<PAGE>   1

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1998

                                       OR

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

For the transition period from _____ to _____

Commission File No. 333-44467-01

                              ESSEX PORTFOLIO, L.P.
             (Exact name of Registrant as specified in its Charter)

           Maryland                                               77-0369575
  (State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                            Identification No.)

                925 E. Meadow Drive, Palo Alto, California 94303
                    (Address of principal executive offices)
                                   (Zip code)

                                 (650) 494-3700
              (Registrant's telephone number, including area code)

   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or for such shorter period that the
Registrant was required to file such report, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]





<PAGE>   2




                                      INDEX

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER     DESCRIPTION                                              PAGE NUMBER
 ------     -----------                                              -----------
<S>     <C>                                                             <C>
PART I: FINANCIAL INFORMATION
Item 1:    Financial Statements (Unaudited)                              3

           Consolidated Balance Sheets
           as of September 30, 1998 and December 31, 1997                4

           Consolidated Statements of Operations
           for the three months ended September 30, 1998 and 1997        5

           Consolidated Statements of Operations
           for the nine months ended September 30, 1998 and 1997         6

           Consolidated Statements of  Partners' Capital
           for the nine months ended September 30, 1998 and the year
           ended December 31, 1997                                       7

           Condensed Consolidated Statements of Cash Flows
           for the nine months ended September 30, 1998 and 1997         8

           Notes to Consolidated Financial Statements                    9

Item 2:    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                          13

PART II:   OTHER INFORMATION

Item 6:    Exhibits and Reports on Form 8-K                             21

           Signatures                                                   22
</TABLE>




                                     Page 2



<PAGE>   3



PART I      FINANCIAL INFORMATION


ITEM 1:     FINANCIAL STATEMENTS (UNAUDITED)

            Essex Portfolio, L.P., a California limited partnership, (the
            "Operating Partnership") effectively holds the assets and
            liabilities and conducts the operating activities of Essex Property
            Trust, Inc., ("Essex" or "The Company"). Essex Property Trust, Inc.,
            a real estate investment trust incorporated in the State of
            Maryland, is the sole general partner of the Operating Partnership.

            The information furnished in the accompanying consolidated unaudited
            balance sheets, statements of operations, partners' capital and cash
            flows of the Operating Partnership reflects all adjustments which
            are, in the opinion of management, necessary for a fair presentation
            of the aforementioned financial statements for the interim periods.

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




                                     Page 3


<PAGE>   4

                              ESSEX PORTFOLIO, L.P.
                           Consolidated Balance Sheets
                                   (Unaudited)
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                         SEPTEMBER 30,     DECEMBER 31,
                           ASSETS                            1998              1997
                           ------                        -------------     ------------
<S>                                                        <C>               <C>      
Real estate:
    Rental properties:
       Land and land improvements                          $ 219,013         $ 182,416
       Buildings and improvements                            663,457           548,571
                                                           ---------         ---------
                                                             882,470           730,987
       Less accumulated depreciation                         (71,734)          (58,040)
                                                           ---------         ---------
                                                             810,736           672,947
    Investments                                                9,848             2,347
    Real estate under development                             45,028            27,422
                                                           ---------         ---------
                                                             865,612           702,716

Cash and cash equivalents-unrestricted                         3,071             4,282
Restricted cash                                               15,205             6,093
Notes and other related party receivables                      9,864             9,264
Notes and other receivables                                   10,770             8,602
Prepaid expenses and other assets                             10,402             3,838
Deferred charges, net                                          5,310             4,040
                                                           ---------         ---------
                                                           $ 920,234         $ 738,835
                                                           =========         =========

             Liabilities and Partners' Capital

Mortgage notes payable                                     $ 297,508         $ 248,997
Lines of credit                                               63,000            27,600
Accounts payable and accrued liabilities                      37,648            21,337
Distributions payable                                         10,913             9,189
Deferred gain                                                  5,002                --
Other liabilities                                              5,316             4,208
                                                           ---------         ---------
            Total liabilities                                419,387           311,331

Minority interests                                             2,980             3,102

Partners' capital:
    General Partner:
       Common equity                                         357,230           361,410
       Preferred equity                                       37,505            37,505
                                                           ---------         ---------
                                                             394,735           398,915
    Limited Partners:
       Common equity                                          25,357            25,487
       Preferred equity                                       77,775                --
                                                           ---------         ---------
            Total partners' capital                          497,867           424,402
                                                           ---------         ---------
            Total liabilities and partners' capital        $ 920,234         $ 738,835
                                                           =========         =========
</TABLE>


   See accompanying notes to the consolidated unaudited financial statements.




                                     Page 4


<PAGE>   5
                              ESSEX PORTFOLIO, L.P.
                      Consolidated Statements of Operations
                                   (Unaudited)
                 (Dollars in thousands, except per unit amounts)


<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                      ---------------------------------
                                                      SEPTEMBER 30,        SEPTEMBER 30,
                                                          1998                 1997
                                                      ------------         ------------
<S>                                                   <C>                  <C>         
Revenues:
    Rental                                            $     31,068         $     20,887
    Interest and other income                                1,583                1,088
                                                      ------------         ------------
                                                            32,651               21,975
                                                      ------------         ------------
Expenses:
    Property operating expenses:
      Maintenance and repairs                                1,858                1,678
      Real estate taxes                                      2,349                1,571
      Utilities                                              2,023                1,369
      Administrative                                         2,888                1,493
      Advertising                                              342                  309
      Insurance                                                224                  224
      Depreciation and amortization                          5,575                3,555
                                                      ------------         ------------
                                                            15,259               10,199

    Interest                                                 5,245                3,118
    Amortization of deferred financing costs                   212                  128
    General and administrative                               1,007                  631
    Provision for litigation loss                              930                   --
                                                      ============         ============
      Total expenses                                        22,653               14,076
                                                      ------------         ------------
      Income before gain on sale of
      real estate, minority interests
      and extraordinary item                                 9,998                7,899
    Gain on sales of real estate                                 9                4,713
                                                      ------------         ------------
      Income before minority interests
         and extraordinary item                             10,007               12,612

    Minority interests                                        (105)                (127)
                                                      ------------         ------------
      Income before extraordinary item                       9,902               12,485

    Extraordinary item:
      Loss on early extinguishment
      of debt                                                 (806)                  --
                                                      ------------         ------------
          Net income                                         9,096               12,485

    Distributions on preferred units                        (2,450)                (875)
                                                      ------------         ------------
      Net income available to
         common units                                 $      6,646         $     11,610
                                                      ============         ============

Per Operating Partnership Unit data:
    Basic:
      Income before extraordinary item                $       0.40         $       0.74
      Extraordinary item - debt extinguishment               (0.04)                0.00
                                                      ------------         ------------
         Net income                                   $       0.36         $       0.74
                                                      ============         ============
      Weighted average number of
        partnership units outstanding
        during the period                               18,508,701           15,789,263
                                                      ============         ============
    Diluted:
      Income before extraordinary item                $       0.40         $       0.70
      Extraordinary item - debt extinguishment               (0.04)                0.00
                                                      ------------         ------------
         Net income                                   $       0.36         $       0.70
                                                      ============         ============
      Weighted average number of
        partnership units outstanding
        during the period                               18,694,894           17,835,400
                                                      ============         ============
Distributions per Operating
   Partnership Unit:                                  $      0.500         $      0.450
                                                      ============         ============
</TABLE>

See accompanying notes to the consolidated unaudited financial statements.

                                     Page 5
<PAGE>   6
                              ESSEX PORTFOLIO, L.P.
                      Consolidated Statements of Operations
                                   (Unaudited)
                 (Dollars in thousands, except per unit amounts)


<TABLE>
<CAPTION>
                                                             NINE MONTHS ENDED
                                                     ----------------------------------
                                                     SEPTEMBER 30,         SEPTEMBER 30,
                                                          1998                 1997
                                                     -------------         ------------
<S>                                                   <C>                  <C>         
Revenues:
    Rental                                            $     87,871         $     56,596
    Interest and other income                                4,300                3,510
                                                      ------------         ------------
                                                            92,171               60,106
                                                      ------------         ------------
Expenses:
    Property operating expenses
      Maintenance and repairs                                6,585                4,765
      Real estate taxes                                      6,767                4,473
      Utilities                                              5,631                3,649
      Administrative                                         7,022                3,845
      Advertising                                            1,190                  861
      Insurance                                                859                  688
      Depreciation and amortization                         15,876                9,863
                                                      ------------         ------------
                                                            43,930               28,144

    Interest                                                14,259                9,348
    Amortization of deferred
      financing costs                                          553                  383
    General and administrative                               2,841                1,682
    Provision for litigation loss                              930                   --
                                                      ============         ============
      Total expenses                                        62,513               39,557
                                                      ============         ============
      Income before gain on sales
         of real estate, minority
         interests and extraordinary item                   29,658               20,549

    Gain on sales of real estate                                 9                5,127
                                                      ------------         ------------
      Income before minority interests and
         extraordinary item                                 29,667               25,676

    Minority interests                                        (334)                (325)
                                                      ------------         ------------
      Income before extraordinary item                      29,333               25,351

    Extraordinary item:
      Loss on early extinguishment of debt                    (806)                (104)
                                                      ------------         ------------
         Net income                                         28,527               25,247

    Distributions on preferred units                        (6,414)              (1,805)
                                                      ------------         ------------
      Net income available to common unit             $     22,113         $     23,442
                                                      ============         ============
Per Operating Partnership Unit data:
    Basic:
      Income before extraordinary item                $       1.24         $       1.58
      Extraordinary item - debt extinguishment               (0.04)               (0.01)
                                                      ------------         ------------
         Net income                                   $       1.20         $       1.57
                                                      ============         ============
      Weighted average number of
         partnership units outstanding
         during the period                              18,502,194           14,885,921
                                                      ============         ============
    Diluted:
      Income before extraordinary item                $       1.22         $       1.55
      Extraordinary item - debt extinguishment               (0.04)               (0.01)
                                                      ------------         ------------
         Net income                                   $       1.18         $       1.54
                                                      ============         ============
      Weighted average number of
          partnership units outstanding
         during the period                              18,688,353           16,347,497
                                                      ============         ============
Distributions per Operating
   Partnership Unit:                                  $      1.450         $      1.320
                                                      ============         ============
</TABLE>


   See accompanying notes to the consolidated unaudited financial statements.



                                     Page 6
<PAGE>   7



                              ESSEX PORTFOLIO, L.P.
                  Consolidated Statements of Partners' Capital
              For the nine months ended September 30, 1998 and the
                          year ended December 31, 1997
                                   (Unaudited)
                        (Dollars and units in thousands)

<TABLE>
<CAPTION>
                                                GENERAL PARTNER                        LIMITED PARTNERS
                                       ---------------------------------     ------------------------------------         
                                                               PREFERRED                               PREFERRED
                                          COMMON EQUITY          EQUITY        COMMON EQUITY             EQUITY
                                       -------------------     ---------     ------------------         ---------         
                                        UNITS      AMOUNT        AMOUNT      UNITS    AMOUNT              AMOUNT            TOTAL
                                       ------    ---------     ---------     -----    ---------         ---------         ---------
<S>                                    <C>       <C>           <C>           <C>      <C>               <C>               <C>      
Balances at December 31, 1996          11,592    $ 205,302     $  17,505     1,855    $  24,239         $      --         $ 247,046

Contribution-net proceeds
    from preferred stock                   --           --        20,000        --           --                --            20,000

Contribution-net proceeds
    from common stock                   4,995      154,012            --        --           --                --           154,012

Contribution-net proceeds
    from options exercised                 28          686            --        --           --                --               686

Contributions-net proceeds
    from partners                          --           --            --        18          543                --               543

Net income                                 --       26,636         2,681        --        4,005                --            33,322

Partners' distributions                    --      (25,226)       (2,681)       --       (3,300)               --           (31,207)
                                       ------    ---------     ---------     -----    ---------         ---------         ---------
Balances at December 31, 1997          16,615      361,410        37,505     1,873       25,487                --           424,402

Contribution-net proceeds
    from perpetual preferred units         --           --            --        --           --            77,775            77,775

Contribution-net proceeds
    from options exercised                 19          383            --        --           --                --               383

Contribution-net proceeds
    from dividend reinvestment plan         2           10            --        --           --                --                10

Net income                                 --       19,527         2,625        --        2,586             3,789            28,527

Partners' distributions                    --      (24,100)       (2,625)       --       (2,716)           (3,789)          (33,230)
                                       ------    ---------     ---------     -----    ---------         ---------         ---------
Balances at September 30, 1998         16,636    $ 357,230     $  37,505     1,873    $  25,357         $  77,775         $ 497,867
                                       ======    =========     =========     =====    =========         =========         =========
</TABLE>


See accompanying notes to the consolidated unaudited financial statements.






                                     Page 7


<PAGE>   8


                              ESSEX PORTFOLIO, L.P.
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED
                                                                               ---------------------------
                                                                             SEPTEMBER 30,     SEPTEMBER 30,
                                                                             -------------     -------------
                                                                                 1998               1997
                                                                               ---------         ---------
<S>                                                                            <C>               <C>      
 Net cash provided by operating activities                                     $  48,725         $  30,839
                                                                               ---------         ---------

Cash flows from investing activities:
     Additions to rental properties                                             (152,660)         (122,667)
     Additions to restricted cash                                                 (9,112)           (1,468)
     Dispositions of rental properties                                            26,354            15,470
     Additions to notes receivable                                                  (438)             (785)
     Additions to real estate under development                                  (24,018)          (22,663)
     Investments in corporations and limited partnerships                            531               371
                                                                               ---------         ---------

          Net cash used in investing activities                                 (159,343)         (131,742)
                                                                               ---------         ---------

Cash flows from financing activities:
     Proceeds from mortgage and other notes payable
          and lines of credit                                                    199,347            75,055
     Repayment of mortgage and other notes payable
          and lines of credit                                                   (133,879)          (89,471)
     Additions to deferred charges                                                (1,823)             (413)
     Additions to related party notes and other receivables                       (3,450)          (23,277)
     Repayment of related party notes and other receivables                        2,850            11,576
     Decrease in offering related accounts payable                                  (282)             (789)
     Net proceeds from convertible preferred stock sale                               --            20,000
     Net proceeds from follow-on offerings                                            --           104,119
     Net proceeds from perpetual preferred units sale                             77,775                --
     Contributions from stock options exercised and
          dividend reinvestment plan - general partner                               393               338
     Distributions to limited partners and minority interest                      (5,624)           (2,785)
     Distributions to general partners                                           (25,900)          (17,374)
                                                                               ---------         ---------

          Net cash provided by financing activities                              109,407            76,979
                                                                               ---------         ---------

Net (decrease) increase in cash and cash equivalents                              (1,211)          (23,924)
Cash and cash equivalents at beginning of period                                   4,282            42,705
                                                                               ---------         ---------

Cash and cash equivalents at end of period                                     $   3,071         $  18,781
                                                                               =========         =========

Supplemental disclosure of cash flow information:
          Cash paid for interest, net of $2,575
          and $1,276 capitalized                                               $  10,917         $   8,741
                                                                               =========         =========

Supplemental disclosure of non-cash investing and financing activities:
               Mortgage notes payable assumed in connection
                    with purchase of real estate                               $  18,443         $  49,137
                                                                               =========         =========

               Distributions payable                                           $  10,913         $   8,509
                                                                               =========         =========
</TABLE>


   See accompanying notes to the consolidated unaudited financial statements.




                                     Page 8


<PAGE>   9


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1998 AND 1997
                                   (UNAUDITED)
        (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)


(1)   ORGANIZATION AND BASIS OF PRESENTATION

      Essex Portfolio, L.P. (the "Operating Partnership") was formed in March
      1994 and commenced operations on June 13, 1994, when Essex Property Trust,
      Inc. (the "Company"), the general partner of the Operating Partnership,
      completed its initial public offering (the "Offering") in which it issued
      6,275,000 shares of common stock at $19.50 per share. The net proceeds
      from the Offering of $112,071 were used by the Company to acquire a 77.2%
      interest in the Operating Partnership. The Company has elected to be
      treated as a real estate investment trust ("REIT") under the Internal
      Revenue Code of 1986 (the "Code"), as amended.

      The unaudited consolidated financial statements of the Operating
      Partnership are prepared in accordance with generally accepted accounting
      principles for interim financial information and in accordance with the
      instructions to Form 10-Q. In the opinion of management, all adjustments
      necessary for a fair presentation of the financial position, results of
      operations and cash flows for the periods presented have been included and
      are normal and recurring in nature.

      The Company is the sole general partner in the Operating Partnership,
      owning an 89.9%, 89.9% and 89.0% general partnership interest as of
      September 30, 1998, December 31, 1997 and September 30, 1997,
      respectively.

      All significant intercompany balances and transactions have been
      eliminated in the consolidated financial statements.

(2)   SIGNIFICANT TRANSACTIONS

      (A) Acquisitions

      On August 10, 1998, the Operating Partnership acquired Westwood
      Apartments, a 116-unit apartment community located in Cupertino,
      California, for a contract price of $19,850. The community features a
      swimming pool, large private backyards, and convenient freeway access.

      This third quarter 1998 acquisition was funded with proceeds from the
      disposition of Santa Fe Ridge Apartments and borrowings under the
      Operating Partnership's lines of credit.

      (B)  Dispositions

      On August 5, 1998, the Operating Partnership sold Santa Fe Ridge
      Apartments located in Silverdale, Washington, for a gross sales price of
      $12,000 resulting in a gain of $9. The gain included an estimated $1,000
      receivable relating to a defective siding claim based on estimates
      provided by a court appointed claims administrator in accordance with a
      class action suit arrangement.

      (C)  Litigation Loss

      In September of 1998, the Operating Partnership established a $930
      provision for litigation loss relating to employee claims made several
      years ago. The provision reduces net income per unit by approximately $.05
      and represents a non-recurring charge included in the accompanying
      unaudited consolidated statement of operations.



                                     Page 9


<PAGE>   10


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1998 AND 1997
                                   (UNAUDITED)
        (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)


      (D)  Debt Related Transactions

      On July 28, 1998 the Operating Partnership repaid the Prudential loan
      secured by Santa Fe Ridge and originated a new loan with Prudential
      secured by Wilshire Promenade. The fixed interest rate on the new loan is
      7.0% compared to 8.9% on the repaid loan. A prepayment penalty of
      approximately $806 was incurred and is reflected in the accompanying
      unaudited consolidated statement of operations as an extraordinary charge
      resulting from early extinguishment of debt.

      (E)  Subsequent Events

      On October 9, 1998, the Operating Partnership completed financing for a
      $100,000 mortgage loan, bearing interest at a fixed rate of 6.62% per
      annum, which matures in October 2008. This mortgage loan is secured by
      eight apartment communities. This loan provides for the option to release
      the underlying collateral, thereby making the loan unsecured, upon
      satisfying several conditions, including the requirement that the
      resulting unsecured debt is rated at least BBB- by Standard & Poors and
      Baa3 by Moody's Investors Service. A portion of the proceeds were utilized
      by the Operating Partnership to repay an existing loan of $47,000 which
      had an approximate 7.9% effective rate. The remainder of the proceeds was
      utilized by the Operating Partnership to pay down outstanding balances
      under its line of credit. In connection with this refinancing, the
      Operating Partnership has incurred an approximate extraordinary loss of
      $3,900 relating to prepayment penalties and the write-off of unamortized
      loan costs which will be reflected as an extraordinary item in the
      Operating Partnership's financial statements for the year ending December
      31, 1998.

(3)   RELATED PARTY TRANSACTIONS

      All general and administrative expenses of the Company, the Operating
      Partnership, and Essex Management Corporation ("EMC") are initially borne
      by the Operating Partnership, with a portion subsequently allocated to
      EMC. Expenses allocated to EMC for the three and nine months ended
      September 30, 1998 totaled $37 and $174, respectively, and are reflected
      as a reduction in general and administrative expenses in the accompanying
      consolidated statements of operations.

      Rental income in the accompanying consolidated statements of operations
      includes related party rents earned from space leased to The Marcus &
      Millichap Company ("M&M"), including operating expense reimbursement, of
      $133 and $563 for the three and nine months ended September 30, 1998,
      respectively, and $175 and $518 for the three and nine months ended
      September 30, 1997, respectively.

      Other income for the three and nine months ended September 30, 1998
      includes interest income of $249 and $784, respectively, earned
      principally under notes receivable from the partnerships which
      collectively own Highridge Apartments, a 255 unit multifamily property
      located in Rancho Palos Verde, California ("Highridge"), the partnerships
      which collectively own an approximate 30.7% minority interest in Pathways
      Apartments, a 296 unit multifamily property located in Long Beach,
      California ("Pathways") and from notes receivable from Essex Fidelity I
      Corporation. For the three and nine months ended September 30, 1998, the
      Operating Partnership earned $0 and $196, respectively, of dividend income
      from Essex Sacramento Corporation and Essex Fidelity I Corporation
      combined. In addition, the Operating Partnership earned management fee
      income of $143 and $348 for the three and nine months ended September 30,
      1998, respectively, from Anchor Village, Highridge, Pathways, and the
      partnerships which collectively own the three retail shopping centers
      located in the Portland, Oregon metropolitan area.



                                    Page 10


<PAGE>   11
\

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                  (UNAUDITED)
       (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)


      Notes and other related party receivables as of September 30, 1998 and
December 31, 1997 consist of the following:

<TABLE>
<CAPTION>
                                                     SEPTEMBER 30,  DECEMBER 31,
                                                         1998           1997
                                                     -------------     ------
<S>                                                     <C>            <C>   
Notes and other related party receivables:
Note receivable from Highridge Apartments
 secured, bearing interest at 9%, due March, 2008       $1,047         $2,750

Notes receivable from Fidelity I,  secured,
 bearing interest at 12%, due December 1998              1,580          1,580

Note receivable from Fidelity I and JSV, secured,
  bearing interest at 9.5%-10%, due 2015                 1,026            726

Notes receivable from Highridge Apartments,
  non-interest bearing, due on demand                    2,784          1,699

Loans to officers, bearing interest at 8%, due April
  2006                                                     375            375

Other related party receivables, substantially
  due on demand                                          3,052          2,134
                                                        ------         ------
                                                        $9,864         $9,264
                                                        ======         ======
</TABLE>


      Other related party receivables consist primarily of accrued interest
      income on related party notes receivables and loans to officers, advances
      and accrued management fees from joint venture partnerships, and
      unreimbursed expenses due from EMC.

(4)   FORWARD TREASURY CONTRACTS:

      In October 1997, the Operating Partnership entered into four forward
      treasury contracts for an aggregate notional amount of $60,000, locking
      the 10 year treasury rate at between 6.15% - 6.26%. These contracts are to
      limit the interest rate exposure on identified future debt financing
      requirements relating to the multi-family residential projects under
      development and a maturity of an $18,520 fixed rate loan. These contracts
      will be settled no later than June 2000. If the contracts were settled as
      of October 30, 1998, the Operating Partnership would be obliged to pay
      approximately $4,500.

      The Operating Partnership has a LIBOR based swap contract for a notional
      amount of $12,298, fixing the one month LIBOR rate at 6.14%. This contract
      was originally purchased to cover a variable rate loan which was repaid in
      March 1997. The Operating Partnership has kept this contract in place to
      limit its interest rate exposure on borrowings on its LIBOR based lines of
      credit. If this contract were settled as of October 30, 1998, the
      Operating Partnership would be obligated to pay approximately $544.

(5)   RECENT ACCOUNTING PRONOUNCEMENTS:

      In June 1997, the FASB issued Financial Accounting Standard No. 130 (SFAS
      130), Reporting Comprehensive Income. SFAS 130 is effective with the
      year-end 1998 financial statements; however, the total comprehensive
      income is required in the financial statements for interim periods
      beginning in 1998. In March 1998, the Emerging Issues Task Force issued
      EITF 97-11 Accounting for Internal Costs Related to Real Estate Property
      Acquisitions. The Operating Partnership has adopted SFAS 130 and EITF
      97-11 for interim periods beginning in 1998. The adoption does not have a
      material impact on the Operating Partnership's financial statements.

      In June 1997, the FASB issued Financial Accounting Standard No. 131,
      Disclosure About Segments of An Enterprise and Related Information. SFAS
      131 is effective with the year-end 1998 financial statements. In February
      1998, the FASB issued Financial Accounting Standards No. 132, Employees'
      Disclosures about Pensions and Other Postretirement Benefits. SFAS 132 is
      effective 




                                    Page 11

<PAGE>   12
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                  (UNAUDITED)
       (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)


      with the year-end 1998 Financial Statements. In June 1998, the FASB issued
      Financial Accounting Statement No. 133 (SFAS 133), Accounting for
      Derivative Instruments and Hedging Activities. The Operating Partnership
      will adopt SFAS 133 for interim periods beginning in 2000, the effective
      date of SFAS 133. Management believes that the adoption of these
      statements will not have a material impact on the Operating Partnership's
      financial statements.

(6)   NET INCOME PER UNIT:

      Net income per unit in the accompanying consolidated statements of
      operations is calculated for the three months ended September 30, 1998 and
      1997, respectively, by dividing net income applicable to the Operating
      Partnership common units of $6,646 and $11,610 by the weighted average
      units outstanding during the period. Net income applicable to the
      Operating Partnership units is calculated by deducting preferred
      distributions of $2,450 and $875 for the three months ended September 30,
      1998 and 1997, respectively, from net income.

      Net income per unit in the accompanying consolidated statements of
      operations is calculated for the nine months ended September 30, 1998 and
      1997, respectively, by dividing net income applicable to the Operating
      Partnership common units of $22,113 and $23,442 by the weighted average
      units outstanding during the period. Net income applicable to the
      Operating Partnership units is calculated by deducting preferred
      distributions of $6,414 and $1,805 for the nine months ended September 30,
      1998 and 1997, respectively, from net income.




                                    Page 12


<PAGE>   13





ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION

The following discussion is based primarily on the consolidated financial
statements of the Operating Partnership as of September 30, 1998 and 1997 and
for the three and nine months ended September 30, 1998 and 1997.

This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial statements
include all adjustments which are, in the opinion of management, necessary to
reflect a fair statement of the results and all such adjustments are of a normal
recurring nature.

The Operating Partnership holds, directly or indirectly, all of the Company's
interests in the Company's properties and all of the Company's operations
relating to the Company's properties are conducted through the Operating
Partnership. The Company is the sole general partner of the Operating
Partnership and, as of September 30, 1998 and 1997, owned an 89.9% and 89.0%
general partnership interest in the Operating Partnership, respectively.

Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in the quarterly report on
Form 10-Q which are not historical facts may be considered forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
including statements regarding the Operating Partnership's expectations, hopes,
intentions, beliefs and strategies regarding the future. Forward looking
statements include statements regarding the Operating Partnership's expectation
as to the timing of completion of current development projects, beliefs as to
the adequacy of future cash flows to meet operating requirements, expectations
as to the amount of non-revenue generating capital expenditures for the year
ended December 31, 1998, statements regarding potential acquisitions and
developments, the anticipated performance of existing properties, future
acquisitions and developments, and statements regarding the Operating
Partnership's financing activities. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors including, but not
limited to, that the actual completion of development projects will be subject
to delays, that such development projects will not be completed, that future
cash flows will be inadequate to meet operating requirements, the actual
non-revenue generating capital expenditures will exceed the Operating
Partnership's current expectations, as well as those risks, special
considerations, and other factors discussed under the caption "Other Matters" in
Item 1 of the Company's Annual Report on Form 10-K for the year ended December
31, 1997, and those other risk factors and special considerations set forth in
Essex's and the Operating Partnership's other filings with the Securities and
Exchange Commission (the "SEC") which may cause the actual results, performance
or achievements of the Operating Partnership to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements.

GENERAL BACKGROUND

The Operating Partnership's revenues are generated primarily from multifamily
residential and commercial property operations, which accounted for 97% and 96%
of its revenues for the nine months ended September 30, 1998 and 1997,
respectively. The Operating Partnership's properties (the "Properties") are
located in California, Washington and Oregon. Occupancy levels of the
multifamily residential Properties in these markets have averaged over 95% for
the last five years.

Since the Operating Partnership began operations in June 1994, the Operating
Partnership has acquired ownership interests in 49 multifamily residential
properties, of which 32 are located in California, 16 are located in Washington
and one is located in Oregon. In aggregate, these acquisitions consist of a
total of 9,498 units and had a total capitalized cost of approximately $716.7
million. As part of its active portfolio management strategy, the Operating
Partnership has sold, since its IPO, six multifamily residential properties
(five in Northern California and one in the Pacific Northwest) consisting of a
total of 819 units and six retail shopping centers in the Portland, Oregon
metropolitan area at an aggregate gross sales price of approximately $71.1
million resulting in net aggregate gain recognition of approximately $13.6
million.



                                    Page 13


<PAGE>   14



Average financial occupancy rates (the percentage resulting from dividing actual
rents by total possible rents as determined by valuing occupied units at
contractual rates and vacant units at market rents) of the Operating
Partnership's multifamily properties on a same-property basis decreased to 96.5%
for the three months ended September 30, 1998 from 96.7% for the three months
ended September 30, 1997. The regional breakdown of such financial occupancy for
the three months ended September 30, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                     SEPTEMBER 30,      SEPTEMBER 30,
                         1998               1997
                     -------------      -------------
<S>                      <C>                <C>  
Northern California      97.3%              97.7%
Pacific Northwest        95.2%              96.0%
Southern California      96.9%              96.1%
</TABLE>


The Operating Partnership's commercial properties were 100% occupied (based on
square footage) as of September 30, 1998 and September 30, 1997.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 1998 to the Three Months
Ended September 30, 1997.

Total Revenues increased by $10,676,000 or 48.6% to $32,651,000 in the third
quarter of 1998 from $21,975,000 in the third quarter of 1997. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to properties that the Operating Partnership owned for both of the
quarters ended September 30, 1998 and 1997 ("Quarterly Same Store Properties").

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED
                                                 SEPTEMBER 30,   
                                             --------------------
                                 NUMBER OF                              DOLLAR      PERCENTAGE
                                PROPERTIES     1998        1997         CHANGE        CHANGE
                                ----------   -------      -------       -------       -----
<S>                                  <C>     <C>          <C>          <C>              <C> 
Quarterly Same Store Properties
  Rental income:
    Northern California              12      $ 9,014      $ 8,285      $    729         8.8%
    Pacific Northwest                12        5,656        5,323           333         6.3
    Southern California               9        4,306        4,005           301         7.5
    Commercial                        1          476          410            66        16.1
                                    ---      -------      -------       -------       -----
      Total rental income quarterly
      same store properties          34       19,452       18,023         1,429         7.9%
                                    ===      -------      -------       -------       -----
  Other property income                          466          318           148        46.5
                                             -------      -------       -------       -----
      Total revenues quarterly
      same store properties                   19,918       18,341         1,577         8.6%

Properties Acquired/Disposed of
Subsequent to July 1, 1997
  Rental income                               11,616        2,864         8,752       305.6%
  Other property income                          256           56           200       357.1
                                             -------      -------       -------       -----
      Total revenues properties
      acquired/disposed of
      subsequent to July 1, 1997              11,872        2,920         8,952       306.6%
  Interest and other income                      861          714           147        20.6
                                             -------      -------       -------       -----
      Total revenues                         $32,651      $21,975       $10,676        48.6%
                                             =======      =======       =======        ====
</TABLE>


As set forth in the above table, $8,752,000 of the $10,676,000 increase in total
revenues between the comparable quarters is attributable to properties acquired
or disposed of subsequent to July 1, 1997. During this period, the Operating
Partnership acquired interests in 22 multifamily properties (the "Quarterly



                                    Page 14

<PAGE>   15


Acquisition Properties"), and disposed of two multifamily properties and four
retail shopping centers (the "Quarterly Disposition Properties").

Of the increase in total revenues, $1,429,000 is attributable to increases in
rental income from the Quarterly Same Store Properties. Rental income from the
Quarterly Same Store Properties increased by $1,429,000 or 7.9% to $19,452,000
in the third quarter of 1998 from $18,023,000 in the third quarter of 1997. The
majority of this increase was attributable to the 12 multifamily Quarterly Same
Store Properties located in Northern California, the rental income of which
increased by $729,000 or 8.8% to $9,014,000 in the third quarter of 1998 from
$8,285,000 in the third quarter of 1997. This $729,000 increase is primarily
attributable to rental rate increases as offset by a decrease in financial
occupancy to 97.3% in the third quarter of 1998 from 97.7% in the third quarter
of 1997. The 12 multifamily Quarterly Same Store Properties located in the
Pacific Northwest accounted for the next largest regional component of the
Quarterly Same Store Properties rental income increase. The rental income of
these properties increased by $333,000 or 6.3% to $5,656,000 in the third
quarter of 1998 from $5,323,000 in the third quarter of 1997. The $333,000
increase is attributable to rental rate increases as offset by a decrease in
financial occupancy to 95.2% in the third quarter of 1998 from 96.0% in the
third quarter of 1997. The nine multifamily Quarterly Same Store Properties
located in Southern California also contributed towards the Quarterly Same Store
Properties rental income increase. The rental income of these properties
increased by $301,000 or 7.5% to $4,306,000 in the third quarter of 1998 from
$4,005,000 in the third quarter of 1997. This $301,000 increase is primarily
attributable to rental rate increases and an increase in financial occupancy to
96.9% in the third quarter of 1998 from 96.1% in the third quarter of 1997.

The increase in total revenue also reflected an increase of $148,000 in other
property income from the Quarterly Same Store Properties, an increase of
$200,000 in other property income from the Quarterly Acquisition Properties, and
an increase of $147,000 attributable to interest and other income.

Total Expenses increased by $8,577,000 or approximately 60.9% to $22,653,000 in
the third quarter of 1998 from $14,076,000 in the third quarter of 1997.
Interest expense increased by $2,127,000 or 68.2% to $5,245,000 in the third
quarter of 1998 from $3,118,000 in the third quarter of 1997. Such increase was
primarily due to the net addition of outstanding mortgage debt in connection
with property and investment acquisitions. Property operating expenses,
exclusive of depreciation and amortization, increased by $3,040,000 or 45.8% to
$9,684,000 in the third quarter of 1998 from $6,644,000 in the third quarter of
1997. Of such increase, $3,227,000 was attributable to the Quarterly Acquisition
Properties and the Quarterly Disposition Properties. General and administrative
expenses represents the costs of the Operating Partnership's various acquisition
and administrative departments as well as partnership administration and
non-operating expenses. Such expenses increased by $376,000 in the third quarter
of 1998 from the amount for the third quarter of 1997. This increase is largely
due to additional staffing requirements resulting from the growth of the
Operating Partnership.

Net income decreased by $3,389,000 to $9,096,000 in the third quarter of 1998
from $12,485,000 in the third quarter of 1997. The decrease in net income was
primarily a result of a recorded loss on early debt extinguishment of $806,000
and a provision for litigation loss and related legal costs of $930,000 in the
third quarter of 1998. Furthermore, the Operating Partnership recorded a gain on
sale of real estate of $4,713,000 in the third quarter of 1997. The net effect
of these items were offset by the net contribution of the Quarterly Acquisition
Properties and an increase in net operating income from the Quarterly Same Store
Properties, as offset by a decrease in operating income attributable to the
Quarterly Disposition Properties.

Comparison Of The Nine Months Ended September 30, 1998 To Nine Months Ended
September 30, 1997.

Total Revenues increased by $32,065,000 or 53.3% to $92,171,000 in the first
nine months of 1998 from $60,106,000 in the first nine months of 1997. The
following table sets forth a breakdown of these revenue amounts, including the
revenues attributable to properties that the Operating Partnership owned for
both of the nine months ended September 30, 1998 and 1997 ("Same Store
Properties").




                                    Page 15


<PAGE>   16




<TABLE>
<CAPTION>
                                       NINE MONTHS ENDED
                                            JUNE 30,    
                           NUMBER OF  ------------------      DOLLAR   PERCENTAGE
                           PROPERTIES  1998       1997        CHANGE     CHANGE
                           ---------- -------    -------      -------  ----------
<S>                            <C>    <C>        <C>          <C>         <C>  
Same Store Properties
  Rental income:
    Northern California        11     $24,580    $22,336      $ 2,244     10.0%
    Pacific Northwest          11      15,104     14,244          860      6.0
    Southern California         3       6,212      5,912          300      5.1
    Commercial                  1       1,496      1,222          274     22.4
                               --     -------    -------      -------    -----
      Total rental income
      same store properties    26      47,392     43,714        3,678      8.4%
                               ==
  Other property income                 1,042        781          261     33.4
                                      -------    -------      -------    -----
      Total revenues same
      store properties                 48,434     44,495        3,939      8.9%

Properties Acquired/Disposed of
Subsequent to January 1, 1997
  Rental Income                        40,479     12,882       27,597    214.2%
  Other property income                   869        287          582    202.8
                                      -------    -------      -------    ------
      Total revenues properties
      acquired/disposed of
      subsequent to January 1, 1997    41,348     13,169       28,179    214.0%
  Interest and other income             2,389      2,442          (53)    (2.2)
                                      -------    -------      --------   ------
      Total revenues                  $92,171    $60,106      $32,065     53.3%
                                      =======    =======      =======    =====
</TABLE>


As set forth in the above table, $27,597,000 of the $32,065,000 increase in
total revenues between the comparable periods is attributable to properties
acquired or disposed of subsequent to January 1, 1997. During this period, the
Operating Partnership acquired interest in 35 multifamily properties (the
"Acquisition Properties"), and disposed of two multifamily properties and six
retail shopping centers (the "Disposition Properties").

Of the increase in total revenues, $3,678,000 is attributable to increases in
rental income from the Same Store Properties. Rental income from the Same Store
Properties increased by $3,678,000 or 8.4% to $47,392,000 in the first nine
months of 1998 from $43,714,000 in the first nine months of 1997. The majority
of this increase was attributable to the 11 multifamily Same Store Properties
located in Northern California, the rental income of which increased by
$2,244,000 or 10.0% to $24,580,000 in the first nine months of 1998 from
$22,336,000 in the first nine months of 1997. This $2,244,000 increase is
primarily attributable to rental rate increases as offset by a decrease in
financial occupancy to 97.2% in the first nine months of 1998 from 97.5% in the
first nine months of 1997. The 11 multifamily Same Store Properties located in
the Pacific Northwest accounted for the next largest regional component of the
Same Store Properties rental income increase. The rental income of these
properties increased by $860,000 or 6.0% to $15,104,000 in the first nine months
of 1998 from $14,244,000 in the first nine months of 1997. This $860,000
increase is attributable to rental rate increases as offset by a decrease in
financial occupancy to 95.2% in the first nine months of 1998 from 96.7% in the
first nine months of 1997. The three multifamily Same Store Properties located
in Southern California also contributed towards the Same Store Properties rental
income increase. The rental income of these properties increased by $300,000 or
5.1% to $6,212,000 in the first nine months of 1998 from $5,912,000 in the first
nine months of 1997. The $300,000 increase is attributable to rental rate
increases and an increase in financial occupancy to 95.1% in the first nine
months of 1998 from 94.8% in the first nine months of 1997.

The increases in total revenue also reflected an increase of $261,000 in other
property income attributable to the Same Store Properties, an increase of
$582,000 in other income attributable to the Acquisition Properties, and a
decrease of $53,000 in interest and other income.

Total Expenses increased by $22,956,000 or approximately 58.0% to $62,513,000 in
the first nine months of 1998 from $39,557,000 in the first nine months of 1997.
Interest expense increased by $4,911,000 or 




                                    Page 16

<PAGE>   17


52.5% to $14,259,000 in the first nine months of 1998 from $9,348,000 in the
first nine months of 1997. Such interest expense increase was primarily due to
the net addition of outstanding mortgage debt in connection with property and
investment acquisitions. Property operating expenses, exclusive of depreciation
and amortization, increased by $9,773,000 or 53.5% to $28,054,000 in the first
nine months of 1998 from $18,281,000 in the first nine months of 1997. Of such
increase, $9,898,000 was attributable to the Acquisition Properties and the
Disposition Properties. General and administrative expenses represents the costs
of the Operating Partnership's various acquisition and administrative
departments as well as partnership administration and non-operating expenses.
Such expenses increased by $1,159,000 in the first nine months of 1998 from the
amount for the first nine months of 1997. This increase is largely due to
additional staffing requirements resulting from the growth of the Operating
Partnership.

Net income increased by $3,280,000 to $28,527,000 in the first nine months of
1998 from $25,247,000 in the first nine months of 1997. The increase in net
income was primarily a result of the net contribution of the Acquisition
Properties and an increase in net operating income from the Same Store
Properties, as offset by a decrease in operating income attributable to the
Disposition Properties. Net income for the first nine months of 1997 also
included a gain on the sales of real estate of $5,127,000 compared to $9,000 for
the first nine months of 1998. Furthermore, net income for the nine months ended
September 30, 1998 included a loss on early debt extinguishment of $806,000
compared to $104,000 for the first nine months of 1997 and a provision for
litigation loss of $930,000 in the first nine months of 1998 and $0 in the first
nine months of 1997.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1998, the Operating Partnership had $3,071,000 of unrestricted
cash and cash equivalents. The Operating Partnership expects to meet its
short-term liquidity requirements by using its working capital, cash generated
from operations and amounts available under lines of credit. The Operating
Partnership believes that its future net cash flows will be adequate to meet
operating requirements and to provide for payment of dividends by the Company in
accordance with REIT requirements. The Operating Partnership has credit
facilities in the committed amount of approximately $110,000,000. At September
30, 1998 the Operating Partnership had $63,000,000 outstanding on its lines of
credit, with interest rates during the third quarter of 1998 ranging from 6.9%
to 7.3%. The Operating Partnership expects to meet its long-term liquidity
requirements relating to property acquisition and development (beyond the next
12 months) by using working capital, amounts available on lines of credit, net
proceeds from public and private debt and equity issuances, and proceeds from
the disposition of properties that may be sold from time to time. There can,
however, be no assurance that the Operating Partnership will have access to the
debt and equity markets in a timely fashion to meet long-term liquidity
requirements or that future working capital, and borrowings under the lines of
credit will be available, or if available, will be sufficient to meet the
Operating Partnership's requirements or that the Operating Partnership will be
able to dispose of properties in a timely manner and under terms and conditions
that the Operating Partnership deems acceptable.

The Operating Partnership's unrestricted cash balance decreased by $1,211,000
from $4,282,000 as of December 31, 1997 to $3,071,000 as of September 30, 1998.
This decrease was primarily a result of $109,407,000 of net cash provided by
financing activities and $48,725,000 of net cash provided by operating
activities, which were reduced by $159,343,000 of net cash used in investing
activities. Of the $159,343,000 net cash used in investing activities,
$152,660,000 was used to purchase and upgrade rental properties, $24,018,000 was
used to fund real estate under development, and $9,112,000 was used to fund an
increase in the Operating Partnership's restricted cash; these expenditures were
offset by $26,354,000 of proceeds received from the disposition of two
multifamily and three retail properties. The $109,407,000 net cash provided by
financing activities was primarily a result of $199,347,000 of proceeds from
mortgage and other notes payable and lines of credit and $77,775,000 net
proceeds from the Perpetual Preferred Units sales (as discussed below) as offset
by $133,879,000 of repayments of mortgages and other notes payable and lines of
credit, and $31,524,000 of dividends/distributions paid.

As of September 30, 1998, the total amount of the Operating Partnership's
outstanding debt was $360,508,000. Such indebtedness consisted of $213,867,000
in fixed rate debt, $87,821,000 of variable 




                                    Page 17

<PAGE>   18


rate debt and $58,820,000 of debt represented by tax exempt variable rate demand
bonds, of which $29,220,000 is capped at a maximum interest rate of 7.2%.

As of September 30, 1998, 35 of the Operating Partnership's Properties were
encumbered by debt. The agreements underlying these encumbrances contain
customary restrictive covenants which the Operating Partnership believes do not
have a material adverse effect on the Operating Partnership's operations. As of
September 30, 1998, the Operating Partnership was in compliance with such
covenants. Also, of the Operating Partnership's 35 Properties encumbered by
debt, 18 were secured by deeds of trust relating solely to those Properties.
With respect to the remaining 17 Properties, three cross collaterized mortgages
were secured by eight Properties, three Properties and three Properties,
respectively, and a separate line of credit was secured by three Properties.

The Operating Partnership expects to incur approximately $300 per weighted
average occupancy unit in non-revenue generating capital expenditures for the
year ended December 31, 1998. These expenditures do not include the improvements
required in connection with the origination of mortgage loans, expenditures for
Acquisition Properties renovations and improvements, which are expected to
generate additional revenue, and renovation expenditures required pursuant to
tax-exempt bond financings. The Operating Partnership expects that cash from
operations and/or its lines of credit will fund such expenditures. However,
there can be no assurance that the actual expenditures incurred or funded during
1998 will not be significantly different than the Operating Partnership's
current expectations.

The Operating Partnership is developing eight multifamily residential projects,
which are anticipated to have an aggregate of approximately 1,578 multifamily
units. The Operating Partnership expects that such projects will be completed
during the next two years (1998 and 1999). Such projects involve certain risks
inherent in real estate development. See "Other Matters - Development
Activities; Risks That Developments Will Be Delayed or Not Completed" in Item 1
of the Company's Annual Report on Form 10-K for the year ended December 31,
1997. As of September 30, 1998, the Operating Partnership is committed to fund
approximately $111,700,000 relating to these projects. The Operating Partnership
expects to fund such commitments with a combination of its working capital,
amounts available on its lines of credit, net proceeds from public and private
equity and debt issuances, and proceeds from the disposition of properties,
which may be sold from time to time.

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

On March 31, 1997, the Company completed the sale of 2,000,000 shares of its
Common Stock to Cohen & Steers at a price of $29.125 per share.

On June 20, 1997, the Company completed the sale of an additional $20,000,000 of
its convertible preferred stock to Tiger/Westbrook.

On September 10, 1997, the Company completed a public offering of 1,495,000
shares of its Common Stock at a net price of $31.00 per share.

On December 8, 1997, the Company completed a public offering of 1,500,000 shares
of its Common Stock at a price of $35.50 per share.

On February 6, 1998, the Operating Partnership sold 1,200,000 units of its
7.875% Series B Cumulative Redeemable Preferred Units ("Perpetual Preferred
Units") to an institutional investor at a price of $50.00 per unit.

On April 20, 1998, The Operating Partnership sold 400,000 units of its Perpetual
Preferred Units at a $50.00 per unit price to the same institutional investor
who purchased the 1,200,000 units in February 1998.



                                    Page 18

<PAGE>   19


The proceeds from these offerings and sales were used primarily to reduce
balances under the Operating Partnership's lines of credit and to fund
acquisitions and development of multifamily properties.

In the second quarter of 1998, the Company and the Operating Partnership filed a
registration statement (the "1998 Shelf Registration Statement") with the
Securities and Exchange Commission (the "SEC") to register $300,000,000 of
equity securities of the Company and $250,000,000 of debt securities of the
Operating Partnership. The 1998 Shelf Registration Statement was declared
effective by the SEC in July 1998. Prior to the filing of the 1998 Shelf
Registration Statement, the Company had approximately $42,000,000 of capacity
remaining on a previously filed registration statement which registered equity
securities of the Company. Thus, combined with the prior shelf registration
statement and the 1998 Shelf Registration Statement, the Company has the
capacity to issue up to $342,000,000 of equity securities and the Operating
Partnership has the capacity to issue up to $250,000,000 of debt securities.

YEAR 2000 COMPLIANCE

The Operating Partnership's State of Readiness. The Operating Partnership
utilizes a number of computer software programs and operating systems across its
entire organization, including applications used in financial business systems
and various administrative functions. To the extent that the Operating
Partnership's software applications contains source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification or replacement of such applications will be necessary. The
Operating Partnership currently believes that its "Year 2000" issues are limited
to information technology ("IT") systems (i.e., software programs and computer
operating systems). There are no non-IT systems (i.e., devices used to control,
monitor or assist the operation of equipment and machinery), the failure of
which would have a material effect on the Operating Partnership's operations.
The Operating Partnership has also completed its assessment of the Year 2000
compliance issues presented by its hardware components.

The Operating Partnership, employing a team made up of internal personnel has
completed its identification of IT systems that are not yet Year 2000 compliant
and has commenced modification or replacement of such systems as necessary. The
Operating Partnership has communicated with third parties with whom it does
significant business, such as financial institutions and vendors to determine
their readiness for Year 2000 compliance. Based on position statements received
by the Operating Partnership, it appears as though the preparation being made by
these third parties with whom the Operating Partnership does significant
business is sufficient regarding Year 2000 compliance. However, no assurance can
be given regarding the cost of their failure to comply. The Operating 
Partnership is in the process of developing contingency plans should third 
parties with whom the Operating Partnership does significant business fail to 
be Year 2000 compliant.

Costs of Addressing the Operating Partnership's Year 2000 issues. Given the
information known at this time about the Operating Partnership's systems that
are non-compliant, coupled with the Operating Partnership's ongoing, normal
course-of-business efforts to upgrade or replace critical systems, as necessary,
management does not expect Year 2000 compliance costs to have any material
adverse impact on the Operating Partnership's liquidity or ongoing results of
operation. The costs of such assessment and remediation will be paid out of the
Operating Partnerships general and administrative expenses.

Risks of the Operating Partnership's Year 2000 issues. In light of the Operating
Partnership's assessment and remediation efforts to date, and the planned,
normal course-of-business upgrades, management believes that any residual Year
2000 risk is limited to non-critical business applications and support hardware.
No assurance can be given, however, that all of the Operating Partnership's
systems will be year 2000 compliant or that compliance will not have a material
adverse effect on the Operating Partnership's future liquidity or results of
operations or ability to service debt.



                                    Page 19


<PAGE>   20


FUNDS FROM OPERATIONS

Industry analysts generally consider funds from operations, ("Funds From
Operations"), an appropriate measure of performance of an equity REIT. The
Company, the sole general partner in the Operating Partnership, has elected to
be treated as a REIT under the Code. Generally, Funds From Operations adjusts
the net income of equity REITs for non-cash charges such as depreciation and
amortization of rental properties and non-recurring gains or losses. Management
generally considers Funds from Operations to be a useful financial performance
measurement of an equity REIT because, together with net income and cash flows,
Funds from Operations provides investors with an additional basis to evaluate
the ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. Funds From Operations does not represent net income
or cash flows from operations as defined by GAAP and is not intended to indicate
whether cash flows will be sufficient to fund cash needs. It should not be
considered as an alternative to net income as an indicator of the REIT's
operating performance or to cash flows as a measure of liquidity. Funds From
Operations does not measure whether cash flow is sufficient to fund all cash
needs including principal amortization, capital improvements and distributions
to shareholders. Funds From Operations also does not represent cash flows
generated from operating, investing or financing activities as defined under
GAAP. Further, Funds from Operations as disclosed by other REITs may not be
comparable to the Operating Partnership's calculation of Funds From Operations.
The following table sets forth the Operating Partnership's calculation of Funds
from Operations for the three and nine months ended September 30, 1998 and 1997.

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED                          NINE MONTHS ENDED
                                          ---------------------------------         ---------------------------------
                                          SEPTEMBER 30         SEPTEMBER 30         SEPTEMBER 30         SEPTEMBER 30
                                          ------------         ------------         ------------         ------------
                                              1998                 1997                 1998                 1997
                                          ------------         ------------         ------------         ------------
<S>                                       <C>                  <C>                  <C>                  <C>         
Income before gain on the
  sale of real estate, minority
  interests and extraordinary item        $  9,998,000         $  7,899,000         $ 29,658,000         $ 20,549,000
Adjustments:
Depreciation & amortization                  5,575,000            3,555,000           15,876,000            9,863,000
Adjustment for unconsolidated
  joint ventures                               365,000              242,000            1,027,000              690,000
Non-recurring items:
  provision for litigation loss                930,000                   --              930,000                   --

Perpetual preferred distribution
  and minority interests(1)                (1,754,000)            (161,000)          (4,353,000)            (441,000)
                                          ------------         ------------         ------------         ------------
Funds from Operations                     $ 15,114,000         $ 11,535,000         $ 43,138,000         $ 30,661,000
                                          ============         ============         ============         ============
Weighted average number
  units outstanding diluted(1)              20,523,466           17,835,400           20,516,925           17,603,384
                                          ============         ============         ============         ============
</TABLE>


(1) Includes all outstanding shares of the Company's common stock and assumes
conversion of all outstanding operating partnership interests in the Operating
Partnership and Convertible Preferred Stock into shares of the Company's Common
Stock. Also includes common stock equivalents. Minority interests have been
adjusted to reflect such conversion.

The National Association of Real Estate Investment Trusts ("NAREIT"), a leading
industry trade group, has approved a revised interpretation of Funds from
Operations, which provides, in part, that the amortization of deferred financing
costs is no longer to be added back to net income in the calculation of Funds
from Operations. Consistent with the NAREIT recommendation, the Operating
Partnership has adopted this new definition beginning in 1996.




                                    Page 20


<PAGE>   21


PART II - OTHER INFORMATION

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

            A.  EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           DESCRIPTION
-------                          -----------
<S>   <C>                                                                 
10.1  $100,000,000 Promissory Note between Essex Portfolio, L.P. and Essex
      Morgan Funding Corp.

11.1  Statement regarding Computation of Earnings per Unit

12.1  Schedule of Computation of Ratio of Earnings to Fixed Charges
      and Preferred Unit Distributions

27.1  Article 5 Financial Data Schedule (EDGAR Filing Only)
</TABLE>


                                    Page 21
<PAGE>   22



                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                       ESSEX PORTFOLIO, L.P.
                                       A California Limited Partnership

                                       By:  Essex Property Trust, Inc.
                                       Its:  General Partner


                                       /s/ Mark J. Mikl
                                       -----------------------------------------
                                           Mark J. Mikl, Controller
                                           (Authorized Officer and
                                           Principal Accounting Officer)

                                       November 13, 1998
                                       -----------------------------------------
                                       Date



                                     Page 22
<PAGE>   23



                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                               DESCRIPTION
-------                              -----------
<S>   <C>                                                                 
10.1  $100,000,000 Promissory Note between Essex Portfolio, L.P. and Essex
      Morgan Funding Corp.

11.1  Statement regarding Computation of Earnings per Unit

12.1  Schedule of Computation of Ratio of Earnings to Fixed Charges
      and Preferred Unit Distributions

27.1  Article 5 Financial Data Schedule (EDGAR Filing Only)
</TABLE>




                                    Page 23