Essex Property Trust - 10-Q quarterly report FY

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 001-13106

ESSEX PROPERTY TRUST, INC.

(Exact name of Registrant as Specified in its Charter)

Maryland		77-0369576
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

925 East Meadow Drive

Palo Alto, California 94303

(Address of Principal Executive Offices including Zip Code)

(650) 494-3700

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES xNOo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes xNoo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes oNox

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:

22,854,403 shares of Common Stock as of November 4, 2005

ESSEX PROPERTY TRUST, INC.

FORM 10-Q

INDEX

		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):	3

	Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004	4

	Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004	5

	Consolidated Statements of Stockholders' Equity and Comprehensive Income for the nine months ended September 30, 2005	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 6.	Exhibits	31

Signature		32

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 (the "Operating 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 consolidated financial statements for the interim periods.

The accompanying unaudited consolidated financial statements should be read in conjunction with the notes to such consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations herein. Additionally, 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, 2004.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share amounts)

	September 30,			December 31,
	2005			2004
Assets
Real estate:
Rental properties:
Land and land improvements	$	554,028		$	536,600
Buildings and improvements		1,935,543			1,834,594

		2,489,571			2,371,194
Less accumulated depreciation		(380,772	)		(329,652	)

		2,108,799			2,041,542
Real estate investments held for sale, net of accumulated
depreciation of $496 as of December 31, 2004		-			14,445
Investments		27,637			49,712
Real estate under development		34,834			38,320

		2,171,270			2,144,019
Cash and cash equivalents-unrestricted		19,365			10,644
Cash and cash equivalents-restricted		15,027			21,255
Notes and other receivables from related parties		1,202			1,435
Notes and other receivables		8,069			9,535
Prepaid expenses and other assets		20,968			19,591
Deferred charges, net		10,424			10,738
Total assets	$	2,246,325		$	2,217,217

Liabilities and Stockholders' Equity
Mortgage notes payable	$	1,164,504		$	1,067,449
Lines of credit		149,735			249,535
Accounts payable and accrued liabilities		45,024			29,997
Dividends payable		22,700			21,976
Other liabilities		12,522			11,853
Deferred gain		2,193			5,000
Total liabilities		1,396,678			1,385,810
Minority interests		231,177			240,130
Stockholders' equity:
Common stock, $.0001 par value, 655,682,178
authorized, 23,085,153 and
23,139,876 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		-			-
7.875% Series D 2,000,000 shares authorized		-			-
7.8125% Series F 1,000,000 shares authorized,
1,000,000 and 1,000,000 shares issued and outstanding,
liquidation value		25,000			25,000
Excess stock, $.0001 par value, 330,000,000 shares
authorized and no shares issued and outstanding		-			-
Additional paid-in capital		656,915			646,744
Distributions in excess of accumulated earnings		(63,538	)		(80,469	)
Accumulated other comprehensive income		91			-
Total stockholders' equity		618,470			591,277
Commitments and contingencies
Total liabilities and stockholders' equity	$	2,246,325		$	2,217,217

See accompanying notes to the unaudited consolidated financial statements.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share amount)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Revenues:
Rental and other property	$	80,219		$	71,733		$	234,851		$	206,991
Management and other fees from affiliates		1,601			15,701			9,108			18,318
		81,820			87,434			243,959			225,309
Expenses:
Property operating, excluding real estate taxes		19,592			18,673			57,198			52,494
Real estate taxes		7,066			6,253			20,517			17,821
Depreciation and amortization		20,323			18,061			59,945			53,428
Interest		18,566			16,394			54,866			45,785
Amortization of deferred financing costs		451			449			1,490			1,179
General and administrative		4,560			7,639			13,574			13,985
Other expenses		1,400			-			2,900			-
		71,958			67,469			210,490			184,692

Gain on sale of real estate		-			7,909			6,391			7,909
Interest and other income		4,978			836			7,932			2,095
Equity income in co-investments		21			15,365			17,575			16,460
Minority interests		(4,929	)		(9,509	)		(16,752	)		(20,588	)
Income from continuing operations before income
tax provision		9,932			34,566			48,615			46,493
Income tax provision		(1,185	)		(122	)		(2,386	)		(208	)
Income from continuing operations		8,747			34,444			46,229			46,285

Discontinued operations (net of minority interests)
Operating income from real estate sold		-			586			1,693			895
Gain on sale of real estate		-			-			26,581			-
Income from discontinued operations		-			586			28,274			895
Net income		8,747			35,030			74,503			47,180
Dividends to preferred stockholders - Series F		(488	)		(488	)		(1,465	)		(1,464	)
Net income available to common stockholders	$	8,259		$	34,542		$	73,038		$	45,716

Per common share data:
Basic:
Income from continuing operations available to
common stockholders	$	0.36		$	1.48		$	1.94		$	1.96
Income from discontinued operations		-			0.03			1.23			0.04
Net income available to common stockholders	$	0.36		$	1.51		$	3.17		$	2.00
Weighted average number of common shares
outstanding during the period		23,106,569			22,940,419			23,073,650			22,897,161

Diluted:
Income from continuing operations available to
common stockholders	$	0.35		$	1.46		$	1.92		$	1.93
Income from discontinued operations		-			0.03			1.21			0.04
Net income available to common stockholders	$	0.35		$	1.49		$	3.13		$	1.97
Weighted average number of common shares
outstanding during the period		23,411,959			23,205,958			23,364,039			23,130,148

Dividend per common share	$	0.81		$	0.79		$	2.43		$	2.37

See accompanying notes to the unaudited consolidated financial statements.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity and

Comprehensive Income for the nine months ended

September 30, 2005

(Unaudited)

(Dollars and shares in thousands)

												Distributions
	Series F							Additional		Accumulated other		in excess of
	Preferred stock			Common stock				paid-in		comprehensive		accumulated
	Shares		Amount	Shares		Amount		capital		income		earnings		Total
Balances at December 31, 2004	1,000		25,000	23,034		2		646,744		-		(80,469)		591,277
Issuance of common stock under
stock-based compensation plans	-		-	105		-		4,662		-		-		4,662
Reallocation of minority interest (1)	-		-	-		-		5,509		-		-		5,509
Comprehensive income:
Net income	-		-	-		-		-		-		74,503		74,503
Change in fair value of cash flow hedges	-		-	-		-		-		91		-		91
Comprehensive income														74,594
Common and preferred stock dividends declared	-		-	-		-		-		-		(57,572)		(57,572)
Balances at September 30, 2005	1,000	$	25,000	23,139	$	2	$	656,915	$	91	$	(63,538)	$	618,470

(1) During the nine months ended September 30, 2005, the Company recorded a true-up of the reallocation of minority interest as of December 31, 2004. This true-up was not material to stockholders’ equity at either September 30, 2005 or December 31, 2004.

See accompanying notes to the unaudited consolidated financial statements.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	Nine Months Ended
	September 30,
	2005			2004
Net cash provided by operating activities	$	106,652		$	87,867

Cash flows from investing activities:
Additions to real estate:
Acquisitions and improvements to recent acquisitions		(30,968	)		(129,464	)
Capital expenditures and redevelopment		(23,510	)		(11,557	)
Additions to real estate under development		(22,540	)		(11,696	)
Dispositions of real estate and investments		6,585			91,735
Change in restricted cash		6,228			(8,688	)
Additions to notes receivable from related parties and other receivables		(3,278	)		(5,234	)
Repayment of notes receivable from related parties and other receivables		4,925			1,373
Net distributions from (contributions to) limited partnerships		43,341			17,356
Net cash used in investing activities		(19,217	)		(56,175	)

Cash flows from financing activities:
Proceeds from mortgage notes payable and lines of credit		152,971			321,702
Repayment of mortgage notes payable and lines of credit		(154,813	)		(215,051	)
Additions to deferred charges		(1,167	)		(4,032	)
Net proceeds from stock options exercised		4,143			4,022
Distributions to minority interest partners		(17,353	)		(21,299	)
Redemption of minority interest limited partnership units		(5,463	)		(5,624	)
Redemption of minority interest series E preferred units		-			(55,000	)
Common and preferred stock dividends paid		(57,032	)		(54,954	)
Net cash used in financing activities		(78,714	)		(30,236	)

Net increase in cash and cash equivalents		8,721			1,456
Cash and cash equivalents at beginning of period		10,644			14,768
Cash and cash equivalents at end of period	$	19,365		$	16,224

Supplemental disclosure of cash flow information:
Cash paid for interest, net of $647 and $3,108 capitalized
in 2005 and 2004, respectively	$	54,245		$	44,352
Assumption of mortgage loans payable in conjunction with the purchases of real estate	$	-		$	167,635
Common stock issued pursuant to phantom stock plan	$	362		$	39
Issuance of Operating Partnership Units in connection with the purchase of real estate	$	-		$	6,479
Transfer of real estate under development to rental properties	$	23,102		$	-
Proceeds from disposition of real estate held by exchange facilitator	$	62,000		$	9,536

See accompanying notes to the unaudited consolidated financial statements.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2005 and 2004

(Unaudited)

(1)

Organization and Basis of Presentation

The unaudited consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America 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, 2004.

All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. Certain prior year balances have been reclassified to conform to the current year presentation.

The unaudited consolidated financial statements for the nine months ended September 30, 2005 and 2004 include the accounts of the Company and Essex Portfolio, L.P. (the "Operating Partnership", which holds the operating assets of the Company). See below for a description of entities consolidated by the Operating Partnership for all periods presented pursuant to its adoption of FIN 46 Revised. The Company is the sole general partner in the Operating Partnership, with a 90.5% and 90.3% general partnership interest as of September 30, 2005 and December 31, 2004, respectively.

As of September 30, 2005, the Company has ownership interests in 125 multifamily properties (containing 25,950 units), three office buildings (with approximately 166,340 square feet), three recreational vehicle parks (comprising 562 spaces) and one manufactured housing community (containing 157 sites), (collectively, the "Properties"). The Properties are located in Southern California (Los Angeles, Ventura, Orange, Riverside 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).

Fund Activities

Essex Apartment Value Fund, L.P. ("Fund I"), is an investment fund organized by the Company in 2001 to add value through rental growth and asset appreciation, utilizing the Company's development, redevelopment and asset management capabilities. An affiliate of the Company, Essex VFGP, L.P. ("VFGP"), is a 1% general partner and is a 20.4% limited partner. The Operating Partnership owns a 99% limited partnership interest in VFGP.

On September 27, 2004 the Company announced the final closing of partner equity commitments for Essex Apartment Value Fund II (“Fund II”). Fund II has eight institutional investors, including the Company, with combined partner equity commitments of $265.9 million. Essex has committed $75.0 million to Fund II, which represents a 28.2% interest as general partner and limited partner. Fund II expects to utilize leverage equal to approximately 65% of the estimated value of the underlying real estate. Fund II will invest in multifamily properties in the Company’s targeted West Coast markets with an emphasis on investment opportunities in Seattle and the San Francisco Bay Area. Subject to certain exceptions, Fund II will be Essex’s exclusive investment vehicle until October 31, 2006, or when Fund II’s committed capital has been invested, whichever occurs first. Consistent with Fund I, Essex will record revenue for its asset management, property management, development and redevelopment services, and promote distributions should Fund II exceed certain financial return benchmarks.

Variable Interest Entities

In accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46 Revised (FIN 46R), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”, the Company consolidates Essex Management Corporation (EMC), Essex Fidelity I Corporation (EFC), 17 Down REIT limited partnerships (comprising ten properties), an office building that is subject to loans made by the Company, and the multifamily improvements owned by a third party in which the Company owns the land underlying these improvements and from which the Company receives fees, including land lease, subordination and property management fees, and a joint venture to develop a building in Los Angeles, California. The Company consolidated these entities because it is deemed the primary beneficiary under FIN 46R. The Company's total assets and liabilities related to these variable interest entities (VIEs), net of intercompany eliminations, were approximately $232.2 million and $156.0 million, respectively, at September 30, 2005 and $238.1 million and $155.1 million, respectively, at December 31, 2004.

Interest holders in VIEs consolidated by the Company are allocated net income equal to the cash payments made to those interest holders for services rendered or distributions from cash flow. The remaining results of operations are generally allocated to the Company.

Properties consolidated in accordance with FIN 46R were encumbered by third party, non-recourse loans totaling $150.3 million and $151.3 million as of September 30, 2005 and December 31, 2004, respectively.

As of September 30, 2005 the Company is involved with four VIEs, of which it is not deemed to be the primary beneficiary. Total assets and liabilities of these entities as of September 30, 2005 were approximately $97.8 million and $74.2 million, respectively. The Company does not have a significant exposure to loss resulting from its involvement with these unconsolidated VIEs.

Stock-Based Compensation

Stock-based compensation expense under the fair value method was $308,000 and $169,000 for the three months ended September 30, 2005 and 2004, respectively and $679,000 and $496,000 for the nine months ended September 30, 2005 and 2004, respectively. There were 6,000 stock options granted during the three months ended September 30, 2005 and no options granted for the three months ended September 30, 2004. There were 143,800 and 20,000 options granted for the nine months ended September 30, 2005 and 2004, respectively. The average fair value of stock options granted was $12.07 for the three months ended September 30, 2005, and $9.60 and $7.11 per share for the nine months ended September 30, 2005 and 2004, respectively. The fair value was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2005	2004	2005	2004
Stock price	$89.33 - $89.98	$62.34	$69.11 - $89.98	$62.34
Risk-free interest rates	3.94% - 4.06%	3.94%	3.64% - 4.30%	3.94%
Expected lives	6 years	5 years	5-6 years	5 years
Volatility	18.54%	19.07%	18.09% -18.54%	19.07%
Dividend yield	4.22% - 4.24%	5.07%	4.22% - 5.13%	5.07%

Accounting Changes

(A) Depreciation

Beginning in 2003, the Company implemented an upgrade to its subsidiary ledger for accounting for fixed assets. The Company completed this system upgrade in the first quarter of 2004. In conjunction with this system upgrade, the Company determined that cumulative depreciation expense generated by consolidated or equity method rental properties was understated by approximately $2.1 million through December 31, 2003 and this amount was recorded during the quarter ended March 31, 2004.

The Company does not believe that the correction is material to any previously reported financial statements and is not material to any consolidated earnings trends.

(B) New Accounting Pronouncements Issued But Not Yet Adopted

In June 2005, the FASB ratified the Emerging Issues Task Force (EITF) consensus on Issue No. 04-5 “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partner Have Certain Rights.”This consensus establishes the presumption that general partners in a limited partnership control that limited partnership regardless of the extent of the general partners’ ownership interest in the limited partnership. The consensus further establishes that the rights of the limited partners can overcome the presumption of control by the general partners, if the limited partners have either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause or (b) substantive participating rights. Whether the presumption of control is overcome is a matter of judgment based on the facts and circumstances, for which the consensus provides additional guidance. This consensus is currently applicable to the Company for new or modified partnerships, and will otherwise be applicable to existing partnerships in 2006. This consensus applies to limited partnerships or similar entities, such as limited liability companies that have governing provisions that are the functional equivalent of a limited partnership. The Company is currently evaluating the effect of this consensus on its consolidation policies.

In December 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 123 revised, “Share-Based Payment”. This statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB No. 25, “Accounting for Stock Issued to Employees”. The Statement requires companies to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees. This Statement is effective for fiscal years beginning after June 15, 2005. We are in the process of evaluating the impact of this Statement on our future results of operations.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets an amendment of APB No. 29”. This Statement amends APB Opinion No. 29, “Accounting for Non-monetary Transactions” to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. That exception required that some non-monetary exchanges be recorded on a carryover basis versus this Statement, which requires that an entity record a non-monetary exchange at fair value and recognize any gain or loss if the transaction has commercial substance. This Statement is effective for fiscal years beginning after June 15, 2005. We do not believe that the adoption of SFAS No. 153 will have a material impact on our financial position, net earnings or cash flows.

Reclassifications

Certain other reclassifications have been made to prior periods in order to conform them to the current period presentation. Such reclassifications have no impact on reported earnings, total assets or total liabilities.

(2) Significant Transactions for the Quarter Ended September 30, 2005

(A) Acquisitions

On September 28, 2005, the Company acquired Marbella Apartments, a 60-unit apartment community, located in Los Angeles, California, for approximately $13.6 million. The community is in proximity to other existing properties.

(B) Development Communities

The Company defines development communities as new apartment properties that are being constructed or are newly constructed, which are in a phase of lease-up and have not yet reached stabilized operations. As of

September 30, 2005, the Company had ownership interests in three development communities (excluding development projects owned by the Essex Apartment Value Fund, L.P. described below), aggregating 505 multifamily units. The estimated total cost of the three development communities is $122.8 million with $98.8 million remaining to be expended.

(C) Redevelopment Communities

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 some apartment units that are not available for rent and, as a result, may have less than stabilized operations. At September 30, 2005, the Company had ownership interests in six redevelopment communities, aggregating 1,905 multifamily units with estimated redevelopment costs of $33.9 million, of which approximately $19.3 million remains to be expended.

(D) Debt

On July 14, 2005, the Company obtained a non-recourse mortgage loanon previously unencumbered property in the aggregate amount of $40.3 million with a fixed interest rate of 4.935% for a 10-year term that matures on August 1, 2015.

(E) Equity

On September 21, 2005, the Company’s Board of Directors declared a quarterly distribution of $0.48828 per share, which represents an annual distribution of $1.9531 per share on its 7.8125% Series F Cumulative Redeemable Preferred Shares. Distributions are or will be payable on December 1, 2005 to shareholders of record as of November 16, 2005.

On September 21, 2005, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.81 per common share, which was payable on October 15, 2005 to shareholders of record as of September 30, 2005. On an annualized basis, the dividend represents a distribution of $3.24 per common share.

(F) Interest and Other Income

During 2005, the Company received from the developer at The Essex at Lake Merritt property approximately $4.3 million and $6.1 million of participating interest for the three and nine months ended September 30, 2005, respectively.

(G)

The Essex Apartment Value Fund ("Fund I")

Fund I has sold all of its apartment communities, aggregating 4,646 units, which were provided for in the purchase and sale agreement with United Dominion Realty Trust, Inc. (UDR) for the agreed upon contract price of approximately $756 million. The UDR sales included River Terrace, a newly developed 250-unit apartment community located in Santa Clara, California, which was sold on August 3, 2005 for approximately $63.0 million.

Subsequent to the quarter, Fund I sold its remaining asset Kelvin Avenue, a land parcel, which is permitted for the development of a 132-unit multifamily community, located in Irvine, California, for a contract price of $10.5 million. Fund I has guaranteed to refund $500,000 to the buyer, if necessary entitlements are not obtained pursuant to the requirements of the purchase and sale agreement.

(H) The Essex Apartment Value Fund II (“Fund II”)

On September 1, 2005, Fund II acquired Echo Ridge Apartments, a 120-unit apartment community, located in Snoqualmie, Washington, for approximately $17.9 million. Echo Ridge is comprised of 21, 2-story apartment buildings, within a 1,300-acre master planned community.

On September 30, 2005, Fund II acquired Morning Run Apartments, a 222-unit apartment community, located in Monroe, Washington, for approximately $19.75 million. Morning Run consists of 20, two- and three-story buildings, located on 11 acres.

(3)

Investments

The following table details the Company's investments (dollars in thousands):

	September 30,		December 31,
	2005		2004

Investments in joint ventures accounted for under the equity
method of accounting:

Direct and indirect LLC member interests of approximately 49.9%
in Newport Beach South, LLC	$	-	$	11,524
Limited partnership interest of 20.4% and general partner
interest of 1% in Essex Apartment Value Fund, L.P (Fund I)		2,570		14,140
Limited partnership interest of 27.2% and general partner
interest of 1% in Essex Apartment Value Fund II, L.P (Fund II)		17,761		17,242
Preferred limited partnership interests in Mountain Vista
Apartments (A)		6,806		6,806
		27,137		49,712
Investments accounted for under the cost method of accounting:

Series A Preferred Stock interest in Multifamily Technology
Solutions, Inc.		500		-
Total investments	$	27,637	$	49,712

(A)	The investment is held in an entity that includes an affiliate of The Marcus & Millichap Company (“TMMC”). TMMC’s Chairman is also the Chairman of the Company.

The combined summarized financial information of investments, which are accounted for under the equity method, are as follows (dollars in thousands).


	September 30,		December 31,
	2005		2004
Balance sheets:
Real estate and real estate under development	$	292,400	$	322,233
Other assets		22,941		36,709

Total assets	$	315,341	$	358,942

Mortgage notes payable	$	185,841	$	203,171
Other liabilities		42,982		21,276
Partners' equity		86,518		134,495

Total liabilities and partners' equity	$	315,341	$	358,942

Company's share of equity	$	27,137	$	49,712

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2005		2004		2005		2004
Statements of operations:
Total property revenues	$	12,458	$	15,502	$	26,314	$	48,856
Total gain on the sales of real estate		5,889		91,089		38,897		91,089
Total expenses		7,044		13,203		21,432		46,119

Total net income	$	11,303	$	93,388	$	43,779	$	93,826

Company's share of net income	$	21	$	15,365	$	17,575	$	16,460

(4)

Related Party Transactions

Notes and other receivables from related parties as of September 30, 2005 and December 31, 2004 consist of the following (dollars in thousands):


	September 30,		December 31,
	2005		2004
Related party receivables, unsecured:
Loans to officers made prior to July 31, 2002, secured,
bearing interest at 8%, due beginning April 2006	$	625	$	625
Related party receivables, substantially due on demand		577		810
Total notes and other receivable from related parties	$	1,202	$	1,435

Related party receivables consist primarily of accrued interest income on notes receivable from joint venture investees and loans to officers, and advances and accrued management fees from joint venture investees.

Management and other fees from affiliates includes property management, asset management, development and redevelopment fees from the Company’s investees of $705,000 and $1,206,000 for the three months ended September 30, 2005 and 2004, respectively, and $3,098,000 and $3,823,000 for the nine months ended September 30, 2005 and 2004, respectively, and promote income from the Company’s investees of $896,000 and $14,495,000 for the three months ended September 30, 2005 and 2004, respectively, and $6,010,000 and $14,495,000 for the nine months ended September 30, 2005 and 2004, respectively.

(5)

Segment Information

The Company defines its reportable operating segments as the three geographical regions in which its properties are located: Southern California, Northern California and the Pacific Northwest. Excluded from segment revenues are properties outside of these regions, management and other fees from affiliates, and interest and other income. Non-segment revenues and net operating income included in the following schedule also consist of revenue generated from commercial properties, recreational vehicle parks, and manufactured housing communities. Other non-segment assets include investments, real estate under development, cash, notes receivable, other assets and deferred charges. The revenues, net operating income, and assets for each of the reportable operating segments are summarized as follows for the periods presented (dollars in thousands).

	Three Months Ended
	September 30,
	2005			2004
Revenues:
Southern California	$	48,171		$	43,607
Northern California		16,505			15,123
Pacific Northwest		14,491			12,310
Other non-segment areas		1,052			693
Total property revenues	$	80,219		$	71,733

Net operating income:
Southern California	$	33,193		$	29,137
Northern California		11,032			9,991
Pacific Northwest		9,243			7,855
Other non-segment areas		93			(176	)
Total net operating income		53,561			46,807

Depreciation and amortization:
Southern California		(10,619	)		(9,724	)
Northern California		(4,023	)		(3,571	)
Pacific Northwest		(3,708	)		(3,193	)
Other non-segment areas		(1,973	)		(1,573	)
		(20,323	)		(18,061	)
Interest expense:
Southern California		(7,750	)		(6,911	)
Northern California		(4,251	)		(3,749	)
Pacific Northwest		(1,964	)		(1,572	)
Other non-segment areas		(4,601	)		(4,162	)
		(18,566	)		(16,394	)
Amortization of deferred financing costs		(451	)		(449	)
General and administrative		(4,560	)		(7,639	)
Other expenses		(1,400	)		-
Management and other fees from affiliates		1,601			15,701
Gain on sale of real estate		-			7,909
Interest and other income		4,978			836
Equity income in co-investments		21			15,365
Minority interests		(4,929	)		(9,509	)
Income tax provision		(1,185	)		(122	)
Income from continuing operations	$	8,747		$	34,444

(5) Segment Information (continued)

	Nine Months Ended
	September 30,
	2005			2004
Revenues:
Southern California	$	139,869		$	122,558
Northern California		49,286			45,767
Pacific Northwest		42,733			36,697
Other non-segment areas		2,963			1,969
Total property revenues	$	234,851		$	206,991

Net operating income:
Southern California	$	95,209		$	82,111
Northern California		33,370			30,782
Pacific Northwest		27,503			23,498
Other non-segment areas		1,054			285
Total net operating income		157,136			136,676

Depreciation and amortization:
Southern California		(31,115	)		(29,427	)
Northern California		(11,938	)		(11,908	)
Pacific Northwest		(11,042	)		(7,553	)
Other non-segment areas		(5,850	)		(4,540	)
		(59,945	)		(53,428	)
Interest expense:
Southern California		(22,912	)		(19,809	)
Northern California		(11,818	)		(10,143	)
Pacific Northwest		(5,302	)		(4,841	)
Other non-segment areas		(14,834	)		(10,992	)
		(54,866	)		(45,785	)

Amortization of deferred financing costs		(1,490	)		(1,179	)
General and administrative		(13,574	)		(13,985	)
Other expenses		(2,900	)		-
Management and other fees from affiliates		9,108			18,318
Gain on sale of real estate		6,391			7,909
Interest and other income		7,932			2,095
Equity income in co-investments		17,575			16,460
Minority interests		(16,752	)		(20,588	)
Income tax provision		(2,386	)		(208	)

Income from continuing operations	$	46,229		$	46,285

	September 30,		December 31,
	2005		2004
Assets:
Net real estate assets:
Southern California	$	1,292,846	$	1,162,803
Northern California		397,880		458,199
Pacific Northwest		375,508		358,219
Other non-segment areas		42,565		62,321
Total net real estate assets		2,108,799		2,041,542
Other non-segment assets		137,526		175,675
Total assets	$	2,246,325	$	2,217,217

(6)

Net Income Per Common Share

(Amounts in thousands, except per share data)

	Three Months Ended						Three Months Ended
	September 30, 2005						September 30, 2004
			Weighted		Per				Weighted		Per
			Average		Common				Average		Common
			Common		Share				Common		Share
	Income		Shares		Amount		Income		Shares		Amount
Basic:
Income from continuing operations available
to common stockholders	$	8,259		23,107	$	0.36	$	33,956		22,940	$	1.48
Income from discontinued operations		-		23,107		-		586		22,940		0.03
		8,259			$	0.36		34,542			$	1.51

Effect of Dilutive Securities:
Convertible limited partnership
Units (1)		--		--				--		--
Stock options (2)		--		185				--		176
Vested series Z incentive units		--		120				--		90
-				305				-		266

Diluted:
Income from continuing operations available
to common stockholders		8,259		23,412	$	0.35		33,956		23,206	$	1.46
Income from discontinued operations		-		23,412		-		586		23,206		0.03
	$	8,259			$	0.35	$	34,542			$	1.49

	Nine Months Ended						Nine Months Ended
	September 30, 2005						September 30, 2004
				Weighted		Per				Weighted		Per
				Average		Common				Average		Common
				Common		Share				Common		Share
		Income		Shares		Amount		Income		Shares		Amount
Basic:
Income from continuing operations available
to common stockholders	$	44,764		23,074	$	1.94	$	44,821		22,897	$	1.96
Income from discontinued operations		28,274		23,074		1.23		895		22,897		0.04
		73,038			$	3.17		45,716			$	2.00

Effect of Dilutive Securities:
Convertible limited partnership
Units (1)		--		--				--		--
Stock options (2)		--		171				--		155
Vested series Z incentive units		--		119				--		78
-				290				-		233

Diluted:
Income from continuing operations available
to common stockholders		44,764		23,364	$	1.92		44,821		23,130	$	1.93
Income from discontinued operations		28,274		23,364		1.21		895		23,130		0.04
	$	73,038			$	3.13	$	45,716			$	1.97
.

(1) Weighted convertible limited partnership units of 2,299,361 and 2,361,494 for the three months ended September 30, 2005 and 2004, respectively, and 2,307,884 and 2,315,018 for the nine months ended September 30, 2005 and 2004, respectively, were not included in the determination of diluted EPS because they were anti-dilutive. The Company has the ability and intent to redeem Down REIT Limited Partnership units of 1,362,698 at September 30, 2005 for cash and does not consider them to be common stock equivalents.

(2) 4,788 and 26,930 stock options are not included in the diluted earnings per share calculation for three and nine months ended September 30, 2005, respectively, because the exercise price of the option was greater than the average market price of the common shares for the quarter end and, therefore, the stock options were anti-dilutive.

(7)

Derivative Instruments and Hedging Activities

On February 16, 2005, the Company entered into a $50.0 million notional forward-starting swap with a commercial bank at a fixed rate of 4.927% and a settlement date on or around October 1, 2007. This 10-year forward starting interest rate swap is used to hedge the cash flows associated with the forecasted issuance of debt expected to occur in 2007.

On August 18, 2005, the Company entered into a $50.0 million notional forward-starting swap with a commercial bank at a fixed rate of 4.869% and a settlement date between January 1 and December 1, 2008. This 10-year forward starting interest rate swap is used to hedge the cash flows associated with the forecasted issuance of debt expected to occur in 2008.

These transactions are considered highly effective at offsetting changes in future cash flows for forecasted transactions and qualify for hedge accounting.

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.

The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount.

At September 30, 2005, derivative instruments designated as cash flow hedges were recorded as a net derivative asset of $91,000 and were included in prepaid expenses and other assets. The net change in fair value of the derivative instruments for the nine months was a net unrealized gain of $91,000. Derivatives designated as cash flow hedges are separately disclosed in the statement of changes in shareholders’ equity and accumulated other comprehensive income. No hedge ineffectiveness on cash flow hedges was recognized during 2005. The Company did not have accumulated other comprehensive income in 2004.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s hedged debt. The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of 39 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

(8)

Discontinued Operations

In the normal course of business, the Company will receive offers for sale of its properties, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. Essex classifies real estate as "held for sale" when all criteria under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"(SFAS 144) have been met.

At June 30, 2004, Golden Village Recreational Vehicle Park, a property located in Hemet, California and acquired as part of the John M. Sachs merger in December 2002, met the "held for sale" criteria under SFAS 144. In accordance with SFAS 144, assets and liabilities and the results of operations of the property were presented as discontinued operations in the consolidated financial statements for the period ended June 30, 2004. Upon reclassification as held for sale at June 30, 2004, the Company presented Golden Village at its estimated fair value less disposal costs which resulted in an impairment charge of approximately $718,000. Such fair value was determined using the contractual sales price pursuant to the contract with the buyer of the property. On July 18, 2004, the Company sold Golden Village for $6.7 million. No gain or loss was recognized on the sale.

In January 2005, the Company sold four non-core assets that were acquired in conjunction with the John M. Sachs’s merger in 2002 for $14.9 million. The four non-core assets were: The Riviera Recreational Vehicle Park and a Manufactured Home Park, located in Las Vegas, Nevada, for which the Company had previously entered into master lease and option agreements with an unrelated entity; and two small office buildings, located in San Diego California, aggregating 7,200 square feet. The Company recorded a gain of $668,000 on the sale of these assets, net of minority interests. As of December 31, 2004 Riviera RV Resort and Riviera Mobile Home Park met the “held for sale” criteria under SFAS 144. In accordance with SFAS 144, assets and liabilities and the results of operations of the properties are presented as discontinued operations in the consolidated financial statements for all periods presented.

On June 21, 2005, the Company sold Eastridge Apartments, a 188-unit apartment community located in San Ramon, California for a contract price of approximately $47.5 million. The Company acquired Eastridge in 1996 for $19.2 million. In conjunction with the sale, the Company deferred $2.2 million of the gain on the sale of Eastridge because an affiliate of Essex originated a participating loan to the buyer in the amount of approximately $2.2 million, which allows the Company to financially participate in the buyer’s condominium conversion plan. The Company has recorded the operations and gain on sale of Eastridge Apartments as part of discontinued operations in the accompanying consolidated statement of operations for all periods presented.

The components of discontinued operations are outlined below and include the results of operations for the respective periods that the Company owned such assets, as described above.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2005		2004			2005			2004

Rental revenues	$	-	$	699		$	1,233		$	2,080
Interest and other		-		(175	)		1,134			1,380
Revenues		-		524			2,367			3,460

Property operating expenses		-		(421	)		(506	)		(1,758	)
Impairment charge		-		543			-			(718	)
Minority interests		-		(60	)		(168	)		(89	)
Operating income from real estate sold		-		586			1,693			895

Gain on sale of real estate		-		-			29,219			-
Minority interests		-		-			(2,638	)		-
		-		-			26,581			-
Income from discontinued operations	$	-	$	586		$	28,274		$	895

(9) Commitments and Contingencies

In April 2004, an employee lawsuit was filed against the Company in the California Superior Court in the County of Alameda. In this lawsuit, two former Company maintenance employees seek unpaid wages, associated penalties and attorneys’ fees on behalf of a putative class of the Company’s current and former maintenance employees who were required to wear a pager while they were on call during evening and weekend hours. In June 2005, the Company recorded $1.5 million for legal settlement costs. There has been no change to the settlement amount for the current quarter. However, litigation is subject to inherent uncertainties, and such amount represents management’s best estimate of the total cost of the litigation at this time.

Recently there has been an increasing number of lawsuits against owners and managers of multifamily properties alleging personal injury and property damage caused by the presence of mold in residential real estate. Some of these lawsuits have resulted in substantial monetary judgments or settlements. The Company has been sued for mold related matters and has settled some, but not all, of such matters. Insurance carriers have reacted to mold related liability awards by excluding mold related claims from standard policies and pricing mold endorsements at prohibitively high rates. The Company has, however, purchased pollution liability insurance, which includes coverage for mold. The Company has adopted programs designed to manage the existence of mold in its properties as well as guidelines for promptly addressing and resolving reports of mold to minimize any impact mold might have on residents or the property. Liabilities resulting from such mold related matters and the costs of carrying insurance to address potential mold related claims may also be substantial.

The Company is subject to various other lawsuits in the normal course of its business operations. Accordingly, such lawsuits, as well as the class action lawsuit described above, could result in substantial costs and diversion of resources and could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

(10) Subsequent Event

On October 28, 2005, the Company’s operating partnership, Essex Portfolio, L.P., closed on a $190 million exchangeable senior note offering with a coupon of 3.625%. Concurrent with the offering, the Company acquired 286,073 shares of Essex’s common stock priced at $87.39. An additional $35 million aggregate principal amount of notes may be issued, at the option of the initial purchasers, within 30 days of the initial issuance of the notes. The notes are senior unsecured obligations of the Operating Partnership, and are fully and unconditionally guaranteed by the Company. The notes were sold, on an over-night basis, to 33 qualified institutional buyers in accordance with Rule 144A.

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes thereto included elsewhere herein and with our 2004 Annual Report on Form 10-K for the year ended December 31, 2004 and our Current Report on Form 10-Q for the nine months ended September 30, 2005. Unless otherwise noted, all dollar amounts are in thousands.

Essex is a fully integrated Real Estate Investment Trust (REIT), property revenues are generated primarily from multifamily property operations, which are located in three major West Coast regions:

Southern California(Los Angeles, Ventura, Orange, Riverside and San Diego counties)

Northern California(the San Francisco Bay Area)

Pacific Northwest(Seattle, Washington and Portland, Oregon metropolitan areas)

The Company’s consolidated multifamily properties are as follows:

	As of September 30, 2005		As of September 30, 2004
	Number of Apartment Homes	%	Number of Apartment Homes	%
Southern California	12,784	54%	11,669	52%
Northern California	4,621	20%	4,411	20%
Pacific Northwest	5,831	25%	5,457	25%
Other	302	1%	578	3%
Total	23,538	100%	22,115	100%

Operating Results

With respect to stabilized multifamily properties with sufficient operating history, occupancy figures are based on financial occupancy, which is defined as the percentage resulting from dividing actual rental revenue by total possible rental revenue. Actual rental revenue represents contractual revenue pursuant to leases without considering delinquency and concessions. Total possible rental revenue represents the value of all apartment units, with occupied units valued at contractual rental rates pursuant to leases and vacant units valued at estimated market rents. We believe that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates as disclosed by other REITs may not be comparable to our calculation of financial occupancy.

Comparison of the Three Months Ended September 30, 2005 to the Three Months Ended September 30, 2004

Our average financial occupancies increased 1.2% to 97.3% as of September 30, 2005 from 96.1% as of September 30, 2004 for the multifamily Quarterly Same Store Properties. The regional breakdown for the three months ended September 30, 2005 and 2004 is as follows:

	Three months ended
	September 30,
	2005	2004
Southern California	97.2%	96.7%
Northern California	97.3%	96.0%
Pacific Northwest	97.3%	95.6%

Total Property Revenuesincreased 12% to $80.2 million in the third quarter of 2005 from $71.7 million in the third quarter of 2004. The following table illustrates a breakdown of these revenue amounts, including revenues attributable to the same store properties.


			Three Months Ended
	Number of		September 30,				Dollar	Percentage
	Properties		2005		2004		Change	Change
Revenues:			(Dollars in thousands)
Property revenues - quarterly
Quarterly Same Store Properties
Southern California	52	$	36,203	$	34,323	$	1,880	5.5	%
Northern California	17		13,351		13,033		318	2.4
Pacific Northwest	25		12,084		11,675		409	3.5
Total property revenues
Same Store Properties	94		61,638		59,031		2,607	4.4
Property revenues - quarterly
Properties acquired subsequent to
June 30, 2004 (1)			18,581		12,702		5,879	46.3
Total property revenues		$	80,219	$	71,733	$	8,486	11.8	%

(1) Also includes three office buildings, three recreational vehicle parks, one multifamily property located in Houston, Texas, one manufactured housing community, and redevelopment and development communities.

Quarterly Same Store Property Revenuesincreased by $2.6 million or 4.4% to $61.6 million in the third quarter of 2005 from $59.0 million in the third quarter of 2004. Quarterly Same Store Properties include those stabilized properties owned by the Company during each of the three months ended September 30, 2005 and 2004. The increase in third quarter 2005 was primarily attributable to an increase of rents of $1.8 million, and an increase in financial occupancy of 1.2% or $625,000.

Quarterly Non-Same Store Property Revenuesincreased by $5.9 million or 46.3% to $18.6 million in the third quarter of 2005 from $12.7 million in the third quarter of 2004. Quarterly Non-Same Store Properties include properties acquired subsequent to June 30, 2004, three office buildings, three recreational vehicle parks, one manufactured housing community, and development and redevelopment communities. The increase was primarily generated from communities acquired and or developed and increased rents from redeveloped properties. Subsequent to June 30, 2004, we acquired 4,726 units and completed the construction of 756 units.

Management and other fees from affiliates decreased by approximately $14.1 million in the quarter due primarily to the promote distributions from Fund I being reduced from $14.5 million in 2004 to $900,000 in 2005.

Total Expensesincreased 7% to $72.0 million in the third quarter of 2005 from $67.5 million in the third quarter of 2004. The increase was due to depreciation and amortization, interest, and other expenses. Depreciation and amortization increased 13% to $20.3 million in the third quarter from $18.0 million in the third quarter of 2004 due to an increase in the number of owned properties. Total expenses were offset in the third quarter of 2005 by a reduction in general and administrative expense in the amount of $3.1 million as a result of a $4.0 million accrual in employee incentive compensation related to promote distributions from Fund I, recorded during the third quarter of 2004.

Interest expense increased by 13% in the third quarter of 2005 to $18.6 million, net of $136,000 in capitalized interest, compared to $16.4 million for the third quarter of 2004. The increase was mainly due to an increase in short term rates and paying down lines of credit with permanent financing in the third quarter.

Other expenses increased $1.4 million for the third quarter of 2005. As a result of the $6.1 million pretax gain realized in 2005 from the $5 million participating loan at The Essex at Lake Merritt, management has accrued $1.4 million incentive compensation expense to reward the key members of the management team that contributed to the success of this investment.

Gain on sale of real estate was $0 for the third quarter of 2005 compared to a gain of $7.9 million recorded in third quarter of 2004 related to the sale of The Essex at Lake Merritt.

Interest and other income increased to $5.0 million in the third quarter of 2005 compared to $836,000 in third quarter of 2004. During the third quarter of 2005, the Company recorded interest income of $4.3 million relating to The Essex at Lake Merritt participating loan.

Equity income in co-investmentsdecreased $15.3 million in the third quarter of 2005 due to the fact the Company recorded $14.0 million in equity income related to the sale of Fund I properties during the third quarter of 2004.

Income tax provision increased by $1.1 million in the third quarter of 2005 to $1.2 million from $122,000 in the third quarter of 2004 due to taxable income related to The Essex at Lake Merritt participating loan and our other taxable REIT subsidiaries.

Discontinued operationswere $586,000 for the third quarter of 2004 related to the Eastridge Property sold during the second quarter of 2005 and four assets sold during first quarter of 2005 that were non-core assets to the Company. There were no assets held for sale during the three months ended September 30, 2005.

Operating Results

Comparison of the Nine Months Ended September 30, 2005 to the Nine Months Ended September 30, 2004

Our average financial occupancies increased 0.9% to 96.8% for the nine months ended September 30, 2005 from 95.9% for the nine months ended September 30, 2004 for the multifamily Same Store Properties. The regional breakdown for the nine months ended September 30, 2005 and 2004 is as follows:

	Nine Months Ended
	September 30,
	2005	2004
Southern California	96.6%	95.9%
Northern California	97.1%	96.2%
Pacific Northwest	97.0%	95.5%

Total Property Revenuesincreased by $25.2 million or 13.5% to $234.9 million in the nine months ended September 30, 2005 from $207.0 million in the nine months ended September 30, 2004. The following table illustrates a breakdown of these revenue amounts, including revenues attributable to the Same Store Properties.

			Nine Months Ended
	Number of		September 30,				Dollar		Percentage
	Properties		2005		2004		Change		Change
Revenues:			(Dollars in thousands)
Property revenues
Same Store Properties
Southern California		49	$	95,788	$	91,084	$	4,704		5.2	%
Northern California		16		37,777		37,517		260		0.7
Pacific Northwest		25		35,712		34,773		939		2.7
Total property revenues
Same Store Properties		90		169,277		163,374		5,903		3.6
Property revenues - properties
acquired subsequent to
December 31, 2003 (1)				65,574		43,617		21,957		50.3
Total property revenues			$	234,851	$	206,991	$	27,860		13.5	%

Same Store Property Revenuesincreased by $5.9 million or 3.6% to $169.3 million for the nine months ended September 30, 2005 from $163.4 million for the nine months ended September 30, 2004. Same Store Properties include those stabilized properties owned by the Company during each of the nine months ended September 30, 2004 and September 30, 2005. The increase was primarily attributable an increase in rents of 3.9% for Southern California of $3.7 million, an increase in occupancy of .9%, or $1.4 million, an increase in other property revenues of $415,000, and a decrease in concessions of $152,000.

Non Same Store Property Revenues increased by $22.0 million or 50.3% to $65.6 million for the nine months ended September 30, 2005 from $43.6 million for the nine months ended September 30, 2004. Non-Same Store Properties include properties acquired subsequent to December 31, 2003, three office buildings, three recreational vehicle parks, one manufactured housing community, and development and redevelopment communities. The increase was primarily generated from communities acquired and or developed and increased rents from redeveloped properties. Subsequent to December 31, 2003, we acquired 5,453 units and completed the construction of 756 units.

Management and other fees from affiliates decreased by approximately $9.2 million during the nine months ended September 30, 2005 due primarily to the promote distributions from Fund I being reduced from $14.5 million in 2004 to $6 million in 2005. Development and redevelopment fees from Fund I decreased by $800,000 as the expenditures for the Fund's development asset decreased.

Total Expensesincreased 14% to $210.5 million for the nine months ended September 30, 2005 from $184.7 million for the nine months ended September 30, 2004. The increase was mainly due to depreciation and amortization, interest expense, real estate taxes, and other expenses. Depreciation and amortization increased 12% to $59.9 million for the nine months ended September 30, 2005 from $53.4 million for the nine months ended September 30, 2004, and real estate taxes increased $2.7 million during the nine months ended 2005 due to an increase in the number of owned properties.

Interest expense increased by 20% for the nine months ended September 30, 2005 to $54.9 million, net of $647,000 of capitalized interest, as compared to $45.8 million for the nine months ended September 30, 2004. The increase was primarily due to an increase in short term rates and paying down lines of credit with permanent financing in the nine months ended September 30, 2005.

Other expenses increased to $2.9 million for the nine months ended September 30, 2005 due to a provision of $1.5 million for a legal settlement recorded in the second quarter of 2005, see Item 1 in Part II - Other Information for additional information. As a result of the $6.1 million pretax gain realized in 2005 from the $5 million participating loan at The Essex at Lake Merritt, management has accrued a $1.4 million incentive compensation expense to reward the key members of the management team that contributed to the success of this investment. There were no other expense items in the nine months ended September 30, 2004.

Gain on sale of real estatedecreased by $1.5 million for the nine months ended September 30, 2005 to $6.4 million compared to $7.9 million recorded during the nine months ended September 30, 2004. During 2005, Essex recognized $5.0 million in gains deferred on the sale of Essex at Lake Merritt and $1.4 million in gains related to additional real estate sales. The gain of $7.9 million was recorded in third quarter of 2004 and related to the sale of The Essex at Lake Merritt.

Interest and other income increased to $7.9 million for the nine months ended September 30, 2005 compared to $2.1 million for the nine months ended September 30, 2004. The increase relates primarily to interest income of $4.3 million related to The Essex at Lake Merritt participating loan in 2005.

Equity income in co-investmentsincreased $1.1 million for the nine months ended September 30, 2005 as a result of the sale of Fund I properties during the first two quarters of 2005, and $575,000 in equity income related to earnings generated from Funds I and II and other joint ventures.

Income tax provision increased by $2.2 million during the nine months ended September 30, 2005 compared to $208,000 for the nine months ended September 30, 2004 due to taxable income related to our taxable REIT subsidiaries.

Discontinued operationsincreased by $27.3 million to $28.3 million for the nine months ended September 30, 2005 from $895,000 for the nine months ended September 30, 2004. The increase was due mainly to a gain on sale of the Eastridge property during the second quarter of 2005, for $28.0 million net of minority interest offset by a deferred gain of $2.2 million relating to a participating loan with the buyer.

Liquidity and Capital Resources

Standard and Poor's and Fitch ratings have existing issuer credit ratings of BBB/Stable for Essex Property Trust, Inc. and Essex Portfolio L.P.

We believe that cash flows generated by our operations, existing cash balances, availability under existing lines of credit, access to capital markets and the ability to generate cash gains from the disposition of real estate are sufficient to meet all of our reasonably anticipated cash needs during 2005. The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect our plans for acquisitions, dispositions, development and redevelopment activities.

Essex had an $185,000,000 unsecured line of credit as of September 30, 2005, and $56,000,000 was outstanding with an average interest rate of approximately 4.4%. This facility matures in April 2007, with an option for a one-year extension. The underlying interest rate on this line is based on a tiered rate structure tied to our corporate ratings and is currently LIBOR plus 1.0%. We also have a $100 million credit facility from Freddie Mac, which is

secured by six of Essex's multifamily communities. As of September 30, 2005, we had $94 million outstanding under this line of credit, which bears an average interest rate of 3.1 percent and matures in January 2009. The underlying interest rate on this line is between 55 and 59 basis points over the Freddie Mac Reference Rate. Fund II obtained a credit facility during the first quarter of 2005, aggregating $50,000,000, and during the second quarter of 2005 Fund II amended the credit facility increasing the facility to $115 million. This line bears interest at LIBOR plus 0.875%, and matures in June 30, 2007. At the end of the third quarter, we had the capacity to issue up to $219,455,250 in equity securities, and the Operating Partnership had the capacity to issue up to $250,000,000 of debt securities under our existing shelf registration statements.On July 14, 2005, the Company originated a mortgage loan secured by the Esplanade Apartment property in the amount of $40.3 million, with an interest rate of 4.935%, which matures on August 1, 2015.

On October 28, 2005, the Company’s operating partnership, Essex Portfolio, L.P., closed on a $190 million exchangeable senior note offering with a coupon of 3.625%. Concurrent with the offering, the Company acquired 286,073 shares of Essex’s common stock priced at $87.39. An additional $35 million aggregate principal amount of notes may be issued, at the option of the initial purchasers, within 30 days of the initial issuance of the notes. The notes are senior unsecured obligations of the Operating Partnership, and are fully and unconditionally guaranteed by Essex. The notes were sold, on an over-night basis, to 33 qualified institutional buyers in accordance with Rule 144A.

The notes are due on November 1, 2025. On or after November 1, 2020, and earlier upon the occurrence of specified events, the notes will be exchangeable at the option of the holder into cash and, in certain circumstances at Essex’s option, shares of Company’s common stock at an initial exchange rate of 9.6852 shares per $1,000 principal amount of notes (or an initial exchange price of approximately $103.25 per share). The initial exchange rate is subject to adjustment in certain circumstances. After November 4, 2010, the operating partnership may redeem all or a portion of the notes at a redemption price equal to the principal amount plus accrued and unpaid interest (including additional interest, if any).

Note holders may require the operating partnership to repurchase all or a portion of the notes at a purchase price equal to the principal amount plus accrued and unpaid interest (including additional interest, if any) on the notes on November 1, 2010, November 1, 2015 and November 1, 2020, or after the occurrence of a fundamental change.

Concurrent with or subsequent to the closing of the above mentioned $190 million exchangeable senior note offering, the Company executed the following transactions with the use of proceeds from the senior note offering:

§	Repaid $73.5 million in outstanding indebtedness under the unsecured line of credit;

§	Repaid $56.9 million in outstanding indebtedness under the credit facility from Freddie Mac;

§	Repaid $21.3 million on the outstanding mortgage loan for Park Hill apartments;

§	Repaid $8.1 million on the outstanding mortgage loan for Peregrine Point apartments;

§	Repurchased $25.0 million of Essex’s common stock.

As of September 30, 2005, our mortgage notes payable totaled $1,164,504,000, which consisted of $969,602,000 in fixed rate debt with interest rates varying from 4.14% to 8.18% and maturity dates ranging from 2006 to 2026 and $194,902,000 of tax-exempt variable rate demand bonds with a weighted average interest rate of 3.7%. The tax-exempt variable rate demand bonds have maturity dates ranging from 2006 to 2034, and are subject to interest rate caps.

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

In an effort to hedge the cash flows associated with the forecasted issuance of debt expected to occur in 2007 and 2008, on February 16, 2005, Essex entered into a $50.0 million notional forward-starting swap with a commercial bank at a fixed rate of 4.927%, with a settlement date on or around October 1, 2007. Additionally, on August 18, 2005, Essex entered into a $50.0 million notional forward-starting swap with a commercial bank at a fixed rate of 4.869% and a settlement date between January 1 and December 1, 2008. We believe that these transactions will be effective in offsetting changes in future cash flows for forecasted transactions and qualify for hedge accounting.

There can be no assurance that Essex will have access to the debt and equity markets in a timely fashion to meet such future funding requirements. Future working capital and borrowings under the lines of credit may not be available, or if available, may not be sufficient to meet the Company's requirements, and we may not be able to sell properties in a timely manner and under terms and conditions that we deem acceptable.

Capital Expenditures

Non-revenue generating capital expenditures are costs associated with improvements and/or upgrades that extend the useful life of the property. These expenses do not include the improvement costs that are related to (a) improvements required as a condition to funding mortgage loans, (b) expenditures for acquisition properties' renovations and/or improvements, and (c) renovation expenditures required pursuant to redevelopment and other revenue generating capital improvements. It is expected that cash from operations and/or Essex’s lines of credit will fund these expenditures. However, actual expenditures and/or funding for 2005 could be significantly different than our current expectations.

Development

We currently have three development projects in our pipeline, aggregating 505 units, with total incurred costs to-date of $34.8 million and estimated remaining costs of approximately $98.8 million. These consolidated development projects are:

·	Northwest Gateway, which is located in Los Angeles, California and will consist of 275 units.

·	Moorpark, which is located in Ventura County, California and will consist of 200 units.

·	Tracy, which is located in Tracy, California and will consist of 30 units.

Redevelopment

Our redevelopment strategy strives to improve the financial and physical aspects of our redevelopment apartment communities and to target a 10 to 15 percent return on the incremental renovation investment. Many of the Company’s properties are older and in excellent neighborhoods, providing lower density with large floor plans that represent attractive redevelopment opportunities. As of September 30, 2005, we had six communities, aggregating 1,905 units in various stages of redevelopment. Total redevelopment cost of these projects as of September 30, 2005 is approximately $33.9 million, of which $19.3 million remains to be expended.

Alternative Capital Sources

The Essex Apartment Value Fund II (“Fund II”), a value added discretionary fund, is utilized as Essex’s investment vehicle (subject to certain exceptions) until October 31, 2006, or when Fund II’s committed capital has been invested, whichever occurs first. Fund II invests in multifamily properties in the Company’s targeted West Coast markets with a focus on investment opportunities in the Seattle Metropolitan Area and the San Francisco Bay Area. Fund II announced its final closing on partner equity commitments on September 27, 2004. There are eight institutional investors including Essex with combined partner equity commitments of $265.9 million. Essex has committed $75.0 million, which represents a 28.2% interest as general partner and limited partner. Fund II expects to utilize leverage equal to approximately 65% of the estimated value of the underlying real estate. Consistent with Fund I, Essex will record revenue for its asset management, property management, development and redevelopment services, and promote distributions should Fund II exceed certain financial return benchmarks.

Consolidated Variable Interest Entities

In accordance FIN 46R, the Company consolidates EMC, EFC, 17 Down REIT limited partnerships (comprising ten properties), an office building that is subject to loans made by the Company, and the multifamily improvements

owned by a third party in which the Company owns the land underlying these improvements and from which the Company receives fees, including land lease, subordination and property management fees, and a joint venture to develop a building in Los Angeles, California. The Company consolidated these entities because it is deemed the primary beneficiary under FIN 46R. The Company's total assets and liabilities related to these VIEs, net of intercompany eliminations, were approximately $232.2 million and $156.0 million, respectively, at September 30, 2005 and $238.1 million and $155.1 million, respectively, at December 31, 2004.

Unconsolidated Variable Interest Entities

Contractual Obligations and Commercial Commitments

The following table summarizes our contractual obligations and other commitments as of September 30, 2005, and the effect these obligations could have on our liquidity and cash flow in future periods:

				2006 and		2008 and
(In thousands)		2005		2007		2009		Thereafter		Total
Mortgage notes payable	$	6,480	$	152,643	$	210,044	$	795,337	$	1,164,504
Lines of credit		-		56,000		93,735		-		149,735
Development commitments (1)		4,500		94,300		-		-		98,800
Redevelopment commitments (2)		8,000		11,342		-		-		19,342
Essex Apartment Value Fund II, L.P.
capital commitment (3)		1,900		55,161		-		-		57,061
	$	20,880	$	369,446	$	303,779	$	795,337	$	1,489,442

(1) $45,748 of these commitments relate to actual contracts as of September 30, 2005.

(2) $7,863 of these commitments relate to actual contracts as of September 30, 2005.

(3) The Company has a total commitment of $57,061, as of September 30, 2005. The amounts provided by year are management’s best estimate of the timing of the funding of such commitments. These estimates could change if the timing of Fund II’s acquisition of real estate changes

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements, in accordance with accounting principles generally accepted in the United States of America, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We define critical accounting policies as those accounting policies that require our management to exercise their most difficult, subjective and complex judgments. Our critical accounting policies relate principally to the following key areas: (i) consolidation under applicable accounting standards of various entities; (ii) assessing the carrying values of our real estate properties and investments in and advances to joint ventures and affiliates;(iii) internal cost capitalization; (iiii) and qualification as a REIT. The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management, and those estimates could be different under different assumptions or conditions.

The Company’s critical accounting policies and estimates have not changed materially from information reported in Note 2, Summary of Critical and Significant Accounting Policies, in the Company’s Form 10-K for the year ended December 31, 2004.

New Accounting Pronouncements Issued But Not Yet Adopted

In June 2005, the FASB ratified the EITF’s consensus on Issue No. 04-5 “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partner Have Certain Rights.”This consensus establishes the presumption that general partners in a limited partnership control that limited partnership regardless of the extent of the general partners’ ownership interest in the limited partnership. The consensus further establishes that the rights of the limited partners can overcome the presumption of control by the general partners, if the limited partners have either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause or (b) substantive participating rights. Whether the presumption of control is overcome is a matter of judgment based on the facts and circumstances, for which the consensus provides additional guidance. This consensus is currently applicable to the Company for new or modified partnerships, and will otherwise be applicable to existing partnerships in 2006. This consensus applies to limited partnerships or similar entities, such as limited liability companies that have governing provisions that are the functional equivalent of a limited partnership. The Company is currently evaluating the effect of this consensus on its consolidation policies.

In December 2004, the FASB issued SFAS No. 123, “Share-Based Payment, revised”. This statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB No. 25, “Accounting for Stock Issued to Employees”. The Statement requires companies to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees. This Statement is effective for fiscal years beginning after June 15, 2005. We are in the process of evaluating the impact of this Statement on our future results of operations.

Forward Looking Statements

Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this 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 expectations as to the timing of completion of current development and redevelopment projects and the stabilization dates of such projects, expectation as to the total projected costs and rental rates of acquisition and 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, expectations as to the amount of capital expenditures, expectations as to the amount of non-revenue generating capital expenditures, future acquisitions, developments, and redevelopment, the Company's anticipated development projects in 2005, the anticipated performance of the second Essex Apartment Value Fund ("Fund II"), the anticipated performance of existing properties, anticipated results from various geographic regions and the Company's investment focus in such regions, statements regarding the Company's financing activities and the use of proceeds from such activities.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, that the Company will fail to achieve its business objectives, that the actual completion of development projects will be subject to delays, that the stabilization dates of such projects will be delayed, that the total projected costs of current development projects will exceed expectations, that the Company's 2005 development strategy will change, that such development projects will not be completed, that development projects and acquisitions will fail to meet expectations, that estimates of future income from an acquired property may prove

to be inaccurate, that future cash flows will be inadequate to meet operating requirements and/or will be insufficient to provide for dividend payments in accordance with REIT requirements, that the actual non-revenue generating capital expenditures will exceed the Company's current expectations, that the Company's partners in Fund II fail to fund capital commitments as contractually required, that there may be a downturn in the markets in which the Company's properties are located, that the terms of any refinancing may not be as favorable as the terms of existing indebtedness, as well as those risks, special considerations, and other factors discussed under the caption "Potential Factors Affecting Future Operating Results" below and those discussed 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, 2004, 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. All forward-looking statements are made as of today, and the Company assumes no obligation to update this information.

Potential Factors Affecting Future Operating Results

Many factors affect the Company’s actual financial performance and may cause the Company’s future results to be different from past performance or trends. These factors include those set forth under the caption “Risk Factors” in Item I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 and the following:

Development and Redevelopment Activities

The Company pursues multifamily residential properties and development and redevelopment projects from time to time. These projects generally require various government and other approvals, the receipt of which cannot be assured. The Company's development and redevelopment activities generally entail certain risks, including the following:

	•		funds may be expended and management's time devoted to projects that may not be completed;
	•		construction costs of a project may exceed original estimates possibly making the project economically unfeasible;
	•		projects may be delayed due to, among other things, adverse weather conditions;
	•		occupancy rates and rents at a completed project may be less than anticipated; and

•

expenses at a completed development project may be higher than anticipated.

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

Interest Rate Fluctuations

The Company 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 higher historical levels. The immediate effect of significant and rapid interest rate increases would result in higher interest expense on the Company's variable interest rate debt. The effect of prolonged interest rate increases could negatively impact the Company's ability to make acquisitions and develop properties at economic returns on investment and the Company's ability to refinance existing borrowings at acceptable rates. During the third quarter of 2005, the Company originated a mortgage loan totaling $40.3 million on one of its wholly-owned properties. The mortgage loan has a fixed interest rate of 4.935% and matures August 1, 2015. Subsequent to September 30, 2005, the Company’s operating partnership, Essex Portfolio, L.P., closed on a $190 million exchangeable senior note offering with a coupon of 3.625%. The notes are due on November 1, 2025.

Funds from Operations

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

Funds from operations is not meant to represent a comprehensive system of financial reporting and does not present, nor does Essex intend it to present, a complete picture of its financial condition and operating performance. Essex believes that net earnings computed under GAAP remain the primary measure of performance and that funds from operations is only meaningful when it is used in conjunction with net earnings. Further, Essex believes that its consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of its financial condition and its operating performance.

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

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

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

Management has consistently applied the NAREIT definition of Fund from Operations to all periods presented. However, other REITs in calculating funds from operations may vary from the NAREIT definition for this measure, and thus their disclosure of funds from operations may not be comparable to Essex’s calculation. The following table sets forth the Company’s calculation of Funds from Operations:

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2005		2004		2005		2004

Net income	$	8,747,000	$	35,030,000	$	74,503,000	$	47,180,000
Adjustments:
Depreciation and amortization		20,323,000		18,061,000		59,945,000		53,428,000
Depreciation and amortization --
unconsolidated co-investments		147,000		12,000		503,000		1,816,000
Gain on sale of real estate		--		(7,909,000)		(5,000,000)		(7,909,000)
Gain on sale of co-investment activities, net		--		(14,069,000)		(17,084,000)		(14,069,000)
Gain on sale of real estate - discontinued operations		--		--		(29,219,000)		--
Minority interests		937,000		3,615,000		7,707,000		4,961,000
Depreciation - discontinued operations		--		218,000		148,000		1,056,000
Dividends to preferred stockholders - Series F		(488,000)		(488,000)		(1,465,000)		(1,464,000)
Funds from operations	$	29,666,000	$	34,470,000	$	90,038,000	$	84,999,000

Funds from operations per share - diluted	$	1.15	$	1.35	$	3.51	$	3.34

Weighted average number
shares outstanding diluted (1)		25,711,320		25,567,451		25,671,923		25,445,165

(1) Assumes conversion of all outstanding operating partnership interests in the Operating Partnership. 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 to fund capital expenditures and expansion of the Company’s real estate investment portfolio and operations. The Company’s interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.

The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows. Management believes that the carrying amounts of its variable LIBOR debt approximates fair value as of September 30, 2005 because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available to the Company for similar instruments.

																Estimated
For the Years Ended		2005		2006		2007		2008		2009		Thereafter		Total		Fair value
Fixed rate debt
(In thousands)
Amount	$	6,480	$	18,120	$	126,443	$	156,119	$	53,925	$	608,515	$	969,602	$	1,007,832
Average interest rate		6.5%		6.5%		6.5%		6.5%		6.5%		6.5%

Variable rate debt
(In thousands)
Amount	$	--	$	8,080	$	56,000	$	--	$	93,735	$	186,822	$	344,637	$	344,637
Average interest		--		3.7%		5.3%		--		3.1%		3.7%

The table incorporates only those exposures that exist as of September 30, 2005; it does not consider exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss, with respect to interest rate fluctuations, would depend on the exposures that arise during the period, our hedging strategies at the time, and interest rates.

At September 30, 2005, these transactions are considered highly effective at offsetting changes in future cash flows for forecasted transactions and qualify for hedge accounting.

As of September 30, 2005, the Company owns interest rate cap agreements, which expire at various dates through 2010 and which allow the Company to be reimbursed in the event the interest rate on $138.9 million of its variable rate debt exceeds approximately 6.5%. Currently, the interest rate in effect on this debt is approximately 3.9%.

Item 4: Controls and Procedures

As of September 30, 2005, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting management to material information relating to the Company that is required to be included in our periodic filings with the Securities and Exchange Commission. There were no changes in the Company’s internal control over financial reporting, that occurred during the quarter ended September 30, 2005, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II -- Other Information

Item 1: Legal Proceedings

Item 6: Exhibits

Exhibits

10.1

Indenture, dated October 28, 2005, by and among Essex Property Trust, Inc., as Guarantor, Essex Portfolio, L.P., as the Issuer, and Wells Fargo Bank, N.A., attached as Exhibit 10.1 to the Company’s current report on Form 8-K, filed November 2, 2005, and incorporated herein by reference.

31.1

Certification of Keith R. Guericke, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Michael T. Dance, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Keith R. Guericke, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Michael T. Dance, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

__________

SIGNATURE

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.
	(Registrant)


	Date: November 8, 2005

		By: /S/ MICHAEL T. DANCE
	Michael T. Dance
	Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial Officer)

Essex Property Trust - 10-Q quarterly report FY

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