Item 1.01. Entry Into a Material Definitive Agreement

 

On January 29, 2014, Essex Portfolio, L.P. (the “Operating Partnership”), the operating partnership of Essex Property Trust, Inc. (the “Company”), entered into a fourth amendment (the “Amendment”) to the Amended and Restated Revolving Credit Agreement dated September 16, 2011, as amended (the “Revolving Credit Facility”), with PNC Bank, National Association, as Administrative Agent, Swing Line Lender and L/C Issuer and the other lenders named therein.

 

The Amendment increases the maximum amount available for borrowings under the Revolving Credit Facility from $600 million to $1 billion, and includes an accordion feature pursuant to which the Company could expand the amount to $1.5 billion, subject to certain specified conditions. The Amendment also amends the Revolving Credit Facility to, among other things, (i) extend the maturity date to December 31, 2017, with an option to extend the maturity date by 18 months subject to specified conditions and subject to the payment of an extension fee, (ii) decrease the applicable interest rate and (iii) modify certain financial covenants.  As a result of the Amendment, the interest rate paid on borrowings under the Revolving Credit Facility, which is based on a tiered rate structure tied to the Company’s corporate ratings, was reduced from LIBOR plus 1.075% to LIBOR plus 0.95%, and the facility fee was reduced from 17.5 basis points to 15 basis points per annum on the total amount of lending commitments under the Revolving Credit Facility.   Both the interest rate and the facility fee are subject to adjustment based upon changes to the Company’s credit ratings.

 

In addition, on January 29, 2014, the Operating Partnership, as borrower, entered into a third modification agreement (the “Modification Agreement”) to the Term Loan Agreement dated November 15, 2011, as amended by subsequent modification agreements (the “Term Loan”) with US Bank National Association, as Administrative Agent and the other lenders named therein.  The Modification Agreement, among other things, reduces the applicable interest rate and modifies certain financial covenants under the Term Loan.  As a result of the Modification Agreement, the underlying interest rate on the Term Loan, which is based on a tiered rate structure tied to the Company’s corporate ratings, was reduced from LIBOR plus 1.20% to LIBOR plus 1.05%.  The Term Loan interest rate is subject to adjustment based upon changes to the Company’s credit ratings.

 

The Amendment and the Modification Agreement continue to provide for acceleration of all amounts outstanding upon the occurrence and continuation of certain events of default, such as a change of control of us.

 

The foregoing descriptions of the Amendment and the Modification Agreement do not purport to be complete and are qualified in their entirety by reference to the Amendment and the Modification Agreement, copies of which have been filed as Exhibit 10.1 and Exhibit 10.2, respectively, to this report and incorporated in this Item 1.01 by reference.

 

Item 2.03. Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant

 

The information set forth in Item 1.01 is incorporated in this Item 2.03 by reference.

Retention Bonus Program

On January 27, 2014, upon recommendation of the Compensation Committee of the Essex Board and in light of the additional management time and effort necessary to close the Merger and integrate the two companies' operations, the Essex Board approved a merger bonus program for key Essex personnel (the "Retention Bonus Program"). Pursuant to the Retention Bonus Program, certain Essex personnel, including senior executive officers, will be eligible to receive a cash bonus if both the Merger closes and the eligible executive remains employed at the applicable payment date.   Essex is authorized to pay up to $8,000,000 in aggregate cash bonuses pursuant to the Retention Bonus Program.  Employees at the senior vice president level or higher will receive two-thirds of their bonus if they remain employed at the 12 month anniversary of the closing of the Merger and the remaining one-third at the 18 month anniversary of the closing of the Merger.

 

The table below sets forth the maximum amount that Essex is authorized to pay to each of its named executive officers pursuant to the Retention Bonus Program.

 

In connection with the proposed transaction, Essex has filed with the SEC a registration statement on Form S-4 that includes a joint proxy statement of Essex and BRE that also constitutes a prospectus of Essex. Essex and BRE also plan to file other relevant documents with the SEC regarding the proposed transaction. INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, BECAUSE THEY CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the joint proxy statement/prospectus and other relevant documents filed by Essex and BRE with the SEC at the SEC’s website at www.sec.gov. Copies of the documents filed by Essex with the SEC are available free of charge on Essex’s website at www.essexpropertytrust.com or by contacting Essex Investor Relations at 650-494-3700. Copies of the documents filed by BRE with the SEC are available free of charge on BRE’s website at www.breproperties.com or by contacting BRE Investor Relations at 415-445-3745.

Essex and BRE and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. You can find information about Essex’s executive officers and directors in Essex’s definitive proxy statement filed with the SEC on April 1, 2013. You can find information about BRE’s executive officers and directors in BRE’s definitive proxy statement filed with the SEC on March 11, 2013. Additional information regarding the interests of such potential participants is included in the joint proxy statement/prospectus and other relevant documents filed with the SEC. You may obtain free copies of these documents from Essex or BRE using the sources indicated above.

This Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements which are based on current expectations, estimates and projections about the industry and markets in which Essex and BRE operate and beliefs of and assumptions made by Essex management and BRE management, involve uncertainties that could significantly affect the financial results of Essex or BRE or the combined company. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. Such forward-looking statements include, but are not limited to, statements about the anticipated benefits of the business combination transaction involving Essex and BRE, including future financial and operating results, and the combined company’s plans, objectives, expectations and intentions. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to expected synergies, improved liquidity and balance sheet strength — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, regional and local economic climates, (ii) changes in financial markets and interest rates, or to the business or financial condition of Essex or its business, (iii) changes in market demand for rental apartment homes and competitive pricing, (iv) risks associated with acquisitions, including the proposed merger with BRE, (v) maintenance of real estate investment trust (“REIT”) status, (vi) availability of financing and capital, (vii) risks associated with achieving expected revenue synergies or cost savings, (viii) risks associated with the companies’ ability to consummate the merger on the terms described or at all and the timing of the closing of the merger, and (ix) those additional risks and factors discussed in reports filed with the Securities and Exchange Commission (“SEC”) by Essex and BRE from time to time, including those discussed under the heading “Risk Factors” in their respective most recently filed reports on Forms 10-K and 10-Q. Essex does not undertake any duty to update any forward-looking statements appearing in this Form 8-K.

 

Exhibit No.		Description
10.1		Fourth Amendment to Amended and Restated Revolving Credit Agreement dated as of January 29, 2014 by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and the other lenders party thereto.
10.2		Third Modification Agreement dated as of January 29, 2014 by and among Essex Portfolio, L.P., U.S. Bank National Association, as Administrative Agent and Lender and the other lenders party thereto.