund, L.P.
   capital commitment             15,285         --         --         --     15,285
                                ---------  ---------  ---------  ---------  ---------
                               $  86,374  $ 181,604  $  83,527  $ 530,476  $ 881,981
                                =========  =========  =========  =========  =========

These risks may reduce the funds available for distribution to the Operating Partnership's unit holders. Further, the development and redevelopment of properties is also subject to the general risks associated with real estate investments.  

Interest Rate Fluctuations  

The Operating Partnership monitors changes in interest rates and believes that it is well positioned from both a liquidity and interest rate risk perspective. However, current interest rates are at historic lows and potentially could increase rapidly to levels more in line with recent levels. The immediate effect of significant and rapid interest rate increases would result in higher interest expense on the Operating Partnership's variable interest rate debt. The effect of prolonged interest rate increases could negatively impact the Operating Partnership's ability to make acquisitions and develop properties at economic returns on investment and the Operating Partnership's ability to refinance existing borrowings at acceptable rates.  

28

Inflation /Deflation 

Substantial inflationary or deflationary pressures would likely have a negative effect on rental rates and property operating expenses. The Operating Partnership believes it effectively manages its property and other expenses but understands that substantial annual rates of inflation or deflation could adversely impact operating results.