What changed in this filing

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Item 1A. Risk Factors

2024-02-23 compared with 2023-02-23 · 104 added, 98 removed, 319 unchanged (39% of the section changed)

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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 and demand for housing, including layoffs, industry slowdowns, relocations of employees from local employers, changing demographics, increased worker locational flexibility, and other events negatively impacting local employment rates, wages and the local economy;

• changes in the general or local economic climate that could affect demand for housing, including layoffs, due to an increase in the use of new technologies to replace workers, slowing job growth, and other events negatively impacting local employment rates, wages and the local economy;

• changes in demand for rental housing due to a variety of factors, including relocations of employees from local employers, increased worker locational flexibility and changing demographics, which could lead to a relative decrease in the renting population as the domestic population skews older due to the aging of baby boomers and older people may be more likely to purchase, rather than rent, homes,

• changes in supply and cost of housing;

• changing economic conditions, such as high inflationary periods in which our operating and financing costs may increase at a rate greater than our ability to increase rents, or deflationary periods where rents may decline more quickly relative to operating and financing costs;

• changes in economic conditions, such as high inflationary periods in which our operating and financing costs may increase at a rate greater than our ability to increase rents, or deflationary periods where rents may decline more quickly relative to operating and financing costs;

• the appeal and desirability of our communities to tenants relative to other housing alternatives, including the size and amenity offerings, safety and location convenience, and our technology offerings.

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 or re-let in place 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.

If the Company is unable to promptly renew or re-let existing 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.

Economic environments can negatively impact the Company’s liquidity and operating results.

In the event of a recession or other negative economic effects, the Company could incur reductions in rental and occupancy rates, property valuations and increases in costs.

Any such recession or 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.

Any such recession or economic downturn may also 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 increase their income, they may be unable or unwilling to pay rent.

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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.

The COVID-19 pandemic and the future outbreak of other contagious diseases could materially affect our business, financial condition, stock price, and results of operations.

Uncertainty still surrounds the long-term impact of COVID-19.

If there is a future outbreak of COVID-19 or other contagious diseases, the Company may again be subject to eviction 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.

In the event of tenant nonpayment, default or bankruptcy, we may incur costs in protecting our investment, collecting delinquent rents, and re-leasing our property and have limited ability to renew existing leases or sign new leases at levels consistent with market rents.

A new pandemic or disease outbreak may cause increased costs, lower profitability and market fluctuations that may affect our ability to obtain necessary funds for our business or negatively impact the ability of the Company’s third-party mezzanine loan borrowers and preferred equity investment sponsors to repay the Company.

The future outbreak of contagious diseases could materially affect our business, financial condition, and results of operations.

If there is a future outbreak of contagious diseases, such as COVID-19, the Company may be subject to eviction moratoria or limits on rent increases and collection efforts, or may be legally required to or otherwise agree to restructure tenants’ rent obligations on less favorable terms than those currently in place.

In the event of tenant nonpayment, default or bankruptcy, we may incur costs in protecting our investment, collecting delinquent rents, and re-leasing our property and we may have limited ability to renew existing leases or sign new leases at levels consistent with market rents.

A new pandemic or disease outbreak may also cause increased costs, lower profitability and market fluctuations that may affect our ability to obtain necessary funds for our business or may otherwise negatively impact the ability of the Company’s third-party mezzanine loan borrowers and preferred equity investment sponsors to repay the Company.

Additionally, the Company may be subject to temporary or permanent legislative restrictions that may inhibit our ability to conduct normal business activities including timely repairs, maintenance and customer service

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

The Company intends to continue to acquire apartment communities.

However, acquisitions may fail to meet the Company’s expectations due to factors including inaccurate estimates of future income, expenses and the costs of improvements or redevelopment.

The Company’s acquisition of apartment communities may fail to meet the Company’s expectations due to factors including inaccurate estimates of future income, expenses and the costs of improvements or redevelopment, which may be exacerbated by the lack of current market data due to limited deal flow.

Further, the value and operational performance of an apartment community may be diminished if 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.

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.

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 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.

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

The Company pursues development and redevelopment projects, and those activities generally entail certain risks, including:

The Company pursues development and redevelopment projects, including densification projects and those activities generally entail certain risks, including:

• funds may be expended and management's time devoted to projects that may not be completed on time or at all;

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• expenses may be higher than anticipated, including, without limitation, due to inflationary pressures, supply chain issues, costs of litigation over construction contracts, environmental remediation or increased costs for labor, materials and leasing;

• we are reliant on third party contractors’ and vendors’ ability to deliver services and products as planned, and if the timeframe, quality or scope of such services and products are different than we expected, our projects may be subject to increased costs and our future income may be lower than expected;

• we may be unable to obtain, or experience a delay in obtaining, necessary governmental approvals or third party permits and authorizations, which could result in increased costs or delay or abandonment of opportunities;

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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.

Additionally, the political climates in California and Washington, in combination with the states’ and certain local governments’ relatively long suspension of rent payments and the corresponding restriction on evicting tenants due to non-payment of rent in connection with the COVID-19 pandemic, may have shifted some residents’ attitudes about the necessity of making rent payments.

This shift could reduce some residents’ willingness to pay rent and therefore the Company may continue to experience higher than historical average delinquency rates, which could adversely impact the Company’s financial condition and results of operations.

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

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If any of the above were to occur, it could adversely affect the Company’s cash flows from operations.

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’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, refinance, 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.

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Consequently, a joint venture partner's actions might subject property owned by the joint venture to additional risk.

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.

In some instances, the Company and the joint venture partner may each have the right to exercise 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, and may result in the valuation of our interest or our partner’s interest at levels which may not be representative of the valuation that would result from an arm’s length marketing process and could cause us to recognize unanticipated capital gains or losses or the loss of fee income.

Should a joint venture partner become bankrupt, the Company could become liable for such partner’s share of joint venture liabilities.

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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, 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 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, or are unable to refinance or sell their interest as planned, the Operating Partnership may not receive the expected return in its expected timeframe or at all and may lose up to its entire investment.

Additionally, the preferred return negotiated on these co-investments may be lower than the Company's cost of funds.

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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.

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.

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Seismic coverage is limited and may not cover the Company’s seismic related losses.

Thus, we cannot assure you that an earthquake would not cause damage or losses greater than our current insured levels.

Our properties or markets may in the future be the target of actual or threatened terrorist attacks, shootings, or other acts of violence, which could directly or indirectly damage our communities both physically and financially, cause losses that exceed our insurance coverage, adversely affect the value of and our ability to operate our communities, subject us to significant liability claims, or otherwise impair our ability to achieve our expected results.

Our properties or markets may in the future be the target of actual or threatened terrorist attacks, shootings, or other acts of violence, which could directly or indirectly damage our communities both physically and financially, cause uninsured losses, adversely affect the value of and our ability to operate our communities, subject us to significant liability claims, or otherwise impair our ability to achieve our expected 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.

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Climate change may adversely affect our business.

As a result of climate change, we may experience extreme 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, a decrease in demand for our communities located in these areas or affected by these 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, the types and pricing of insurance the Company is able to procure may be negatively impacted and our financial condition or results of operations may be adversely affected.

Transition risks associated with climate change may result in interruptions in energy access, increased energy costs, or increased regulatory requirements and stakeholder expectations regarding reporting and energy efficiency.

Should the impact of climate change be material in nature or occur for lengthy periods of time, even if not directly impacting the Company’s current markets, the types and pricing of insurance the Company is able to procure may be negatively impacted and our financial condition or results of operations may be adversely affected.

We could experience 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.

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 and could increase our exposure to new physical risks and liabilities (for example, we may see an increase in fires caused by electric vehicle chargers).

Accidental death or severe injuries at our communities due to fires, floods, other natural disasters or hazards could adversely affect our business and results of operations.

Our insurance coverage may not cover all losses associated with such events, and we may experience difficulty marketing communities where any such events have occurred, which could have a material adverse effect on our business and results of operations.

Further, we may not have the ability to respond immediately to a major event, which may cause increased losses.

Adverse changes in laws may adversely affect the Company's liabilities and/or operating costs relating to its properties and its operations.

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Changes in laws increasing the potential liability of the Company and/or its operating costs on a range of issues, including those regarding potential liability for other environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction and safety requirements, may result in significant unanticipated expenditures, including without limitation, those related to structural or seismic retrofit or more costly operational safety systems and programs, which could have a material adverse effect on the Company.

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

Failure to succeed in new markets or with new community operations formats 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, which may expose the Company to new risks, including, but not limited to an inability to evaluate accurately local apartment market conditions and local economies;

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an inability to hire and retain key personnel;

and lack of familiarity with local governmental and permitting procedures.

and a lack of familiarity with local governmental and permitting procedures.

Additionally, we have recently adjusted our operating model to reduce the number of staff on-site at individual properties and moved towards a hub model where specialized staff can service multiple properties from a central location and rely on certain technologies, such as virtual apartment tours, to further reduce the need for on-site staffing.

There may be resistance to such change from our employees and residents, and if we experience difficulty in retaining and/or hiring employees or residents, as applicable, this could adversely affect the Company’s results of operations.

Further, there are unknown risks with relying on new technologies and operating models, such as whether there is consumer preference for in-person tours or if we are not able to as rapidly respond to resident demands, and we cannot guarantee that this model will be successful, which could adversely affect our results of operations.

Our business and reputation depend on our ability to continue providing high quality housing and consistent operation of our communities, the failure of which could adversely affect our business, financial condition and results of operations.

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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.

The Company continually evaluates the recoverability of the carrying value of its real estate assets, including those assets it invests in indirectly or places subordinated loans on through its preferred equity and mezzanine lending program, under U.S.

generally accepted accounting principles ("U.S.

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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.

There can be no assurance that the Company will not take charges in the future related to the impairment of the Company’s assets, including those assets it invests in indirectly or places subordinated loans on through its preferred equity and mezzanine lending program.

Any future impairment charges could have a material adverse effect on the Company’s results of operations.

We face risks associated with land holdings for future developments and related activities.

Real estate markets are highly uncertain and the value of undeveloped may fluctuate significantly.

Real estate markets are highly uncertain and the value of undeveloped land may fluctuate significantly.

In addition, carrying costs can be significant and can result in losses or reduced profitability.

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.

We rely on information technology in our operations, and any material failure, inadequacy, interruption or breach of the Company’s privacy or information security systems, or those of our vendors or other third parties, could materially adversely affect the Company’s business and financial condition.

We rely on information technology networks and systems to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personally identifiable information (“PII”), and tenant and lease data.

Our business requires us and some of our vendors to use and store PII and other sensitive information of our tenants and employees.

The collection and use of PII is governed by federal and state laws and regulations.

Privacy and information security laws continue to evolve and may be inconsistent from one jurisdiction to another.

The Company endeavors to comply with all such laws and regulations, including by providing required disclosures, promptly responding to consumer requests for data, and seeking vendor compliance with applicable privacy and information security laws.

Compliance with all such laws and regulations may increase the Company’s operating costs and adversely impact the Company’s ability to market the Company’s properties and services.

Although we have taken steps to abide by privacy and security laws, and to protect the security of our information systems and maintain confidential tenant, prospective tenant and employee information, the compliance and security measures put in place by the Company, and such vendors, cannot guarantee perfect compliance or provide absolute security, and the Company and our vendors' compliance systems and/or information technology infrastructure may be vulnerable to criminal cyber-attacks or data security incidents, including ransom of data (such as, tenant and/or employee information), due to employee error, malfeasance, or other vulnerabilities.

Any such incident could compromise the Company’s or such vendors’ networks (or the networks or systems of third parties that facilitate the Company’s or such vendors’ business activities), and the information stored by the Company or such vendors could be accessed, misused, publicly disclosed, corrupted, lost, or stolen, resulting in fraud, including wire fraud related to Company assets, or other harm.

Moreover, if there is a compliance failure, or if a data security incident or breach affects the Company’s systems or such vendors’ systems, whether through a breach of the Company’s systems or a breach of the systems of third parties, or results in the unauthorized release of PII, the Company’s reputation and brand could be materially damaged, which could increase our costs in attracting and retaining tenants, and other serious consequences may result.

Potential other consequences include that the Company may be exposed to a risk of litigation, including government enforcement actions, private litigation or criminal penalties;

and that the Company may be exposed to a risk of loss including loss related to the fact that agreements with such vendors, or such vendors’ financial condition, may not allow the Company to recover all costs related to a cyber-breach for which they alone or they and the Company should be jointly responsible for, which could result in a material adverse effect on the Company’s results of operations and financial condition.

Privacy and information security risks have generally increased in recent years because of the proliferation of new technologies, such as ransomware, and the increased sophistication and activities of perpetrators of cyber-attacks.

We maintain cyber risk insurance which may be insufficient in the event of a cyber-incident.

In the future, the Company may expend additional resources to continue to enhance the Company’s information security measures to investigate and remediate any information security vulnerabilities and/or to further ensure compliance with privacy and information security laws.

Despite these steps, the Company may suffer a significant data security incident in the future, unauthorized parties may gain access to sensitive data stored on the Company’s systems, and any such incident may not be discovered in a timely manner.

Further, the techniques used by criminals to obtain unauthorized access to sensitive data, such as phishing are increasing in sophistication and are often novel or change frequently;

If there are 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 impairment charges which could have a material adverse effect on our financial condition and results of operations.

We are subject to laws and regulations relating to the handling of personal information and we rely on information technology to sustain our operations.

Any failure by us to comply with applicable requirements or material failure, inadequacy, interruption or breach of the Company’s privacy or information systems, or those of our vendors or other third parties, could materially adversely affect the Company’s business, results of operations and financial condition.

We rely on information technology hardware, software, networks and systems (collectively, “IT Systems”), some of which are provided by vendors, to process, transmit and store personal information, tenant and lease data, and other electronic information (collectively, “Confidential Information”), and to manage or support a variety of business processes, including financial transactions and records.

Our business requires us and some of our vendors to use and store personal and other sensitive information of our tenants and employees.

The collection, use and other processing of personal information is governed by federal and state laws and regulations.

Privacy and cybersecurity laws continue to evolve, with several states passing new data privacy laws that govern the processing of information about state residents, and laws may be inconsistent from one jurisdiction to another.

The Company endeavors to comply with privacy laws and regulations applicable to it, including the California Consumer Privacy Act (“CCPA”) which governs the collection, use, disclosure and security of information about California residents.

The CCPA requires the Company to, among other things, provide certain disclosures to California residents, promptly respond to certain consumer requests related to their data, and contractually impose certain obligations on vendors.

Compliance with existing and future laws and regulations related to data privacy and protection may increase the Company’s operating costs and adversely impact the Company’s ability to market the Company’s properties and services, and any failure to comply with such laws and regulations could harm our business, reputation and financial results.

Although we have taken steps to abide by applicable privacy and cybersecurity laws, and strive to protect the security of our IT Systems and Confidential Information, the compliance and security measures put in place by the Company and its vendors cannot guarantee perfect compliance or provide absolute security, and the Company and its vendors' IT Systems may be vulnerable to cyber-attacks or cybersecurity incidents that threaten the confidentiality, integrity and availability of our IT Systems and Confidential Information, including through ransomware distributed denial-of-service attempts, data theft, account takeovers, social engineering/phishing, technological error, employee error, malfeasance, misconfigurations, “bugs”, or other vulnerabilities in Company, or vendor, IT Systems.

These threats can also come from diverse threat actors, such as state-sponsored organizations, opportunistic hackers and hacktivists.

Any incident could compromise the Company’s or our vendors’ IT Systems (or the IT Systems of third parties that facilitate the Company’s or such vendors’ business activities), and the Confidential Information stored by or on behalf of the Company or such vendors could be accessed, misused, publicly disclosed, corrupted, lost, or stolen, resulting in fraud, including wire fraud related to Company assets or tenant payments, or other harm.

Moreover, if there is a compliance failure, or if a cybersecurity incident affects the Company’s or vendors’ systems, whether through a breach of the Company’s IT Systems or a breach of the IT Systems of third parties, or results in the unauthorized release of Confidential Information, the Company’s reputation and brand could be materially damaged, which could increase our costs in attracting and retaining tenants, and other serious consequences may result.

Potential other consequences include potential exposure to litigation, including government enforcement actions, private litigation (including class actions), fines or criminal penalties;

and potential exposure to a risk of loss including loss related to the fact that agreements with such vendors, or such vendors’ financial condition, may not allow the Company to recover all costs related to a cybersecurity incident for which they alone or they and the Company should be jointly responsible for, which could result in a material adverse effect on the Company’s business, results of operations and financial condition.

Privacy and cybersecurity risks have generally increased in recent years because of the proliferation of new technologies, such as ransomware and generative AI, and the increased sophistication, techniques and activities of threat actors;

accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures .

Any failure in or breach of the Company’s information security systems, those of third party service providers, or a breach of other third party systems that ultimately impacts the operational or information security systems of the Company as a result of cyber-attacks or information security breaches could result in a wide range of potentially serious harm to our business and results of operations.

Reliance on third party software providers to host systems critical to our operations and to provide the Company with data.

We rely on certain key software vendors to support business practices critical to our operations, including the collection of rent and ancillary income and communication with our tenants, and to provide us with data.

We maintain cyber risk insurance which may be insufficient type or amount to cover us against claims related to a cybersecurity incident, and we cannot be certain that such insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claims.

In the future, the Company may expend additional resources to continue to enhance the Company’s cybersecurity measures to investigate and remediate any cybersecurity vulnerabilities and/or to further ensure compliance with privacy and cybersecurity laws.

Despite these steps, the Company may suffer a significant cybersecurity incident in the future, unauthorized parties may gain access to Confidential Information stored on the Company’s or its vendors’ IT Systems, and any such incident may not be discovered in a timely manner.

Any cybersecurity incident or failure in the implementation, compliance with or effectiveness of the Company’s IT Systems or cybersecurity program or those of third party service providers, or a breach of other third party systems that ultimately impacts the operational or IT Systems of the could result in a wide range of potentially serious harm to our business and results of operations.

Reliance on third party software providers to host systems is critical to our operations and to provide the Company with data.

The market is currently experiencing a consolidation of these software vendors, particularly in the multi-family space, which may negatively impact the Company’s choice of vendor and pricing options.

Moreover, if any of these key vendors were to terminate our relationship or access to data, or to fail, we could suffer losses while we sought to replace the services and information provided by the vendors.

Moreover, if any of these key vendors were to terminate our relationship or access to data, or fail, we could suffer losses while we seek to replace the services and information provided by the vendors.

Further, our failure, or our software vendors’ failure, to adopt, anticipate or keep pace with the new technologies, such as generative AI solutions, may harm our ability to compete with our peers, decrease the value of our assets and/or impact our future growth.

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, the payment of 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 and expose us to increased risks that would be uninsured.

Litigation, even if resolved in our favor, could adversely impact our reputation and divert the attention of our management, which could negatively impact our operations and cash flow.

In late 2022 and early 2023, a number of purported anti-trust class actions were filed against RealPage, Inc., a seller of revenue management software, and various lessors of multifamily housing which utilize this software, including the Company.

The complaints allege collusion among defendants to artificially increase rents of multifamily residential real estate above competitive levels.

The Company intends to vigorously defend against these lawsuits.

Given their early stage, the Company is unable to predict the outcome or estimate the amount of loss, if any, that may result from such matters.

The Company is also subject to various other legal and/or regulatory proceedings arising in the normal course of its business operations, including California private attorney general actions (“PAGA Claims”).

The current political climate in California may continue to encourage plaintiffs’ attorneys to bring PAGA Claims and other class actions.

Risks Related to Our Indebtedness and Financings

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In general, to the extent that the Company’s access to capital and credit is at a higher cost than the Company has experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing without a corresponding change to investment cap rates) the Company’s ability to make acquisitions, develop or redevelop communities, obtain new financing, and refinance existing borrowing at competitive rates could be adversely affected, which would impact the Company's financial standing and related credit rating.

In addition, if our ability to obtain financing is adversely affected, the Company’s stock price may be adversely affected, and we may be unable to satisfy scheduled maturities on existing financing through other sources of our liquidity, which, in the case of secured financings, could result in lender foreclosure on the apartment communities securing such debt.

Debt financing has inherent risks.

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paying debt before the scheduled maturity date could result in prepayment 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.

and defaulting on secured indebtedness may result in lenders seeking a foreclosure 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 and pay amounts due on its debt.

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The Company has, and expects to continue using, variable rate tax-exempt financing, which provides for certain deed restrictions and restrictive covenants.

If the compliance requirements of the tax-exempt financing restrict our ability to increase our rental rates to certain tenants, or eligible/qualified tenants, then our income from these properties may be limited.

If the compliance requirements of the tax-exempt financing restrict our ability to increase our rental rates with respect to certain tenants, then our income from these properties may be limited.

While we generally believe that the interest rate benefit attendant to properties with tax-exempt bonds outweighs any loss of income due to restrictive covenants or deed restrictions, this may not always be the case.

Some of these requirements are complex and our failure to comply with them may subject us to material fines or liabilities.

Certain state and local authorities may impose additional rental restrictions.

These restrictions may limit income from the tax-exempt financed communities if the Company is required to decrease its rental rates.

Certain state and local authorities may impose additional rental restrictions, which may limit income from the tax-exempt financed communities if the Company is required to decrease its rental rates.

If the Company does not reserve the required number of apartment homes for tenants satisfying these income requirements, the tax-exempt status of the bonds may be terminated, the obligations under the bond documents may be accelerated and the Company may be subject to additional contractual liability.

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If any of our indebtedness is accelerated, we may not be able to repay it.

Uncertainty relating to the transition from LIBOR to SOFR may materially adversely affect us.

The interest rate on certain of the Company’s debt obligations has been based on LIBOR, which is expected to be fully phased out by the end of June 2023.

As of December 31, 2022, the Company has transitioned its unsecured debt obligations and the majority of its secured debt obligations to SOFR, the consensus alternative rate to 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 use SOFR as the standard benchmark interest rate or if there will be any changes in the method used for determining SOFR which may result in a sudden or prolonged increase or decrease in SOFR.

If a published U.S.

dollar SOFR rate is unavailable, the interest rates on certain of the Company’s debt obligations could change.

Any of these consequences could have a material adverse effect on our financing costs, and as a result, our financial condition and results of operations.

Interest rate hedging arrangements may result in losses.

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The Company manages its debt to be in compliance with debt 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.

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

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.

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, become more resistant to allowing preferred equity or mezzanine financing on assets where they have purchased the senior loan, 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.

Risks Related to Personnel

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Changes to our Company’s operational structure could result in an increase in issues or departures among our operational staff.

Our ability to timely deliver quality customer service or to respond to building repair and maintenance requests may be negatively impacted without adequate operational staff, which may adversely impact the results of operations.

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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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.

Marcus is also the Chairman of and holds a controlling interest in, Marcus & Millichap, Inc., a national brokerage firm.

While conflict of interest protocols and agreements are in place, Mr.

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tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock.

In addition, the trading price of Essex's stock would experience downward pressure if a significant number of our stockholders sell shares of Essex's stock in order to pay taxes owed on dividends.

In addition, the trading price of Essex's stock could experience downward pressure if a significant number of our stockholders sell shares of Essex's stock in order to pay taxes owed on dividends.

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, issue partnership units in the Operating Partnership, or enter into joint ventures which may dilute stockholder ownership in the Company and could adversely affect the market price of the common stock.

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.

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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, or otherwise create rights that could.

adversely affect the interests of holders of 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, or otherwise create rights that could adversely affect the interests of holders of common 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, or discourage tender offers.

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The Company’s Charter and Bylaws as well as the MGCL also contain other provisions that may impede various actions by stockholders without approval by the Board, and that in turn may delay, defer or prevent a 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;

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;

the Board can fix the number of directors and fill vacant directorships upon the vote of a majority of the directors and the Board can classify the board such that the entire board is not up for re-election annually;

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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.

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

The Board determines our major policies, including our policies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions.

The Board may amend or revise these and other policies without a vote of the stockholders.

In addition, pursuant to the MGCL, all matters other than the election or removal of a director must be declared advisable by the Board prior to a stockholder vote.

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, which requires it to satisfy various annual and quarterly requirements, including income, asset and distribution 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.

Although the Company believes 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 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 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 it is entitled to relief under statutory provisions.

The additional tax liability would reduce its net earnings available for investment or distributions, and the Company would no longer be required to make distributions to its stockholders for the purpose of maintaining REIT status.

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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.

If we do not acquire new assets, we may not have sufficient depreciation expense to offset income and may have to make special distributions to stockholders.

We also may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution.

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These subsidiary REITs are subject to the various REIT qualification requirements and other limitations that are applicable to the Company.

If any of the Company’s subsidiary REITs were to fail to qualify as a REIT, then the subsidiary REIT would become subject to federal income tax and the Company’s ownership of shares in such subsidiary REIT would cease to be a qualifying asset for purposes of the asset tests applicable to REITs.

If any of the Company’s subsidiary REITs were to fail to qualify as REITs, it is possible that the Company could also fail to qualify as a REIT.

If any of the Company’s subsidiary REITs were to fail to qualify as a REIT, then the subsidiary REIT would become subject to federal income tax.

The Company’s ownership of shares in such subsidiary REIT would cease to be a qualifying asset for purposes of the asset tests applicable to REITs and it is possible that the Company could also fail to qualify as a REIT.

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.

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General Risks

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.

In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage and expose us to increased risks that would be 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.

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.

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Additionally, certain of our tax-exempt bond financing documents require us to obtain a guarantee from a financial institution of payment of the principal and interest on the bonds.

The guarantee may take the form of a letter of credit, surety bond, guarantee agreement or other additional collateral.

If the financial institution defaults in its guarantee obligations, or if we are unable to renew the applicable guarantee or otherwise post satisfactory collateral, a default will occur under the applicable tax-exempt bonds and the community could be foreclosed upon if we do not redeem the bonds.

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 the factors discussed in this Item 1A, and actual or anticipated variations in the Company’s quarterly operating results, earnings estimates, or dividends, the resale of substantial amounts of the Company's stock, or the anticipation of such resale, general stock and bond market conditions, the general reputation of REITs and the Company, shifts in our investor base, natural disasters, armed conflict or geopolitical impacts, including, the ongoing conflict in Ukraine, or an active shooter incident.

Many of these factors are beyond the

Company’s control and may cause the market price of the Company’s common stock to decline, regardless of the Company’s financial condition, results of operations, or business prospects.

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

The Board determines our major policies, including our policies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions.

The Board may amend or revise these and other policies without a vote of the stockholders.

In addition, pursuant to the MGCL, all matters other than the election or removal of a director must be declared advisable by the Board prior to a stockholder vote.

Our score by proxy advisory firms or other corporate governance consultants advising institutional investors, as well as the increased attention to certain environmental, social and governance matters, could have an adverse effect on our reputation, 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 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.

The market price per share of the Company’s common stock may fluctuate significantly in response to many factors, including the factors discussed in this Item 1A, and actual or anticipated variations in the Company’s quarterly operating results, earnings estimates, or dividends, the resale of substantial amounts of the Company's stock, or the anticipation of such resale, general stock and bond market conditions, actual or anticipated actions taken by the Federal Reserve Bank, the general reputation of REITs and the Company, shifts in our investor base, the inability of the United States Congress to pass bills that continue to timely fund the federal government and its obligations, including due to the current political climate or partisanship, natural disasters, armed conflict or geopolitical impacts, or an active shooter incident.

Many of these factors are beyond the Company’s control and may cause the market price of the Company’s common stock to decline, regardless of the Company’s financial condition, results of operations, or business prospects.

Our score by proxy advisory firms or other corporate governance consultants advising institutional investors, as well as the increased attention to certain ESG matters, could have an adverse effect on our reputation, 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 of our governance measures, nominees for election as directors, executive compensation practices, 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 may result in a recommendation against the nominee or matter proposed.

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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 positive ESG business practices and sustainability scores to guide their investment 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 regulations relating to board structure.

Although the Company makes ESG disclosures and undertakes sustainability and diversity initiatives, the Company may not score highly on ESG matters in the future and may face increased costs in order to make such disclosures.

Some investors and potential investors are focused on positive ESG business practices and sustainability scores to guide their investment 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, such as the State of California, have issued new laws or regulations relating to climate disclosures and board structure.

If the criteria by which companies are rated changes, the Company may perform differently or worse than it has in the past, or it may become more expensive for the Company to access capital.

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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.

Simultaneously, there are efforts by some stakeholders to reduce companies’ efforts on certain ESG-related matters, and certain states are adopting or are considering adopting laws that seek to limit the use of ESG in certain contexts.

In addition, both advocates and opponents to certain ESG matters are increasingly resorting to a range of activism forms, including media campaigns and litigation, to advance their perspectives.

To the extent we are subject to such activism or fragmented regulation with respect to ESG considerations, it may require us to incur costs or otherwise adversely impact our business.

The occurrence of any of the foregoing could have an adverse effect on the price of the Company’s stock and the Company’s financial condition and results of operations.

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

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.

Expanding social media vehicles present new risks .

The use of social media could cause us to suffer brand damage or information leakage.

Responding to stockholder activism or engaging in a 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.

Expanding social media vehicles present additional risks .

The use of social media, such as unauthorized live-streaming at our properties, could cause us to suffer brand damage or information leakage.

Negative posts or comments about us on any social networking website could damage our reputation.

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If the Company identifies one or more material weaknesses in its internal control over financial reporting, the Company could lose investor confidence in the accuracy and completeness of its financial reports, which in turn could have an adverse effect on the Company’s stock price.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors