ESSEX PROPERTY TRUST, INC. - FORM 8-K - EX-99.2 - EXHIBIT 99.2

Attached files

file	filename
EX-99.1 - EXHIBIT 99.1 - ESSEX PROPERTY TRUST, INC.	s001375x1_ex99-1.htm
8-K - FORM 8-K - ESSEX PROPERTY TRUST, INC.	s001375x1_8k.htm

Exhibit 99.2

Q2 2016 Supplemental

Table of Contents

	Page
Consolidated Operating Results	S-1 – S-2
Consolidated Funds From Operations	S-3
Consolidated Balance Sheets	S-4
Debt Summary – June 30, 2016	S-5
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – June 30, 2016	S-6
Portfolio Summary by County – June 30, 2016	S-7
Operating Income by Quarter – June 30, 2016	S-8
Same-Property Revenue Results by County – Quarters ended June 30, 2016 and 2015, and March 31, 2016	S-9
Same-Property Revenue Results by County – Six months ended June 30, 2016 and 2015	S-9.1
Same-Property Operating Expenses	S-10
Development Pipeline – June 30, 2016	S-11
Redevelopment Pipeline – June 30, 2016	S-12
Capital Expenditures – June 30, 2016	S-12.1
Co-Investments – June 30, 2016	S-13
Assumptions for 2016 FFO Guidance Range	S-14
Summary of Apartment Community Acquisitions and Dispositions Activity	S-15
2016 MSA Level Forecasts: Supply, Jobs and Apartment Market Conditions	S-16
Reconciliations of Non-GAAP Financial Measures and Other Terms	S-17.1 – S-17.4

E S S E X P R O P E R T Y T R U S T, I N C.

Consolidated Operating Results	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except share and per share amounts)	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenues:
Rental and other property	$	319,562		$	294,101		$	631,740		$	574,330
Management and other fees		2,028			2,061			4,052			4,705
		321,590			296,162			635,792			579,035

Expenses:
Property operating		96,079			90,077			190,569			177,248
Depreciation and amortization		109,673			113,731			219,380			220,638
General and administrative		9,698			9,549			18,880			20,094
Merger and integration expenses		—			1,410			—			3,798
Acquisition and investment related costs		267			429			1,095			976
		215,717			215,196			429,924			422,754
Earnings from operations		105,873			80,966			205,868			156,281

Interest expense, net ⁽¹⁾		(52,754	)		(50,802	)		(102,097	)		(98,348	)
Interest and other income		9,409			3,254			14,617			7,453
Equity income from co-investments		14,296			4,472			29,364			8,783
Gain on sale of real estate and land		—			—			20,258			7,112
Deferred tax expense on gain on sale of real estate and land		—			—			(4,279	)		—
Gain on remeasurement of co-investment		—			12,652			—			34,014
Net income		76,824			50,542			163,731			115,295
Net income attributable to noncontrolling interest		(4,811	)		(3,674	)		(9,882	)		(7,750	)
Net income attributable to controlling interest		72,013			46,868			153,849			107,545
Dividends to preferred stockholders		—			(1,313	)		(1,314	)		(2,627	)
Excess of redemption value of preferred stock over the carrying value		—			—			(2,541	)		—
Net income available to common stockholders	$	72,013		$	45,555		$	149,994		$	104,918

Net income per share - basic	$	1.10		$	0.70		$	2.29		$	1.63

Shares used in income per share - basic		65,451,110			64,810,184			65,428,382			64,499,545

Net income per share - diluted	$	1.10		$	0.70		$	2.29		$	1.62

Shares used in income per share - diluted		65,575,378			64,972,852			65,558,811			64,677,521

⁽¹⁾	Refer to page S-17.2, the section titled “Interest Expense, Net” for additional information.

See Company’s 10-K and 10-Q for additional disclosures

S-1

E S S E X P R O P E R T Y T R U S T, I N C.

Consolidated Operating Results	Three Months Ended June 30,				Six Months Ended June 30,
Selected Line Item Detail	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2016		2015		2016		2015
Rental and other property
Rental	$	298,942	$	274,248	$	591,461	$	536,612
Other property		20,620		19,853		40,279		37,718
Rental and other property	$	319,562	$	294,101	$	631,740	$	574,330

Property operating expenses
Real estate taxes	$	34,541	$	32,676	$	68,960	$	64,229
Administrative and insurance		19,927		18,556		38,961		36,796
Maintenance and repairs		18,449		17,696		36,467		34,163
Utilities		15,559		14,920		31,025		29,749
Property management		7,603		6,229		15,156		12,311
Property operating expenses	$	96,079	$	90,077	$	190,569	$	177,248


Interest and other income
Marketable securities and other interest income	$	4,296	$	3,254	$	8,764	$	6,453
Gain from sale of marketable securities		1,103		—		1,843		—
Insurance reimbursements and legal settlements		4,010		—		4,010		1,000
Interest and other income	$	9,409	$	3,254	$	14,617	$	7,453

Equity income from co-investments
Equity income from co-investments	$	4,804	$	1,980	$	9,756	$	3,207
Income from preferred equity investments		3,881		2,492		6,562		5,107
Gain on sale of co-investment communities		5,611		—		13,046		—
Income from early redemption of preferred equity investments		—		—		—		469
Equity income from co-investments	$	14,296	$	4,472	$	29,364	$	8,783

Noncontrolling interest
Limited partners of Essex Portfolio, L.P.	$	2,450	$	1,581	$	5,234	$	3,644
DownREIT limited partners’ distributions		1,425		1,297		2,859		2,597
Third-party ownership interest		936		796		1,789		1,509
Noncontrolling interest	$	4,811	$	3,674	$	9,882	$	7,750

See Company’s 10-K and 10-Q for additional disclosures

S-2

E S S E X P R O P E R T Y T R U S T, I N C.

Consolidated Funds From Operations ⁽¹⁾	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands, except share and per share amounts and in footnotes)	Three Months Ended June 30,									Six Months Ended June 30,
	2016			2015			% Change			2016			2015			% Change
Funds from operations attributable to common stockholders and unitholders (FFO)
Net income available to common stockholders	$	72,013		$	45,555					$	149,994		$	104,918
Adjustments:
Depreciation and amortization		109,673			113,731						219,380			220,638
Gains not included in FFO		(5,611	)		(12,652	)					(33,304	)		(41,126	)
Deferred tax expense on gain on sale of real estate and land - Taxable REIT Subsidiary activity		—			—						4,279			—
Depreciation add back from unconsolidated co-investments		12,457			12,105						24,480			24,022
Noncontrolling interest related to Operating Partnership units		2,450			1,581						5,234			3,644
Depreciation attributable to third party ownership and other ⁽²⁾		(4	)		(251	)					2			(500	)
Funds from operations attributable to common stockholders and unitholders	$	190,978		$	160,069					$	370,065		$	311,596
FFO per share-diluted	$	2.81		$	2.38			18.1	%	$	5.45		$	4.66			17.0	%

Components of the change in FFO
Non-core items:
Merger and integration expenses	$	—		$	1,410					$	—		$	3,798
Acquisition and investment related costs		267			429						1,095			976
Gain on sale of marketable securities		(1,103	)		—						(1,843	)		—
Income from early redemption of preferred equity investments		—			—						—			(469	)
Excess of redemption value of preferred stock over the carrying value		—			—						2,541			—
Insurance reimbursements, legal settlements, and other, net		(4,010	)		(582	)					(4,010	)		(1,957	)
Core funds from operations attributable to common stockholders and unitholders		186,132			161,326						367,848			313,944
Core FFO per share-diluted	$	2.74		$	2.40			14.2	%	$	5.42		$	4.69			15.6	%

Changes in core items:
Same-property NOI	$	15,101								$	30,881
Non-same property NOI		5,108									13,958
Management and other fees, net		(33	)								(278	)
FFO from co-investments		4,397									8,294
Interest and other income		1,042									2,311
Interest expense		(1,952	)								(3,749	)
General and administrative		(149	)								1,214
Other items, net		1,292									1,273
	$	24,806								$	53,904

Weighted average number of shares outstanding diluted ⁽³⁾		67,877,202			67,215,382						67,864,255			66,922,047

⁽¹⁾	Refer to page S-17.1 titled “Reconciliations of Non-GAAP Financial Measures and Other Terms” for additional information on the Company’s definition and use of FFO and Core FFO.

⁽²⁾	The Company consolidates Hidden Valley and Hillsdale Garden Apartments. Noncontrolling interest’s share of net operating income in these investments for the three and six months ended June 30, 2016 was $1.0 million and $2.0 million respectively.

⁽³⁾

Assumes conversion of all outstanding operating partnership interests in the Operating Partnership and excludes 739,779 units for which the Operating Partnership has the ability and intention to redeem the DownREIT limited partnership units for cash and does not consider them to be common stock equivalents out of a total of 953,006 DownREIT units.

See Company’s 10-K and 10-Q for additional disclosures

S-3

E S S E X P R O P E R T Y T R U S T, I N C.

Consolidated Balance Sheets
(Dollars in thousands)
	June 30, 2016			December 31, 2015
Real Estate:
Land and land improvements	$	2,573,923		$	2,522,842
Buildings and improvements		10,096,484			9,808,627
		12,670,407			12,331,469
Less: accumulated depreciation		(2,159,840	)		(1,949,892	)
		10,510,567			10,381,577
Real estate under development		157,659			242,326
Co-investments		1,103,272			1,036,047
Real estate held for sale, net		—			26,879
		11,771,498			11,686,829
Cash and cash equivalents, including restricted		215,376			123,055
Marketable securities and other investments		152,263			137,485
Notes and other receivables		20,448			19,285
Prepaid expenses and other assets		47,106			38,437
Total assets	$	12,206,691		$	12,005,091

Unsecured debt, net	$	3,377,728		$	3,088,680
Mortgage notes payable, net		2,240,558			2,215,077
Lines of credit, net ⁽¹⁾		—			11,707
Other liabilities		328,798			307,152
Total liabilities		5,947,084			5,622,616
Redeemable noncontrolling interest		44,531			45,452
Equity:
Common stock		6			6
Cumulative redeemable preferred stock, liquidation value		—			73,750
Additional paid-in capital		7,017,962			7,003,317
Distributions in excess of accumulated earnings		(856,815	)		(797,329	)
Accumulated other comprehensive loss, net		(43,007	)		(42,011	)
Total stockholders’ equity		6,118,146			6,237,733
Noncontrolling interest		96,930			99,290
Total equity		6,215,076			6,337,023

Total liabilities and equity	$	12,206,691		$	12,005,091

⁽¹⁾

Lines of credit, net excludes unamortized debt issuance costs as of June 30, 2016 as the net effect resulted in a negative debt balance as of June 30, 2016 and was reclassified to prepaid expenses and other assets on the Consolidated Balance Sheet. The net balance at December 31, 2015 resulted in a positive debt balance and is presented on a net basis.

See Company’s 10-K and 10-Q for additional disclosures

S-4

E S S E X P R O P E R T Y T R U S T, I N C.

Debt Summary - June 30, 2016

(Dollars in thousands, except in footnotes)

									Scheduled principal payments, unamortized premiums (discounts) and (debt issuance costs) are as follows - excludes lines of credit:

				Weighted Average							Unsecured		Secured		Unamortized premiums (discounts) and (debt issuance costs)			Total		Weighted Average Interest Rate			Percentage of Total Debt
	Balance Outstanding			Interest Rate			Maturity in Years				Unsecured		Secured					Total		Weighted Average Interest Rate			Percentage of Total Debt
Unsecured Debt, net
Bonds private - fixed rate	$	315,000			4.5	%		4.1		2016	$	200,000	$	15,402	$	12,324		$	227,726		2.5	%		4.1	%
Bonds public - fixed rate		2,850,000			3.5	%		6.8		2017		365,000		199,851		16,163			581,014		3.2	%		10.3	%
Term loan ⁽¹⁾		225,000			2.4	%		0.4		2018		—		321,328		13,071			334,399		5.4	%		6.0	%
Unamortized net premiums and debt issuance costs		(12,272	)		—			—		2019		75,000		586,954		8,458			670,412		3.4	%		11.9	%
		3,377,728			3.5	%		6.1		2020		—		693,868		3,129			696,997		4.9	%		12.4	%
Mortgage Notes Payable, net										2021		500,000		51,584		(3,605	)		547,979		4.3	%		9.8	%
Fixed rate - secured		1,896,546			4.9	%		3.2		2022		300,000		41,355		(4,062	)		337,293		3.7	%		6.0	%
Variable rate - secured ⁽²⁾		291,709			1.2	%		19.3		2023		600,000		846		(2,282	)		598,564		3.6	%		10.7	%
Unamortized premiums and debt issuance costs		52,303			—			—		2024		400,000		925		(1,579	)		399,346		4.0	%		7.1	%
Total mortgage notes payable		2,240,558			4.4	%		5.3		2025		500,000		14,611		(904	)		513,707		3.5	%		9.1	%
										2026		450,000		1,106		(313	)		450,793		3.4	%		8.0	%
Unsecured Lines of Credit, net									Thereafter			—		260,425		(369	)		260,056		1.1	%		4.6	%
Line of credit ⁽³⁾		—			—
Line of credit ⁽⁴⁾		—			—				Total		$	3,390,000	$	2,188,255	$	40,031		$	5,618,286		3.9	%		100.0	%
Unamortized debt issuance costs		(3,831	)		—
Total lines of credit ⁽⁵⁾		(3,831	)		—

Total debt, net	$	5,614,455			3.9	%

Capitalized interest for the three and six months ended June 30, 2016 was approximately $3.1 million and $6.2 million, respectively.

⁽¹⁾	The unsecured term loan has a variable interest rate of LIBOR plus 1.05%. The Company has entered into interest rate swap contracts with a notional amount totaling $225 million, which effectively converts the interest rate on of the term loan to a fixed rate of 2.4%.

⁽²⁾	$281.7 million of $291.7 million of variable rate debt is tax exempt to the note holders. $20.7 million is subject to interest rate cap protection agreements.

⁽³⁾

The unsecured line of credit facility aggregates to $1 billion. The line matures in December 2019 with one 18-month extension, exercisable at the Company’s option. The underlying interest rate on this line is based on a tiered rate structure tied to the Company’s corporate ratings and is currently at LIBOR plus 0.90%.

⁽⁴⁾	The unsecured line of credit facility is $25 million. The maturity was extended to January 2018. The underlying interest rate on this line is based on a tiered rate structure tied to the Company’s corporate ratings and is currently at LIBOR plus 0.90%.

⁽⁵⁾	For financial statement purposes, unamortized debt issuance costs related to unsecured lines of credit have been reclassified to prepaid expenses and other assets on the Consolidated Balance Sheet because the net effect resulted in a negative debt balance as of June 30, 2016.

See Company’s 10-K and 10-Q for additional disclosures

S-5

E S S E X P R O P E R T Y T R U S T, I N C.

Capitalization Data, Public Bond Covenants, Credit Ratings and Selected Credit Ratios - June 30, 2016

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

Capitalization Data

Public Bond Covenants ⁽¹⁾

Actual

Requirement

Total debt, net

5,614,455

Adjusted Debt to Adjusted Total Assets:

39%

< 65%

Common stock and potentially dilutive securities

Common stock outstanding

65,479

Limited partnership units ⁽¹⁾

2,297

Options-treasury method

120

Secured Debt to Adjusted Total Assets:

16%

< 40%

Total shares of common stock and potentially dilutive securities

67,896

Common stock price per share as of June 30, 2016

228.09

Interest Coverage:

381%

> 150%

Total equity capitalization

15,486,399

Total market capitalization

21,100,854

Unsecured Debt Ratio ⁽²⁾:

275%

> 150%

Ratio of debt to total market capitalization

26.6

Selected Credit Ratios ⁽³⁾

Actual

Net IndebtednessDivided by Adjusted EBITDA:

5.9

Unencumbered NOI to Adjusted Total NOI:

66%

⁽¹⁾

Assumes conversion of all outstanding operating partnership interests in the Operating Partnership into shares of the Company’s common stock.

⁽¹⁾

Refer to page S-17.4 for additional information on the Company’s Public Bond Covenants.

⁽²⁾

Unsecured Debt Ratio is unsecured assets (excluding investments in co-investments) divided by unsecured indebtedness.

⁽³⁾

Refer to pages S-17.1 to S-17.4, titled “Reconciliations of Non-GAAP Financial Measures and Other Terms” for additional information on the Company’s Selected Credit Ratios.

Credit Ratings

Rating Agency

Rating

Outlook

Fitch

BBB+

Stable

Moody’s

Baa2

Positive

Standard & Poor’s

BBB

Positive

See Company’s 10-K and 10-Q for additional disclosures

S-6

E S S E X P R O P E R T Y T R U S T, I N C.

Portfolio Summary as of June 30, 2016

	Apartment Homes								Average Monthly Rental Rate ⁽¹⁾						Percent of NOI ⁽²⁾
Region - County	Consolidated⁽³⁾		Unconsolidated Co-investments ⁽⁴⁾		Apartment Homes in Development ⁽⁵⁾		Total		Consolidated		Unconsolidated Co-investments⁽⁶⁾		Total ⁽⁷⁾		Consolidated			Unconsolidated Co-investments ⁽⁶⁾			Total ⁽⁷⁾
Southern California
Los Angeles County		9,438		1,418		—		10,856	$	2,261	$	1,960	$	2,240		19.9	%		12.4	%		19.3	%
Orange County		5,788		1,144		—		6,932		1,997		1,706		1,971		11.1	%		8.9	%		10.9	%
San Diego County		5,203		616		—		5,819		1,774		1,598		1,765		8.6	%		4.4	%		8.2	%
Ventura County		2,897		373		—		3,270		1,644		2,064		1,669		4.8	%		3.4	%		4.7	%
Other Southern CA		623		249		—		872		1,541		1,482		1,531		0.9	%		1.6	%		0.9	%
Total Southern California		23,949		3,800		—		27,749		1,998		1,804		1,984		45.3	%		30.7	%		44.0	%

Northern California
Santa Clara County		6,160		2,477		852		9,489		2,640		2,652		2,643		16.6	%		30.0	%		17.9	%
Alameda County		3,138		1,548		251		4,937		2,406		2,332		2,390		7.4	%		14.4	%		8.0	%
San Mateo County		1,830		197		599		2,626		2,753		2,767		2,754		5.1	%		2.7	%		4.9	%
Contra Costa County		2,270		49		—		2,319		2,208		4,490		2,235		5.0	%		-0.1	%		4.5	%
San Francisco MSA		1,341		463		545		2,349		3,029		3,450		3,096		3.8	%		7.5	%		4.1	%
Other Northern CA		126		—		—		126		2,239		—		2,239		0.3	%		—			0.3	%
Total Northern California		14,865		4,734		2,247		21,846		2,570		2,654		2,582		38.2	%		54.5	%		39.7	%

Seattle Metro		10,239		1,958		—		12,197		1,665		1,546		1,654		16.5	%		14.8	%		16.3	%

Total		49,053		10,492		2,247		61,792	$	2,102	$	2,152	$	2,107		100.0	%		100.0	%		100.0	%

⁽¹⁾	Average monthly rental rate is defined as the total potential monthly rental revenue (actual rent for occupied apartment homes plus market rent for vacant apartment homes) divided by the number of apartment homes.

⁽²⁾	Actual NOI for the quarter ended June 30, 2016. See “Net Operating Income (“NOI”) and Same-Property NOI Reconciliations” on page S-17.3.

⁽³⁾	Includes all apartment communities with rents.

⁽⁴⁾	Includes two rental income producing development communities in lease-up which consist of 304 apartment homes.

⁽⁵⁾	Includes development communities with no rental income.

⁽⁶⁾	Co-investment amounts weighted for Company’s pro rata share.

⁽⁷⁾	At Company’s pro rata share.

See Company’s 10-K and 10-Q for additional disclosures

S-7

E S S E X P R O P E R T Y T R U S T, I N C.

Operating Income by Quarter ⁽¹⁾

(Dollars in thousands, except in footnotes)

	Apartment Homes		Q2 '16			Q1 '16			Q4 '15			Q3 '15			Q2 '15
Rental and other property revenues:
Same-property		45,517	$	284,856		$	279,745		$	276,664		$	272,899		$	266,450
Acquisitions⁽²⁾		2,232		17,463			15,856			12,941			11,594			9,035
Development ⁽³⁾		624		6,780			6,292			5,146			4,801			4,330
Redevelopment		680		4,609			4,406			4,293			4,214			4,078
Non-residential/other, net⁽⁴⁾		-		5,854			5,879			9,602			9,014			10,208
Total rental and other property revenues		49,053		319,562			312,178			308,646			302,522			294,101

Property operating expenses:
Same-property				85,511			84,256			85,109			85,225			82,206
Acquisitions⁽²⁾				6,013			5,575			4,312			4,032			3,519
Development ⁽³⁾				2,299			2,108			1,383			1,452			1,468
Redevelopment				1,466			1,507			1,653			1,611			1,534
Non-residential/other, net^{(4) (5)}				790			1,044			(316	)		1,799			1,350
Total property operating expenses				96,079			94,490			92,141			94,119			90,077

Net operating income (NOI):
Same-property				199,345			195,489			191,555			187,674			184,244
Acquisitions⁽²⁾				11,450			10,281			8,629			7,562			5,516
Development ⁽³⁾				4,481			4,184			3,763			3,349			2,862
Redevelopment				3,143			2,899			2,640			2,603			2,544
Non-residential/other, net⁽⁴⁾				5,064			4,835			9,918			7,215			8,858
Total NOI			$	223,483		$	217,688		$	216,505		$	208,403		$	204,024

Same-property metrics
Operating margin				70	%		70	%		69	%		69	%		69	%
Annualized turnover ⁽⁶⁾				56	%		45	%		45	%		61	%		56	%
Financial occupancy ⁽⁷⁾				96.0	%		96.0	%		96.0	%		96.0	%		96.0	%

⁽¹⁾	Includes consolidated communities only.

⁽²⁾	Acquisitions include properties acquired which did not have comparable stabilized results as of January 1, 2015.

⁽³⁾	Development includes properties developed which did not have comparable stabilized results as of January 1, 2015.

⁽⁴⁾	Other real estate assets consists mainly of retail space, commercial properties, boat slips, held for sale properties, and disposition properties.

⁽⁵⁾	Includes other expenses and intercompany eliminations pertaining to self-insurance. In Q4’15 there were $1.9 million in reductions to operating expenses related to changes in prior period property tax estimates.

⁽⁶⁾	Annualized turnover is defined as the number of apartment homes turned over during the quarter, annualized, divided by the total number of apartment homes.

⁽⁷⁾	Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rent for occupied apartment homes plus market rent for vacant apartment homes).

See Company’s 10-K and 10-Q for additional disclosures

S-8

E S S E X P R O P E R T Y T R U S T, I N C.

Same-Property Results by County - Second Quarter 2016 vs. Second Quarter 2015 and First Quarter 2016

(Dollars in thousands, except average monthly rental rates)

						Average Monthly Rental Rate							Financial Occupancy									Gross Revenues							Sequential Gross Revenues
Region - County	Apartment Homes		Q2 '16 % of Actual NOI			Q2 '16		Q2 '15		% Change			Q2 '16			Q2 '15			% Change			Q2 '16		Q2 '15		% Change			Q1 '16		% Change
Southern California
Los Angeles County		7,443		17.0	%	$	2,225	$	2,105		5.7	%		95.8	%		95.7	%		0.1	%	$	49,712	$	46,766		6.3	%	$	49,257		0.9	%
Orange County		5,788		12.1	%		1,997		1,894		5.4	%		96.1	%		96.1	%		0.0	%		34,954		33,273		5.1	%		34,437		1.5	%
San Diego County		4,961		9.0	%		1,755		1,648		6.5	%		95.9	%		95.1	%		0.8	%		26,530		24,707		7.4	%		25,982		2.1	%
Ventura County		2,897		5.3	%		1,644		1,552		5.9	%		96.2	%		96.3	%		-0.1	%		14,657		13,859		5.8	%		14,472		1.3	%
Other Southern CA		623		1.0	%		1,541		1,440		7.0	%		97.8	%		97.4	%		0.4	%		2,947		2,757		6.9	%		2,953		-0.2	%
Total Southern California		21,712		44.4	%		1,960		1,851		5.9	%		96.0	%		95.8	%		0.2	%		128,800		121,362		6.1	%		127,101		1.3	%

Northern California
Santa Clara County		5,874		17.5	%		2,631		2,452		7.3	%		96.4	%		96.3	%		0.1	%		46,816		43,530		7.5	%		45,957		1.9	%
Alameda County		2,914		7.5	%		2,381		2,182		9.1	%		95.9	%		96.2	%		-0.3	%		21,093		19,427		8.6	%		20,614		2.3	%
San Mateo County		1,566		4.6	%		2,642		2,447		8.0	%		96.0	%		96.6	%		-0.6	%		12,614		11,781		7.1	%		12,438		1.4	%
Contra Costa County		2,270		5.4	%		2,208		2,039		8.3	%		96.6	%		96.5	%		0.1	%		15,274		14,163		7.8	%		14,970		2.0	%
San Francisco MSA		816		2.2	%		2,422		2,295		5.5	%		94.7	%		95.5	%		-0.8	%		5,833		5,607		4.0	%		5,753		1.4	%
Other Northern CA		126		0.3	%		2,239		1,957		14.4	%		97.3	%		98.7	%		-1.4	%		851		755		12.7	%		839		1.4	%
Total Northern California		13,566		37.5	%		2,492		2,310		7.9	%		96.2	%		96.3	%		-0.1	%		102,481		95,263		7.6	%		100,571		1.9	%

Seattle Metro		10,239		18.1	%		1,665		1,538		8.3	%		95.9	%		96.1	%		-0.2	%		53,575		49,825		7.5	%		52,073		2.9	%

Total Same-Property		45,517		100.0	%	$	2,052	$	1,918		7.0	%		96.0	%		96.0	%		0.0	%	$	284,856	$	266,450		6.9	%	$	279,745		1.8	%

See Company’s 10-K and 10-Q for additional disclosures

S-9

E S S E X P R O P E R T Y T R U S T, I N C.

Same-Property Revenue Results by County - Six months ended June 30, 2016 vs. Six months ended June 30, 2015

(Dollars in thousands, except average monthly rental rates)

			YTD			Average Monthly Rental Rate							Financial Occupancy									Gross Revenues
Region - County	Apartment Homes		2016 % of Actual NOI			YTD 2016		YTD 2015		% Change			YTD 2016			YTD 2015			% Change			YTD 2016		YTD 2015		% Change
Southern California
Los Angeles County		7,443		17.2	%	$	2,212	$	2,090		5.8	%		95.9	%		95.7	%		0.2	%	$	98,969	$	92,790		6.7	%
Orange County		5,788		12.1	%		1,983		1,881		5.4	%		96.1	%		96.2	%		-0.1	%		69,391		66,224		4.8	%
San Diego County		4,961		8.9	%		1,741		1,635		6.5	%		95.8	%		95.4	%		0.4	%		52,512		49,105		6.9	%
Ventura County		2,897		5.3	%		1,635		1,540		6.2	%		96.2	%		96.3	%		-0.1	%		29,129		27,553		5.7	%
Other Southern CA		623		1.0	%		1,533		1,429		7.3	%		98.1	%		98.0	%		0.1	%		5,900		5,513		7.0	%
Total Southern California		21,712		44.5	%		1,947		1,838		5.9	%		96.0	%		95.9	%		0.1	%		255,901		241,185		6.1	%

Northern California
Santa Clara County		5,874		17.5	%		2,610		2,419		7.9	%		96.4	%		96.3	%		0.1	%		92,773		85,779		8.2	%
Alameda County		2,914		7.4	%		2,359		2,146		9.9	%		95.8	%		96.2	%		-0.4	%		41,707		38,181		9.2	%
San Mateo County		1,566		4.6	%		2,619		2,417		8.4	%		96.1	%		96.3	%		-0.2	%		25,052		23,174		8.1	%
Contra Costa County		2,270		5.4	%		2,185		2,010		8.7	%		96.6	%		96.4	%		0.2	%		30,244		27,858		8.6	%
San Francisco MSA		816		2.1	%		2,414		2,271		6.3	%		94.1	%		94.8	%		-0.7	%		11,586		11,010		5.2	%
Other Northern CA		126		0.3	%		2,219		1,936		14.6	%		98.0	%		97.7	%		0.3	%		1,690		1,480		14.2	%
Total Northern California		13,566		37.3	%		2,471		2,278		8.5	%		96.2	%		96.2	%		0.0	%		203,052		187,482		8.3	%

Seattle Metro		10,239		18.2	%		1,642		1,521		8.0	%		95.8	%		96.1	%		-0.3	%		105,648		98,480		7.3	%

Total Same-Property		45,517		100.0	%	$	2,034	$	1,898		7.2	%		96.0	%		96.1	%		-0.1	%	$	564,601	$	527,147		7.1	%

See Company’s 10-K and 10-Q for additional disclosures

S-9.1

E S S E X P R O P E R T Y T R U S T, I N C.

Same-Property Operating Expenses - Quarter and Year to Date as of June 30, 2016 and 2015

(Dollars in thousands)

	Q2 '16		Q2 '15		% Change			% of Op. Ex.			YTD 2016		YTD 2015		% Change			% of Op. Ex.
Same-property operating expenses:
Real estate taxes	$	29,129	$	28,757		1.3	%		34.1	%	$	58,464	$	57,501		1.7	%		34.4	%
Maintenance and repairs		16,717		16,126		3.7	%		19.5	%		33,026		31,506		4.8	%		19.5	%
Administrative		15,910		15,297		4.0	%		18.6	%		30,982		29,992		3.3	%		18.2	%
Utilities		14,060		13,515		4.0	%		16.5	%		27,912		27,179		2.7	%		16.5	%
Management fees ⁽¹⁾		6,861		5,659		21.2	%		8.0	%		13,715		11,313		21.2	%		8.1	%
Insurance		2,834		2,852		-0.6	%		3.3	%		5,668		5,703		-0.6	%		3.3	%
Total same-property operating expenses	$	85,511	$	82,206		4.0	%		100.0	%	$	169,767	$	163,194		4.0	%		100.0	%

⁽¹⁾	Reflects the Company’s change to property management fee allocation.

See Company’s 10-K and 10-Q for additional disclosures

S-10

E S S E X P R O P E R T Y T R U S T, I N C.

Development Pipeline - June 30, 2016

(Dollars in millions, except per apartment home amounts in thousands and except in footnotes)

Project Name	Location	Ownership %			Estimated Apartment Homes		Estimated Commercial sq. feet		Incurred to Date		Remaining Costs		Estimated Total Cost		Essex Est. Total Cost ⁽¹⁾			Cost per Apartment Home ⁽²⁾		Average % Occupied ⁽³⁾			⁾% Leased ⁽³⁾			Construction Start		Initial Occupancy		Stabilized Operations
Development Projects - Consolidated ⁽⁴⁾
Station Park Green ⁽⁵⁾	San Mateo, CA		100	%		320		35,000	$	57	$	182	$	239	$	239		$	693		0.0	%		0.0	%		Q3 2015		Q1 2018		Q4 2018
Gateway Village ⁽⁶⁾	Santa Clara, CA		100	%		476		-		31		195		226		226			475		0.0	%		0.0	%		Q3 2016		Q2 2018		Q3 2019
Total Development Projects - Consolidated						796		35,000		88		377		465		465			584

Land Held for Future Development - Consolidated
Other Projects ⁽⁵⁾	Various		100	%						75		-		75		75
Total Development Pipeline - Consolidated						796		35,000		163		377		540		540

Development Projects/Land Held for Future Development - Joint Venture ⁽⁴⁾
Agora ⁽⁷⁾	Walnut Creek, CA		51	%		49		32,188		94		1		95		48			1,140		7.5	%		42.9	%		Q3 2013		Q2 2016		Q3 2016
The Galloway (at Owens)	Pleasanton, CA		55	%		255		5,729		78		11		89		49			341		4.2	%		33.0	%		Q3 2014		Q2 2016		Q2 2017
The Galloway (at Hacienda)	Pleasanton, CA		55	%		251		-		55		31		86		47			343		0.0	%		0.0	%		Q1 2015		Q3 2016		Q3 2017
Century Towers	San Jose, CA		50	%		376		2,006		123		49		172		86			456		0.0	%		0.0	%		Q3 2014		Q1 2017		Q1 2018
500 Folsom ⁽⁸⁾	San Francisco, CA		50	%		545		6,000		84		297		381		191			691		0.0	%		0.0	%		Q4 2015		Q4 2018		Q2 2020
Total Development Projects - Joint Venture						1,476		45,923		434		389		823		421		$	526

Grand Total - Development Pipeline						2,272		80,923	$	597	$	766	$	1,363		961
Essex Cost Incurred to Date																(387	)
Essex Remaining Commitment															$	574

⁽¹⁾	The Company’s share of the estimated total costs of the project.

⁽²⁾	Net of the estimated allocation to the retail component of the project.

⁽³⁾	Calculations are based on multifamily operations only and are as of June 30, 2016. As of July 25, 2016, Agora was 67.3% leased and Galloway (at Owens) was 37.6% leased.

⁽⁴⁾	For the second quarter of 2016, the Company’s cost includes $3.0 million of capitalized interest, $0.8 million of capitalized overhead and $0.9 million of development fees (such development fees reduced G&A expenses).

⁽⁵⁾	Reflects development of phases one and two. Costs incurred for phases three and four, which consist of 279 apartment homes are included in Land Held for Future Development.

⁽⁶⁾	Cost incurred to date does not include a deduction of $4.7 million for accumulated depreciation recorded during the period when the property was held as a retail operating asset.

⁽⁷⁾	Apartment homes are built to condominium standards and average approximately 1,600 square feet.

⁽⁸⁾	Estimated total cost is net of a projected value for low income housing tax credit proceeds and tax exempt bonds.

See Company’s 10-K and 10-Q for additional disclosures

S-11

E S S E X P R O P E R T Y T R U S T, I N C.

Redevelopment Pipeline - June 30, 2016

(Dollars in thousands, except in footnotes)

											NOI For the six months ended
Region/Project Name	Apartment Homes		Total Incurred To Date		Estimated Remaining Cost		Estimated Total Cost		Project Start Date		2016		2015
Same-property - Redevelopment Projects ⁽¹⁾
Southern California
Hamptons		215	$	10,400	$	13,200	$	23,600		Q1 2014
The Hallie (formerly Monterras)		292		21,700		4,700		26,400		Q1 2014
Northern California
Summerhill Park		100		8,000		1,900		9,900		Q4 2014
Seattle Metro
Park Highland		250		8,600		3,900		12,500		Q4 2014
Total Same-Property - Redevelopment Projects		857	$	48,700	$	23,700	$	72,400			$	7,497	$	6,577

Non-same property - Redevelopment Projects
Southern California
Bunker Hill Towers		456	$	46,900	$	40,500	$	87,400		Q3 2013
Total Non-Same Property - Redevelopment Projects		456	$	46,900	$	40,500	$	87,400			$	3,514	$	2,824

⁽¹⁾	Redevelopment activities are ongoing at these communities, but the communities have stabilized operations, therefore results are classified in same-property results.

See Company’s 10-K and 10-Q for additional disclosures

S-12

E S S E X P R O P E R T Y T R U S T, I N C.

Capital Expenditures - June 30, 2016

(Dollars in thousands, except in footnotes)

Revenue Generating Capital Expenditures^{(1) (2)}		Q2 2016		Q1 2016		Q4 2015		Q3 2015	Trailing 4 Quarters
Same-property portfolio	$	13,077	$	15,460	$	23,132	$	19,027	$	70,696
Non-same property portfolio		6,260		8,221		8,999		5,453		28,933
Total revenue generating capital expenditures	$	19,337	$	23,681	$	32,131	$	24,480	$	99,629

Number of same-property interior renovations completed		869		813		618		859		3,159
Number of total consolidated interior renovations completed		939		917		704		1,051		3,611

Non-Revenue Generating Capital Expenditures ⁽³⁾		Q2 2016		Q1 2016		Q4 2015		Q3 2015	Trailing 4 Quarters
Non-revenue generating capital expenditures	$	16,595	$	5,312	$	14,533	$	17,994	$	54,434
Average apartment homes in quarter		49,053		48,933		48,686		48,560		48,808
Capital expenditures per apartment homes in the quarter	$	338	$	109	$	299	$	371	$	1,115

⁽¹⁾	The Company incurred $0.1 million of capitalized interest, $2.8 million of capitalized overhead and $0.2 million of co-investment redevelopment fees related to redevelopment in Q2 2016.

⁽²⁾	Represents revenue generating or expense saving expenditures such as full-scale redevelopments shown on page S-12, interior unit turn renovations, enhanced amenities and certain resource management initiatives.

⁽³⁾	Represents roof replacements, paving, building and mechanical systems, exterior painting, siding, etc.

See Company’s 10-K and 10-Q for additional disclosures

S-12.1

E S S E X P R O P E R T Y T R U S T, I N C.

Co-investments - June 30, 2016
(Dollars in thousands)	Essex Ownership Percentage			Apartment Homes		Total Undepreciated Book Value		Debt Amount		Essex Book Value		Weighted Average Borrowing Rate			Remaining Term of Debt (in Years)		For the Three Months Ended June 30, 2016			For the Six Months Ended June 30, 2016
Operating Non-Consolidated Joint Ventures																	NOI

Wesco I, LLC		50.0	%		2,275	$	562,374	$	293,721	$	101,885		3.9	%		8.9	$	9,491			18,475
Wesco III, LLC		50.0	%		993		242,271		134,012		47,056		3.3	%		4.2		3,481			7,061
Wesco IV, LLC		50.0	%		1,116		301,597		154,307		60,632		3.7	%		4.7		4,719			9,522
BEXAEW, LLC		50.0	%		2,191		402,804		242,084		65,636		3.2	%		4.7		6,797			14,354
CPPIB		55.0	%		1,928		692,475		—		379,311		—			—		10,691			20,966
Palm Valley		50.0	%		1,098		370,832		223,496		68,229		2.5	%		0.6		5,289			10,410
Other		50.0% - 55.0	%		587		201,576		138,011		31,517		2.7	%		2.0		3,152			5,773
Total Operating Non-Consolidated Joint Ventures					10,188	$	2,773,929	$	1,185,631	$	754,266		3.3	%		4.8	$	43,620		$	86,561
Development Non-Consolidated Joint Ventures ⁽¹⁾		50.0% - 55.0	%		1,476		433,790		53,364		175,269		3.3	%		1.2		(72	)		(72	)
Total Non-Consolidated Joint Ventures					11,664	$	3,207,719	$	1,238,995	$	929,535						$	43,548		$	86,489

																	Essex Portion of NOI and Expenses
NOI																	$	22,439		$	44,523
Depreciation																		(12,457	)		(24,480	)
Interest expense and other																		(5,178	)		(10,287	)
Gain on sale of co-investments																		5,611			13,046
Net income from operating co-investments																	$	10,415		$	22,802




												Weighted Average Preferred Return			Weighted Average Expected Term		Income from Preferred Equity Investments
Income from preferred equity investments																	$	3,881		$	6,562
Preferred Equity Investments⁽²⁾										$	173,737		10.3	%		3.1	$	3,881		$	6,562

Total Co-investments										$	1,103,272						$	14,296		$	29,364

⁽¹⁾	The Company has interests in five development co-investments, which are detailed on S-11.

⁽²⁾	As of June 30, 2016 the Company has invested in ten preferred equity investments.

See Company’s 10-K and 10-Q for additional disclosures

S-13

E S S E X P R O P E R T Y T R U S T, I N C.

Assumptions for 2016 FFO Guidance Range

Q2 2016 Earnings Results Supplement

The guidance projections below are based on current expectations and are forward-looking. The guidance is given for Total and Core FFO. See pages S-17.1 to S-17.4 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of projected net income per share to projected FFO per share and projected Core FFO per share.

($’s in thousands, except share and per share data)⁽¹⁾	YTD			2016 Guidance Range
	Actuals			Low End			High End			Comments Regarding Changes to Guidance
Net Operating Income (“NOI”)
Total NOI from consolidated communities	$	441,171		$	894,200		$	900,600		Includes actual results through June and the revised range of same-property NOI growth of 7.7% to 8.5%.

Management Fees		4,052			8,000			8,600

Interest Expense
Interest expense, before capitalized interest		(108,372	)		(222,100	)		(220,500	)
Forecasted interest capitalized		6,275			12,700			13,700
Net interest expense		(102,097	)		(209,400	)		(206,800	)

Recurring Income and Expenses
Interest and other income		8,764			16,500			17,100
FFO from co-investments		40,798			84,600			86,200		Includes actual results through June and investment activity completed through July.
General and administrative expense		(18,880	)		(41,000	)		(42,000	)
Preferred dividends and non-controlling interest		(5,960	)		(11,900	)		(11,500	)
Total recurring income and expenses		24,722			48,200			49,800

Non-Core Income and Expenses
Gain on sales of marketable securities and land		1,843			1,843			1,843
Loss on early retirement of debt and redemption costs		(2,541	)		(2,541	)		(2,541	)
Acquisition and investment related costs		(1,095	)		(2,000	)		(3,000	)
Other non-core adjustments		4,010			4,010			4,010
Total non-core income and expenses		2,217			1,312			312

Funds from Operations attributable to common stockholders and unitholders	$	370,065		$	742,312		$	752,512

Funds from Operations per diluted share	$	5.45		$	10.92		$	11.07

% Change - Funds from Operations		17.0	%		12.3	%		13.9	%

Core Funds from Operations attributable to common stockholders and unitholders	$	367,848		$	741,000		$	752,200

Core Funds from Operations per diluted share	$	5.42		$	10.90		$	11.06

% Change - Core Funds from Operations		15.6	%		11.0	%		12.6	%

Weighted average shares outstanding		67,864			68,000			68,000

⁽¹⁾	All non-core items are excluded from the YTD actuals and included in the non-core income and expense section of the FFO reconciliation.

See Company’s 10-K and 10-Q for additional disclosures

S-14

E S S E X P R O P E R T Y T R U S T, I N C.

Summary of Apartment Community Acquisitions and Dispositions Activity

Year to date as of June 30, 2016

(Dollars in thousands, except average rent amounts and in footnotes)

Acquisitions
Property Name	Location	Apartment Homes		Essex Ownership Percentage	Entity	Date	Contract Price		Price per Apartment Home		Average Rent

Mio	San Jose, CA		103	100.0%	EPLP	Jan-16	$	51,300	$	498	$	2,888
Form 15	San Diego, CA		242	100.0%	EPLP	Mar-16		97,400		402		2,221
	Q1 2016		345				$	148,700	$	431

Dispositions ⁽¹⁾

Property Name	Location	Apartment Homes		Essex Ownership Percentage	Entity	Date	Sales Price			Price per Apartment Home

The Heights	Chino Hills, CA		332	50.0%	JV	Jan-16	$	93,800	⁽²⁾	$	283
Harvest Park	Santa Rosa, CA		104	100.0%	EPLP	Feb-16		30,500			293
	Q1 2016		436				$	124,300		$	285

Canyon Creek	Northridge, CA		200	50.0%	JV	Apr-16	$	53,500	⁽²⁾	$	268
	Q2 2016		200				$	53,500		$	268

(1)	In January 2016, the Company sold its former headquarters office building, located in Palo Alto, CA for gross proceeds of $18.0 million.

(2)	The Heights and Canyon Creek sales prices represent the total sales price at 100%.

See Company’s 10-K and 10-Q for additional disclosures

S-15

E S S E X P R O P E R T Y T R U S T, I N C.

2016 MSA Level Forecast: Supply, Jobs, and Apartment Market Conditions

	Residential Supply ⁽¹⁾												Job Forecast ⁽²⁾					Market Forecast ⁽³⁾
Market	New MF Supply		New SF Supply		Total Supply		% of MF Supply to MF Stock			% of Total Supply to Total Stock			Est. New Jobs		% Growth			Economic Rent Growth
Los Angeles		11,000		5,700		16,700		0.7	%		0.5	%		94,600		2.2	%		5.5	%
Orange		3,800		3,800		7,600		0.9	%		0.7	%		39,500		2.5	%		5.6	%
San Diego		3,300		3,500		6,800		0.7	%		0.6	%		36,700		2.6	%		5.3	%
Ventura		150		700		850		0.2	%		0.3	%		5,350		1.8	%		5.4	%
So. Cal.		18,250		13,700		31,950		0.7	%		0.5	%		176,150		2.3	%		5.5	%

San Francisco		6,400		650		7,050		1.6	%		0.9	%		21,000		2.0	%		2.5	%
Oakland		1,600		4,300		5,900		0.5	%		0.6	%		21,900		2.0	%		5.0	%
San Jose		5,850		2,100		7,950		2.3	%		1.2	%		31,300		3.0	%		3.5	%
No. Cal.		13,850		7,050		20,900		1.5	%		0.9	%		74,200		2.5	%		3.8	%

Seattle		8,450		7,100		15,550		1.7	%		1.3	%		55,800		3.5	%		8.5	%

Weighted Average ⁽⁴⁾		40,550		27,850		68,400		1.2	%		0.8	%		306,150		2.6	%		5.5	%

All data are based on Essex Property Trust, Inc. forecasts.

U.S. Economic Assumptions: 2016 G.D.P. Growth: 2.0%, 2016 Job Growth: 1.8%

⁽¹⁾	New Residential Supply: MF reflects Company’s internal estimate of actual multifamily deliveries; SF is based on 12 month single family trailing permits reported by the US Census Bureau.

⁽²⁾	Job Forecast: refers to the difference between total non-farm industry employment (not seasonally adjusted) projected 4Q over 4Q, expressed as total new jobs and growth rates.

⁽³⁾	Market Forecast: the estimated rent growth represents the forecasted change in effective market rents for full year 2016 vs 2015 (excludes submarkets not targeted by Essex).

⁽⁴⁾	Weighted Average: markets weighted by scheduled rent in the Company’s Portfolio.

See Company’s 10-K and 10-Q for additional disclosures

S-16

E S S E X P R O P E R T Y T R U S T, I N C.

Reconciliations of Non-GAAP Financial Measures and Other Terms

Adjusted EBITDA Reconciliation

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is a component of the credit ratio, “Net Indebtedness Divided by Adjusted EBITDA”, presented on page S-6, in the section titled “Selected Credit Ratios”, and it is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not consider certain cash requirements such as income tax payments, debt service requirements, capital expenditures and other fixed charges. Adjusted EBITDA is not a recognized measurement under U.S. GAAP. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

The reconciliation of Adjusted EBITDA to Net income available to common stockholders is presented in the table below (Dollars in thousands):

	Three Months Ended June 30,
	2016
Net income available to common stockholders	$	72,013
Add: Net income attributable to noncontrolling interest		4,811
Net Income		76,824
Adjustments:
Acquisition and investment related costs		267
Depreciation and amortization		109,673
Equity income from co-investments		(4,804	)
Gain from sale of marketable securities		(1,103	)
Gain on sale of co-investment communities		(5,611	)
Insurance reimbursements, legal settlements, and other, net		(4,010	)
Interest expense, net ⁽¹⁾		52,754
Adjusted EBITDA	$	223,990

⁽¹⁾	Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges.

Encumbered

Encumbrance means any mortgage, deed of trust, lien, charge, pledge, security interest, security agreement or other encumbrance of any kind.

Funds From Operations (“FFO”)

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is generally considered by industry analysts as an appropriate measure of performance of an equity REIT. Generally, FFO adjusts the net income of equity REITs for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains/losses on sales of real estate and extraordinary items. Management considers FFO and FFO which excludes merger, integration and acquisition costs and items that are not routine or not related to the Company’s core business activities, which is referred to as “Core FFO”, to be useful financial performance measurements of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with an additional basis to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and the ability to pay dividends.

See Company’s 10-K and 10-Q for additional disclosures

S-17.1

E S S E X P R O P E R T Y T R U S T, I N C.

Reconciliations of Non-GAAP Financial Measures and Other Terms

Funds From Operations (“FFO”) - continued

FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. generally accepted accounting principles (“GAAP”) and are not intended to indicate whether cash flows will be sufficient to fund cash needs. These measures 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. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to shareholders. FFO and Core FFO do not represent cash flows generated from operating, investing or financing activities as defined under U.S. GAAP. Management has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosures of FFO may not be comparable to the Company’s calculation.

The reconciliation of diluted FFO and Core FFO are detailed on page S-3 titled “Consolidated Funds From Operations”.

Interest Expense, Net

Interest expense, net is a U.S. GAAP measure and is presented on page S-1 titled “Consolidated Operating Results”. Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges and is presented in the table below (Dollars in thousands):

	Three Months Ended June 30,			Six Months Ended June 30,
	2016			2016
Interest expense	$	(55,568	)	$	(108,034	)
Adjustments:
Total return swap income		2,814			5,937
Interest expense, net	$	(52,754	)	$	(102,097	)

Net Indebtedness Divided by Adjusted EBITDA

This credit ratio is presented on page S-6 in the section titled “Selected Credit Ratios”. This credit ratio is calculated by dividing net indebtedness by Adjusted EBITDA, as annualized based on the most recent quarter, and adjusted for estimated net operating income from properties acquired during the quarter. This ratio is presented by the Company because it provides rating agencies and investors an additional means of comparing the Company’s ability to service debt obligations to that of other companies. Net indebtedness is total debt, net less unamortized premiums, discounts, debt issuance costs, unrestricted cash and cash equivalents, and marketable securities. The reconciliation of Adjusted EBITDA is set forth in “Adjusted EBITDA Reconciliation” above. The calculation of this credit ratio and a reconciliation of net indebtedness to total debt, net is presented in the table below (Dollars in thousands):

Total debt, net	$	5,614,455
Adjustments:
Unamortized premiums, discounts, and debt issuance costs		(36,200	)
Cash and cash equivalents-unrestricted		(182,515	)
Marketable securities		(152,263	)
Net Indebtedness	$	5,243,477

Adjusted EBITDA, annualized ⁽¹⁾	$	895,960

Net Indebtedness Divided by Adjusted EBITDA, annualized		5.9

⁽¹⁾	Based on the amount for the most recent quarter, multiplied by four.

See Company’s 10-K and 10-Q for additional disclosures

S-17.2

E S S E X P R O P E R T Y T R U S T, I N C.

Reconciliations of Non-GAAP Financial Measures and Other Terms

Net Operating Income (“NOI”) and Same-Property NOI Reconciliations

Net Operating Income (“NOI”) and Same-property NOI is considered by management to be an important supplemental performance measure to earnings from operations included in the Company’s consolidated statements of income. The presentation of same-property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines same-property NOI as same-property revenue less same-property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to same-property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented (Dollars in thousands):

	Q2’16			YTD 2016			Q2’15			YTD 2015
Earnings from operations	$	105,873		$	205,868		$	80,966		$	156,281
Adjustments:
Depreciation and amortization		109,673			219,380			113,731			220,638
Management and other fees		(2,028	)		(4,052	)		(2,061	)		(4,705	)
General and administrative		9,698			18,880			9,549			20,094
Merger and integration expenses		—			—			1,410			3,798
Acquisition and investment related costs		267			1,095			429			976
NOI		223,483			441,171			204,024			397,082
Less: Non-same property NOI		(24,138	)		(46,337	)		(19,780	)		(33,129	)
Same-Property NOI	$	199,345		$	394,834		$	184,244		$	363,953

Projected EPS, FFO and Core FFO per diluted share

With respect to the Company’s guidance regarding its projected FFO and Core FFO for the third quarter of 2016 and full-year 2016, which guidance is set forth in the earnings release for the second quarter of 2016 and on page S-14 of this supplement, a reconciliation of projected net income per share to projected FFO per share and projected Core FFO per share, as set forth in such guidance, is presented in the table below.

	2016 Guidance Range
	3rd Quarter 2016						Full Year 2016
	Low			High			Low			High
Projected EPS - diluted	$	0.91		$	0.97		$	4.13		$	4.28
Conversion from GAAP share count		(0.03	)		(0.03	)		(0.14	)		(0.14	)
Depreciation & amortization expense		1.81			1.81			7.22			7.22
Noncontrolling interests related to Operating Partnership units		0.03			0.03			0.14			0.14
Gains on sale of real estate		—			—			(0.49	)		(0.49	)
Deferred tax expense		—			—			0.06			0.06
Projected FFO per share - diluted		2.72			2.78			10.92			11.07
Gains on sales of marketable securities		—			—			(0.03	)		(0.03	)
Excess of redemption value of preferred stock over carrying value		—			—			0.04			0.04
Acquisition and investment related costs		0.01			0.01			0.03			0.04
Other non-core adjustments		—			—			(0.06	)		(0.06	)

Projected Core FFO per share - diluted	$	2.73		$	2.79		$	10.90		$	11.06

See Company’s 10-K and 10-Q for additional disclosures

S-17.3

E S S E X P R O P E R T Y T R U S T, I N C.

Reconciliations of Non-GAAP Financial Measures and Other Terms

Public Bond Covenants

Public Bond Covenants refers to certain covenants set forth in instruments governing the Company’s unsecured indebtedness. These instruments require the Company to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amounts of total indebtedness and secured indebtedness, leveraged and certain investment limitations. These covenants may restrict the Company’s abilitly to expand or fully pursue its business strategies. The Company’s ability to comply with these covenants may be affected by changes in the Company’s operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting it. The breach of any of these covenants could result in a default under the Company’s indebtedness, which could cause those and other obligations to become due and payable. If any of the Company’s indebtedness is accelerated, it may not be able to repay it. For risks related to failure to comply with these covenants, see “Item 1A: Risk Factors - Risks related to Our Indebtedness and Financing” in the Company’s Annual Report on Form 10-K and other reports filed by the Company with the Securities and Exchange Comission (“SEC”).

The ratios set forth on page S-6 in the section titled “Public Bond Covenants” are provided only to show the Company’s compliance with certain specified covenants that are contained in indentures related to the Company’s issuance of Senior Notes, which indentures are filed by the Company with the SEC. See, for example, the Indenture dated April 11, 2016, filed by the company as Exhibit 4.1 to the Company’s Form 8-K, filed on April 11, 2016. These ratios should not be used for any other purpose, including without limitation to evaluate the Company’s financial condition or results of operations, nor do they indicate the Company’s covenant compliance as of any other date or for any other period. The capitalized terms in the disclosure are defined in the Indentures filed by the Company via Form 8-Ks and may differ materially from similar terms used by other companies that present information about their covenant compliance.

Secured Debt

Secured Debt means Debt of the Company or any of its Subsidiaries which is secured by an Encumbrance on any property or assets of the Company or any of its Subsidiaries. The calculation of Secured Debt is set forth on page S-5.

Unencumbered NOI to Adjusted Total NOI

This ratio is presented on page S-6 in the section titled “Public Bond Covenants”. Unencumbered NOI means the sum of NOI for those real estate assets which are not subject to an Encumbrance securing Debt. The ratio of Unencumbered NOI to Adjusted Total NOI for the three month ended June 30, 2016, annualized, is calculated by dividing Unencumbered NOI, annualized for the three months ended June 30, 2016 and as further adjusted for pro forma NOI for properties acquired during the recent quarter, by Adjusted Total NOI as annualized. The calculation and reconciliation of NOI is set forth in “Net Operating Income (“NOI”) and Same-Property NOI Reconciliation” above. This ratio is presented by the Company because it provides rating agencies and investors an additional means of comparing the Company’s ability to service debt obligations to that of other companies. The calculation of this ratio is presented in the table below (Dollars in thousands):

	Annualized Q2’16 ⁽¹⁾
NOI	$	893,932
Adjustments:
Other, Net		(6,324	)
Adjusted Total NOI		887,608
Less: Encumbered NOI		(299,726	)
Unencumbered NOI	$	587,882

Encumbered NOI	$	299,726
Unencumbered NOI		587,882
Adjusted Total NOI	$	887,608

Unencumbered NOI to Adjusted Total NOI		66	%

⁽¹⁾	This table is based on the amounts for the most recent quarter, multiplied by four.

See Company’s 10-K and 10-Q for additional disclosures

S-17.4

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