**UNITED
STATES**





**SECURITIES
AND EXCHANGE COMMISSION**





**Washington,
D.C. 20549**


**FORM
      10-Q**
      ****





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





**For
the quarterly period ended March 31, 2005**





**OR**





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





**For
the transition period from ________to _________**





**Commission
file number 333-44467-01** ****





**ESSEX
PORTFOLIO, L.P.******


(Exact
name of Registrant as Specified in its Charter)





**Maryland**
    
    **77-0369575**(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 x NO o





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 x No o










**ESSEX
PORTFOLIO, L.P.**


**FORM
10-Q**


**INDEX**





**Page
      No.****PART
      I. FINANCIAL INFORMATION**Item
      1.
    Financial Statements (Unaudited):
    3Consolidated Balance Sheets as of March 31, 2005 and
      December 31, 2004
    4Consolidated Statements of Operations for the three
      months ended March 31, 2005 and 2004
    5Consolidated Statements of Partners’ Capital and
      Comprehensive Income for the three months ended March 31, 2005 and the
      year ended December 31, 2004
    6Condensed Consolidated Statements of Cash Flows for the
      three months ended March 31, 2005 and 2004
    7Notes to Consolidated Financial Statements
    8Item
      2.
    Management's Discussion and Analysis of
      Financial Condition and Results of Operations
    19Item
      3.
    Quantitative and Qualitative Disclosures About Market
      Risk
    29Item
      4.
    Controls and Procedures
    30**PART
      II. OTHER INFORMATION**Item
      1.
    Legal Proceedings
    30Item
      5.
    Other Information
    31Item
      6.
    Exhibits
    31**Signature**
    32





2
 *Index*





**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, stockholders' equity 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 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 Operating Partnership's annual report on Form 10-K
for the year ended December 31, 2004.







3
 *Index*





**ESSEX
PORTFOLIO, L.P. AND SUBSIDIARIES**


Consolidated Balance Sheets


(Unaudited)


(Dollars
in thousands)




**March
      31,**
    
    **December
      31,****2005**
    
    **2004****ASSETS**Real
      estate:Rental
      properties:Land
      and land improvements
    
    $
    546,867
    
    $
    536,600Buildings
      and improvements
    
    
    1,880,735
    
    
    1,834,5942,427,602
    
    
    2,371,194Less
      accumulated depreciation
    
    
    (347,988
    )
    
    (329,652
    )2,079,614
    
    
    2,035,952Real
      estate investments held for sale, net of accumulated depreciation of $496
      as of December 31, 2004
    
    
    -
    
    
    14,445Investments
    
    
    66,409
    
    
    49,712Real
      estate under development
    
    
    16,938
    
    
    38,3202,162,961
    
    
    2,138,429Cash
      and cash equivalents--unrestricted
    
    
    12,517
    
    
    10,644Cash
      and cash equivalents--restricted cash
    
    
    16,007
    
    
    21,255Notes
      receivable from investees and other related parties
    
    
    1,295
    
    
    1,435Notes
      and other receivables
    
    
    7,909
    
    
    9,535Prepaid
      expenses and other assets
    
    
    19,584
    
    
    19,591Deferred
      charges, net
    
    
    10,715
    
    
    10,738Total
      assets
    
    $
    2,230,988
    
    $
    2,217,217**LIABILITIES
      AND PARTNERS' CAPITAL**Mortgage
      notes payable
    
    $
    1,079,920
    
    $
    1,067,449Lines
      of credit
    
    
    238,035
    
    
    249,535Accounts
      payable and accrued liabilities
    
    
    35,792
    
    
    29,997Dividends
      payable
    
    
    22,662
    
    
    21,976Other
      liabilities
    
    
    12,121
    
    
    11,853Deferred
      gain
    
    
    3,885
    
    
    5,000Total
      liabilities
    
    
    1,392,415
    
    
    1,385,810Minority
      interests
    
    
    48,487
    
    
    49,254Redeemable
      convertible limited partnership units
    
    
    4,750
    
    
    4,750Partners'
      capital:General
      partner:Common
      equity
    
    
    580,858
    
    
    566,865Preferred
      equity (liquidation value of $25,000)
    
    
    24,412
    
    
    24,412605,270
    
    
    591,277Limited
      partners:Common
      equity
    
    
    52,211
    
    
    59,436Preferred
      equity (liquidation value of $185,000)
    
    
    126,690
    
    
    126,690178,901
    
    
    186,126Accumulated
      other comprehensive income
    
    
    1,165
    
    
    -Total
      partners' capital
    
    
    785,336
    
    
    777,403Commitments
      and contingenciesTotal
      liabilities and partners' capital
    
    $
    2,230,988
    
    $
    2,217,217








See
accompanying notes to the unaudited consolidated financial
statements.





4
 *Index*







**ESSEX PORTFOLIO, L.P. AND
SUBSIDIARIES**Consolidated Statements of
Operations


(Unaudited)


(Dollars
in thousands, except per unit amounts)




**Three
      Months Ended****March
      31,****2005**
    
    ******2004**Revenues:Rental
    
    $
    74,538
    
    $
    64,209Other
      property
    
    
    2,783
    
    
    2,102Total
      property revenues
    
    
    77,321
    
    
    66,311Expenses:Property
      operating expenses:Maintenance
      and repairs
    
    
    5,658
    
    
    4,381Real
      estate taxes
    
    
    6,930
    
    
    5,540Utilities
    
    
    3,638
    
    
    3,014Administrative
    
    
    7,319
    
    
    6,912Advertising
    
    
    1,166
    
    
    840Insurance
    
    
    991
    
    
    1,143Depreciation
      and amortization
    
    
    19,727
    
    
    18,34645,429
    
    
    40,176Interest
    
    
    18,147
    
    
    14,310Amortization
      of deferred financing costs
    
    
    476
    
    
    273General
      and administrative
    
    
    4,542
    
    
    2,930Total
      expenses
    
    
    68,594
    
    
    57,689Gain
      on sale of real estate
    
    
    1,115
    
    
    -Interest
      and other including from related parties (Note 4)
    
    
    2,226
    
    
    1,851Equity
      income in co-investments
    
    
    19,584
    
    
    1,100Minority
      interests
    
    
    (1,290
    )
    
    (768
    )Income
      from continuing operations
    
    
    30,362
    
    
    10,805Discontinued
      operationsOperating
      income from real estate sold
    
    
    1,137
    
    
    447Gain
      on sale of real estate
    
    
    735
    
    
    -Income
      from discontinued operations
    
    
    1,872
    
    
    447Net
      income
    
    
    32,234
    
    
    11,252Preferred
      return to general partner - Series F
    
    
    (488
    )
    
    (488
    )Distributions
      to preferred units - limited partners
    
    
    (2,559
    )
    
    (4,104
    )Net
      income available to common units
    
    $
    29,187
    
    $
    6,660Per
      common unit data:Basic:Income
      from continuing operations available tocommon
      units
    
    $
    1.08
    
    $
    0.25Income
      from discontinued operations
    
    
    0.07
    
    
    0.02Net
      income available to common units
    
    $
    1.15
    
    $
    0.27Weighted
      average number of common unitsoutstanding
      during the period
    
    
    25,369,288
    
    
    25,108,506Diluted:Income
      from continuing operations available tocommon
      units
    
    $
    1.07
    
    $
    0.24Income
      from discontinued operations
    
    
    0.07
    
    
    0.02Net
      income available to common units
    
    $
    1.14
    
    $
    0.26Weighted
      average number of common unitsoutstanding
      during the period
    
    
    25,655,571
    
    
    25,370,177Distributions
      per Operating Partnership common unit
    
    $
    0.81
    
    $
    0.79
 
 
 See
accompanying notes to the unaudited consolidated financial
statements.




5
 *Index*




ESSEX PORTFOLIO, L.P. AND
SUBSIDIARIES


Consolidated
Statements of Partners’ Capitaland


Comprehensive
Income for the three months ended


March 31,
2005 and the year ended December 31, 2004


(Unaudited)


(Dollars
and units in thousands)




**General
      Partner**
    
    **Limited
      Partners**
    
    **Accumulated****Common
      Equity**
    
    ****Preferred**Equity**
    
    **Common
      Equity**
    
    ****Preferred**Equity**
    
    ****Other**Comprehensive****Units**
    
    **Amount**
    
    **Amount**
    
    **Units**
    
    **Amount**
    
    **Amount**
    
    **Income**
    
    **Total**Balances
      at December 31, 2003
    
    
    22,826
    
    $
    556,987
    
    $
    24,412
    
    
    2,321
    
    $
    50,294
    
    $
    180,115
    
    $
    -
    
    $
    811,808Issuance
      of common units understock-based
      compensation plans
    
    
    155
    
    
    6,058
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    6,058Issuance
      of general partnercommon
      units
    
    
    53
    
    
    2,307
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,307Issuance
      of limited partners'common
      units
    
    
    -
    
    
    -
    
    
    -
    
    
    184
    
    
    7,213
    
    
    -
    
    
    -
    
    
    7,213Redemption
      of limited partnercommon
      units
    
    
    -
    
    
    -
    
    
    -
    
    
    (62
    )
    
    (3,757
    )
    
    -
    
    
    -
    
    
    (3,757
    )Redemption
      of Series Epreferred
      unit
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (55,000
    )
    
    -
    
    
    (55,000
    )Write
      off of Series E preferredunit
      offering costs
    
    
    -
    
    
    (1,422
    )
    
    -
    
    
    -
    
    
    (153
    )
    
    1,575
    
    
    -
    
    
    -Vested
      series Z incentive units
    
    
    -
    
    
    -
    
    
    -
    
    
    35
    
    
    537
    
    
    -
    
    
    -
    
    
    537Reallocation
      of partners' capital
    
    
    -
    
    
    (4,264
    )
    
    -
    
    
    -
    
    
    4,264
    
    
    -
    
    
    -
    
    
    -Net
      income (1)
    
    
    -
    
    
    79,163
    
    
    1,952
    
    
    -
    
    
    8,518
    
    
    14,175
    
    
    -
    
    
    103,808Partners'
      distributions
    
    
    -
    
    
    (71,964
    )
    
    (1,952
    )
    
    -
    
    
    (7,480
    )
    
    (14,175
    )
    
    -
    
    
    (95,571
    )Balances
      at December 31, 2004
    
    
    23,034
    
    
    566,865
    
    
    24,412
    
    
    2,478
    
    
    59,436
    
    
    126,690
    
    
    -
    
    
    777,403Issuance
      of common units understock-based
      compensation plan
    
    
    25
    
    
    773
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    773Redemption
      of limited partnercommon
      units
    
    
    -
    
    
    -
    
    
    -
    
    
    (89
    )
    
    (2,698
    )
    
    -
    
    
    -
    
    
    (2,698
    )Vested
      series Z and Z-1 incentive units
    
    
    -
    
    
    -
    
    
    -
    
    
    30
    
    
    164
    
    
    -
    
    
    -
    
    
    164Reallocation
      of partners' capital (1)
    
    
    -
    
    
    5,509
    
    
    -
    
    
    -
    
    
    (5,509
    )
    
    -
    
    
    -
    
    
    -Comprehensive
      income:Net
      income
    
    
    -
    
    
    26,389
    
    
    488
    
    
    -
    
    
    2,798
    
    
    2,559
    
    
    -
    
    
    32,234Change
      in fair value of cash flow hedges
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,165
    
    
    1,165Comprehensive
      income
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    33,399Partners'
      distributions
    
    
    -
    
    
    (18,678
    )
    
    (488
    )
    
    -
    
    
    (1,980
    )
    
    (2,559
    )
    
    -
    
    
    (23,705
    )Balances
      at March 31, 2005
    
    
    23,059
    
    $
    580,858
    
    $
    24,412
    
    
    2,419
    
    $
    52,211
    
    $
    126,690
    
    $
    1,165
    
    $
    785,336
   (1)
During the three months ended March 31, 2005, the Operating Partnership recorded
a true-up of the reallocation on minority interest as of December 31, 2004. This
true-up was not material to partners’ equity at either March 31, 2005 or
December 31, 2004.


See
accompanying notes to the unaudited consolidated financial
statements.




6
 *Index*







**ESSEX PORTFOLIO, L.P. AND
SUBSIDIARIES**Condensed Consolidated Statements of Cash
Flows


Unaudited)


(Dollars
in thousands)





**Three
      Months Ended****March
      31,****2005**
    
    ******2004**Net
      cash provided by operating activities
    
    $
    38,482
    
    $
    35,956Cash
      flows from investing activities:Additions
      to real estate:Acquisitions
    
    
    (10,792
    )
    
    (83,071
    )Improvements
      to recent acquisitions
    
    
    (1,725
    )
    
    (3,039
    )Redevelopment
    
    
    (3,446
    )
    
    (1,446
    )Revenue
      generating capital expenditures
    
    
    (9
    )
    
    (18
    )Other
      capital expenditures
    
    
    (2,632
    )
    
    (2,041
    )Dispositions
      of real estate and investments
    
    
    250
    
    
    -Changes
      in restricted cash
    
    
    5,248
    
    
    (6,138
    )Additions
      to notes receivable from related parties and other
    receivables
    
    
    (13
    )
    
    (97
    )Repayment
      of notes receivable from related parties and other
    receivables
    
    
    1,413
    
    
    330Additions
      to real estate under development
    
    
    (1,240
    )
    
    (7,600
    )Net
      distributions from (contributions to) limited partnerships
    
    
    2,294
    
    
    (2,746
    )Net
      cash used in investing activities
    
    
    (10,652
    )
    
    (105,866
    )Cash
      flows from financing activities:Proceeds
      from mortgage notes payable and lines of credit
    
    
    41,593
    
    
    124,425Repayment
      of mortgage notes payable and lines of credit
    
    
    (40,361
    )
    
    (26,011
    )Additions
      to deferred charges
    
    
    (444
    )
    
    (1,779
    )Net
      proceeds from stock options exercised
    
    
    654
    
    
    1,662Contributions
      from minority interest partners
    
    
    -
    
    
    47Distributions
      to limited partners and minority interest
    
    
    (5,645
    )
    
    (6,673
    )Redemption
      of limited partnership units and minority interest
    
    
    (3,284
    )
    
    (494
    )Distributions
      to general partner
    
    
    (18,470
    )
    
    (18,326
    )Net
      cash (used in)/provided by financing activities
    
    
    (25,957
    )
    
    72,851Net
      increase in cash and cash equivalents
    
    
    1,873
    
    
    2,941Cash
      and cash equivalents at beginning of period
    
    
    10,644
    
    
    14,768Cash
      and cash equivalents at end of period
    
    $
    12,517
    
    $
    17,709Supplemental
      disclosure of cash flow information:Cash
      paid for interest, net of $57 and $916 capitalizedin
      2005 and 2004, respectively
    
    $
    17,935
    
    $
    11,798Assumption
      of mortgage loans payable in conjunction with the purchases of real
      estate
    
    $
    -
    
    $
    83,179Issuance
      of general partner common units pursuant to phantom stock
    plan
    
    $
    262
    
    $
    798Issuance
      of limited partnership units in connection with the purchase of real
      estate
    
    $
    -
    
    $
    1,729Accrued
      redemption of limited partner units
    
    $
    -
    
    $
    3,472Proceeds
      from dispositions of real estate held by exchange
    facilitator
    
    $
    14,770
    
    $
    -
 
 
 See
accompanying notes to the unaudited consolidated financial
statements.





7
 *Index*





**ESSEX
PORTFOLIO, L.P. AND SUBSIDIARIES**


**Notes to Consolidated Financial
Statements**


**March
31, 2005 and 2004**


**(Unaudited)**





**(1)**
    **Organization
      and Basis of Presentation**





The
unaudited consolidated financial statements of the Operating Partnership 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 Operating Partnership'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
Company is the sole general partner in the Operating Partnership, with a 90.5%
and 90.3% general partnership interest as of March 31, 2005 and December 31,
2004, respectively. See "Accounting Changes" section below for a description of
entities retroactively consolidated by the Operating Partnership for all periods
presented pursuant to its adoption of FIN 46 Revised.





As of
March 31, 2005, the Operating Partnership has ownership interests in 121
multifamily properties (containing 25,281 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).





Essex
Apartment Value Fund, L.P. ("Fund I"), is an investment fund organized by the
Operating Partnership in 2001 to add value through rental growth and asset
appreciation, utilizing the Operating Partnership's development, redevelopment
and asset management capabilities. An affiliate of the Operating Partnership,
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 Operating Partnership announced the final closing of
partner equity commitments for Essex Apartment Value Fund II (“Fund II”). Fund
II has eight institutional investors including the Operating Partnership with
combined partner equity commitments of $265.9 million. Essex had 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 Operating Partnership’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 be compensated for its asset management, property management, development
and redevelopment services and may receive promote distributions if Fund II
exceeds certain financial return benchmarks.





8
 *Index*





*Accounting
Changes*





*(A)*
    *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 Operating Partnership 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 Operating Partnership, and the multifamily
improvements owned by a third party in which the Operating Partnership owns the
land underlying these improvements and from which the Operating Partnership
receives fees, including land lease, subordination and property management fees,
and a joint venture to develop a building in Los Angeles, California. The
Operating Partnership consolidated these entities because it is deemed the
primary beneficiary under FIN 46R. The Operating Partnership's total assets and
liabilities related to these VIEs, net of intercompany eliminations, were
approximately $238.3 million and $154.8 million, respectively, at March 31, 2005
and $238.1 million and $155.1 million, respectively, at December 31, 2004.





Interest
holders in VIEs consolidated by the Operating Partnership are allocated a
priority of 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 Operating Partnership.





Properties
consolidated in accordance with FIN 46R were encumbered by third party,
non-recourse loans totaling $151.0 million and $151.3 million as of March 31,
2005 and December 31, 2004, respectively.





As of
March 31, 2005 the Operating Partnership is involved with two VIEs in which it
is not deemed to be the primary beneficiary. Total assets and liabilities of
these entities as of March 31, 2005 were approximately $52.0 million and $29.6
million, respectively. The Operating Partnership does not have a significant
exposure to loss resulting from its involvement with these unconsolidated
VIEs.





*(B)*
    *Stock-Based
      Compensation*





Stock-based
compensation expense under the fair value method was $218,000 and $136,000 for
the three months ended March 31, 2005 and 2004, respectively. There were 67,300
and 0 stock options granted during the three months ended March 31, 2005 and
2004, respectively. The fair value of stock options granted was $8.74 and $0 per
share for the three months ended March 31, 2005 and 2004, respectively, and 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**
      ****March
      31,******2005**
    
    **2004**Stock
      price
    $69.11
      - $82.77
    
    n/aRisk-free
      interest rates
    3.64%
      - 4.30%
    
    n/aExpected
      lives
    5
      years
    
    n/aVolatility
    18.09%
      -18.29%
    
    n/aDividend
      yield
    4.38%
      - 5.13%
    
    n/a


(C)
    Depreciation





Beginning
in 2003, the Operating Partnership implemented an upgrade to its subsidiary
ledger for accounting for fixed assets. The Operating Partnership completed this
system upgrade in the first quarter of 2004. In conjunction with this system
upgrade, the Operating Partnership 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 Operating
Partnership does not believe that the correction is material to any previously
reported financial statements and is not material to any consolidated earnings
trends.





9
 *Index*





*(D)*
    *Discontinued
      Operations*





In the
normal course of business, the Operating Partnership 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.





In
January 2005, the Operating Partnership 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
Operating Partnership 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 Operating Partnership
recorded a gain of $735,000 on the sale of these assets.





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 March 31, 2004. Upon reclassification as held for sale at
June 30, 2004, the Operating Partnership presented Golden Village at its
estimated fair value less disposal costs which resulted in an impairment charge
of approximately $756,000. 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 Operating Partnership sold Golden Village for $6.7 million. No gain or
loss was recognized on the sale.





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.





In
accordance with SFAS 144, the accompanying statements of operations for the
periods ended March 31, 2005 and March 31, 2004 reflect the discontinued
operations of these entities.





*(E)*
    *New
      Accounting Pronouncements Issued But Not Yet
  Adopted*





In
December 2004, the FASB issued SFAS No. 123 revised, “ *Share-Based
Payment”.* This
statement is a revision of SFAS No. 123, *“Accounting
for Stock-Based Compensation”,* and
supercedes 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 do not believe that the adoption of SFAS No. 123 revised will have a
material impact on our financial position, net earnings or cash flows.





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.





10
 *Index*





*Reclassifications*





Interest
and other income has been reclassified, for all periods presented, as a
non-operating income item from the prior periods’ presentation as a component of
revenue. 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, assets or liabilities.








**(2)**
    **Significant
      Transactions for the Quarter Ended March 31,
    2005**





*(A)*
    *Acquisitions*





On
February 2, 2005, the Operating Partnership acquired Cedar Terrace Apartments, a
180-unit apartment community, located in Bellevue, Washington, for approximately
$22.3 million. The property is unencumbered.




*(B)*
    *Development
      Communities*





The
Operating Partnership 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 March
31, 2005, the Operating Partnership had ownership interests in one development
community (excluding development
projects owned by the Essex Apartment Value Fund, L.P. described below), aggregating 275 multifamily units. The estimated total cost is
$65.7 million with $48.8 million remaining to be expended.





In the
first quarter of 2005, the Operating Partnership reached stabilization on phase
two, which is comprised of 120 units, of its development project related to San
Marcos Apartments, a 432-unit apartment community in Richmond, California.





*(C)*
    *Redevelopment
      Communities*





The
Operating Partnership defines redevelopment communities as existing properties
owned or recently acquired, which have been targeted for investment by the
Operating Partnership with the expectation of increased financial returns
through property improvement. Redevelopment communities typically have apartment
units that are not available for rent and, as a result, may have less than
stabilized operations. At March 31, 2005, the Operating Partnership had
ownership interests in five redevelopment communities, aggregating 1,797
multifamily units with estimated redevelopment costs of $21.7 million, of which
approximately $14.3 million remains to be expended.





*(D)*
    *Debt*





On
February 1, 2005, the Operating Partnership obtained a non-recourse mortgage on
a previously unencumbered property in the amount of $21.8 million with a 4.94%
fixed interest rate for a 9-year term, maturing in March 2014, with an option to
extend the maturity for one year thereafter at a floating rate of 2.4% over one
month LIBOR. During the extension period, the loan may be paid in full with no
prepayment penalty.





On
February 16, 2005, the Operating Partnership 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. The transaction is
considered highly effective at offsetting changes in future cash flows for
forecasted transactions and qualifies for hedge accounting. The increase in the
derivative’s fair value in the first quarter of 2005 was $1,165,000 and is
reflected in accumulated other comprehensive income in the Operating
Partnership’s consolidated financial statements.





11
 *Index*





*(E)*
    *Equity*





On
February 24, 2005, the Operating Partnership 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 June 1, 2005 to shareholders of record
as of May 15, 2005.





On
February 24, 2005, the Operating Partnership declared a regular quarterly cash
distribution of $0.81 per common unit, which will be payable on April 15, 2005
to unitholders of record as of March 31, 2005. On an annualized basis, the
distribution represents a distribution of $3.24 per common unit.





*(F)*
    *The
      Essex Apartment Value Fund ("Fund I")*





*Dispositions*





On March
31, 2005, the Operating Partnership and Fund I sold their ownership interests in
Coronado at Newport South, a 715-unit apartment community located in Newport
Beach, California, for a contract sales price of approximately $106 million. The
sale of Coronado at Newport South in the first quarter of 2005, combined with
the sale of its 49.9% direct ownership interest in Coronado at Newport South,
resulted in the Operating Partnership recognizing equity income from investments
of $14.4 million.





*Promote
Distributions*





As noted
above, the Operating Partnership’s general partnership interest provides for
“promote distributions” upon attainment of certain financial return benchmarks.
In the first quarter of 2005, the Operating Partnership recognized $4.9 million
of additional equity income associated with its promote distribution.





*Development
Communities*





In the
first quarter of 2005, stabilization was reached on River Terrace, a 250-unit
apartment community located in Santa Clara, California. This is the single
property that remains to be sold under the existing purchase and sale agreement
with United Dominion Realty, L.P. (“UDR”), which the Operating Partnership
entered into during the third quarter of 2004. The sale of River Terrace is
expected to close on or before September 30, 2005.




*(G)*
    *The
      Essex Apartment Value Fund II (“Fund
II”)*





*Acquisitions*





In the
first quarter of 2005, Fund II acquired Regency Towers, a 178-unit apartment
community, located in Oakland, California, for approximately $21.2 million. In
conjunction with the transaction, Fund II originated a new mortgage loan
totaling approximately $11.5 million with a fixed interest rate of 5.16%, which
matures in 2014 and has a one-year variable rate extension period.





12
 *Index*





**(3)**
    **Investments**





The
following table details the Operating Partnership's investments accounted for
under the equity method of accounting (dollars in thousands):




**March
      31,**
    
    **December
      31,****2005**
    
    **2004**Investments
      in joint ventures:Direct
      and indirect LLC member interests of approximately 49.9%in
      Newport Beach South, LLC
    
    $
    25,245
    
    $
    11,524Limited
      partnership interest of 20.4% and general partnerinterest
      of 1% in Essex Apartment Value Fund, L.P (Fund I)
    
    
    17,364
    
    
    14,140Limited
      partnership interest of 27.2% and general partnerinterest
      of 1% in Essex Apartment Value Fund II, L.P (Fund II)
    
    
    16,994
    
    
    17,242Preferred
      limited partnership interests in Mountain VistaApartments
      (1)
    
    
    6,806
    
    
    6,806Total
      investments
    
    $
    66,409
    
    $
    49,712


(1)
    The
      preferred limited partnership interest is held in an entity that includes
      an affiliate of Marcus & Millichap Company. Marcus & Millichap
      Company’s Chairman is also the Chairman of the Operating
      Partnership.




13
 *Index*





The
combined summarized financial information of investments, which are accounted
for under the equity method, are as follows (dollars in thousands). Individual
investments are removed from this data as of the date at which they are sold or
the outside interest is acquired by the Operating Partnership.




**March
      31,**
    
    **December
      31,****2005**
    
    **2004**Balance
      sheets:Real
      estate and real estate under development
    
    $
    274,757
    
    $
    322,233Other
      assets
    
    
    91,491
    
    
    36,709Total
      assets
    
    $
    366,248
    
    $
    358,942Mortgage
      notes payable
    
    $
    180,605
    
    $
    203,171Other
      liabilities
    
    
    28,036
    
    
    21,276Partners'
      equity
    
    
    157,607
    
    
    134,495Total
      liabilities and partners' equity
    
    $
    366,248
    
    $
    358,942Operating
      Partnership's share of equity
    
    $
    66,409
    
    $
    49,712
  ****
    
    
    **Three
      Months Ended****March
      31,****2005**
    
    
    **2004**Statements
      of operations:Total
      property revenues
    
    $
    7,500
    
    $
    17,357Total
      gain on the sales of real estate
    
    
    33,036
    
    
    -Total
      expenses
    
    
    7,052
    
    
    15,415Total
      net income
    
    $
    33,484
    
    $
    1,942Operating
      Partnership's share of net income
    
    $
    19,584
    
    $
    1,100


**(4)**
    **Related
      Party Transactions**





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




**March
      31,**
    
    **December
      31,****2005**
    
    **2004**Other
      related party receivables, unsecured:Loans
      to officers made prior to July 31, 2002, secured, bearing interest at 8%,
      due
      beginning April 2006
    
    $
    625
    
    $
    625Other
      related party receivables, substantially due on demand
    
    
    670
    
    
    810Total
      notes and other receivable from related parties
    
    $
    1,295
    
    $
    1,435


Other
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.





Other
income includes management fees from the Operating Partnership's investees of
$1,556,000 and $1,805,000 for the three months ended March 31, 2005 and 2004,
respectively.





14
 *Index*





**(5)**
    **Segment
      Information**





The
Operating Partnership 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 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****March
      31,****2005**
    
    **2004**Revenues:Southern
      California
    
    $
    45,529
    
    $
    37,649Northern
      California
    
    
    16,919
    
    
    15,819Pacific
      Northwest
    
    
    14,012
    
    
    12,200Other
      non-segment areas
    
    
    861
    
    
    643Total
      property revenues
    
    $
    77,321
    
    $
    66,311Net
      operating income:Southern
      California
    
    $
    30,996
    
    $
    25,674Northern
      California
    
    
    11,426
    
    
    10,744Pacific
      Northwest
    
    
    8,992
    
    
    7,958Other
      non-segment areas
    
    
    205
    
    
    105Total
      net operating income
    
    
    51,619
    
    
    44,481Depreciation
      and amortization:Southern
      California
    
    
    (10,136
    )
    
    (10,330
    )Northern
      California
    
    
    (4,065
    )
    
    (5,501
    )Pacific
      Northwest
    
    
    (3,629
    )
    
    (1,185
    )Other
      non-segment areas
    
    
    (1,897
    )
    
    (1,330
    )(19,727
    )
    
    (18,346
    )Interest
      expense:Southern
      California
    
    
    (7,469
    )
    
    (6,392
    )Northern
      California
    
    
    (3,791
    )
    
    (3,051
    )Pacific
      Northwest
    
    
    (1,450
    )
    
    (1,705
    )Other
      non-segment areas
    
    
    (5,437
    )
    
    (3,163
    )(18,147
    )
    
    (14,310
    )Amortization
      of deferred financing costs
    
    
    (476
    )
    
    (273
    )General
      and administrative
    
    
    (4,542
    )
    
    (2,930
    )Gain
      on sale of real estate
    
    
    1,115
    
    
    -Interest
      and other income
    
    
    2,226
    
    
    1,851Equity
      income in co-investments
    
    
    19,584
    
    
    1,100Minority
      interests
    
    
    (1,290
    )
    
    (768
    )Income
      from continuing operations
    
    $
    30,362
    
    $
    10,805


15
 *Index*




**March
      31,**
    
    **December
      31,****2005**
    
    **2004**Assets:Net
      real estate assets:Southern
      California
    
    $
    1,178,272
    
    $
    1,162,803Northern
      California
    
    
    478,612
    
    
    458,199Pacific
      Northwest
    
    
    377,983
    
    
    358,219Other
      non-segment areas
    
    
    44,747
    
    
    62,321Total
      net real estate assets
    
    
    2,079,614
    
    
    2,041,542Other
      non-segment assets
    
    
    151,374
    
    
    175,675Total
      assets
    
    $
    2,230,988
    
    $
    2,217,217


16
 *Index*





**(6)**
    **Net
      Income Per Common Unit**


(Amounts
in thousands, except per unit data)




**Three
      Months Ended**
    
    **Three
      Months Ended****March
      31, 2005**
    
    **March
      31, 2004****Weighted**
    
    **Per**
    
    
    
    **Weighted**
    
    **Per****Average**
    
    **Common**
    
    
    
    **Average**
    
    **Common****Common**
    
    **Unit**
    
    
    
    **Common**
    
    **Unit****Income**
    
    **Units**
    
    **Amount**
    
    **Income**
    
    **Units**
    
    **Amount**Basic:Income
      from continuing operations available to
      common units
    
    $
    27,315
    
    
    25,369
    
    $
    1.08
    
    $
    6,213
    
    
    25,109
    
    $
    0.25Income
      from discontinued operations
    
    
    1,872
    
    
    25,369
    
    
    0.07
    
    
    447
    
    
    25,109
    
    
    0.0229,187
    
    
    
    
    $
    1.15
    
    
    6,660
    
    
    
    
    $
    0.27Effect
      of Dilutive Securities:Stock
      options (1)
    
    
    --
    
    
    167
    
    
    
    
    
    --
    
    
    172Vested
      series Z incentive units
    
    
    --
    
    
    119
    
    
    
    
    
    --
    
    
    90-
    
    
    286
    
    
    
    
    
    -
    
    
    262Diluted:Income
      from continuing operations available to
      common units
    
    
    27,315
    
    
    25,655
    
    $
    1.07
    
    
    6,213
    
    
    25,371
    
    $
    0.24Income
      from discontinued operations
    
    
    1,872
    
    
    25,655
    
    
    0.07
    
    
    447
    
    
    25,371
    
    
    0.02$
    29,187
    
    
    
    
    $
    1.14
    
    $
    6,660
    
    
    
    
    $
    0.26


The
Operating Partnership has the ability and intent to redeem Down REIT Limited
Partnership units for cash and does not consider them to be common stock
equivalents.





(1)
    The
      following stock options are not included in the diluted earnings per unit
      calculation 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.




**Three
      Months Ended****March
      31,****2005**
    
    **2004**Number
      of options
    32,873
    
    --Range
      of exercise prices
    $78.76
      - $84.46
    
    n/a


**(7)**
    **Derivative
      Instruments and Hedging
Activities**





On
February 16, 2005, the Operating Partnership 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. The transaction is
considered highly effective at offsetting changes in future cash flows for
forecasted transactions and qualifies for hedge accounting.





Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133), as amended and interpreted, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
As required by SFAS 133, the Operating Partnership 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.





17
 *Index*





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 Operating Partnership 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
Operating Partnership’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 Operating Partnership
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.





As of
March 31, 2005, no derivatives were designated as fair value hedges or hedges of
net investments in foreign operations. The Operating Partnership does not use
derivatives for trading or speculative purposes. At March 31, 2005, derivatives
with a fair value of $1.2 million were included in other assets. The change in
net unrealized gains/losses of $1.2 million in 2005 for derivatives designated
as cash flow hedges is separately disclosed in the statement of changes in
partners’ capital and accumulated other comprehensive income.  No hedge
ineffectiveness on cash flow hedges was recognized during 2005. The Operating
Partnership 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
Operating Partnership’s hedged debt. The Operating Partnership is hedging its
exposure to the variability in future cash flows for forecasted transactions
over a maximum period of 27 months (excluding forecasted transactions related to
the payment of variable interest on existing financial
instruments).





As of
March 31, 2005, the Operating Partnership owns interest rate cap agreements,
which expire at various dates through 2010 and which allow the Operating
Partnership to be reimbursed in the event the interest rate on $160.8 million of
its variable rate debt exceeds approximately 6.5%. Currently, the interest rate
in effect on this debt is approximately 3.7%. The Operating Partnership does not
believe these interest rate cap agreements have any value because we believe
there is a less than remote likelihood that interest rates will exceed 6.5%
prior to the expiration of these contracts.





**(8)**
    **Commitments
      and Contingencies******





In April
2004, a lawsuit entitled Chace Nelson and Douglas Korte, et al. v. Essex
Property Trust was filed against the Company in the California Superior Court in
the County of Alameda. In this lawsuit, two former Operating Partnership
maintenance employees seek unpaid wages, associated penalties and attorneys’
fees on behalf of a putative class of the Operating Partnership’s current and
former maintenance employees who were required to wear a pager while they were
on call during evening and weekend hours. The Operating Partnership intends to
vigorously defend against the claims alleged in this litigation. At March 31,
2005, no accrual for settlement cost has been recorded. However, litigation is
subject to inherent uncertainties, and no assurance can be given that the
Operating Partnership will prevail in this lawsuit **.**





The
Operating Partnership 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 Operating
Partnership’s financial condition, results of operations or cash
flows.




18
 *Index*







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




The
following discussion is based primarily on the consolidated unaudited financial
statements of the Operating Partnership for the three months ended March 31,
2005 and 2004. This information should be read in conjunction with the
accompanying consolidated unaudited financial statements and notes thereto.
These consolidated financial statements include all adjustments which are, in
the opinion of management, necessary to reflect a fair statement of the results
and all such adjustments are of a normal recurring nature.





Substantially
all of the assets of the Company are held by, and substantially all operations
are conducted through, Essex Portfolio, L.P. (the "Operating Partnership").
Effective January 1, 2004, the Operating Partnership consolidated the entities
discussed below pursuant to its adoption of FIN 46 Revised. The Company is the
sole general partner of the Operating Partnership and, as of March 31, 2005, and
December 31, 2004, held a 90.5%, 90.3% general partnership interest in the
Operating Partnership, respectively. The Operating Partnership utilizes taxable
REIT subsidiaries (“TRS”) for various revenue generating or investment
activities. The Operating Partnership consolidates the TRS’s.





**Accounting
Changes**





*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 Operating Partnership 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 Operating Partnership, and the multifamily
improvements owned by a third party in which the Operating Partnership owns the
land underlying these improvements and from which the Operating Partnership
receives fees, including land lease, subordination and property management fees,
and a joint venture to develop a building in Los Angeles, California. The
Operating Partnership consolidated these entities because it is deemed the
primary beneficiary under FIN 46R. The Operating Partnership's total assets and
liabilities related to these VIEs, net of intercompany eliminations, were
approximately $238.3 million and $154.8 million, respectively, at March 31, 2005
and $238.1 million and $155.1 million, respectively, at December 31, 2004.





Interest
holders in VIEs consolidated by the Operating Partnership are allocated a
priority of 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 Operating Partnership.





Properties
consolidated in accordance with FIN 46R were encumbered by third party,
non-recourse loans totaling $151.0 million and $151.3 million as of March 31,
2005 and December 31, 2004, respectively.





As of
March 31, 2005 the Operating Partnership is involved with two VIEs in which it
is not deemed to be the primary beneficiary. Total assets and liabilities of
these entities as of March 31, 2005 were approximately $52.0 million and $29.6
million, respectively. The Operating Partnership 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 $218,000 and $136,000 for
the three months ended March 31, 2005 and 2004, respectively. There were 67,300
and 0 stock options granted during the three months ended March 31, 2005 and
2004, respectively. The fair value of stock options granted was $8.74 and $0 per
share for the three months ended March 31, 2005 and 2004, respectively, and was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants:





19
 *Index*




**Three
      Months Ended****March
      31,****2005**
    
    **2004**Stock
      price
    $69.11
      - $82.77
    
    n/aRisk-free
      interest rates
    3.64%
      - 4.30%
    
    n/aExpected
      lives
    5
      years
    
    n/aVolatility
    18.09%
      -18.29%
    
    n/aDividend
      yield
    4.38%
      - 5.13%
    
    n/a
   *Depreciation*





Beginning
in 2003, the Operating Partnership implemented an upgrade to its subsidiary
ledger for accounting for fixed assets. The Operating Partnership completed this
system upgrade in the first quarter of 2004. In conjunction with this system
upgrade, the Operating Partnership has 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 Operating
Partnership does not believe that the correction is material to any previously
reported financial statements and is not material to any consolidated earnings
trends.





**Overview**





The
Operating Partnership believes that its operating results have largely been a
result of its business strategy of investing in submarkets that provide the
greatest potential for rental growth at the lowest relative risk. Essex believes
that its market research process, which includes an analysis of both
metropolitan statistical areas (MSA's) and submarkets, provides it with a
distinct competitive advantage. Essex researches markets by reviewing data from
private and government sources as well as information developed or verified by
its field personnel. Essex then utilizes its proprietary research model to
project market rent trends, allowing the Operating Partnership to allocate
capital to the markets with the best risk-adjusted return
potential.





Essex's
research process begins with a macro-economic analysis of various MSA's,
followed by an evaluation of the submarkets within that MSA. The objective of
the economic research department is to estimate the amount of new demand for
housing, comparing it to the number of single family and multifamily homes being
constructed within a submarket. Historically, markets with demand for
multifamily housing that is greater than supply generate increasing occupancy
levels and growth in rents.





Key
components of Essex's analysis are as follows:





Job
Growth: The Operating Partnership believes that quality job growth will lead to
demand for multifamily and for-sale housing. Based on a variety of
considerations, the Operating Partnership estimates how the total demand for
housing will be allocated between rental and for-sale housing.





Housing
Supply: Limited housing supply, both rental and for-sale, is a very important
factor in maintaining high occupancy levels, particularly in periods of
recession or slow economic growth. The Operating Partnership seeks to identify
markets in which there is a low level of housing construction, measured as a
percentage of existing housing stock.





Cost of
for-sale housing: The Operating Partnership prefers areas with relatively
expensive for-sale housing, which is usually caused by an insufficient amount of
single-family housing construction. The Operating Partnership seeks to identify
areas where the cost of rent is low relative to both median income levels and
the cost of homeownership.





Demographic
trends: The Operating Partnership evaluates areas with long-term positive
immigration and demographic trends, and areas that provide an attractive quality
of life.





Based on
its evaluation of multifamily housing supply and demand factors, the Operating
Partnership forecasts the occupancy and rent trends for its targeted submarkets,
and actively seeks to expand its multifamily portfolio in the submarkets with
the greatest risk-adjusted return.





20
 *Index*





By
region, the Operating Partnership's operating results and investment strategy
are as follows:





Southern
California Region: At the time of the Company's 1994 initial public offering
(IPO), the Company had ownership interests in this region representing 17% of
its multifamily units. Following the IPO, the Operating Partnership, using its
research process, determined that various markets in the Southern California
region were attractive for multifamily property investment and, the Operating
Partnership accordingly increased its ownership in such markets. As of March 31,
2005, we have ownership interests in this region representing 52% of our
multifamily units. During the three months ended March 31, 2005 the region
continued to perform well, with same store property revenues increasing by 4.9%
versus the comparable period in 2004. Same store property revenues increased by
0.8% versus the immediately preceding quarter. The Operating Partnership expects
this region to generate positive rent growth of approximately 3.3% in
2005.





Northern
California Region: As of March 31, 2005, the Operating Partnership had ownership
interests in this region representing 24% of its multifamily units. In the three
months ended March 31, 2005, same store property revenues decreased slightly by
0.6% versus the comparable period in 2004 and increased by 1.0% versus the
immediately preceding quarter. The Operating Partnership expects market rents to
increase by approximately 1% in 2005. The Operating Partnership expects further
recovery thereafter. As a result, the Operating Partnership will begin to
increase its investment focus in this region.





Pacific
Northwest Region: As of March 31, 2005, the Operating Partnership had ownership
interests in this region representing 23% of its multifamily units. This region
created jobs in 2004, and in the three months ended March 31, 2005, same store
property revenues increased by 2.0% versus the comparable period in 2004 and
increased by 2.2% versus the immediately preceding quarter. The Operating
Partnership expects continued job growth, leading to rental revenue growth of
approximately 1.8% in 2005.








**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
Operating Partnership 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. The Operating
Partnership 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.





The
Operating Partnership assesses each entity in which it has an investment or
contractual relationship to determine if it may be deemed to be a VIE. If such
an entity is a VIE, then the Operating Partnership analyzes the expected losses
and expected residual returns to determine who is the primary beneficiary. If
the Operating Partnership is the primary beneficiary, then the entity is
consolidated. The analysis required to identify VIEs and primary beneficiaries
is complex and judgmental, and the analysis must be applied to various types of
entities and legal structures.





Rental
properties are recorded at cost less accumulated depreciation. Depreciation
components on rental properties have been provided over estimated useful lives
ranging from 3 to 30 years using the straight-line method. Development costs
include acquisition, direct and indirect construction costs, interest and real
estate taxes incurred during the construction and property stabilizations
periods. Maintenance and repair expenses that do not add to the value or prolong
the useful life of the property are expensed as incurred. Asset replacements and
improvements are capitalized and depreciated over their estimated useful lives.





21
 *Index*





The
Operating Partnership assesses the carrying value of its real estate investments
by monitoring investment market conditions and performance compared to budget
for operating properties and joint ventures, and by monitoring estimated costs
for properties under development. Local market knowledge and data is used to
assess carrying values of properties and the market value of acquisition
opportunities. Whenever events or changes in circumstances indicate that the
carrying amount of a property held for investment may not be fully recoverable,
the carrying amount is evaluated. If the sum of the property’s expected future
cash flows (undiscounted and without interest charges) is less than the carrying
amount of the property, then the Operating Partnership will recognize an
impairment loss equal to the excess of the carrying amount over the fair value
of the property. Adverse changes in market conditions or poor operating results
of real estate investments could result in impairment charges. When the
Operating Partnership determines that a property is held for sale, it
discontinues the periodic depreciation of that property. The criteria for
determining when a property is held for sale requires judgment and has potential
financial statement impact as depreciation would cease and an impairment loss
could occur upon determination of held for sale status. Assets held for sale are
reported at the lower of the carrying amount or estimated fair value less costs
to sell. With respect to investments in and advances to joint ventures and
affiliates, the Operating Partnership looks to the underlying properties to
assess performance and the recoverability of carrying amounts for those
investments in a manner similar to direct investments in real estate properties.
An impairment charge or investment valuation charge is recorded if the carrying
value of the investment exceeds its fair value.





The
Operating Partnership capitalizes all direct and certain indirect costs,
including interest and real estate taxes, incurred during development and
redevelopment activities. Interest is capitalized on real estate assets that
require a period of time to get them ready for their intended use. The amount of
interest capitalized is based upon the average amount of accumulated development
expenditures during the reporting period. Included in capitalized costs are
management’s estimates of the direct and incremental personnel costs and
indirect project costs associated with our development and redevelopment
activities. Indirect project costs consist primarily of personnel costs
associated with construction administration and development accounting, legal
fees, and various office costs that clearly relate to projects under
development.





The
Operating Partnership bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results may vary from those estimates and those estimates
could be different under different assumptions or conditions.








**General
Background**





The
Operating Partnership's property revenues are generated primarily from
multifamily property operations, which accounted for 96% or more of its property
revenues for each of the three months ended March 31, 2005 and 2004. The
Operating Partnership's 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).





Essex
Apartment Value Fund, L.P. ("Fund I"), is an investment fund organized by the
Operating Partnership in 2001 to add value through rental growth and asset
appreciation, utilizing the Operating Partnership's development, redevelopment
and asset management capabilities. An affiliate of the Operating Partnership,
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 Operating Partnership announced the final closing of
partner equity commitments for Essex Apartment Value Fund II (“Fund II”). Fund
II has eight institutional investors including the Operating Partnership with
combined partner equity commitments of $265.9 million. Essex had 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 Operating Partnership’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 be compensated for its asset management, property management, development
and redevelopment services and may receive promote distributions if Fund II
exceeds certain financial return benchmarks.





22
 *Index*





The
Operating Partnership (excluding Fund I's development communities) has ownership
interests in and is developing one multifamily residential community, with an
aggregate of 275 multifamily units. In connection with these development
projects, the Operating Partnership has directly, or in some cases through its
joint venture partners, entered into contractual construction related
commitments with unrelated third parties and the total projected estimated cost
for these projects is approximately $65.7 million. As of March 31, 2005, the
remaining commitment to fund these projects is approximately $48.8 million.





**Results
of Operations**





*Comparison
of the Three Months Ended March 31, 2005 to the Three Months Ended March 31,
2004*





Average
financial occupancy rates of the Operating Partnership's multifamily “Quarterly
Same Store Properties” (stabilized properties consolidated by the Operating
Partnership for each of the three months ended March 31, 2005 and 2004) was
96.4% and 95.8%, for the three months ended March 31, 2005 and 2004,
respectively. "Financial occupancy" is defined as the percentage resulting from
dividing actual rental revenue by total possible rental revenue. Actual rental
revenue represents contractual rental revenue pursuant to leases without
considering delinquency and concessions. Total possible rental revenue
represents the value of all apartment units, with occupied units valued at
contractual rental rates pursuant to leases and vacant units valued at estimated
market rents. We believe that financial occupancy is a meaningful measure of
occupancy because it considers the value of each vacant unit at its estimated
market rate. Financial occupancy rates disclosed by other REIT’s may not be
comparable to our calculation of financial occupancy.





The
regional breakdown of average financial occupancy for the multifamily Quarterly
Same Store Properties for the three months ended March 31, 2005 and 2004 is as
follows:




**Three
      months ended****March
      31,****2005**
    
    **2004**Southern
      California
    96.2%
    
    95.9%Northern
      California
    96.9%
    
    95.7%Pacific
      Northwest
    96.7%
    
    95.5%


*Total
Property Revenues* increased by $11,010,000 or 16.6% to $77,321,000 in the first quarter of 2005
from $66,311,000 in the first quarter of 2004. The following table sets forth a
breakdown of these revenue amounts, including the revenues attributable to the
Quarterly Same Store Properties.




**Three
      Months Ended****Number
      of**
    
    **March
      31,**
    
    **Dollar**
    
    **Percentage****Properties**
    
    **2005**
    
    **2004**
    
    **Change**
    
    **Change**Revenues:
    
    
    
    (Dollars
      in thousands)Property
      revenues - quarterlyQuarterly
      Same Store PropertiesSouthern
      California
    
    
    51
    
    $
    31,457
    
    $
    29,999
    
    $
    1,458
    
    
    4.9
    %Northern
      California
    
    
    18
    
    
    13,052
    
    
    13,127
    
    
    (75
    )
    
    (0.6
    )Pacific
      Northwest
    
    
    26
    
    
    12,017
    
    
    11,783
    
    
    234
    
    
    2.0Total
      property revenuesSame
      Store Properties
    
    
    95
    
    
    56,526
    
    
    54,909
    
    
    1,617
    
    
    2.9Property
      revenues - properties acquired
      or consolidated subsequent to December
      31, 2003 (1)
    
    
    
    
    
    20,795
    
    
    11,402
    
    
    9,393
    
    
    82.4Total
      property revenues
    
    
    
    
    $
    77,321
    
    $
    66,311
    
    $
    11,010
    
    
    16.6
    %


(1) Also
includes three office buildings, three recreational vehicle parks, one
manufactured housing community, redevelopment and development
communities.





23
 *Index*





As set
forth in the above table, the $11,010,000 net increase in total property
revenues was attributable to an increase of $9,393,000 primarily due to the
acquisition of twelve multifamily properties (the "Quarterly Acquisition
Properties"), the achievement of stabilized operations in two development
communities and the sale of one multifamily community subsequent to December 31,
2003 and the increase in Quarterly Same Store Properties revenue of $1,617,000.





*Property
revenues* from the
Quarterly Same Store Properties increased by $1,617,000 or 2.9% to $56,526,000
in the first quarter of 2005 from $54,909,000 in the first quarter of 2004. The
increase was attributable to the results of the 51 Quarterly Same Store
Properties located in Southern California and the 26 Quarterly Same Store
Properties located in the Pacific Northwest. The 51  Quarterly
Same Store Properties located in Southern California increased by $1,458,000, or
4.9%, to $31,457,000 in the first quarter of 2005 from $29,999,000 in the first
quarter of 2004. The $1,458,000 increase is primarily attributable to increases
in occupancy and rental rates, and a decrease in property
concessions.  The
property revenues of the Quarterly Same Store Properties in the Pacific
Northwest increased by $234,000 or 2.0% to $12,017,000 in the first quarter of
2005 from $11,783,000 in the first quarter of 2004. The $234,000 increase is
primarily attributable to increases in occupancy and rental rates, and a
decrease in property concessions. These increases were offset by a decrease in
revenues of $75,000, or 0.6%, in Northern California. Quarterly Same Store
Properties for the first quarter of 2005 decreased to $13,052,000 from
$13,127,000 in the first quarter of 2004.The decrease in revenue was primarily
attributable to an increase in concessions. The Operating Partnership expects
market rents to increase in this region by approximately 1% in
2005.





*Total
Expenses* increased by $10,905,000 or approximately 18.9% to $68,594,000 in the first
quarter of 2005 from $57,689,000 in the first quarter of 2004. This increase was
mainly due to an increase in property operating expenses, interest expense and
general and administrative expenses. Property operating expenses increased
$5,253,000 or 13.1% to $45,429,000 in the first quarter of 2005 from $40,176,000
in the first quarter of 2004. The increase of $5,253,000 was attributable to an
increase in real estate taxes of $1,390,000, an increase in depreciation and
amortization of $1,381,000, and an increase in maintenance and repairs of
$1,277,000. All other property operating expenses increased $1,205,000. The
increase in real estate taxes and maintenance and repairs was primarily
attributable to the Quarterly Acquisition Properties. On a comparative basis,
depreciation and amortization expense would have increased by $3,481,000 in the
first quarter of 2005 from the amount for the first quarter of 2004 if a
$2,100,000 correction to depreciation expense relating to 2003 were
excluded.  The
$3,481,000 increase is primarily a result of the Quarterly Acquisition
Properties. General and administrative expense increased by $1,612,000 or 55.0%
to $4,542,000 in the first quarter of 2005 from $2,930,000 in the first quarter
of 2004. This increase is primarily attributable to increases in headcount and
related compensation expenses, and professional fees associated with
Sarbanes-Oxley implementation. Interest expense increased by $3,837,000 or 26.8%
to $18,147,000 in the first quarter of 2005 from $14,310,000 in the first
quarter of 2004. The increase in interest expense was due to increases in the
mortgage notes payable and line of credit balances, the majority of which relate
to the Quarterly Acquisition Properties, increased rates on our variable rate
debt, and a reduction in the amount of capitalized interest.





*Gain
on sale of real estate* increased to $1,115,000 for the first quarter of 2005 as compared to $0 for the
first quarter of 2004 due to the recognition of a portion of the deferred gain
on the sale of The Essex at Lake Merritt, which was sold in the third quarter of
2004.





*Interest
and other income* increased by $375,000 or 20.3% to $2,226,000 in the first quarter of 2005 from
$1,851,000 in the first quarter of 2004. The increase primarily relates to
increases in Fund II related fees, which were offset by the reduction in Fund I
fee income.





*Equity
income in co-investments* increased by $18,484,000 to $19,584,000 in the first quarter of 2005 from
$1,100,000 in the first quarter of 2004. The increase relates to the Operating
Partnership’s ownership interest, through Fund I, in Coronado at Newport South,
which resulted in the Operating Partnership recognizing equity income from
investments of $14,381,000. Additionally, the Operating Partnership’s general
partnership interest in Fund I provides for “promote distributions” upon
attainment of certain financial return benchmarks. The Operating Partnership
recognized $4,873,000 of additional equity income associated with its promote
distribution.


**


*Minority
interests* increased by $522,000 or 68.0% to $1,290,000 in the first quarter of 2005 from
$768,000 in the first quarter of 2004. This is primarily due to the increases in
net income of the Operating Partnership and joint venture
investments.





24
 *Index*





*Discontinued
operations* increased by $1,425,000 to $1,872,000 in the first quarter of 2005 from $447,000
in the first quarter of 2004. The increase in discontinued operations was mainly
due to a gain on sale of real estate of $735,000 and the recognition of deferred
lease revenue of $1,100,000 related to the sales of the Riviera Recreational
Vehicle Park and a Manufactured Home Park, located in Las Vegas, Nevada, and the
sales of the two small office buildings located in San Diego,
California.





**Liquidity
and Capital Resources**





On July
26, 2004, Standard and Poor's publicly announced its existing issuer credit
ratings of BBB/Stable for Essex Property Trust, Inc. and Essex Portfolio L.P.,
and issued a new rating of BBB- on its Senior Unsecured Debt for Essex Portfolio
L.P.





At March
31, 2005 the Operating Partnership had $12,517,000 of unrestricted cash and cash
equivalents. The Operating Partnership expects to meet its short-term liquidity
requirements by using its working capital, cash generated from operations, and
amounts available under lines of credit or other financings. The Operating
Partnership believes that its current net cash flows will be adequate to meet
operating requirements and to provide for payment of dividends by the Company in
accordance with REIT qualification requirements. The Operating Partnership
expects to meet its long-term liquidity requirements relating to property
acquisitions and development (beyond the next 12 months) and balloon debt
maturities by using a combination of some or all of the following sources:
working capital, amounts available on lines of credit, net proceeds from public
and private debt and equity issuances, refinancing of maturing loans, and
proceeds from the disposition of properties that may be sold from time to time.
There can, however, be no assurance that the Operating Partnership will have
access to the debt and equity markets in a timely fashion to meet such future
funding requirements or that future working capital and borrowings under the
lines of credit will be available, or if available, will be sufficient to meet
the Operating Partnership's requirements or that the Operating Partnership will
be able to dispose of properties in a timely manner and under terms and
conditions that the Operating Partnership deems acceptable.





Non-revenue
generating capital expenditures are improvements and upgrades that extend the
useful life of the property and are not related to preparing a multifamily
property unit to be rented to a tenant. The Operating Partnership expects to
incur approximately $410 per weighted average occupancy unit in non-revenue
generating capital expenditures for the year ended December 31, 2005. These
expenditures do not include the improvements required as a condition to funding
mortgage loans, expenditures for acquisition properties' renovations and
improvements, which are expected to generate additional revenue, and renovation
expenditures required pursuant to tax-exempt bond financings. The Operating
Partnership expects that cash from operations and/or its lines of credit will
fund such expenditures. However, there can be no assurance that the actual
expenditures incurred during 2005 and/or the funding thereof will not be
significantly different than the Operating Partnership's current
expectations.





The
Operating Partnership is currently developing one multifamily residential
project, with an aggregate of 275 multifamily units. The project involves
certain risks inherent in real estate development. See "Other Matters/ Risk
Factors--Risks that Development Activities Will be Delayed, Not Completed and/or
Fail to Achieve Expected Results" in Item 1 of the Operating Partnership's
Annual Report on Form 10-K for the year ended December 31, 2004. In connection
with this development project, the Operating Partnership has directly, or in
some cases through its joint venture partners, entered into contractual
construction related commitments with unrelated third parties and the total
projected estimated cost for these projects is approximately $65.7 million. As
of March 31, 2005, the remaining commitment to fund this development project was
approximately $48.8 million. The Operating Partnership expects to fund this
commitment by using a combination of some or all of the following sources: its
working capital, amounts available on its lines of credit, net proceeds from
public and private equity and debt issuances, and proceeds from the disposition
of properties, if any.





On
September 27, 2004 the Operating Partnership announced the final closing of
partner equity commitments for Essex Apartment Value Fund II (“Fund II”). Fund
II has eight institutional investors including the Operating Partnership 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 Operating Partnership’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 be compensated for its asset management, property management, development
and redevelopment services and may receive promote distributions if Fund II
exceeds certain financial return benchmarks.





25
 *Index*





The
Operating Partnership has an unsecured line of credit for an aggregate amount of
$185,000,000. At March 31, 2005, the Operating Partnership had $144,300,000
outstanding on this line of credit. At March 31, 2005, this line of credit bore
an interest rate of approximately 4.1%. This facility matures in April 2007,
with an option to extend it for one year thereafter. The underlying interest
rate on this line is based on a tiered rate structure tied to the Company's
corporate ratings and is currently LIBOR plus 1.0%. In addition, the Operating
Partnership has a $100 million credit facility from Freddie Mac secured by six
of Essex's multifamily communities. At March 31, 2005, the Operating Partnership
had $93.7 million outstanding under this line of credit. At March 31, 2005, this
line of credit bore an interest rate of approximately 3.1%. This facility
matures in January 2009. The underlying interest rate on this line is between 55
and 59 basis points over the Freddie Mac Reference Rate. The Operating
Partnership expects to place an additional $80 million in long-term fixed rate
debt in the second and third quarters of 2005, with the proceeds being used
primarily to repay these lines of credit.





On
February 23, 2005, Fund II obtained a credit facility for an aggregate amount of
$50,0000,000. This line bears interest at LIBOR plus 0.875%, and matures in
August 2005.





In
addition to the Operating Partnership's lines of credit, the Operating
Partnership had $1,079,920,000 mortgage notes payable at March 31, 2005. Such
indebtedness consisted of $890,306,000 in fixed rate debt with interest rates
varying from 4.25% to 8.18% and maturity dates ranging from 2006 to 2034. The
indebtedness also includes $189,614,000 of tax-exempt variable rate demand bonds
with interest rates, including credit enhancements and other fees, paid during
the three months ended March 31, 2005 that average 3.6% and have maturity dates
ranging from 2006 to 2034. The tax-exempt variable rate demand bonds 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 Operating
Partnership primarily in short-term investment grade securities or is used by
the Operating Partnership to reduce balances outstanding under its line of
credit.





On
February 16, 2005, the Operating Partnership 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 derivative is used to
hedge the cash flows associated with the forecasted issuance of debt expected to
occur in 2007. The transaction is considered highly effective at offsetting
changes in future cash flows for forecasted transactions and qualifies for hedge
accounting. The increase in the derivative’s fair value in the first quarter of
2005 was $1.2 million, which is reflected in other assets and accumulated other
comprehensive income in the Operating Partnership’s consolidated financial
statements.





As of
March 31, 2005, the Company had the capacity pursuant to existing shelf
registration statements to issue up to $219,455,250 in equity securities, and
the Operating Partnership had the capacity pursuant to such registration
statements to issue up to $250,000,000 of debt securities.





Certain
of the Operating Partnership's properties are located in areas that are subject
to earthquake activity. The
Operating Partnership has obtained earthquake insurance for most the Properties.
Most of the Properties are included in an earthquake insurance program that is
subject to an aggregate limit of $80.0 million payable upon a covered loss in
excess of a $15.0 million self-insured retention amount and a 5%
deductible.





*Off
Balance Sheet Arrangements*





As of
March 31, 2005 the Operating Partnership is involved with two VIEs in which the
Operating Partnership is not deemed to be the primary beneficiary. Total assets
and liabilities of these entities as of March 31, 2005 were approximately $52.0
million and $29.6 million, respectively. The Operating Partnership does not have
a significant exposure to loss resulting from its involvement with these
unconsolidated VIEs.





26
 *Index*





**Contractual
Obligations and Commercial Commitments**


The
following table summarizes our contractual obligations and other commitments at
March 31, 2005, and the effect such obligations could have on our liquidity and
cash flow in future periods:




**2006
      and**
    
    **2008
      and****(In
      thousands)**
    
    **2005**
    
    **2007**
    
    **2009**
    
    **Therafter**
    
    **Total**Mortgage
      notes payable
    
    $
    16,069
    
    $
    150,189
    
    $
    168,532
    
    $
    745,130
    
    $
    1,079,920Lines
      of credit
    
    
    -
    
    
    144,300
    
    
    93,735
    
    
    -
    
    
    238,035Development
      commitments (1)
    
    
    24,400
    
    
    24,400
    
    
    -
    
    
    -
    
    
    48,800Redevelopment
      commitments(2)
    
    
    14,269
    
    
    -
    
    
    -
    
    
    -
    
    
    14,269Essex
      Apartment Value Fund II, L.P. capital
      commitment (3)
    
    
    20,717
    
    
    37,500
    
    
    -
    
    
    -
    
    
    58,217$
    75,455
    
    $
    356,389
    
    $
    262,267
    
    $
    745,130
    
    $
    1,439,241
 __________


(1)
    $5,127
      of these commitments relate to actual contracts as of March 31,
      2005.


(2)
    $8,511
      of these commitments relate to actual contracts as of March 31,
      2005.


(3)
    The
      Operating Partnership has a total commitment of $58,217, as of March 31,
      2005. The amounts provided by year is 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.





**New
Accounting Pronouncements Issued But Not Yet Adopted**





In
December 2004, the FASB issued SFAS No. 123 revised, “Share-Based Payment”. This
statement is a revision of SFAS No. 123, “Accounting for Stock-Based
Compensation”, and supercedes 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 June 15, 2005. We do not believe that the adoption of SFAS No. 123
revised will have a material impact on our financial position, net earnings or
cash flows.





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.





**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 Operating Partnership's expectations, hopes,
intentions, beliefs and strategies regarding the future. Forward looking
statements include statements regarding the Operating Partnership'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 Operating Partnership's anticipated
development projects in 2005, the anticipated sale of the remaining property of
the Essex Apartment Value Fund, L.P.("Fund I"), and estimate of the resulting
incentive and promote interest, 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
Operating Partnership's investment focus in such regions, statements regarding
the Operating Partnership's financing activities and the use of proceeds from
such activities.





27
 *Index*





Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors including, but not limited to, that the Operating Partnership 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 Operating Partnership'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 Operating Partnership's current
expectations, that the sale of the remaining property of Fund I will not occur
or will generate proceeds that are less than anticipated, that the Operating
Partnership'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
Operating Partnership'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
Operating Partnership'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 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. All forward-looking statements are made as of today,
and the Operating Partnership assumes no obligation to update this
information.





**Potential
Factors Affecting Future Operating Results**





Many
factors affect the Operating Partnership’s actual financial performance and may
cause the Operating Partnership’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 Operating Partnership’s Annual Report on Form
10-K for the year ended December 31, 2004 and the following:





*Economic
Environment and Impact on Operating Results*





Both the
national economy and the economies of the western states in which the Operating
Partnership owns, manages and develops properties, some of which are
concentrated in high-tech sectors, have been and may be in an economic downturn.
The impacts of such downturns on operating results can include, and are not
limited to, reduction in rental rates, occupancy levels, property valuations and
increases in operating costs such as advertising, turnover and repair and
maintenance expense.





The
Operating Partnership's property type and diverse geographic locations provide
some degree of risk moderation but are not immune to a prolonged down cycle in
the real estate markets in which the Operating Partnership operates. Although
the Operating Partnership believes it is well positioned to meet the challenges
ahead, it is possible that reductions in occupancy and market rental rates will
result in a reduction of rental revenues, operating income, cash flows, and
market value of the Operating Partnership's shares. Prolonged recession could
also affect the Operating Partnership's ability to obtain financing at
acceptable rates of interest and to access funds from the refinance or
disposition of properties at acceptable prices.





*Development
and Redevelopment Activities*





The
Operating Partnership pursues multifamily residential properties and development
and redevelopment projects from time to time. Development projects generally
require various government and other approvals, the receipt of which cannot be
assured. The Operating Partnership'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.





28
 *Index*





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





**Interest
Rate Fluctuations**





The
Operating Partnership monitors changes in interest rates and believes that it is
well positioned from both a liquidity and interest rate risk perspective.
However, current interest rates are at historic lows and potentially could
increase rapidly to levels more in line with higher historical levels. The
immediate effect of significant and rapid interest rate increases would result
in higher interest expense on the Operating Partnership's variable interest rate
debt. The effect of prolonged interest rate increases could negatively impact
the Operating Partnership's ability to make acquisitions and develop properties
at economic returns on investment and the Operating Partnership's ability to
refinance existing borrowings at acceptable rates. The Operating Partnership
expects to place an additional $80 million in long-term fixed rate debt in the
second and third quarters of 2005, with the proceeds being used primarily to
repay these lines of credit.





**Inflation
/Deflation**





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







**Item
3:  Quantitative and QualitativeDisclosures About
Market Risk**





The
Operating Partnership 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 Operating Partnership’s real estate
investment portfolio and operations. The Operating Partnership’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 Operating Partnership 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 Operating Partnership does not enter into derivative
or interest rate transactions for speculative purposes.





The
Operating Partnership’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 March 31, 2005 because interest rates, yields and
other terms for these instruments are consistent with yields and other terms
currently available to the Operating Partnership for similar instruments.




**Estimated****For
      the Years Ended**
    
    **2005**
    
    **2006**
    
    **2007**
    
    **2008**
    
    **2009**
    
    **Thereafter**
    
    **Total**
    
    **Fair
      value**Fixed
      rate debt(In
      thousands)Amount
    
    $
    16,069
    
    $
    16,925
    
    $
    125,184
    
    $
    121,954
    
    $
    46,578
    
    $
    563,596
    
    $
    890,306
    
    $
    936,965Average
      interest rate
    
    
    6.6
    %
    
    6.6
    %
    
    6.6
    %
    
    6.6
    %
    
    6.6
    %
    
    6.6
    %Variable
      rate debt(In
      thousands)Amount
    
    $
    --
    
    $
    8,080
    
    $
    144,300
    
    $
    --
    
    $
    93,735
    
    $
    181,534
    
    $
    427,649
    
    $
    427,649Average
      interest
    
    
    --
    
    
    3.8
    %
    
    3.8
    %
    
    --
    
    
    3.1
    %
    
    3.8
    %


29
 *Index*





The table
incorporates only those exposures that exist as of March 31, 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.





On
February 16, 2005, the Operating Partnership 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. At March 31, 2005, this
transaction is considered highly effective at offsetting changes in future cash
flows for forecasted transactions and qualifies for hedge accounting. The fair
value of the derivative was $1.2 million and is included in other assets and
accumulated other comprehensive income, and is separately disclosed in the
statement of changes in partners’ capital.





As of
March 31, 2005, the Operating Partnership owns interest rate cap agreements,
which expire at various dates through 2010 and which allow the Operating
Partnership to be reimbursed in the event the interest rate on $160.8 million of
its variable rate debt exceeds approximately 6.5%. Currently, the interest rate
in effect on this debt is approximately 3.7%. The Operating Partnership does not
believe these interest rate cap agreements have any value because we believe
there is a less than remote likelihood that interest rates will exceed 6.5%
prior to the expiration of these contracts.








**Item
4:  Controls and Procedures**





As of
March 31, 2005, our general partner carried out an evaluation, under the
supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer of our general partner, 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 of our general partner concluded that our disclosure controls
and procedures are effective in timely alerting management to material
information relating to the Operating Partnership that is required to be
included in our periodic filings with the Securities and Exchange
Commission.





There
were no changes in the Operating Partnership’s internal control over financial
reporting, that occurred during the quarter ended March 31, 2005, that have
materially affected, or are reasonably likely to materially affect, the
Operating Partnership’s internal control over financial reporting.





Our
management, including our Chief Executive Officer and Chief Financial Officer of
our general partner, does not expect that our disclosure controls and procedures
or our internal controls over financial reporting will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of their inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Operating
Partnership have been detected.








**Part
II -- Other Information**





**Item
1:  Legal Proceedings**





In April
2004, a lawsuit entitled Chace Nelson and Douglas Korte, et al. v. Essex
Property Trust was filed against the Company in the California Superior Court in
the County of Alameda. In this lawsuit, two former Operating Partnership
maintenance employees seek unpaid wages, associated penalties and attorneys’
fees on behalf of a putative class of the Operating Partnership’s current and
former maintenance employees who were required to wear a pager while they were
on call during evening and weekend hours. The Operating Partnership intends to
vigorously defend against the claims alleged in this litigation. At March 31,
2005, no accrual for settlement cost has been recorded. However, litigation is
subject to inherent uncertainties, and no assurance can be given that the
Operating Partnership will prevail in this lawsuit.





30
 *Index*





The
Operating Partnership 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 Operating
Partnership’s financial condition, results of operations or cash
flows.








**Item
5:  Other Information**





In 2004,
the Operating Partnership submitted to the New York Stock Exchange the CEO
certification required by Section 303A, 12(a) of the New York Stock Exchange
Listed Company Manual.








**Item
6:  Exhibits**





*A.*
    *Exhibits*





10.1*
    Offer
      Letter between Essex Property Trust, Inc. and Mr. Dance, filed as Exhibit
      10.1 on the Company’s Form 8-K, filed on February 14, 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.





__________


(*)
    Management
      contract or compensatory plan or
arrangement.





31
 *Index*





**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
      PORTFOLIO, L.P.*(Registrant)*Date:
      May 10, 2005By:
      
      
      By:
    Essex
      Property Trust, Inc.
      Its
      General Partner
      
      /S/
      MICHAEL T. DANCEMichael
      T. Dance*Executive
      Vice President, Chief Financial Officer*
      *(Authorized
      Officer and Principal Accounting Officer)*





32