The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with our 2008 Annual Report on Form 10-K for the year ended December 31, 2008 and our Current Report on Form 10-Q for the quarter ended March 31, 2009.

The Company is a fully integrated Real Estate Investment Trust ("REIT"), and its property revenues are generated primarily from apartment community operations. Our investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth. Our strong financial condition supports our investment strategy by enhancing our ability to quickly shift our acquisition, development, and disposition activities to markets that will optimize the performance of the portfolio.

As of March 31, 2009, we had ownership interests in 132 apartment communities, comprising 26,862 apartment units. Our apartment communities are located in the following major West Coast regions:

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

Northern California (the San Francisco Bay Area)

Seattle Metro (Seattle metropolitan area)

As of March 31, 2009, we also had ownership interests in five office and commercial buildings (with approximately 215,840 square feet).

As of March 31, 2009, our consolidated development pipeline, excluding development projects owned by Fund II, was comprised of four development projects, three predevelopment projects and four land parcels held for future development aggregating 2,200 units, with total incurred costs of $292.6 million. The estimated remaining project costs of active development projects were $112.8 million for total estimated project costs of $279.6 million.

The Company's consolidated apartment communities are as follows:

                              As of March 31, 2009              As of March 31, 2008
                           Apartment Units          %        Apartment Units          %
    Southern California              12,370          51 %              12,725          53 %
    Northern California               6,457          27 %               6,361          26 %
    Seattle Metro                     5,338          22 %               5,005          21 %
    Total                            24,165         100 %              24,091         100 %

Co-investments including Fund II communities and communities included in discontinued operations are not included in the table above for both years presented above.

Comparison of the Three Months Ended March 31, 2009 to the Three Months Ended March 31, 2008

Our average financial occupancies for the Company's stabilized apartment communities or "Quarterly Same-Property" (stabilized properties consolidated by the Company for the quarters ended March 31, 2009 and 2008) increased 110 basis points to 97.0% as of March 31, 2009 from 95.9% as of March 31, 2008. 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 may not completely reflect short-term trends in physical occupancy and financial occupancy rates as disclosed by other REITs may not be comparable to our calculation of financial occupancy.

The regional breakdown of the Company's Quarterly Same-Property portfolio for financial occupancy for the quarter ended March 31, 2009 and 2008 is as follows:

                                       Three months ended March 31,
                                        2009                   2008
             Southern California             96.5 %                 95.1 %
             Northern California             97.6 %                 96.7 %
             Seattle Metro                   97.3 %                 96.8 %

The following table provides a breakdown of revenue amounts, including revenues attributable to the Quarterly Same-Property portfolio:

                                   Number of          Three Months Ended March 31,          Dollar       Percentage
                                   Properties           2009                 2008           Change         Change
Property Revenues (dollars in
thousands)
Same-Property:
Southern California                         58     $        47,945       $      48,054     $    (109 )          (0.2 ) %
Northern California                         26              27,010              25,725         1,285             5.0
Seattle Metro                               24              15,654              15,053           601             4.0
Total Same-Property revenues               108              90,609              88,832         1,777             2.0
Non-Same Property Revenues (1)                              14,073               9,898         4,175            42.2
Total property revenues                            $       104,682       $      98,730     $   5,952             6.0 %

(1) Includes two communities acquired after January 1, 2008, eight redevelopment communities, two development communities, and three commercial buildings.

Quarterly Same-Property Revenues increased by $1.8 million or 2.0% to $90.6 million in the first quarter of 2009 from $88.8 million in the first quarter of 2008. The increase in the first quarter of 2009 was primarily attributable to increased occupancy of 110 basis points or $0.9 million, from 95.9% for the first quarter of 2008 to 97.0% for the first quarter of 2009. Although scheduled rents increased 2.8% in Northern California and 2.3% in the Seattle Metro area, these increases in scheduled rent were offset by a 2.2% decrease in scheduled rents for Southern California and the overall scheduled rents for the aggregate Quarterly Same-Property portfolio were flat at an average rental rate of $1,402 per unit for the two quarters. Ratio utility billing system ("RUBS") income and other income increased $0.6 million, rent concessions decreased $0.2 million and bad debt expense was consistent between quarters. The Company expects that total Same-Property revenues will decrease in the second quarter of 2009 from the same period in 2008, due to an expected decrease in scheduled rents compared to the same period in 2008.

Quarterly Non-Same Property Revenues increased by $4.2 million or 42.2% to $14.1 million in the first quarter of 2009 from $9.9 million in the first quarter of 2008. The increase was primarily due to two new communities acquired since January 1, 2008, two development communities in lease-up and eight communities that are in redevelopment and classified in non-same property results.

Real estate taxes increased $1.0 million or 12.5% for the quarter over 2008, primarily due to the acquisition of two new properties, the lease-up of two development properties and an estimated 14% increase in real estate taxes in the Seattle Metro area.

Depreciation expense increased by $2.4 million or 9.0% for the first quarter of 2009 compared to the first quarter of 2008, primarily due to the acquisition of two new communities, the lease-up of two development properties, and the capitalization of approximately $88.0 million of additions to rental properties, including $55.5 million spent on redevelopment and revenue generating capital expenditures during 2008.

Write-off of investment in development joint venture of $5.8 million for the first quarter of 2009 related to the write-off the full amount of the Company's investment in a predevelopment joint venture project in Southern California.

Gain on early retirement of debt was $6.1 million for the first quarter of 2009 compared to $0 in the first quarter of 2008, due to the repurchase of $71.3 million of 3.625% exchangeable bonds at a discount to par value.

Equity income in co-investments decreased by $6.1 million to $0.5 million from $6.6 million in 2008, due to the fact that in the first quarter of 2008, the Company recognized $6.3 million of preferred income from the retirement of the Company's investment in the Mountain Vista, LLC joint venture.

Income from discontinued operations for the first quarter of 2009 includes operating results of Carlton Heights and Grand Regency which were sold during the quarter for a combined gain of $2.5 million. Discontinued operations for the first quarter of 2008 includes the operating results for those two properties as well as Cardiff by the Sea, St. Cloud and Coral Gardens, which were sold in the third and fourth quarters of 2008.

Liquidity and Capital Resources

In June 2008, Standard and Poor's ("S&P") reaffirmed its corporate credit rating of BBB/Stable for Essex Property Trust, Inc. and Essex Portfolio L.P.

At March 31, 2009, the Company had $65.2 million of unrestricted cash and cash equivalents and $30.1 million in marketable securities. We believe that cash flows generated by our operations, existing cash balances, availability under existing lines of credit, access to capital markets and the ability to generate cash gains from the disposition of real estate and marketable securities held available for sale are sufficient to meet all of our reasonably anticipated cash needs during 2009. The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect our plans for acquisitions, dispositions, development and redevelopment activities.

The Company has a $200.0 million unsecured line of credit and, as of March 31, 2009, there was $45.0 million outstanding balance on the line at an average interest rate of 2.7%. This facility matures in March 2010. The underlying interest rate on this line is based on a tiered rate structure tied to an S&P rating on the credit facility (currently BBB-) at LIBOR plus 0.8%. We also have a $150.0 million credit facility from Freddie Mac, which is expandable to $250.0 million at any time during the first two years and which matures in December 2013. This line is secured by ten apartment communities. As of March 31, 2009, we had $140.0 million outstanding under this line of credit at an average interest rate of 2.0%. The underlying interest rate on this line is between 99 and 150 basis points over the Freddie Mac Reference Rate and the interest rate is subject to change by the lender in November 2011. In March 2009, the Company did not renew upon maturity a $10.0 million unsecured revolving line of credit. The Company's line of credit agreements contain debt covenants related to limitations on indebtedness and liabilities, maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization and maintenance of minimum tangible net worth. The Company was in compliance with the line of credit covenants as of March 31, 2009 and December 31, 2008.

The Company may from time to time sell shares of common stock into the existing trading market at current market prices as well as through negotiated transactions under its Controlled Equity Offering ("CEO") program with Cantor Fitzgerald & Co. ("Cantor"). During the first quarters of 2009 and 2008, no shares were sold under CEO program. In May 2009, the Company's Board of Directors approved the sale of an additional 7.5 million shares of common stock under the CEO program. Pursuant to this approval, the Company entered in a sales agreement with Cantor on May 6, 2009, for the sale of such 7.5 million shares pursuant to the CEO program. A copy of the sales agreement has been filed as Exhibit 10.2 to this Form 10-Q.

In August 2007, the Company's Board of Directors authorized a stock repurchase plan to allow the Company to acquire shares in an aggregate of up to $200.0 million. The program supersedes the common stock repurchase plan that Essex announced on May 16, 2001. In February 2009 the Company repurchased 350,000 shares of common stock for $20.3 million at an average price of $57.89 per share. Since the inception of the stock repurchase plan, the Company has repurchased and retired 816,659 shares for $66.6 million at an average price of $81.56 per share, including commissions, as of March 31, 2009. After the Series G Preferred Stock repurchases described below, the Company has authorization to repurchase an additional $101.0 million under the stock repurchase plan.

In 2006, the Company sold 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock (the "Series G Preferred Stock") for net proceeds of $145.9 million. Holders may convert Series G Preferred Stock into shares of the Company's common stock subject to certain conditions. The conversion rate was initially 0.1830 shares of common stock per the $25 share liquidation preference, which is equivalent to an initial conversion price of approximately $136.62 per share of common stock (the conversion rate will be subject to adjustment upon the occurrence of specified events). On or after July 31, 2011, the Company may, under certain circumstances, cause some or all of the Series G Preferred Stock to be converted into shares of common stock at the then prevailing conversion rate.

During the first quarter of 2009, the Company repurchased $58.2 million of its Series G Preferred Stock at a discount to carrying value, and the excess of the carrying value over the cash paid to redeem the Series G Preferred Stock totaling $25.7 million. As of March 31, 2009, the carrying value of the Series G Preferred Stock outstanding totaled $87.7 million. The Company may continue to repurchase Series G Preferred Stock.

In 2005 the Company, through its Operating Partnership, issued $225.0 million of outstanding exchangeable senior notes (the "Bonds") with a coupon of 3.625% due 2025. The Bonds are senior unsecured obligations of the Operating Partnership, and are fully and unconditionally guaranteed by the Company. On or after November 1, 2020, the Bonds will be exchangeable at the option of the holder into cash and, in certain circumstances at Essex's option, shares of the Company's common stock at an initial exchange price of $103.25 per share subject to certain adjustments. The Bonds will also be exchangeable prior to November 1, 2020, but only upon the occurrence of certain specified events. On or after November 4, 2010, the Operating Partnership may redeem all or a portion of the Notes at a redemption price equal to the principal amount plus accrued and unpaid interest (including additional interest, if any). Bond holders may require the Operating Partnership to repurchase all or a portion of the Bonds at a purchase price equal to the principal amount plus accrued and unpaid interest (including additional interest, if any) on the Bonds on November 1, 2010, November 1, 2015 and November 1, 2020.

During the fourth quarter of 2008 the Company repurchased $53.3 million of these Bonds at a discount to par value, and during the first quarter of 2009, the Company repurchased an additional $71.3 million of these Bonds at a discount to par value and recognized a gain of $6.1 million on cash paid of $66.5 million. As of March 31, 2009, the carrying value of the Bonds outstanding totaled $97.2 million. The Company may continue to repurchase Bonds.

As of March 31, 2009, the Company's mortgage notes payable totaled $1.5 billion which consisted of $1.3 billion in fixed rate debt with interest rates varying from 4.86% to 8.18% and maturity dates ranging from 2010 to 2020 and $233.1 million of tax-exempt variable rate demand bonds with a weighted average interest rate of 2.5%. The tax-exempt variable rate demand bonds have maturity dates ranging from 2020 to 2039, and $183.4 million are subject to interest rate caps.

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

The Company's current financing activities have been impacted by the instability and tightening in the credit markets which has led to an increase in spreads and pricing of secured and unsecured debt. Our strong balance sheet, the established relationships with our unsecured line of credit bank group, the secured line of credit with Freddie Mac and access to Fannie Mae and Freddie Mac secured debt financing have provided some insulation to us from the turmoil being experienced by many other real estate companies. The Company has benefited from borrowing from Fannie Mae and Freddie Mac, and there are no assurances that these entities will lend to the Company in the future. The Company has experienced more restrictive loan to value and debt service coverage ratio limits and an expansion in credit spreads. Continued turmoil in the capital markets could negatively impact the Company's ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates.

Derivative Activity

As of March 31, 2009 the Company had seven forward-starting interest rate swap contracts totaling a notional amount of $375.0 million with interest rates ranging from 5.1% to 5.9% and settlements dates ranging from November 2010 to October 2011. These derivatives qualify for hedge accounting as they are expected to economically hedge the cash flows associated with future financing of debt between 2010 and 2011. The Company had twelve interest rate cap contracts totaling a notional amount of $183.4 million that qualify for hedge accounting as they effectively limit the Company's exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for the Company's $233.1 million of tax exempt variable rate debt. The aggregate carrying value of the forward-starting interest rate swap contracts was a net liability of $55.0 million. The aggregate carrying value of the interest rate cap contracts was an asset of $0.1 million and the overall fair value of the derivatives increased $18.3 million during the three months ended March 31, 2009 to a net liability of $54.8 million as of March 31, 2009, and the derivative liability was recorded in cash flow hedge liabilities in the Company's condensed consolidated financial statements. The changes in the fair values of the derivatives are reflected in comprehensive (loss) income in the Company's condensed consolidated financial statements. No hedge ineffectiveness on cash flow hedges was recognized during the quarter ended March 31, 2009 and 2008.

Development and Predevelopment Pipeline

The Company defines development activities as new properties that are being constructed, or are newly constructed and, in the case of development communities, are in a phase of lease-up and have not yet reached stabilized operations. As of March 31, 2009, excluding development projects owned by Fund II, the Company had four development projects comprised of 704 units for an estimated cost of $279.6 million, of which $112.8 million remains to be expended. The Company has approximately $59.5 million undrawn on a construction loan to fund the joint venture Joule Broadway development project with approximately $63.6 million in estimated costs to complete the project.

The Company defines the predevelopment pipeline as new properties in negotiation or in the entitlement process with a high likelihood of becoming development activities. As of March 31, 2009, the Company had three development communities aggregating 1,104 units that were classified as predevelopment projects. The estimated total cost of the predevelopment pipeline at March 31, 2009 was $372.8 million, of which $271.1 million remains to be expended. The Company may also acquire land for future development purposes. The Company owned four land parcels held for future development aggregating 392 units as of March 31, 2009. The Company had incurred $24.1 million in costs related to these four land parcels as of March 31, 2009.

The Company expects to fund the development pipeline 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.

Redevelopment

The Company defines redevelopment activities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. The Company's redevelopment strategy strives to improve the financial and physical aspects of the Company's redevelopment apartment communities and to target at least a 7 to 9 percent return on the incremental renovation investment. Many of the Company's properties are older and in excellent neighborhoods, providing lower density with large floor plans that represent attractive redevelopment opportunities. During redevelopment, apartment units may not be available for rent and, as a result, may have less than stabilized operations. As of March 31, 2009, the Company had nine redevelopment communities aggregating 2,631 apartment units with estimated redevelopment costs of $128.0 million, of which approximately $52.9 million remains to be expended.

Alternative Capital Sources

Fund II has eight institutional investors, and the Company, with combined partner equity commitments of $265.9 million that were fully contributed as of 2008. The Company contributed $75.0 million to Fund II, which represents a 28.2% interest as general partner and limited partner. Fund II utilized leverage equal to approximately 55% upon the initial acquisition of the underlying real estate. Fund II invested in apartment communities in the Company's targeted West Coast markets and, as of March 31, 2009, owned twelve apartment communities and two development projects. The Company records revenue for its asset management, property management, development and redevelopment services when earned, and promote income when realized if Fund II exceeds certain financial return benchmarks.

Contractual Obligations and Commercial Commitments

The following table summarizes the maturation or due dates of our contractual
obligations and other commitments at March 31, 2009, and the effect these
obligations could have on our liquidity and cash flow in future periods:

(In thousands)                      2009         2010 and 2011       2012 and 2013      Thereafter         Total
Mortgage notes payable            $  14,548     $       302,412     $       223,459     $   989,152     $ 1,529,571
Exchangeable bonds                        -              97,245                   -               -          97,245
Lines of credit                           -              45,000             140,000               -         185,000
Interest on indebtedness             69,448             151,824             111,443         247,506         580,221
Development commitments              60,100              52,700                   -               -         112,800
Redevelopment commitments            30,000              22,938                   -               -          52,938
                                  $ 174,096     $       672,119     $       474,902     $ 1,236,658     $ 2,557,775

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements, in accordance with U.S. generally accepted accounting principles requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and \expenses and related disclosures of contingent assets and liabilities. We define critical accounting policies as those accounting policies that require our management to exercise their most difficult, subjective and complex judgments. Our critical accounting policies relate principally to the following key areas: (i) consolidation under applicable accounting standards for entities that are not wholly owned; (ii) assessing the carrying values of our real estate properties and investments in and advances to joint ventures and affiliates;
(iii) internal cost capitalization; and (iv) qualification as a REIT. The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management.

The Company's critical accounting policies and estimates have not changed materially from information reported in Note 2, "Summary of Critical and Significant Accounting Policies," in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

Forward Looking Statements

Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this quarterly report on Form 10-Q which are not historical facts may be considered forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the Company's expectations, hopes, intentions, beliefs and strategies regarding the future. Forward looking statements include statements regarding the Company's expectations as to the total projected costs of predevelopment, development and redevelopment projects, beliefs as to our ability to meet our cash needs during 2009 and to provide for dividend payments in accordance with REIT requirements, as to the Quarterly Same-Property revenues in the second quarter of 2009, expectations as to the sources for funding the Company's development pipeline and statements regarding the Company's financing activities.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, that the Company will fail to achieve its business objectives, that the total projected costs of current predevelopment, development and redevelopment projects exceed expectations, that such development and redevelopment projects will not be completed, that development and redevelopment 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 there may be a downturn in the markets in which the Company's properties are located, that the terms of any refinancing may not be as favorable as the terms of existing indebtedness, as well as those risks, special considerations, and other factors discussed in Item . . .