Essex Property Trust · Risk factors

Prior heading: General real estate investment risks may adversely affect property income and values.

Real estate investments are subject to a variety of risks. If the communities and other real estate investments, including development and redevelopment properties, do not generate sufficient income to meet operating expenses, including debt service and capital expenditures, financing expenses, cash flow and the ability to make distributions to Essex's stockholders or the Operating Partnership's unitholders will be adversely affected. Income and growth from the communities may be further adversely affected by, among other things, the following factors, in addition to the other risk factors listed in this Item 1A: •changes in the general or local economic climate, climate and demand for housing, including layoffs, plant closings, industry slowdowns, relocations of significant employees from local employers, changing demographics, increased worker locational flexibility from teleconferencing and video-conferencing technology, flexibility, and other events negatively impacting local employment rates. rates, wages and the local economy; •local economic conditions •changes in which the communities are located, such as oversupply supply and cost of housing or a reduction in demand for rental housing; •adverse economic, regulatory, or market conditions due to the COVID-19 pandemic leading to (1) a temporary or permanent move by tenants and/or prospective tenants from locations •changing economic conditions, such as high inflationary periods in which our communities are located, (2) increased costs or government limitations on revenue, and/or (3) delinquency due to various eviction moratoria; •inflationary environments in which the costs to operate operating and maintain communities financing costs may increase at a rate greater than our ability to increase rents, or deflationary environments periods where we may be exposed to declining rents may decline more quickly under our short-term leases; relative to operating and financing costs; and •the appeal and desirability of our communities to tenants, including, without limitation, tenants relative to other housing alternatives, including the size and amenity offerings of our apartment homes, the offerings, safety and convenience of their locations, our technology offerings location convenience, and our ability to identify and cost effectively implement new, relevant technologies,.technology offerings.

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Prior heading: Short-term leases expose us to the effects of declining market rents, and the Company may be unable to renew leases or relet units as leases expire.

If the Company is unable to promptly renew the or re-let in place short-term leases or relet the units, leases, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then the Company’s results of operations and financial condition will be adversely affected. With these short-term leases, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.affected.

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Prior heading: National and regional economic environments can negatively impact the Company’s liquidity and operating results.

The Company’s forecast for the national economy assumes growth of the GDP of the national economy and the economies of the west coast states. In the event of a recession or other negative economic effects effects, the Company could incur reductions in rental and occupancy rates, property valuations and increases in operating costs such as advertising and turnover expenses. costs. Any such recession or similar event economic downturn may affect consumer confidence and spending and negatively impact the volume and pricing of real estate transactions, which could negatively affect the Company’s liquidity and its ability to vary its portfolio promptly in response to changes to the economy. Furthermore, if residents do not experience increases in increase their income, they may be unable or unwilling to pay rent increases, and delinquencies in rent payments and rent defaults may increase.rent.

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Prior heading: Rent control, or other changes in applicable laws, or noncompliance with applicable laws, could adversely affect the Company's operations, property values or expose us to liability.

The Company must own, operate, manage, acquire, develop and redevelop its properties in compliance with numerous federal, state and local laws and regulations, some of which may conflict with one another or be subject to limited judicial or regulatory interpretations. These laws and regulations may include zoning laws, building codes, rent control or stabilization laws, governmental emergency orders, laws benefiting disabled persons, including, without limitation, the Americans with Disabilities Act of 1990, federal, state and local tax laws, landlord tenant laws, environmental laws, employment laws, immigration laws and other laws regulating housing, including, without limitation, the Fair Housing Amendment Act of 1988, housing or that are generally applicable to the Company's business and operations. Noncompliance with Changes in, or noncompliance with, laws and regulations could expose the Company to liability, including fines to government authorities or damage awards to private litigants, reduced income or increased costs in order to comply with such requirements. These requirements may change, or new requirements may be imposed. Changes in, or noncompliance with, these regulatory requirements liability and could require the Company to make significant unanticipated expenditures to address noncompliance. Rent control or rent stabilization laws, and new such laws that may be implemented, and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants. These initiatives Existing and any other future enactments of rent control or rent stabilization laws or other and regulations, along with similar laws regulating multifamily housing, as well as any lawsuits against the Company arising from such rent control and regulations that expand tenants’ rights or other laws, impose additional costs on landlords, may reduce rental revenues or increase operating costs. Such laws and regulations limit our ability to charge market rents, increase rents, evict tenants or recover increases in our operating expenses and could reduce the value of our communities or make it more difficult for us to dispose of properties in certain circumstances. Expenses associated with our investment in these communities, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental income from the community. Furthermore, such regulations may negatively impact our ability to attract higher-paying tenants to such communities.community.

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Prior heading: The COVID-19 pandemic, or the future outbreak of other highly contagious diseases, could materially affect our business, financial condition and results of operations.

Uncertainty still surrounds COVID-19, and the potential short-term and long-term effects, including but not limited to shifts in consumer housing demand based on geography, affordability, housing type and unit type, mainly resulting from the paradigm shift impact of work culture, as well as economic uncertainty, volatility and increased regulation. As COVID-19. If there is a result, our ability to make distributions to Essex’s stockholders and future outbreak of COVID-19 or other contagious diseases, the Operating Partnership’s unitholders Company may again be compromised and we could experience volatility with respect to the market value of our properties and common stock and Operating Partnership units. In some cases, we are subject to eviction moratoria moratoria, limits on rent increases and collection efforts, or may be legally required to or otherwise agree to restructure tenants’ rent obligations and may not be able to do so on terms as favorable to us as those currently in place. Furthermore, various city, county and state laws restricting rent increases in times of emergency have come into effect in connection with the COVID-19 pandemic, and numerous state, local, federal and industry-initiated efforts have and may continue to affect our ability to collect rent or enforce remedies for the failure to pay rent, including, among others, limitations or prohibitions on evicting tenants unwilling or unable to pay rent and prohibitions on the ability to collect unpaid rent during certain timeframes. In the event of tenant nonpayment, default or bankruptcy, we may incur costs in protecting our investment investment, collecting delinquent rents, and re-leasing our property and have limited ability to renew existing leases or sign new leases at projected rents. Our properties may also incur significant costs or losses related to legislative mandates which may result in a negative impact on our occupancy levels. For example, many companies initially required, and now are continuing to allow or require, employees to “work from home” for an extended period of time, causing some tenants to move away from the urban centers temporarily or permanently. Some businesses many have permanently closed due to deteriorating economic conditions, which has contributed to the temporary, levels consistent with market rents. A new pandemic or possibly permanent, deterioration of neighborhoods in and around some of our urban communities, which may be further worsened by increases in homelessness and crime. There disease outbreak may also be an cause increased risk of material litigation due to the effects of the COVID-19 pandemic, including litigation brought by our residents or employees. Market costs, lower profitability and market fluctuations as a result of the COVID-19 pandemic that may affect our ability to obtain necessary funds for our operations, acquisitions, business or re-financings. In addition, macro-economic factors have caused some worker shortages and construction delays which could increase costs and lower profitability. Market fluctuations and construction delays experienced by negatively impact the ability of the Company’s third-party mezzanine loan borrowers and preferred equity investment sponsors may also negatively impact their ability to repay the Company. Further, while the Company carries general liability, pollution, and property insurance along with other insurance policies that may provide some coverage for any losses or costs incurred in connection with the COVID-19 pandemic, given the novelty of the issue and the scale of losses incurred throughout the world, there is no guarantee that we will be able to recover all or any portion of our losses and costs under these policies. We may be additionally impacted by changes in legislation relating to insurance coverages with respect to the pandemic, including, but not limited to, workers’ compensation. The occurrence of any of the foregoing events or any other related matters could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.Company.

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Prior heading: Acquisitions of communities involve various risks and uncertainties and may fail to meet expectations.

The Company intends to continue to acquire apartment communities. However, there are risks that acquisitions will may fail to meet the Company’s expectations. The Company’s expectations due to factors including inaccurate estimates of future income, expenses and the costs of improvements or redevelopment that are necessary to allow the Company to market an acquired apartment community as originally intended may prove to be inaccurate. In addition, following an acquisition, redevelopment. Further, the value and operational performance of an apartment community may be diminished if obsolescence or neighborhood changes occur before we are able to redevelop or sell the community. Also, in connection with such acquisitions, we may assume unknown or contingent liabilities, which could ultimately lead to material costs for us that we did not expect to incur and for which the Company may have no recourse, or only limited recourse, against the sellers due to limited and no indemnification requirements for a breach of representations and warranties. sellers. In addition, the total amount of costs and expenses that may be incurred with respect to liabilities associated with apartment communities may exceed our expectations, and we may experience other unanticipated adverse effects, all of which may adversely affect our business, financial condition and results of operations. The Company expects to finance future acquisitions under various forms of secured or unsecured financing or through the issuance of partnership units by the Operating Partnership or related partnerships or joint ventures or additional equity by the Company. The use of equity financing for future developments or acquisitions could dilute the interest of the Company’s existing stockholders. If the Company finances new acquisitions under existing lines of credit, there is a risk that, unless the Company obtains substitute financing, the Company may not be able to undertake additional borrowing for further acquisitions or developments or such borrowing may be not available on advantageous terms.

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Prior heading: Development and redevelopment activities may be delayed, not completed, and/or not achieve expected results.

The Company pursues development and redevelopment projects. The Company defines development projects as new communities that are being constructed or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations, and redevelopment projects as existing properties owned or recently acquired that have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. As of December 31, 2021, the Company had one consolidated development project and one unconsolidated joint venture development project comprised of 371 apartment homes for an estimated cost of $217.0 million, of which $61.0 million remains to be expended, and $32.6 million is the Company's share. The Company’s development projects, and redevelopment those activities generally entail certain risks, including, among others: including: •funds may be expended and management's time devoted to projects that may not be completed on time or at all; •construction costs of a project may exceed original estimates possibly making the project some projects economically unfeasible; •projects may be delayed or abandoned due to, without limitation, adverse weather conditions, labor or material shortage, shortages, municipal office closures and staff shortages, government recommended or mandated work stoppages due to health concerns, stoppages, or environmental remediation; •occupancy rates and rents at a completed project may be less than anticipated; •expenses at completed development or redevelopment projects may be higher than anticipated, including, without limitation, due to inflationary pressures, supply chain issues, costs of litigation over construction contracts by general contractors, contracts, environmental remediation or increased costs for labor, materials and leasing; •we may be unable to obtain, or experience a delay in obtaining, necessary zoning, occupancy, or other required governmental approvals or third party permits and authorizations, which could result in increased costs or delay or abandonment of opportunities; •we may be unable to obtain financing with favorable terms, or at all, for the proposed development or redevelopment of a community, which may cause us to delay or abandon an opportunity; and •we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties (such as the construction of shared infrastructure or other improvements.) These risks may reduce the funds available for distribution to Essex’s stockholders and the Operating Partnership's unitholders.process.

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Prior heading: The geographic concentration of the Company’s communities and fluctuations in local markets may adversely impact the Company’s financial condition and operating results.

The Company generated significant amounts of rental revenues for the year ended December 31, 2021, from the Company’s communities are concentrated in Southern California (primarily Los Angeles, Orange, San Diego, and Ventura counties), Northern and Southern California (the San Francisco Bay Area), and the Seattle metropolitan area. For the year ended December 31, 2021, 83% of area, which exposes the Company’s rental revenues were generated from communities located in California. This geographic concentration could present risks if local property market performance falls below expectations. Company to greater economic risks. Factors that may adversely affect local market and economic conditions include regional specific acts of nature (e.g., earthquakes, fires, floods, etc.) etc.), layoffs affecting specific or broad sectors of the economy (such as technology-based companies), and those other factors listed in the risk factor titled “General real estate investment risks may adversely affect property income and values” and elsewhere in this Item 1A. Because the Company’s communities are geographically concentrated, the Company is exposed to greater economic concentration risks than if it owned a more geographically diverse portfolio. The Company is susceptible to adverse developments in California and Washington economic and regulatory environments, such as increases in real estate and other taxes, and increased costs of complying with governmental regulations. In addition, the The State of California recently experienced increased relocation out of the state and is generally regarded as more litigious and more litigious, highly regulated and taxed than many states, which may reduce demand for the Company’s communities. California has also experienced increased relocation out of the state. Any adverse developments in the economy or real estate markets in California or Washington, or any decrease in demand for the Company’s communities resulting from the California or Washington regulatory or business environments, could have an adverse effect on the Company’s business and results of operations.

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Prior heading: The Company may experience various increased costs, including increased property taxes, to own and maintain its properties.

Real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rates change. Our real estate taxes in Washington could increase as a result of property value reassessments or increased property tax rates in that state. rates. A California law commonly referred to as Proposition 13 (“Prop 13”) generally limits annual real estate tax increases on California properties to 2% of assessed value. However, under Proposition Prop 13, property tax reassessment generally occurs as a result of a "change in ownership" of a property, as specially defined for purposes of those rules. property. Because the property taxing authorities may not determine whether there has been a "change in ownership" or the actual reassessed value of a property for a period of time after a transaction has occurred, we may not know the impact of a potential reassessment for a considerable amount of time following a particular transaction. Therefore, the amount of property taxes we are required to pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactive basis. In addition, from time to time voters and lawmakers have announced Various initiatives to repeal or amend Proposition 13 Prop 13, to eliminate its application to commercial and industrial residential property, to increase the permitted annual real estate tax increases, and/or to introduce split tax roll legislation. Such initiatives, if successful, legislation could increase the assessed value and/or tax rates applicable to commercial property in California, including our apartment communities. California. Further, changes in U.S. federal tax law could cause state and local governments to alter their taxation of real property. The Company may experience increased costs associated with capital improvements and routine property maintenance, such as repairs to the foundation, exterior walls, and rooftops of its properties, maintenance as its properties advance through their life-cycles. life cycles. In some cases, we may spend more than budgeted amounts to make necessary improvements or maintenance. Increases in the Company’s expenses to own and maintain its properties maintenance, which could adversely impact the Company’s financial condition and results of operations.

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Prior heading: Competition in the apartment community market and other housing alternatives may adversely affect operations and the rental demand for the Company’s communities.

There are numerous housing alternatives that compete with the Company’s communities in attracting tenants. These include tenants, including other apartment communities, condominiums and single-family homes that are available for rent or for sale in the markets in which our communities are located. homes. Competitive housing in a particular area and fluctuations in cost of owner-occupied single- and multifamily homes caused by a decrease in housing prices, mortgage interest rates and/or government programs to promote home ownership or create additional rental and/or other types of housing, or an increase in desire for more space due to work from home work-from-home needs or increased time spent at home, could adversely affect the Company’s ability to retain its tenants, lease apartment homes and increase or maintain rents. If the demand for the Company’s communities is reduced or if competitors develop and/or acquire competing apartment communities, reduced, rental rates may drop, which may have a material adverse effect on the Company’s financial condition and results of operations. The Company also faces competition from other companies, REITs, businesses and other entities in the acquisition, development and operation of apartment communities. This competition may result in an increase in prices and increased costs of to acquire or develop apartment communities that or impact the Company acquires and/or develops.Company’s ability to identify suitable acquisition or development transactions.

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Prior heading: Investments in mortgages, mezzanine loans, subordinated debt, other real estate, and other marketable securities could adversely affect the Company’s cash flow from operations.

The Company may purchase or otherwise invest in securities issued by entities which own real estate and/or invest in mortgages or unsecured debt obligations. Such mortgages may be first, second or third mortgages, and these mortgages and/or other investments may not be insured or otherwise guaranteed. The Company may make or acquire mezzanine loans, which take the form of are generally subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity or entities that owns the interest in the entity owning the property. loans. In general, investing in mortgages may pose some involves risk, including but not limited to that the value of mortgaged property may be less than the amounts owed, causing realized or unrealized losses; the borrower may not pay indebtedness under the mortgage when due, requiring the Company to foreclose, due and the amount amounts recovered by the Company in connection with the foreclosure related foreclosures may be less than the amount owed; that interest rates payable on the mortgages may be lower than the Company’s cost of funds; in the case of junior mortgages, that foreclosure of a senior mortgage could eliminate the junior mortgage; delays in the collection of principal and interest if a borrower claims bankruptcy; possible senior lender default or overconcentration of senior lenders in portfolio; and unanticipated early prepayments may limit the Company’s expected return on its investment. If any of the above were to occur, it could adversely affect the Company’s cash flows from operations.

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Prior heading: The Company’s ownership of co-investments, including joint ventures and joint ownership of communities, its ownership of properties with shared facilities with a homeowners' association or other entity, its ownership of properties subject to a ground lease and its preferred equity investments and its other partial interests in entities that own communities, could limit the Company’s ability to control such communities and may restrict our ability to finance, sell or otherwise transfer our interests in these properties and expose us to loss of the properties if such agreements are breached by us or terminated.

The Company has entered into, and may continue in the future to enter into, certain co-investments, including joint ventures or partnerships through which it owns an indirect economic interest in less than 100% of the community or land or other investments owned directly by the joint venture or partnership. As of December 31, 2021, the Company had, through several joint ventures, an interest in 10,257 apartment homes in stabilized operating communities for a total book value of $565.3 million. Joint venture partners often have shared control over the development and operation of the joint venture assets. Therefore, it is possible that a assets, which may prevent the Company from taking action without the partners’ approval. A joint venture partner in an investment might become bankrupt, or may have economic or business interests or goals that are inconsistent with those of the Company’s business interests or goals, Company or be in a position to may take action contrary to the Company’s instructions or requests, or its policies interests or objectives. policies. Consequently, a joint venture partner's actions might subject property owned by the joint venture to additional risk. Although the Company seeks to maintain sufficient influence over any joint venture to achieve its objectives, the Company may be unable to take action without its joint venture partners’ approval. Should a joint venture partner become bankrupt, the Company could become liable for such partner’s share of joint venture liabilities. In some instances, the Company and the joint venture partner may each have the right to trigger a buy-sell arrangement, which could cause the Company to sell its interest, or acquire a partner’s interest, at a time when the Company otherwise would not have initiated such a transaction. transaction. Should a joint venture partner become bankrupt, the Company could become liable for such partner’s share of joint venture liabilities. From time to time, the Company, through the Operating Partnership, makes certain co-investments in the form of preferred equity investments in third-party entities that have been formed for the purpose of acquiring, developing, financing, or managing real property. With preferred equity investments and certain other co-investments, the The Operating Partnership’s interest in a particular entity these entities is typically less than a majority of the outstanding voting interests of that entity. Therefore, entity, which may limit the Operating Partnership’s ability to control the daily operations of such co-investment may be limited. co-investment. The Operating Partnership may not be able to dispose of its interests in such co-investment. In the event that such co-investment or the partners in such co-investment become insolvent or bankrupt or fail to develop or operate the property in the manner anticipated and expected, anticipated, the Operating Partnership may not receive the expected return in its expected timeframe or at all and may lose up to its entire investment in, and any advances to, the co-investment. investment. Additionally, the preferred return negotiated on these co-investments may be lower than the Company's cost of funds. The Company may also incur losses if any guarantees or indemnifications were made by the Company. The Company also owns properties indirectly under "DownREIT" structures. The Company has entered into, and in the future may enter into, transactions that could require the Company to pay the tax liabilities of partners that contribute assets into DownREITs, joint ventures or the Operating Partnership, in the event that certain taxable events, which are generally within the Company’s control, occur. Although the Company plans to hold the contributed assets or, if such assets consist of real property, defer recognition of gain on sale of such assets pursuant to the like-kind exchange rules under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company can provide no assurance that the Company will may not be able to do so and if such tax liabilities were incurred they could have a material impact on its financial position. Also, from time to time, the Company invests in properties (i) which may be subject to certain shared facilities agreements with homeowners’ associations and other entities and/or invests in properties (ii) subject to ground leases where a subtenant may have certain similar rights to that of a party under such a shared facilities agreement agreements or where a master landlord may have certain rights to control the use, operation and/or repair of the property. In these arrangements, we cannot guarantee that the terms of the shared facilities agreements will be enforced or interpreted in favor of the Company, and the Company’s ability inability to control expenditures, make necessary repairs and and/or control certain decisions may adversely affect the Company's business, Company’s financial condition and results of operations.operations, and/or the property’s safety, compliance with applicable laws, marketability or market value.

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Prior heading: We may pursue acquisitions of other REITs and real estate companies, which may not yield anticipated results and could adversely affect our results of operations.

We may make acquisitions of and/or investments in other REITs and real estate companies that offer properties and communities to augment our market coverage or enhance our property offerings. We may also enter into strategic alliances or joint ventures to achieve these goals. There can ventures, which involves risks and uncertainties and may not be no assurance that we will successful. We may not be able to identify suitable acquisition, investment, alliance or joint venture opportunities, that we will be able to consummate any such transactions or relationships on terms and conditions acceptable to us, or that such transactions or relationships will be successful. In addition, our original estimates and assumptions used in assessing any acquisition may be inaccurate, and we may not realize the expected financial or strategic benefits of any such acquisition. These transactions or any other acquisitions involve risks and uncertainties. In addition, the acquisition. The integration of acquired businesses or other acquisitions may not be successful and could result in disruption to other parts of our business. To integrate acquired businesses or other acquisitions, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. There can be no assurance that all pre-acquisition Pre-acquisition property due diligence will have identified may not identify all material issues that might arise with respect to such acquired business and its properties or as to any such other acquisitions. Any future acquisitions we make may also require significant additional debt or equity financing, which, in the case of debt financing, would increase our leverage and potentially affect our credit ratings and, in the case of equity or equity-linked financing, could be dilutive to Essex's stockholders and the Operating Partnership's unitholders. Additionally, the value of these investments could decline for a variety of reasons. These and other factors could affect our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our business, financial condition and results of operations.

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Prior heading: Real estate investments are relatively illiquid and, therefore, the Company's ability to vary its portfolio promptly in response to changes in economic or other conditions may be limited.

Real estate investments are illiquid and, in our markets, can at times be difficult to sell at prices we find acceptable. These potential difficulties in selling real estate in our markets acceptable, which may limit our ability to change or promptly reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions, which could have a material adverse effect on conditions and otherwise may adversely affect our financial condition and results of operations.

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Prior heading: The Company may not be able to lease its retail/commercial space consistent with its projections or at market rates.

The Company has retail/commercial space in its portfolio, which represents approximately 2% of our total revenue. We may not be able to lease new space for rents that are consistent with our projections or at market rates, and the longer-term leases for existing space could result in below market rents over time. Also, when When leases for our existing retail/commercial commercial space expire, the space may not be relet on a timely basis, or at all, or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable than the current lease terms.

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Prior heading: The Company’s portfolio may have environmental liabilities.

Under various federal, state and local environmental and public health laws, regulations and ordinances, we have been required, and may be required in the future, regardless of our knowledge or responsibility, to provide warnings about certain chemicals, investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases naturally occurring substances such as methane and radon gas). gas) or properties that we acquire, develop, manage or directly or indirectly invest in. We may be held liable under these laws or common law to a governmental entity or to third parties for compliance and response costs, property damage, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the impacts resulting from such releases. While the Company is unaware of any such response action required or damage claims associated with its existing properties which individually or in aggregate would have a material adverse effect on our business, assets, financial condition or results of operations, potential future costs and damage claims may be substantial and could exceed any insurance coverage we may have for such events or such coverage may not exist. substantial. Further, the presence of such substances, or the failure to properly remediate any such impacts, may adversely affect our ability to borrow against, develop, sell or rent the affected property. In addition, some environmental laws create or allow a government agency property, including due to impose a lien any liens imposed on the impacted property in favor of the by any government agencies for damages and costs it incurs as a result of responding to hazardous or toxic substance penalties or petroleum product releases. Investments in real property create a potential for environmental liabilities on the part of the owner of such real property. damages. The Company carries certain limited insurance coverage for this type of environmental risk as to its properties; however, such coverage is not fully available for all properties and, as to those properties for which limited coverage is fully available, it may be insufficient or may not apply to certain claims arising from known conditions present on those properties. In general, in connection with the ownership (direct or indirect), operation, financing, management and development of its communities, the Company could be considered as the owner or operator of such properties or as having arranged for disposal or treatment of hazardous substances present there and therefore may be potentially liable for removal or clean-up costs, as well as certain other costs and environmental liabilities. The Company may also be subject to governmental fines, costs related to injuries to third parties and/or damage to a third party's property. Properties which While we plan to acquire undergo a conduct pre-acquisition and development Phase I environmental site assessment, which is intended to afford the Company protection against so-called "owner liability" under the primary federal environmental law, as well as further environmental assessment, which may involve invasive techniques such as soil or ground water sampling where conditions warranting such further assessment are identified and seller’s consent is obtained. Despite these assessments, no assurance can be given that all environmental conditions present on or beneath or emanating from a given property will be discovered such assessments may not discover, ascertain or that quantify the full nature and extent of those conditions which are discovered will be adequately ascertained and quantified. In connection with our ownership, operation and development of communities, from time to time we undertake remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. The Company does so pursuant to appropriate environmental regulatory requirements with the objective of obtaining regulatory closure conditions at or near a no further action determination that will allow for future use, development and sale of any impacted community. Certain environmental laws impose liability for release of asbestos-containing materials ("ACMs") into the air or exposure to lead-based paint ("LBP"), and third parties may seek recovery from owners or operators of apartment communities for personal injury associated with ACMs or LBP. given property. Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed in a timely manner. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. materials. The Company has adopted policies for promptly addressing to address and resolving resolve reports of mold when it is detected, and to minimize any impact mold might have on tenants of the affected property, however, no assurance can be provided that the Company has identified may not identify and responded respond to all mold occurrences. California has enacted legislation, commonly referred to as "Proposition 65," requiring that covered businesses provide "clear and reasonable" warnings before knowingly exposing persons to chemicals known to the State of California to cause cancer or reproductive toxicity, including tobacco smoke. The legislation allows private persons to sue to enforce this warning requirement and recover their legal fees and costs for doing so. Although the Company has sought to comply with Proposition 65 requirements where it appears applicable, we cannot assure you that the Company will not be adversely affected by private enforcement litigation relating to Proposition 65. Methane gas is a naturally-occurring gas that is commonly found below the surface in several areas, particularly in the Southern California coastal areas. Methane is a non-toxic gas, but is flammable and can be explosive at sufficient concentrations when in confined spaces and exposed to an ignition source. Naturally-occurring methane gas is regulated at the state and federal level as a greenhouse gas but is not otherwise regulated as a hazardous substance; however, some local governments, such as Los Angeles County, require that new buildings constructed in areas designated methane gas zones install detection and/or venting systems. Radon is also a naturally-occurring gas that is found below the surface and can pose a threat to human health requiring abatement action if present in sufficient concentration within occupied areas. The Company cannot assure that it will not be adversely affected by costs related to its compliance with methane or radon gas related requirements or litigation costs related to methane or radon gas. However, the Company is unaware of any pending or threatened alleged claim resulting from such matters which would have a material adverse effect on the Company’s financial condition, results of operations or cash flows.occurrences.

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Prior heading: The Company may incur general uninsured losses or may experience market conditions that impact the procurement of certain insurance policies.

The Company purchases general liability and property, including loss of rent, insurance coverage for each of its communities. communities and cyber risk insurance. The Company may also purchase limited earthquake, terrorism, environmental and flood insurance for some of its communities. However, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, pollution, environmental matters or extreme weather conditions such as hurricanes, fires and floods that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. deductibles. The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI"), to self-insure certain earthquake and property losses for some of the communities in its portfolio. As of December 31, 2021, PWI, which is consolidated A decline in the Company's financial statements, had cash and marketable securities of approximately $198.1 million. The value of the marketable securities of held by PWI could decline and may adversely affect PWI’s ability to cover all or any portion of the amount of any insured losses. All of losses. Despite our insurance coverage, the Company may incur material losses due to uninsured risks, deductibles and self-insured retentions, and/or losses in excess of coverage limits. Our communities are located in areas that are subject to earthquake activity. The Company manages and evaluates its financial loss exposure to seismic events by using actuarial loss models developed by the insurance industry and property vulnerability analyses based on structural evaluations by seismic consultants. The Company manages this exposure, where considered appropriate, desirable, consultants, and cost-effective, by upgrading properties making upgrades to increase their resistance certain properties to better resist seismic events, by considering available funds and coverages provided by PWI and/or, in some cases, events and/or by purchasing seismic insurance. Purchasing seismic insurance coverage can be costly and such seismic insurance is in limited supply. As a result, some cases. While the Company may experience a shortage in desired coverage levels if market conditions are such that insurance is not available, or not economically practical. The Company may purchase limited earthquake insurance for certain high-density properties and, in most cases, properties owned by the Company's co-investments. The Company carries other types of insurance coverage related were built to a variety of risks and exposures, including cyber risk insurance. There has been a reduction in the number of insurance companies seismic codes in place at the market offering certain types time of insurance construction, not all properties have been, or are required to be, retrofitted to the Company has previously purchased current seismic codes. Thus, some properties may be subject to physical risk associated with earthquakes, and premiums have materially increased may suffer significant damage, including, but not limited to, collapse for certain types any number of insurance coverage. Based on market conditions, the Company reasons, including structural deficiencies. Seismic coverage is limited and may change or potentially eliminate insurance coverages, or increase levels of self-insurance. Further, not cover the Company’s seismic related losses. Thus, we cannot assure you that the Company will an earthquake would not incur losses, which could be material, due to uninsured risks, deductibles and self-insured retentions, and/or cause damage or losses in excess of coverage limits. We have significant investments in large metropolitan markets, such as the metropolitan markets in Southern California, Northern California, and Seattle. These greater than our current insured levels. Our properties or markets may in the future be the target of actual or threatened terrorist attacks. Future terrorist attacks in these markets attacks, shootings, or other acts of violence, which could directly or indirectly damage our communities, communities both physically and financially, or cause losses that exceed our insurance coverage. Our communities could also directly or indirectly be the location or target of actual or threatened terrorist attacks, crimes, shootings, other acts of violence or other incidents beyond our control, the occurrence of which could directly impact coverage, adversely affect the value of our communities through damage, destruction, loss or increased security costs, as well as operational losses due to reduction of traffic and rental demand for our communities, and the availability of insurance for such acts may be limited or may be subject to substantial costs. If such an incident were ability to occur at one of operate our communities, we may also be subject us to significant liability claims. Such events and losses could significantly affect our ability to operate those communities and materially claims, or otherwise impair our ability to achieve our expected results. Additionally, we may be obligated to continue to pay any mortgage indebtedness and other obligations relating to affected properties. results. Although the Company may carry insurance for potential losses associated with its communities, employees, tenants, and compliance with applicable laws, it may still incur material losses due to uninsured risks, deductibles, copayments or losses in excess of applicable insurance coverage and those losses may be material. coverage. In the event of a substantial loss, insurance coverage may not be able to cover the full replacement cost of the Company’s lost investment, or the insurance carrier may become insolvent and not be able to cover the full amount of the insured losses. Changes in building codes and ordinances, environmental considerations and other factors might also affect the Company’s ability to replace or renovate an apartment community after it has been damaged or destroyed. In addition, certain causalities and/or losses incurred may expose the Company in the future to higher insurance premiums.

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Prior heading: Climate change may adversely affect our business.

To the extent that As a result of climate change does occur, change, we may experience extreme weather weather, an increased number of natural disasters and changes in precipitation, temperature and wild fire and drought exposure, all of which may result in physical damage or damage, a decrease in demand for our communities located in these areas or affected by these conditions. conditions, damage to our properties, disruption of services at our properties or increased costs associated with maintaining or insuring our communities. Should the impact of climate change be material in nature or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected, and may negatively impact the types and pricing of insurance the Company is able to procure. Our properties are located along the West Coast of the United States. To the extent climate change causes changes in weather patterns, the regions where procure may be negatively impacted and our communities are located financial condition or results of operations may be adversely affected. We could experience increases in storm intensity, wild fires, rising sea levels and/or drought frequency. Over time, such conditions could result in reduced demand for housing in areas where our communities are located and increased costs related to further developing our communities to mitigate the effects of climate change or repairing damage related to the effects of climate change that may or may not be fully covered by insurance. insurance. In addition, changes in federal, state and local legislation and regulation on climate change could result in increased operating costs (for example, increased utility costs) and/or increased capital expenditures to improve the energy efficiency of our existing communities (for example, increased costs associated with meeting electric vehicle charging mandates) and could also require us to spend more on our new development communities without a corresponding increase in revenue. Further, the impact of climate change may revenue and could increase the cost of, or make unavailable, property insurance or other hazard insurance on terms we find acceptable or necessary to adequately protect our properties.exposure to new physical risks and liabilities (for example, we may see an increase in fires caused by electric vehicle chargers).

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Prior heading: Failure to succeed in new markets may limit the Company’s growth.

The Company may make acquisitions or commence development activity outside of its existing market areas if appropriate opportunities arise. The Company arise, which may be exposed to a variety of risks if it chooses expose the Company to enter new markets. These risks include risks, including, but are not limited to an inability to evaluate accurately local apartment market conditions and local economies; an inability to identify appropriate acquisition opportunities or to obtain land for development; an inability to hire and retain key personnel; and lack of familiarity with local governmental and permitting procedures.

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Prior heading: The Company’s real estate assets may be subject to impairment charges.

The Company continually evaluates the recoverability of the carrying value of its real estate assets under U.S. generally accepted accounting principles ("U.S. GAAP"). Factors considered in evaluating impairment of the Company’s existing multifamily real estate assets held for investment include significant declines in property operating profits, recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Generally, a multifamily real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of the asset over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. Assumptions used to estimate annual and residual cash flow and the estimated holding period of such assets require the judgment of management. There can be no assurance that the Company will not take charges in the future related to the impairment of the Company’s assets. Any future impairment charges could have a material adverse effect on the Company’s results of operations. We face risks associated with land holdings and related activities. We hold land for future development and may in the future acquire additional land holdings. The risks inherent in purchasing, owning developments and developing land increase as demand for apartments, or rental rates, decrease. related activities. Real estate markets are highly uncertain and, as a result, and the value of undeveloped land may fluctuate significantly. In addition, carrying costs can be significant and can result in losses or reduced profitability. As a result, we hold certain land, and may, in the future acquire additional land, in our development pipeline at a cost we may not be able to fully recover or at a cost which may preclude our developing a profitable multifamily community. If there are subsequent changes in the fair value of our land holdings which we determine is less that the carrying basis of our land holdings reflected in our financial statements plus estimated costs to sell, we may be required to take future impairment changes which could have a material adverse effect on our financial condition and results of operations.

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Prior heading: Debt financing has inherent risks.

At December 31, 2021, the Company had approximately $6.3 billion of indebtedness (including $565.6 million of variable rate indebtedness). Where appropriate, the Company intends to continue to use leverage to increase the rate of return on the Company’s investments and to provide for additional investments that the Company could not otherwise make. The Company is subject to the risks normally associated with debt financing, including, but not limited to including that cash flow may not be sufficient to meet required payments of principal and interest and the REIT distribution requirements of the Code; inability to renew, repay, or refinance maturing indebtedness on encumbered apartment communities on favorable terms or at all, possibly requiring the Company to sell a property or properties on disadvantageous terms; inability to comply with debt covenants could trigger cash management provisions limiting our ability to control cash flows, cause defaults, or an acceleration of maturity dates; and paying debt before the scheduled maturity date could result in prepayment penalties. penalties; and defaulting on secured indebtedness may result in lenders seeking a foreclosure on communities or pursuing other remedies which would reduce the Company’s income and net asset value, its ability to service other debt, or create taxable income without accompanying cash proceeds, thereby hindering our ability to meet REIT distribution requirements. Any of these risks might result in losses that could have an adverse effect on the Company and its ability to make distributions to Essex's stockholders or the Operating Partnership's unitholders and pay amounts due on its debt. Our ability to make payments on and to refinance our indebtedness and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future. There is a risk that we may not be able to refinance existing indebtedness or that a refinancing will not be done on as favorable terms, which in either case could have an adverse effect on our financial condition, results of operations and cash flows. As of December 31, 2021, the Company had 12 consolidated communities encumbered by debt. With respect to such communities, all of them are secured by deeds of trust relating solely to those communities. The holders of this indebtedness will have rights with respect to these communities and, if debt payment obligations are not met, lenders may seek foreclosure of communities, or may appoint a receiver and exercise rights under an assignment of rents and leases, or pursue other remedies which would reduce the Company’s income and net asset value, and its ability to service other debt. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet REIT distribution requirements.flows.

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Prior heading: The indentures governing our notes and other financing arrangements contain restrictive covenants that limit our operating flexibility.

The indentures that govern our publicly registered notes contain financial and operating covenants that, among other things, restrict our ability to take specific actions, even if we believe them to be in our best interests, including restrictions on our ability to consummate a merger, consolidation or sale of all or substantially all of our assets; and incur additional secured and unsecured indebtedness. The instruments governing our other unsecured indebtedness require us to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amounts of total indebtedness and secured indebtedness, leverage and certain investment limitations. These covenants other covenants, which may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these provisions and those contained in the indentures governing the notes, may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting us. The A breach of any of these covenants, including those contained in our indentures, covenants could result in a default under our indebtedness, which could cause those and other obligations to become due and payable. If any of our indebtedness is accelerated, we may not be able to repay it.

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Prior heading: Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may materially adversely affect us.

The interest rate on certain of the Company’s secured and unsecured debt obligations, including the Company’s two unsecured lines of credit, is obligations has been based on the LIBOR. In July 2017, the United Kingdom regulator that regulates LIBOR announced its intention LIBOR, which is expected to phase be fully phased out LIBOR rates by the end of 2021. On March 5, 2021, the United Kingdom regulator confirmed its intentions to cease the publication June 2023. As of the one week and two month U.S. dollar LIBOR immediately following the December 31, 2021 publications, 2022, the Company has transitioned its unsecured debt obligations and the remaining U.S. dollar LIBOR tenors immediately following majority of its secured debt obligations to SOFR, the June 30, 2023 publications. At this time, no consensus exists as to what alternative rate or rates may become accepted alternatives to LIBOR, and LIBOR. While the transition to SOFR has not at this time caused any material impact to the Company’s debt costs, it is impossible to predict the extent to which SOFR will increase or decrease in the future, whether and to what extent banks will continue to provide LIBOR submissions to use SOFR as the administrator of LIBOR standard benchmark interest rate or whether any additional reforms to LIBOR may if there will be enacted in the United Kingdom, the United States or elsewhere. Any any changes in the method used for determining LIBOR SOFR which may result in a sudden or prolonged increase or decrease in LIBOR. SOFR. If a published U.S. dollar LIBOR SOFR rate is unavailable after June 2023, unavailable, the interest rates on certain of the Company’s debt obligations could change. Uncertainty as to the nature of such potential changes, phase out, alternative reference rates or other reforms may adversely affect the trading market for LIBOR-based securities. Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition and results of operations.

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Prior heading: Changes in the Company’s financing policy may lead to higher levels of indebtedness.

The Company’s organizational documents do not limit the amount or percentage of indebtedness that may be incurred. The Company has adopted a policy of maintaining a limit on debt financing consistent with the existing covenants required to maintain the Company’s unsecured line of credit bank facility, unsecured debt and senior unsecured bonds. Although pursuant to this policy the Company manages its debt to be in compliance with the debt covenants, covenants under its unsecured bank facilities and senior unsecured bonds. However, the Company may increase the amount of outstanding debt at any time without a concurrent improvement in the Company’s ability to service the additional debt. Accordingly, the Company could become more leveraged, resulting in an increased risk of default on its debt covenants or on its debt obligations and in an increase in debt service requirements. Any covenant breach or significant increase in the Company’s leverage could materially adversely affect the Company’s financial condition and ability to access debt and equity capital markets in the future.

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Prior heading: The Company could be negatively impacted by the condition of Fannie Mae or Freddie Mac and by changes in government support for multifamily housing.

Historically, the Company has utilized borrowing from Fannie Mae and Freddie Mac. There are no assurances that these entities will lend to the Company in the future. The Company primarily utilizes unsecured debt and repays secured debt at or near its respective maturity and places less reliance on agency mortgage debt financing. Potential options have been proposed for the future of agency mortgage finance in the United States that could involve the phase out of Fannie Mae and Freddie Mac. While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded or reorganized by the government or if there is reduced government support for multifamily housing more generally, it may adversely affect interest rates, capital availability, development of multifamily communities and the value of multifamily residential real estate and, as a result, may adversely affect the Company and its growth and operations.

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Prior heading: The Company depends on its personnel, whose continued service is not guaranteed.

The Company’s success depends on its ability to attract, train and retain executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the departure of any of the Company’s key personnel could have an adverse effect on the Company. While the Company engages in regular succession planning for key positions, the Company’s plans may be impacted and therefore adjusted due to the departure of any key personnel. Additionally, the executive leadership transitions can be inherently difficult to manage and, as a result, we may experience some disruption to our business. The Company must continue to recruit and recruit, train and retain qualified operational staff at its properties. While the Company offers competitive pay and benefits, it properties, which may be difficult to appropriately staff our properties in a highly competitive job market.market. Changes to our Company’s operational structure could result in an increase in issues or departures among our operational staff. Additionally, we could be subject to labor union efforts to organize our employees from time to time and, if successful, those organizational efforts may decrease our operational flexibility and increase operational costs.

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Prior heading: The Company’s Chairman is involved in other real estate activities and investments, which may lead to conflicts of interest.

The Company’s Chairman, George M. Marcus, is not an employee of the Company, and is involved in other real estate activities and investments, which may lead to conflicts of interest. Mr. Marcus owns interests in various other real estate-related businesses and investments. He is the Chairman of the Marcus & Millichap Company ("MMC"), which is a parent company of a diversified group of real estate service, investment and development firms. Mr. Marcus is also the Co-Chairman Chairman of Marcus & Millichap, Inc. ("MMI"), and Mr. Marcus owns holds a controlling interest in MMI. MMI is in, Marcus & Millichap, Inc., a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013. Mr. Marcus has agreed not to divulge any confidential or proprietary information that may be received by him in his capacity as Chairman of the Company to any of his affiliated companies and that he will absent himself from any and all discussions by Essex's Board of Directors regarding any proposed acquisition and/or development of an apartment community where it appears that there may be a firm. While conflict of interest with any of his affiliated companies. Notwithstanding this agreement, protocols and agreements are in place, Mr. Marcus and his affiliated entities may potentially compete with the Company in acquiring and/or developing apartment communities, which competition may be detrimental to the Company. In addition, due communities. Due to such potential competition for real estate investments, Mr. Marcus and his affiliated entities may have a conflict of interest with the Company, which may be detrimental to the interests of Essex's stockholders and the Operating Partnership's unitholders.

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Prior heading: The influence of executive officers, directors, and significant stockholders may be detrimental to holders of common stock.

As of December 31, 2021, Mr. Marcus wholly or partially owned approximately 1.9 million shares of common stock (including shares issuable upon exchange of limited partnership interests in the Operating Partnership and certain other partnerships, indirectly held shares of common stock). Mr. Marcus currently does not have majority control over the Company. However, he currently has, and likely will continue to have, significant influence with respect to the election of directors and approval or disapproval of significant corporate actions. Consequently, his influence could result in decisions that do not reflect the interests of all the Company’s stockholders. Under the partnership agreement of the Operating Partnership, the consent of the holders of limited partnership interests is generally required for certain amendments of the agreement and for certain extraordinary actions. Through their ownership of limited partnership interests and their positions with the Company, the Company’s directors and executive officers, including Mr. Marcus, have substantial influence on the Company. Consequently, their influence could result in decisions that do not reflect the interests of all stockholders.

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Prior heading: Our related party guidelines may not adequately address all of the issues that may arise with respect to related party transactions.

The Company has adopted "Related Party Transaction Approval Process Guidelines" that provide generally that any transaction in which a director or executive officer has an interest must have the prior approval of the Audit Committee of Essex’s Board of Directors. The review and approval procedures in these guidelines are intended to determine whether a particular related party transaction is fair, reasonable and serves the interests of the Company’s stockholders. Pursuant to these guidelines, related party transactions have been approved by the Audit Committee of the Company’s Board of Directors (“Board”) from time to time. There is no assurance that this policy will be adequate for determining whether a particular related party transaction is suitable and fair for the Company. Also, the policy’s procedures may not identify and address all the potential issues and conflicts of interests with a related party transaction.

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Prior heading: Employee theft or fraud could result in loss.

Certain of our employees have access to, or signature authority with respect to, bank accounts or other Company assets, which exposes us to the risk of fraud or theft. In addition, certain employees have access to key information technology ("IT") infrastructure and to tenant and other information that is commercially valuable. Should any employee compromise our IT information technology systems, commit fraud or theft of the Company’s assets, or misappropriate tenant or other information, we could incur losses, including significant financial or reputational harm, from which full recovery cannot be assured. We also may not have insurance that covers any losses in full or that covers losses from particular criminal acts. Potential liabilities for theft or fraud are not quantifiable and an estimate of possible loss cannot be made.acts.

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Prior heading: The Maryland Business Combination Act may delay, defer or prevent a transaction or change in control of the Company that might involve a premium price for the Company's stock or otherwise be in the best interest of our stockholders.

Under the Maryland General Corporation Law, Business Combination Act (the “MBCA”), certain "business combinations" combinations", including a merger, between a Maryland corporation and an interested stockholder certain “interested stockholders” or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as any person (and certain affiliates of such person) who beneficially owns ten percent or more of the voting power of the then-outstanding voting stock of the corporation. The law also requires a two supermajority stockholder votes for such transactions. This means that the transaction and must be approved by at least 80% of the votes entitled to be cast by holders of outstanding voting shares; and two-thirds of the votes entitled pursuant to be cast by holders of outstanding certain supermajority voting shares other than shares held by the interested stockholder with whom the business combination is requirements, subject to be effected. The statute permits various certain exemptions from its provisions, including which include business combinations that are exempted by the board of directors Board prior to the time that the interested stockholder becomes an interested stockholder. These voting provisions do not apply if the stockholders receive a minimum price, as defined under the Maryland General Corporation Law. As permitted by the statute, Pursuant to this exemption, the Board of Directors of Essex irrevocably has elected to exempt any business combination among the Company, George M. Marcus, who is the chairman of the Company, Mr. Marcus and MMC or any entity owned or controlled by Mr. Marcus and MMC. Consequently, the five-year prohibition and supermajority vote requirements described above will not apply However, other transactions with interested stockholders subject to any business combination between the Company, Mr. Marcus, MBCA may be delayed or MMC. As a result, the Company may in the future enter into business combinations with Mr. Marcus and MMC, without compliance with not meet the related supermajority vote requirements and voting or other provisions requirements of the Maryland Business Combination Act.MBCA, which may delay or prevent the consummation of such transactions.

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Prior heading: Certain provisions contained in the Operating Partnership agreement, Charter and Bylaws, and certain provisions of the Maryland General Corporation Law could delay, defer or prevent a change in control.

While the Company is the sole general partner of the Operating Partnership, and generally has full and exclusive responsibility and discretion in the management and control of the Operating Partnership, certain provisions of the Operating Partnership agreement place limitations on may limit the Company’s power to act with respect to the Operating Partnership. Such limitations Partnership, which could delay, defer or prevent a transaction or a change in control that might involve a premium price for the Company’s stock or may otherwise be in the best interests of its stockholders or that could otherwise adversely affect their interests. The partnership agreement provides that if the limited partners own at least 5% of the outstanding units of partnership interest in the Operating Partnership, the Company may not, without first obtaining the consent of a majority in interest of the limited partners in the Operating Partnership, transfer all or any portion of the Company’s general partner interest in the Operating Partnership to another entity. Such limitations on the Company’s power to act may result in the Company’s being precluded from taking action that the Board of Directors otherwise believes is in the best interests of the Company or its stockholders. interests. The Company’s Charter authorizes the issuance of additional shares of common stock or preferred stock and the setting of the preferences, rights and other terms of such stock without the approval of the holders of the common stock. The Company may establish one or more classes or series of stock that could delay, defer or prevent a transaction or a change in control. Such a transaction might involve a premium price for the Company’s stock control, or otherwise be in the best interests of the holders of common stock. Also, such a class or series of stock could have dividend, voting or other create rights that could could. adversely affect the interests of holders of common stock. The stock. Additionally, the Company’s Charter contains provisions limiting the transferability and ownership of shares of capital stock, which may delay, defer or prevent a transaction or a change in control. For example, subject to receiving an exemption from the Board of Directors, potential acquirers may not purchase more than 6% in value of the stock (other than qualified pension trusts which can acquire 9.9%). This may control, or discourage tender offers that may be attractive to the holders of common stock and limit the opportunity for stockholders to receive a premium for their shares of common stock. offers. The Maryland General Corporation Law (the “MGCL”) restricts the voting rights of holders of shares deemed to be "control shares." Under the Maryland General Corporation Law, "control shares" are those which, when aggregated with any other shares held by the acquirer, entitle the acquirer to exercise voting power within specified ranges. Although the Bylaws exempt the Company from the control share provisions of the Maryland General Corporation Law, MGCL, the Board of Directors may amend or eliminate the provisions of the Bylaws at any time in the future. Moreover, any such amendment or elimination of such provision of the Bylaws may result in the application of the control share provisions of the Maryland General Corporation Law not only to control shares which may be acquired in the future, but also to control shares previously acquired. MGCL. If the provisions of the Bylaws are amended or eliminated, the control share provisions of the Maryland General Corporation Law MGCL could delay, defer or prevent a transaction or change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company’s stockholders. control. The Company’s Charter and Bylaws as well as Maryland General Corporation Law the MGCL also contain other provisions that may impede various actions by stockholders without approval of Essex’s Board of Directors, by the Board, and that in turn may delay, defer or prevent a transaction, including a change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company’s stockholders. transaction. Those provisions include, among others, directors may be removed by stockholders, without cause, only upon the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of the directors, and with cause, only upon the affirmative vote of a majority of the votes entitled to be cast generally in the election of the directors; Essex’s the Board of Directors can fix the number of directors and fill vacant directorships upon the vote of a majority of the directors and Essex's the Board of Directors can classify the board such that the entire board is not up for re-election annually; stockholders must give advance notice to nominate directors or propose business for consideration at a stockholders’ meeting; and for stockholders to call a special meeting, the meeting must be requested by not less than a majority of all the votes entitled to be cast at the meeting.

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Prior heading: Loss of the Company's REIT status would have significant adverse consequences to the Company and the value of the Company's common stock.

The Company has elected to be taxed as a REIT under the Code. The Company’s qualification as a REIT REIT, which requires it to satisfy various annual and quarterly requirements, including income, asset and distribution tests, established under highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations. tests. Although the Company intends that its current organization and method of operation enable it to qualify as a REIT, it cannot assure you that it so qualifies or that it will be able to remain so qualified in the future. If the Company fails to qualify as a REIT in any taxable year, the Company would be subject to U.S. federal corporate income tax on the Company’s taxable income (and the Company could be subject to the federal alternative minimum tax for taxable years prior to 2018), income, and the Company would not be allowed to deduct dividends paid to its stockholders in computing its taxable income. The Company would also be disqualified from treatment as a REIT for the four taxable years following the year in which the Company failed to qualify, unless we are entitled to relief under statutory provisions. The additional tax liability would reduce its net earnings available for investment or distribution to Essex stockholders and Operating Partnership unitholders, distributions, and the Company would no longer be required to make distributions to its stockholders for the purpose of maintaining REIT status. As a result of all these factors, the Company’s failure to qualify as a REIT also could impair its ability to expand its business and raise capital, and could adversely affect the value and market price of the Company’s common stock.

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Prior heading: Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive investments.

To qualify as a REIT, we must continually satisfy certain asset, income and distribution tests concerning, among other things, the nature and diversification of our assets, the sources of our income other requirements, which could materially and the amounts we distribute to our stockholders. adversely affect us. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement could cause us to: (1) sell assets in adverse market conditions; (2) borrow on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. Accordingly, satisfying the REIT requirements could materially and adversely affect us. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting of debt. Accordingly, satisfying the REIT requirements could materially and adversely affect us. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales constitute prohibited transactions.transactions. .

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Prior heading: Legislative or other actions affecting REITs could have a negative effect on the Company or its stockholders.

The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Department of the Treasury. Changes to the federal income tax laws, with or without retroactive legislation, could adversely affect the Company or its stockholders. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect the Company’s ability to qualify as a REIT, the federal income tax consequences of such qualification, or the federal income tax consequences of an investment in the Company. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.

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Prior heading: The tax imposed on REITs engaging in "prohibited transactions" may limit the Company’s ability to engage in transactions which would be treated as sales for federal income tax purposes.

From time to time, the Company may transfer or otherwise dispose of some of its properties. Under the Code, unless certain exceptions apply, any gain resulting from transfers or dispositions of properties that the Company holds as inventory or primarily for sale to customers in the ordinary course of business could be treated as income from a prohibited transaction subject to a 100% penalty tax from the gain on the sale of the community, tax, which could potentially adversely impact our status as a REIT unless we own the community through one of our TRSs. REIT. Since the Company acquires properties for investment purposes, it does not believe that its occasional transfers or disposals of property should be treated as prohibited transactions. However, whether property is held for investment purposes depends on all the facts and circumstances surrounding if the particular transaction. The Internal Revenue Service may contend successfully contends that certain transfers or disposals of properties by the Company are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, transactions, then the Company would be required to pay a 100% penalty tax on any gain allocable to it from the prohibited transaction, and the Company’s ability to retain proceeds from real property sales may be jeopardized.

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Prior heading: Partnership tax audit rules could have a material adverse effect on us.

Under current federal partnership tax audit rules, subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and a partner’s allocable share thereof) is determined, and taxes, interest, and penalties attributable thereto are assessed and collected, at the partnership level. Unless the partnership makes an election or takes certain steps to require the partners to pay their tax on their allocable shares of the adjustment, it It is possible that partnerships in which we directly or indirectly invest would be required to pay additional taxes, interest, and penalties as a result of an a partnership tax audit adjustment. We, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though Essex, as a REIT, may not otherwise have been required to pay additional corporate‑level corporate-level taxes had we owned the assets of the partnership directly. The partnership tax audit rules apply to Essex Portfolio, L.P. and its subsidiaries that are classified as partnerships for U.S. federal income tax purposes. There can be no assurance that these rules will not have a material adverse effect on us.

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Prior heading: We may from time to time be subject to litigation, which could have a material adverse effect on our business, financial condition and results of operations.

Some of these claims may result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. Payment insurance, the payment of any such costs, settlements, fines or judgments that are not insured which could have an adverse impact on our financial position and results of operations. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our reputation, our results of operations coverage and cash flow, expose us to increased risks that would be uninsured.uninsured. Litigation, including anti-trust litigation, even if resolved in our favor, could adversely impact our reputation, which could negatively impact our operations and cash flow.

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Prior heading: Rising interest rates may affect the Company’s costs of capital and financing activities and results of operation and otherwise adversely affect the market price of our common stock.

Interest rates could increase, which could result in higher interest expense on the Company’s variable rate indebtedness or increase interest rates when refinancing maturing fixed rate debt. Prolonged interest rate increases could negatively impact the Company’s ability to make acquisitions and develop apartment communities projects with positive economic returns on investment and the Company’s ability to refinance existing borrowings. In addition, an increase in market interest rates may lead purchasers of our common stock to demand a greater annual dividend yield, which could adversely affect the market price of our common stock.borrowings.

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Prior heading: The price per share of the Company’s stock may fluctuate significantly.

The market price per share of the Company’s common stock may fluctuate significantly in response to many factors, including without limitation: •regional, national the factors discussed in this Item 1A, and global economic conditions; •actual actual or anticipated variations in the Company’s quarterly operating results or dividends; •changes in the Company’s funds from operations or results, earnings estimates; •publication of research reports about the Company estimates, or the real estate industry; •the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate based companies); •general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of dividends, the Company’s stock to demand a higher annual yield from dividends; •shifts in our investor base to a higher concentration of passive investors such as exchange traded fund and index funds, which may adversely affect our ability to communicate effectively with our investors; •the resale of substantial amounts of the Company's stock, or the anticipation of such resale, by large holders of our securities; •availability of capital markets general stock and cost bond market conditions, the general reputation of capital; •a change in analyst ratings or REITs and the Company’s credit ratings; •terrorist activity, Company, shifts in our investor base, natural disasters, armed conflict or geopolitical impacts adversely affecting impacts, including, the markets ongoing conflict in which the Company’s securities trade, possibly increasing market volatility and causing erosion of business and consumer confidence and spending; •hazards such as natural disasters like earthquakes, wildfires, landslides Ukraine, or flooding; terrorism; an active shooter at a property or corporate office; an incident involving multiple key members of the executive team; or an epidemic or pandemic; •changes in public policy and tax law; and •those other factors discussed in this Item 1A. incident. Many of the these factors listed above are beyond the Company’s control. These factors control and may cause the market price of shares of the Company’s common stock to decline, regardless of the Company’s financial condition, results of operations, or business prospects.

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Prior heading: The Company’s future issuances of common stock, preferred stock or convertible debt securities could be dilutive to current stockholders and adversely affect the market price of the Company’s common stock.

In order to finance the Company’s acquisition and development activities, the Company could issue and sell common stock, preferred stock and convertible debt securities, including pursuant to its equity distribution program. In 2021, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number of equity and debt securities as defined program, issue partnership units in the prospectus. Future sales of common stock, preferred stock Operating Partnership, or convertible debt securities enter into joint ventures which may dilute stockholder ownership in the Company and could adversely affect the market price of the common stock. Additionally, the perception that such issuances might occur could adversely affect the market price of the common stock.

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Prior heading: Stockholders have limited control over changes in our policies and operations.

Essex’s The Board of Directors determines our major policies, including our policies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Essex’s The Board of Directors may amend or revise these and other policies without a vote of the stockholders. In addition, pursuant to Maryland law, the MGCL, all matters other than the election or removal of a director must be declared advisable by Essex’s the Board of Directors prior to a stockholder vote.

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Prior heading: Our score or rating by proxy advisory firms or other corporate governance consultants advising institutional investors could have an adverse effect on the perception of our corporate governance, and thereby negatively impact the market price of our common stock.

Various proxy advisory firms and other corporate governance consultants advising institutional investors provide scores or ratings of our governance measures, nominees for election as directors, executive compensation practices, environmental, social and governance (“ESG”) matters, and other matters that may be submitted to stockholders for consideration at our annual meetings. From time to time certain matters that we propose for approval may not receive a favorable score or rating, score, or may result in a recommendation against the nominee or matter proposed. Some investors and financial institutions use ESG or sustainability scores, ratings or benchmarks to make financing, investment and voting decisions. These unfavorable scores or ratings may lead to rejected proposals or a loss of stockholder confidence in our corporate governance measures, which could adversely affect the market price of our common stock. We continuously review our corporate governance measures, including our ESG business practices, and consider implementing changes that we believe are responsive to concerns that have been raised, but there may be times where we decide not to implement recommendations by proxy advisors or other corporate governance consultants that we believe are contrary to the best interests of our stockholders, notwithstanding the adverse effect this decision may have on our scores or ratings or the perception of our corporate governance, thereby negatively impacting the market price of our common stock.

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Prior heading: Corporate responsibility, specifically related to ESG factors, may impose additional costs and expose us to new risks.

The Company and many of its investors and potential investors are focused on corporate responsibility, specifically related to ESG factors. Some investors may use ESG factors to guide their investment strategies. Many investment funds focus on positive ESG business practices and sustainability scores when making investments and may consider a company’s sustainability efforts and/or score when making an to guide their investment decision. In addition, investors, particularly institutional investors, may use strategies, including the decisions whether to invest in our common stock. Additionally, the SEC continues to issue evolving rules relating to climate risk disclosures, human capital management and other ESG matters and other regulatory bodies have issued new laws or sustainability scores regulations relating to benchmark companies against their peers. board structure. Although the Company makes ESG disclosures and undertakes sustainability and diversity initiatives, there can be no assurance that the Company will may not score highly on ESG matters in the future. In addition, future and may face increased costs in order to make such disclosures. If the criteria by which companies are rated may change, which could cause changes, the Company to may perform differently or worse than it has in the past. past, or it may become more expensive for the Company to access capital. The Company may face reputational damage in the event its corporate responsibility procedures procedures, or standards its board structure, do not meet the standards set by various constituencies. Further, if we fail to comply with new ESG-related laws, regulations, expectations or reporting requirements, or if we are perceived as failing, our reputation and business could be adversely impacted. The occurrence of any of the foregoing could have an adverse effect on the price of the Company’s stock and the Company’s business, financial condition and results of operations, including increased development costs, capital expenditures and operating expenses.operations. In addition, investments to attain an ESG outcome may not perform as expected, resulting in losses.

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Prior heading: We could face adverse consequences as a result of actions of activist investors.

Campaigns by stockholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to stockholder activism or engaging in a process or proxy contest may be costly and time-consuming, disrupt our operations and divert the attention of our management team and our employees from executing our business plan, which could adversely affect our business and results of operations.

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