艾芙隆海灣社區公司 (AVB) 2003 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the AvalonBay Communities' third quarter 2003 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone phone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Elaine Walsh, Director of Investor Relations. Ms. Walsh, you may begin your conference.

Thank you, Paul. Good afternoon and welcome to the AvalonBay Communities' third quarter 2003 earnings conference call. On the call today are Bryce Blair, Chief Executive Officer and President, Tim Naughton, Chief Operating Officer, and Tom Sargeant, Chief Financial Officer. If you did not receive the press release in last night's fax or e-mail distribution, please call us at (703)317-4636 and we will be happy to send you a copy.

As always, I would like to remind you that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday's press release, as well as in our Form 10-KA filed with the SEC.

Finally, similar to last quarter we have included definitions and reconciliations of several nonGAAP financial measures and other terms that are included in yesterday's earnings release and which may also be included in today's discussions. This summary is also available on our website at www.avalonbay.com/earnings and we encourage you to refer to this information during your review of our operating results and financial performance.

With that I'd like to tuck turn the calling over to Bryce Blair for his opening remarks. Bryce?

Thank you, Elaine. Good afternoon and welcome to the third quarter call. Last evening we reported EPS of 79 cents and FFO per share of 80 cents. Our FFO per share of 80 cents was at the high end of the guidance range that we provided during last quarter's call.

For the full year we narrowed our guidance while lifting the mid point of the range expecting full-year FFO to be in the range of $3.25 to $3.28. This is in the upper half of the guidance range we gave in December of last year and that we reaffirmed in both April and July of this year.

I characterize the quarter in two ways. First, is a quarter where the apartment markets remained week, yet the level of weakness continued to subside. Secondly, the quarter where we continued to move aggressively to capitalize on market opportunities, particularly in the area of asset sales and capital transactions. I will be commenting on these two points during my remarks and then Tim and Tom will provide additional color on our operating, investment and financial performance.

Let me begin by addressing the apartment fundamentals in our markets and then I want to touch briefly on the general economy and how its shaping our assessments of market conditions for 2004. Apartment fundamentals do remain week yet the level of weakness continues to subside. This is true for both AvalonBay's markets and in the nation as a whole. When we developed our business and financial plan for '03 we did plan for a weak operating environment and this indeed has been the case as we've seen in our markets year-to-date job losses totaling approximately 100,000 jobs and estimated new apartment supply for the year of approximately 40,000 apartments. This has resulted in the third consecutive year where the demand supply ratio has been unfavorable both in our markets and again in the nation as a whole.

While the fundamentals remain challenging and have resulted in declining revenues, the rate of decline as I mentioned previously is diminishing. When we look at our year-over-year results AvalonBay's revenue declines peaked one year ago during the third quarter of 2002 at an almost 8% year-over-year decline. Since the third quarter of last year, the magnitude of the year-over-year revenue declines has diminished for each of the last four quarters.

In addition to the more modest revenue declines, we are seeing other signs of stabilization. First, occupancies that have been stable for over a year now. Secondly stable market rents and declining availability between the second and third quarters. And third, stable base rents during this quarter. Now, despite the positive signs we are still seeing both a continued need for high concessions and continue to experience historically high bad debt. Although the markets remain week they have performed as expected and our focus has been on maximizing the operating results in this week environment by focusing on reducing turnover and maintaining stable occupancies.

With regard to the general economy, a couple comments. After several false starts over the last couple years, the U.S. economy is gaining some momentum. Manufacturing production has risen four out of the last five months. The number of layoffs has slowed. Equity prices have improved. However, for the recover to evolve into a sustained rebound the economic activity needs to translate into hiring.

Preliminary data, as you know from September, showed total U.S. employment up by about 60,000 jobs and the August estimate was revised upward. Certainly positive news, yet one month does not make a trend and a net increase in job growth of between 100,000 and 150,000 jobs per month will be needed nationwide to bring about a sustained improvement in the labor markets.

Looking to next year, the consensus economic forecast are for modest job growth of approximately 1% both in the nation as a whole and for AvalonBay's markets. This modest job growth when combined with the delivery of approximately 40,000 new apartment homes in our markets, should result in a year where demand supply is roughly in balance leading to generally stable revenues. Not a strong year, but a welcome change from the negative fundamentals experienced over the past three years.

The second point that I highlighted in my opening comments was that during the quarter we continue to act aggressively to capitalize on market opportunities to position us well for the future. Even if they are not accretive currently. A few specific examples of this are in the area of asset dispositions and in our capital markets activity. Regarding our disposition activity we have and we continue to be an aggressive seller. We began the year expecting to sell approximately $300 million of assets, and based upon the strong sales environment, increased our goals and expect to close approximately $450 million for the full year. This is an increases of approximately 50% from our original projections.

Year to date, which includes the Fair Lakes transaction that we closed just the beginning of this fourth quarter, we have sold about $345 million of apartment communities. The sales have generated an economic gain of about $93 million for approximately 38% of over our undepreciated book value. To clarify this is economic not book gain. Book gain would obviously be higher.

Low interest rates, depressed NOIs and expectations for an economic recovery have combined to push capitalization rates to very attractive levels. We are selling assets to a variety of buyers including private leverage buyers, institutions, other REITs and recently to condo converters. While the buyers may be different, in many ways they are looking for similar things. They are looking for quality, well-located product not encumbered by a secured debt with above market interest rate. The average age of AvalonBay's portfolio is about seven years. Approximately 80% of which is unencumbered by any secured debt and virtually none of it is complicated by down-REIT or up-REIT tax protection, thus our portfolio is extremely marketable.

Another focus for us is in the area of value creation, particularly with regard to capital transactions. At the end of the fourth quarter of last year and in the first quarter of this year, we acted aggressively to repurchase approximately $85 million of our stock at a price in the $37 per share range. We viewed it as an attractive use for our capital given the stocks depressed trading level at that time and we had the financial and operating flexibility to repurchase the shares. During the third quarter of this year, we sold approximately $135 million of stock at an average price of approximately $9 per share higher than shares purchased at the beginning of the year. The sale of the shares in August created approximately $20 million of shareholder value based on this $9 per share difference in pricing.

Also the issuance of the stock during the quarter allowed us to strengthen an already strong balance sheet by both reducing our leverage and improving our fixed charge coverage, both of which are important as we position ourselves for opportunities that may merge as the economic environment improves, emerge. The asset sales allow us to both prune our portfolio and capture value that can be reinvested in higher yields and the issuance of the equity strengthens our balance sheet and prepares us for the future.

While neither of these actions are immediately accretive, our disposition in capital markets activity is not driven by short-term results. Virtually the only capital markets activity that would be immediately accretive to short-term earnings is increased leverage by means of low-cost floating rate debt. Almost anything you do when your line rate is running below 1.5% as dilutive other than running up your line and that's an action that would be inconsistent with our business judgment and our long-term perspective.

In summary, overall it was a quarter where the markets and our performance were as expected and where we continued to act aggressively in our dispositions and in our capital markets activity to harvest value and to position the company for the future. Tim will now provide additional color on our operating and investment activity.

Thank you, Bryce. As Bryce mentioned, I will discuss property operations and investment activity where I'll elaborate on new development and disposition.

Starting with property operations, overall in Q3 we experienced the kind of mixed results you might expect to see in the early stages of economic recovery. Most regions experienced stable to modest improvement and economic occupancy supported by improvements in traffic and turnover. In addition, market rents were flat sequentially from Q2 after having fallen the previous eight quarters. While occupancy has improved modestly, it remains at a level where there is little to no pricing power. In fact, as Bryce mentioned in his remarks, concessions were still necessary to maintain occupancy.

And, finally while most regions posted occupancy gains this past quarter, performance across sub markets within each region continues to be uneven. Year over year, same-store revenues were down 3.5%, the rate of decline continues to diminish as base year comparisons become a bit easier as we move through the year. Four of our markets are experiencing positive year-over-year increases in revenues, while the other 12 continue to decline albeit many of them at a lesser rate. Those markets posting increases for the quarter include Long Island, Baltimore, San Diego and Orange County.

Sequentially, from Q2 same-store revenues were down .6% for the quarter. Base rental revenues, which excludes transactional income, declined by .7% since Q2. During the quarter, though, base rental revenues were relatively flat from July through September. Economic occupancy was up .4% from Q2 averaging 94% for the quarter. A 40 basis point increase in economic occupancy was driven by improvements in both traffic and turnover for the same-store portfolio. For the quarter, traffic increased 10% and move-outs declined by 4% from the same quarter the previous year.

Notwithstanding these improvements, the overall level of demand remains insufficient to stabilize occupancy without the use of concessions. Cash concessions proven average a little more than half a month in Q3 and we are up about 9% from Q2. Virtually every region experienced increases in economic occupancy since Q2. And in particular Mid Atlantic gained more than 100 basis points in economic occupancy for the second consecutive quarter while the Pacific Northwest increased by almost 200 basis points this quarter alone.

The Southern California region shored up occupancy since Q2 as well. when we reported that we were experiencing growing availability across that region. The San Diego and Orange County markets recovered substantial occupancy in Q3. Los Angeles market made some gains during the course of the quarter, but appears to still be feeling the effects of substantial job losses experienced over the last 12 months there. Unlike most of the portfolio, parts of the greater New York area lost some ground this quarter. Occupancy gains achieved in Q2 in the Fairfield and Northern New Jersey markets appear to be short lived as both of these markets saw their occupancies decline in Q3. The sub markets of Stanford, Connecticut and the New Jersey waterfront in particular continue to feel the strain of challenging demand supply fundamentals.

Shifting now to investment activity, I will start with development. Overall we continue to be active on the development front, but remain selective in terms of new starts. The current volume of about $550 million has been stable for the last three quarters, as well as below peak level. We expect that as our development volume expands over time some portion will be funded through J. V.s particularly as a means to reduce exposures to larger multiphase assets or to certain markets.

In Q3 we completed two communities in the Washington, D.C. market, Avalon at Rock Spring and North Bethesda, Maryland and Avalon at Gallery Place in the District of Columbia. These communities were completed at a combined cost of $95 million and that together were completed within the original budgets and schedules. Avalon at Gallery Place located near the MCI center and home of the local professional basketball and hockey franchises represents the first high-rise community built by AvalonBay in the Washington market. In addition, we started two new communities totaling almost $90 million this quarter. Located in Boston and Fairfield-New Haven markets. These are both garden communities located in some of the healthiest submarkets of their respective regions. Avalon at Cranebrook is located in the north shore of Boston straddling the towns of Peabody and Danvers. And Avalon at Milford is located in the town of Milford, Connecticut which is toward the northern edge of the Fairfield-New Haven market. A steady submarket for us for the last few years. In fact we have actually experienced flat to positive same-store revenue growth at the majority of the communities in this area of Connecticut over the last two years.

The average projected yield for the development portfolio stands at 8.6% net of concessions. While these yields are lower than historical averages they are still 200-plus basis points greater than acquisition cap rates. As a result we continue to create significant net asset value through our development operation. For community still in lease up, absorption is still running about 85% of goal which is about the same as we reported last quarter. Over the last quarter we've achieved a leasing velocity of approximately 21 apartments per month per community. The average concession given to date on the development portfolio stands at just under one month or about [Inaudible].

Turning finally to dispositions. As Bryce mentioned in his remarks we continued to capitalize on a unique opportunity to sell assets. Capital flows into real estate in the multi-family sector remain robust. Institutional interest in our markets and our product remain strong, and cap rates remain at levels that are 125 to 150 basis points below historical averages. In Q3 we sold two communities located in Southern California and the DC markets. These transactions resulted in $62 million of gross proceeds to AvalonBay. Through the end of Q3 we have sold $295 million at an average cap rate of 6.6% and an economic gain of about $68 million.

In addition to these two communities, on October 15th we closed on Avalon at Fair Lakes located in Northern Virginia, as Bryce had mentioned a few minutes ago. This community was sold to a condo converter for over $48 million at an economic gain of over $24 million. Which is over 100% return on our gross investments. This asset was developed and completed by AvalonBay in 1998.

This transaction highlights many unique attributes to our story. First, it validates our ability to create significant value through the development process. Second, it clearly demonstrates how the quality of our product allows us to harvest value through many phases of the cycle sometimes in very opportunistic ways. Finally, this transaction is a reflection of our operational and financial flexibility that allows us to capitalize on such opportunities.

In addition to Fair Lakes, we expect to close on two more communities totaling $110 million in the next 30 days. This will complete our disposition volume for 2003. The average collective cap rate for these two transactions combined with Fair Lakes is under 6%. For the year we expect total asset sales of just over $450 million at an average cap rate of about 6.3% which is shown on attachment 12 is almost 150 basis points below our previous five-year average.

In summary, operating results remain mixed but generally in line with expectations. Current results are consistent of an economy in the early stage of recovery. As recovery takes hold and begins to translate into job growth we would expect to see some momentum in portfolio performance, but at a rate that is more modest than past recoveries due to continuing low interest rates, abundance of capital flowing into the real estate and finally, relatively modest job growth. As structural demands begins to materialize, our development capability and our deep development pipeline will continue to grow in importance as a meaningful source of earnings growth, much as it did through a good part of the 90s.

With that I would like to turn it over to Tom who discuss financial highlights for the quarter.

Thanks, Tim. There are four topics I would like to touch on this afternoon. First, I would like to add some additional context to this quarters financial results. Focusing on some of the nonoperating elements of our reported earnings, I will highlight capital activity for the quarter and how that impacted our earnings and our outlook, and I will expand on the financial outlook for the balance of the year that we provided in the text of the press release. Finally, I will conclude with comments on recent accounting pronouncements.

Turning first to earnings, a few financial highlights for the quarter. The gain on sale of assets calculated in accordance with GAAP totaled $37 million, and boosted EPS but was appropriately excluded from FFO. Our assets, as Bryce mentioned are largely unencumbered and well located in markets that investors continue to favor. These important attributes provide an attractive source of internal [Inaudible] and contribute to our operational and financial flexibility, as Tim mentioned. Selling these assets today at low cap rates allows us to indirectly benefit from the low interest rate environment, improving our capital structure and flexibility while harvesting value created through our development and acquisition efforts.

Turning to the capital activity for the quarter, year-to-date financing activity and low variable rate interest were important to reported earnings this quarter. In early July we repaid $100 million of unsecured notes at the scheduled maturity date. The rate on these bonds was 6.5%. In August we issued approximately $130 million of common stock. This offering enhanced our financial flexibility and better positions the company to respond to investment opportunities that will likely emerge as market conditions improve.

You may note that the average shares outstanding year over year has declined even with the offering, as the timing and the amount of the offering was more than offset by stock repurchases that took place over the past 12 months. Taking a deeper look at our financial outlook, we did provide an updated full year financial outlook in the press release with an FFO range of $3.25 to $3.28. This narrowed the previous range while lifting the midpoint.

In preparing our revised outlook, most of the key drivers used in our original December 2002 outlook remained unchanged but some have moved, which I'd like to highlight as follows: First, we continue to benefit from the low floating interest rate environment during this quarter and it's just interesting to note that our average rate on our credit facility during the quarter was 1.44%. This low interest rate environment for short-term debt is expected to persist throughout the end of the year. We don't have a significant level of floating rate debt in our capital structure, so the contributions to earnings from this category are positive but modest. Stabilized operating communities drive earnings results overall and are expected to continue to perform largely according to our plan. While we expect revenue to continue to climb sequentially in the fourth quarter, lower seasonal operating expenses will more than offset revenue declines such that NOI should increase modestly in the fourth quarter compared to the third quarter.

Turning to the full-year outlook, these factors will combine to produce a decline in NOI for the year in the 8t to 9% range. Revenue for the year is expected to decline about 4% and expense growth should be in the 5 to 5.5% range. And interestingly and importantly all of these ranges are within the original December, 2002, financial outlook that we provided. While interest rates and stabilized operations are expected to perform better or as planned, several items offset these positives. Short term dilutive effect of three large dispositions that have or will occur in October, as Tim mentioned, will adversely affect fourth quarter FFO, also the full impact of the equity offering will be seen in the fourth quarter. However, revenue growth in lease up communities will help offset these items and allow flat to slightly higher FFO per share in the fourth quarter.

To recap, a few items went our way, most of the areas of our business performed as we expected and there were a few areas that went against us. The net of it all is that we're able to lift the midpoint of the range, we originally said in December of 2002 and affirmed again in April and July of this year, while narrowing the overall range. Again, let me just restate the full year outlook for FFO per share is $3.25 to $3.28 with the fourth quarter FFO expected to be in the range of 79 cents to 82 cents. We will provide initial 2004 financial outlook in December which has been our practice in the past.

Turning to the financial pronouncements that continue to occur, the pace of change in financial reporting continues to accelerate and the accounting pronouncements that impact most of the public companies that emerged in the last six months are effective on or before 12/31/03. These pronouncements are targeted at some of the more complex capital arrangements that may exist within companies. The good news is that AvalonBay is largely unaffected as we enjoy a fairly simple capital structure not unencumbered by significant off balance sheet financings. We will continue to evaluate these pronouncements on future reported results, but we expect little recurring impact at this time.

In summary, we are encouraged with the enhanced predictability of our stabilized operating results. Our dispositions allow to us harvest value and when combined with the debt repayment and the recent equity offering contributes further to financial and operational flexibility. This improves our ability to quickly respond to market opportunities, both in the real estate and the capital markets. Third quarter results that were modestly better than expected combined with the peak leasing season behind us and predictability of operating trends, allows us to lift and narrow the financial outlook range first provided in December of 2002. Finally, the accounting pronouncements we've evaluated are largely not applicable to AvalonBay today. With that I'd like to turn the presentation back to Bryce.

Thanks, Tom. Just a couple closing comments. Our focus this year has clearly been to balance the real time challenges of optimizing our portfolio in what has continued to be a difficult market environment. While balancing that with being flexible and willing to take actions, it helped position the company to outperform during the recovery phase. We are in the early phases of an economic recovery, yet we are not yet seeing any material job growth in our markets. Even when job growth does begin, it does not result in an immediate benefit to the bottom line. As we've said before, it takes two to three quarters for significant changes in employment to result in significant changes in bottom line revenue. It's just the way our business works.

While we are optimistic regarding improvements in the economy, we are realistic in how it will impact our results. As economy improves AvalonBay is well-positioned to capitalize on that recovery. We have first the markets, supply constrained markets that have historically outperformed during the recovery phases, supply quickly can't ramp up to meet increasing demands, which has been the case historically and the future projections support this as well.

In Axiometrics third quarter report, they provide updated forecasts for projected revenue growth over the next two years. Of the 17 apartment REITs they forecast, each of the estimated top three performers focus on supply constrained markets. While we are not endorsing their revenue projections AvalonBay is first or second in Axiometrics estimate of top revenue performers over the next two years.

Secondly, we have the development pipeline. Development has always been an important component of AvalonBay's growth and while we have moderated our development volume during this economic downturn, we have kept our teams in place, and we've kept our pipeline full so that we are well-positioned to ramp up our development pipeline as market conditions warrant.

Thirdly, we have the balance sheet to execute the growth. While we are keenly focused today on the current market challenges, we are equally focused on ensuring that the company is well-positioned to outperform during the recovery phase. Our markets, our development pipeline, our people, our systems and our balance sheet all position us well to take advantage of a recovering environment.

With that we will be glad to take any questions, Operator.

Thank you. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touch-tone phone. If you wish to remove your question, press star then 2. If you are using a speaker phone, please lift the handset before asking your question. Again, ladies and gentlemen, that's star 1 if you do have any questions. One moment please for you first response. Your first response is from Chris Pike with UBS.

Good morning. First question for Tim. Tim, we've been provided some anecdotal information here in the New York City area that employment, especially the financial service area over the last month or so has shown some life. I'm wondering has that shown up in increased traffic in the communities that are located close to the city?

Chris, with respect to the New York metro area, certainly for the quarter it didn't translate into higher traffic. In fact, in most of the markets within the New York metro area, traffic was down more than the rest of our portfolio. In terms of right at the end of September I'm not aware of any uptick in traffic.

Great. Thanks. Next question for Tom, what would be the capital sources going into 2004? I think you have some maturities and maybe look forward in terms of asset dispositions.

Chris, one, we look at our liquidity each quarter and we have excellent liquidity going into 2004 to address that debt maturity of $125 million. In terms of our sources and uses of capital in 2004, we just ask you to stay tuned for our December financial outlook where we will provide detailed sources and uses of capital.

Okay. And just one last question in terms of G&A, what would be a good run rate going forward at this point or is that a wait and see 2004?

It's a wait and see. But I think the current run rate that we have now if you want to get a jump start would be fine.

Thank you very much.

Your next question is from Andrew Rosivach with U.S. Bancorp Piper Jaffray.

Good afternoon, guys. I guess I will start with Bryce. Bryce, you've been selling out of Southern California which is a market I think you guys were looking at expanding in and a de facto market that you were thinking about lowering your exposure to Northern California has become larger. I'm wondering what the reasoning behind that is, I'm wondering if it's tactical that southern California is just the market du jour and the cap rates were just too good.

It's a little bit of that, Andrew, but maybe to back up, as we talked before we do have, we look at our markets overall no terms of the rankings of them, but importantly we look at how our capital is allocated amongst those markets and we have target goals both in terms of the amount of capital we want in a market but also the type of property composition we want in terms of age of properties, suburban versus urban, price point. So we have those as long-term goals for each one of our markets, volume and composition.

In terms of what we buy and what we sell in those markets is much more driven by the timing of the opportunities. As you say the cap rates have been very attractive in Southern California. NOIs have held up pretty nicely and we had some assets there that we did not view as long-term holds. So it seems from a business point of view very smart and opportunistic to take some chips off the table while the pricing was very attractive. It does not mean to signal a lack of interest in Southern California. In fact, we are looking to increase our capital allocation in Southern California.

Terrific, thank you. And next question is for Tim. This is along the lines of Chris', another part of REIT mentioned a lot of weakness in the fourth quarter in the Bay area, listed a number of layoffs that are occurring, are you seeing that in your portfolio?

Not as much, Andrew. We are probably seeing a little more softness in the Oakland submarket as opposed to the San Jose and San Francisco submarket. Looking across Northern California, basically I would characterize it as relatively stable occupancy but rents continue to fall and they've been falling at a rate that is pretty consistent with what we've seen in the last two quarters or so. Traffic was down a little bit last quarter but it was commensurate with declines in turnover and move outs and as I mentioned, market rents are down a little bit particularly in San Jose and San Francisco while Oakland is relying a little bit more on concessions to maintain occupancy.

Did you take any kind of hit in outbacks due to higher turn costs in the third quarter since you guys expense most of that stuff rather than capitalize it?

We did. I think second quarter to third quarter sequential increases in expenses were 6.7% and most of that was seasonal. Some of that related to turnover, some of it related to utilities, you get into June to August bills coming in. That's actually about a third of that increase. Turnover related redecorating, marketing, nonroutine type things anywhere between a third to a half of that increase. Lastly, you get a little bit of increase related to real estate taxes. You get some new assessments coming into the second half of the year.

All right. Then, Tom, I just wanted to hit a couple of questions with you. You are essentially hitting the mid to high point of your guidance even though your same store is at the bottom end of your range. Have you done any kind of attribution analysis of what's helped you on the other side where you got the buy backs, the cap rates you've been able to sell, items like that?

Yes, Andrew. A lot of the savings, frankly, is coming from interest. We did not originally project LIBOR at 1.45% in the third quarter and that translates not just to our floating rate line but also to tax exempt bonds. We did also anticipate a debt offering this year which is not likely to the occur which is helping keep the interest line down. So really, where we are losing it a little bit on the NOI in terms of the range, we are picking it up on the interest side.

And one other, you mentioned last quarter that per suit [ph]costs were going to be pretty lumpy. Where did they come in in the third quarter and where do you anticipate they will be in the fourth?

It's hard to anticipate, but let me just say in the third quarter it was fairly nominal. It's in the $50 to $60,000 write-off range. We did have a legal cost that you could lump into that overall category in terms of some litigation related to a construction development community that's completed and because it's completed we are not allowed to capitalize the legal related to the litigation. That was in the third quarter numbers which kind of hit that other operating expense line item.

That was part of the $50,000, $60,000?

That was in addition to the $50,000 to $60,000.

On a combined basis that would make it look more like your prior period per share cost?

Exactly.

Terrific. Thanks a lot.

Next question is from David Ronco [ph] with Royal Bank of Canada.

Hi, guys, David Ronco here with Jay Loop [ph]. Getting back to the Bay area quickly, as Andrew mentioned another REIT had referred to a renewed weakness or accelerated weakness towards the end of the fourth quarter. I looked at your rental rates here, it looks like they were off by a greater margin this quarter than they were last, I was wondering if there is a reason for that and if so is that a trend you expect to continue?

David, that's really just a function of higher turnover. So you are actually leasing more apartments and just rolling over because market rents have continued to fall on a year-over-year basis, they are just rolling over at a lesser rate.

Okay. But still declining at this point.

Yes, market rents are declining. In fact, they're down just a little over 1% sequentially from Q2 across the Bay area.

Okay. Getting back to your guidance just kind of your theme that things are stabilizing. Looking at your rental revenues year over year or even sequentially it looks like they've fallen by a greater margin this quarter. Is that solely due to the Bay area or can you reconcile that contradiction that things are stabilizing yet you have your revenues falling at a greater rate?

David, I think we referred to last quarter, I think we were down .3% but a lot of that was driven by higher transactional income which was a seasonal boost in the second quarter from the first quarter. As you move into the third quarter that transactional income actually levels off and, in fact what happened if you look at just base rental revenues which excludes transactional income is down .7% in both quarters. And as you look through the third quarter from July through September base rental revenues were flattening from July through September.

David, this is Bryce, one thing to add to that, we commented briefly on this in the last call, looking at things sequentially is important and we do look at it that way, but we think it's important that people not abandon the tried and true way of looking at it on a year-over-year basis. Which if you look at it on a year-over-year basis which eliminates the seasonality issues that Tim mentioned, we declined 5.8% in the first quarter, 4.9% in the second quarter and 3.5% in the third quarter, I think that gives a fair characterization of the trends that we are seeing across the portfolio after adjusting for seasonality.

Thanks a lot. One last question. Can you give us an update on Avalon Mission Bay in terms of leasing occupancy and then just kind of rent trends at that property?

In terms of leasing, David, this is Tim again, in terms leasing I think we are just over 90% there. If the rents continue to be well below the initial pro forma which we mentioned last quarter they were down in the order of 25% from the initial pro forma, and that's about where they've settled out at, maybe a little bit more.

What was initial pro forma on a per square foot basis?

Per square foot, initial pro forma, approximately in the 2.5 range today, 2.5, 2.6 today.

Great. Thanks a lot, guys.

Your next question is from Brian Legg with Merrill Lynch.

Quickly going back to Northern California, can you rationalize why rents would continue to fall even when it appears that physical occupancy's around the 95% level?

Brian, I think I can. I know you inquired about this last quarter as well. I think the key to focus on is conversion rates. We are seeing across the portfolio about 35% conversion rates, I can't recall exactly what it was in Northern California. That is outside of what normally we would see as the normal range, typically it tends to be in the 25 to 30% range, maybe 32% range. And so we are literally having to get higher conversion in order to maintain occupancy and that has an impact on pricing. When you look at the traffic to move out ratio it's still a level that's below, that's just not generating enough structural demand to actually start to move rents or stabilize rents.

You talked about LA, there's been some job loss and that's why it is weaker relative to the other Southern California market. Can you talk about why there's weakness in the New York metro area? Is it supply, is it just still demand? You said also that traffic was down.

Sure. It's a little uneven first of all. Long Island and Central New Jersey have been performing better over the last year or so but then also more recently as well. The weakness for us really is in Stanford and our Northern New Jersey waterfront and to some extent in Westchester County as well, which I think are more dependent on the financial services industries and we expect they would recover more slowly along with a slower recovery in the financial service industry than the general economy.

To get a sense of the turnover percentage, could you give the turnover percentage in the third quarter versus the second quarter of this year and the third quarter of last year?

Third quarter last year starting there was 77% for the portfolios, third quarter this year is 74%, second quarter this year was 63%. We are still, and turnover is down 3%, number of move outs were down 4% on a year-over-year basis. Pretty consistent trend we've been seeing through the course of the year.

When you issued your equity the part of the rationale was that you expected to increase the development pipeline. We didn't quite see that in the third quarter. What's your expectation for new starts and also buying new land?

Starting with new starts, as I mentioned in my prepared remarks, the total development volume has been pretty stable the last three quarters about $550 million. I would expect it's not going to deviate materially from that over the next one to two quarters maybe $50 million here or there depending on a timing of specific communities. In terms of buying land it's really, it's oftentimes a function of the deals themselves and when the entitlements actually have begun to season and wether we are prepared to move forward depending on the nature of the option.

What are the trends and concessions? You said that rental revenues seem to level out from base rental revenues to level out from July to September. Is that also true for concessions, the amount of concessions per move in has that leveled out are still increasing at that 9% level?

The 9% that I referred to was an increase of the concession per move and the concession per move in this quarter was $873, a little over $800 last quarter. That is not too far out of range of what it's been since last December. It's been kind of in the $750 to $900 range per move in.

And as you go into a seasonally low period do you have to offer more concessions per move in?

I think that was part of it back in December and January. That's when we saw concessions per move in really increase materially and they more or less leveled off in there. I think part of that probably was seasonal, because as you might remember, we went into last winter with very low occupancy.

In this, do you expect to actually see a decrease in concessions per move in going year over year and potentially sequentially going into the fourth quarter?

We are not seeing it yet. We are not seeing it yet.

So it should increase slightly from what it was in the third quarter?

I don't know that it's going to increase. I would say it's going to be in the range of where it's been trading, around a half a month to around $800.

Thank you.

Next question is from Rob Stevenson with Morgan Stanley.

Good afternoon, guys. Tim, just as a follow up, you guys track move outs to home purchases?

We do.

What did that trend in the third quarter, where has it been recently?

It was actually up a little bit in the third quarter. Typically it's in the range of 20 to 25% and it was closer to the 25% mark in the third quarter, I think it was around 21% in the second quarter, Rob.

Okay. Either you or Bryce mentioned earlier in the call that bad debt expense had been increasing. Where is it trending these days?

Rob, that number is in the third quarter about 1.1% of revenue. It was about the same level in the second quarter. In good times that number is more like .25 to .4. So we are at the high-end of the historical range for bad debt expense.

Is that pretty much universal across the portfolio or is that concentrated in some of the heavy layoff markets like Northern California and such?

Rob, this is Tim. You will often see it be higher in markets that are experiencing higher job losses. For instance, LA which has had around 35,000, 40,000 job loss over the last 12 months, has had higher bad debt than some of the other markets which have stabilized a little bit more recently.

In terms of the turnover, the actual 74% turnover, where was the range by market? Did anything get into the mid to high 80s, any of the markets? You just were'nt able to hold anybody.

The highest I think was actually San Diego in the low to mid 80s, Rob, and generally it's between 60 and low to mid 80s.

Did I hear you say earlier in your comments, Tim, that you guys expected to increase your use of joint ventures going forward?

I did but I will let Tom speak to that.

Yes. We are considering a number of joint ventures in certain markets today so we do expect to ramp up our joint venture activity.

You guys have for the most part really had wanted to own majority, wanted to wholly own your assets and been one of the last companies that avoid that. What's the change in thinking now? You have more opportunities than you have capital for at this point?

Rob, this is Bryce. I don't know as it's a change in our thinking, maybe a slight increase in our appetite for that. What I mean by that is when we had large multiphase deals before including our deal in New Rochelle it was three plus years ago, we elected to do that in a joint venture format given the size of both the initial phase and subsequent phase and our desire to diversify market risk and capital allocation in that market. That still guides our thinking today. As we have some very large urban deals, multiphase urban deals that can be hundreds of millions of dollars, we think it's prudent from a capital allocation and a balance sheet management point of view to joint venture some of those assets on a selective basis. With a case-by-case basis where we look at the individual asset, it's not an overall that we want to J. V. ex percent of our portfolio, it's on an asset by asset or market by market basis.

Have you put any thought into where you wanted to keep the ownership percentage? Is it a situation where you guys to reduce down to 25% or you guys wants to be a majority owner on all of them?

It could vary. It could be either of those two options.

So the impact from stuff like FIN 46 and SFAS 150 could, if not material now, could wind up ratcheting up in the future?

Rob, if you're aware of the pronouncements you can generally structure the joint venture arrangement to avoid the negative aspects of FIN 46 and FAS 150.

One last question for you, Tom. When you are going through the underlying assumptions for the full year in terms of same store and the earnings guidance, I think the one thing that struck me is you are sitting here and you wound up doing $130 million roughly equity issuance and you are going to wind up doing somewhere in the neighborhood of right around $150 million to $160 million of dispositions here in the fourth quarter but yet your FFO guidance is more or less flat, it could be up. Is this, is the rationale why its not going down sequentially basically additional units coming on line from the development properties, is that what's overwhelming it at this point?

That's part of it. The other thing to consider is, you may or may not know, we had planned to do a debt offering in the fourth quarter which we won't do now. The equity basically replaced that and the equity isn't that much more dilutive than a debt offering would have been. We also are going to see lower operating expenses in the fourth quarter compared with the third which is a seasonal thing we always see. Additional revenue from lease up communities and recently completed assets, assets out there that are 65% leased that will continue to move up to 90 and 95% leased, and that will all contribute to flat or slightly higher FFO in the fourth quarter.

Do you have any estimate as to what the NOI impact is increase from third quarter to fourth quarter from the development stuff that won't be included in same store?

We do have internal projections of that but we probably don't want to go there. But we think that if you were to go to scheduled attachment 10, you can pretty much piece that together from the information that we present in attachment 10.

Okay. All right.Thanks, guys.

Thank you.

Next question is from Jonathan Litt with Smith Barney.

Hi, guys, Jordan Sadler. I realize you're not providing '04 guidance. I was just wondering if you guys could give a little color in terms of dispositions going forward, if you think they will continue at the same pace that they've been on for the last few quarters and what you are anticipating for the fourth quarter. Just sort of for the 1Q, 2Q range. Is there anything that you think might slow it down at this point?

Jordan, it's Bryce. Again, we won't give any specific guidance for '04 but I will talk more conceptually about dispositions. I think you can look at what our actions have been. We ramped up dispositions this year where we thought we were in a favorable disposition environment and you would expect that we would continue to do that. It doesn't change just because the calendar year changes. It would change if we felt that cap rates were rising and that an alternative action would better serve the company.

Are you continuing to pursue or have you seen more opportunities with condo converters that would keep cap rates or bring transaction cap rates down further?

We are continuing to both respond to unsolicited interest from condo converters, as well as condo converters who bid for the properties that we are marketing. In some cases they are the high bidder, in other cases they are not. But in virtually all cases they are an active bidder and they certainly are affecting cap rates overall.

Has that activity accelerated recently, their bidding?

Tim?

I think in certain markets that's true, certainly the DC market, I've seen estimates of one-quarter to one-third of the assets being sold in DC are actually going to condo converters. I am certainly hearing about it in south Florida and I suppose other markets. But in our markets we are principally hearing about it in DC.

If you believe the journal, it's a quarter of the DC market, there is a little piece in the journal today about that very topic in the property report.

I guess moving on to your development pipeline, I notice during the quarter you guys lowered expected rents, market rents on the per-unit basis, anywhere between 1% up to 12% in some cases. Is that attributable to sort of not market to market last quarter or recently or what would you attribute that to?

Jordan, this is Tim again. I think it's a couple things. I think in a couple cases just weaker market conditions, in the case of Glendale, for instance, in Southern California that's an LA market which as we mentioned is still feeling the sting of some recent job losses. In the case of Gallery Place is probably the other asset that the average rent came down the most. It's a competitive mark place there. While we are seeing job growth in the greater Washington area it's not occurring downtown and that's where a lot of supply is occurring. So some of it's that and some of it's frankly it's the peak leasing season and we want to get our fair share in the third quarter so in certain cases we've been aggressive in pricing in order to do so.

Previously, you guys have talked about changing maybe your potential target resident through maybe changing the amenity offering at least in some cases. I notice that the market rents on the new additions to the pipeline are a little bit lower than average. That could obviously reflect more rent. Does any of this reflect changing an amenity offering at all yet?

Good question, Jordan. I would say not, you may be reading a little bit more into the rents but to address your broader question, our strategic statement for many years has been to more deeply penetrate the markets we choose to be in. We don't choose to be in all markets but the markets we choose to be in we want to be a large player in. The second part is, we want to do it through a broader range of products and services which might be what you're referring to and that does mean to have a balanced portfolio. We don't expect, we never desired and I hope no one ever concluded that we wanted our portfolio to be all high-rise or all garden but to have a balanced portfolio. So whether it's within Boston or within the Bay area or within DC, we are always adjusting what we are looking for in order to, in terms of new development to achieve that balance. Sometimes in maybe Boston you might do three garden deals and then a high-rise deal or in DC you might do the reverse. Some of that is just the timing of opportunities. From a strategic point of view we are looking to have a balanced portfolio in the markets that we operate within.

It's not necessarily that you are changing some of the amenities you might be offering or lower grade of buildout than you have historically done?

No, it's more adjusting the mix of the type of products we do. We build everything from two-story wood frame to 32 story high-rises. So it's clearly a very different absolute rent levels. Within that individual prop community the quality level remains unchanged.

Thanks. One more. What percent of your portfolio or leases have a concession in them at this point? Is it something that you guys quantify or measure?

Jordan, not that I'm aware of, no.

Maybe a guesstimate?

If the same store portfolio is a little more than half a month typically, if you are giving concessions, you are giving a month.

Of all of your leases, is that throughout the portfolio or does it just reflect stuff that's turned over in the last year or so?

I think I mentioned earlier it's really been, we've averaged about an $800 range per move in since last December, so maybe, I would guess half, 60% of the units had some form of concessions.

Okay. Thanks, guys.

Your next question is from Lou Taylor with Deutsche Bank.

Hi, this is actually Dennis Warner for Lou. I was wondering if you could reconcile for us the cash concessions number. In one case you say that cash concessions decreased 3.6% year over year, yet in the paragraph below it appears as though it increased 170.3%. I was wondering how you reconcile those two?

Tom, you want to look at that?

Dennis, you are asking a specific question, Tom is going to look at it for a second. If you have a follow-up question or can you skip to another question and return to your answer?

Yeah, I guess the next question would be in Q4, I know you have given the 79 to 82-cent range, given that Q4 often is a seasonally high quarter, are you leaning toward either side of that 79 or 82? What would be a good run rate, going into '04?

It's symmetrical, it's not a-symmetrical so just take the midpoint. Going back to your first question, i'm rereading the press release what we are talking about in that section, if I understand your question if you were to convert revenue to a cash basis, what was the decline. We are not talking about the concessions declining 3.6%. The revenue on a cash basis declined 3.6%. If you read it carefully you understand that we are talking about total revenue not concessions declining.

Okay. Gotcha there. Then that's it then. I appreciate that.

Thank you, Dennis.

Your next question is from Steve Swett with Wachovia Securities.

Good afternoon. Tim, can I follow up on Jordan's question earlier on the rents that you guys list in the development table? I think your answer was that the rent declines in there reflect more aggressive pricing this quarter versus last quarter?

In many of the cases, yes, Steve, that's correct. And they are again net of concessions and that's net of concessions given to date since the inception of the lease for each respective community.

How come the weighted-average projected return really didn't change then if your rent has come down that substantially since Q2?

It's really just a mix issue, Steve. If you looked at individual communities, their returns, certain of the communities returns would have come down. If you look at the basket of communities that are listed on the schedule, it just remained unchanged just coincidentally.

Okay. I got that. Another question, Tom, does the discontinued ops line from Q3 contain all the properties that you suggested you will sell in Q4?

Yes.

Okay. Last question, the Gallery Place development that you guys have just completed construction of I think had some transferable development rights associated with that project. Do you have any updated comments on the sale of those rights?

I do, Steve. This is Tim again. We actually have contracts for all of those rights for $4 million or in excess of $4 million. There's administrative approval that you need from a city before you can actually transfer those rights which we expect will be coming in in the next 45 to 60 days.

How does that get accounted for, is it a reduction in the cost of the project or is it a one time?

It's reflected as a reduction of the capital cost. So the cost that you see there are the net of the receipt of that $4 million.

Okay. Thanks.

Your next question is from David Harris from Lehman Brothers.

Good afternoon. One question left on my list. Bryce, when you refer to the possibility of some developments JVs, would any of these be earmarked projects for sale?

I'm sorry, would any be earmarked?

Projects build for sale.

Would we be contracted with a J V partner on a presale basis, David, is that the question?

No, I'm wondering if your business is getting more active on developing projects for sale versus sale on completion?

Not in any major way. There may be an, a development right or two in a submarket or market where we may not have either any appetite or big enough appetite to do it all ourselves. So from that point of view, yes, that could be part of the strategy.

As we look at the future pipeline of land options and the outright ownership as you talk, are we talking about the JV activity being predicated on that list or are we talking about the new projects outside that list?

That list, attachment 12, development pipeline. Okay, terrific. Thank you.

Your next response is from Rich Anderson with Maxcor Financial.

Thank you. You mentioned awhile ago occupancy changes by market. Do you also track concessions by market?

We do, Rich. This is Tim.

And can we have them?

We have 16 markets.

I guess the point is, how much by looking at the data side by side, how much of the occupancy is really just a function of concessions going up? I mean, is it basically 100% of that, can you somehow quantify it?

I don't really know how to answer that because pricing is a function of the rent you are charging, as well as the concession that you are offering. Thus it's just all rental revenue at the end of the day. In certain markets, it's just more convention to actually be offering concessions as opposed to lowering rents in other markets, people tend to just lower effective market rents. So I don't really know how to respond to that.

I will pass that on. I'd like to talk about redevelopment. I went back in time a little bit and I saw that the redevelopment pipeline on March 31, 1999 included 13 projects. And now the redevelopment pipeline includes two projects. I was wondering if there's been a shift in strategy within AvalonBay to focus less on redevelopments and more time on the development side.

Rich, the shift in strategy has been more a shift between, away from acquisitions and the dispositions. The raw material for a redevelopment is almost in all cases an acquisition of a property that we choose then to redevelop. During the '97, '98 time period we and in particular the predecessor Bay company had been extremely active acquirers as they expanded their markets into Southern California. As you know, we have not been an active acquirer. In fact we have acquired nothing in the past 24 months. So just by logic the redevelopments get completed, they wind down and until we move back into an active acquisition mode you would expect redevelopments might be one, two, a year just in terms of our existing portfolio. We are quite young, though so you don't have a lot of raw material within our existing portfolio.

My last question, I heard have to ask it, Tim mentioned in his comments to a question about South Florida. And that's not an Avalon market. I was wondering if you guys are keeping your eyes open for other markets and why you might have some sort of market intelligence about South Florida?

I can answer that. I read the Wall Street Journal like Bryce does.

I heard south Florida, I figured I'd ask. Thank you.

Your next response is from Carey Callaghan with Goldman Sachs.

Hi, guys, it's Nora Creedan here with Carey. A couple of questions left. One of them the expense issue. We understand the seasonality and how that causes an increase in expenses, but if we look at the gross on a year-over-year basis to exclude the impact of seasonality expenses were still up about 6 percent, while your turnover was down as you mentioned. So is there anything or anymore color you can offer on the expense line and if there is anything that you are doing in particular going into the fourth quarter to help that line, I guess if the increase is due to something like utilities or if we are talking about more on controllable expense growth like real estate taxes?

Carey, this is Tim. I guess I would really make three points with respect to expenses. Year over year we are up 5.6%. A good portion of that still continues to be insurance which is having a lingering effect over the past year but we will, it should improve as we move into the fourth quarter. That actually accounts for about a quarter of the increase. Something new this quarter was in the area of utilities which actually accounted for about a quarter of the increase as well. We actually have seen materially higher gas costs that affected the Midwest and Northern California and then I guess the last thing I'd point, too, is real estate taxes, there were some rebates last year that actually lowered expenses in real estate taxes last year that we haven't realized this year. So we saw actually abnormally high increase in real estate taxes on a year-over-year basis. Tom, do you have something would you like to add to that?

Carey, the second par part of your question is anything we are doing to effect expenses in the fourth quarter and there is some good news on that front and that is that we did an early renewal of our insurance effective August 1 which reduced the run rate for our property insurance by about 20%. So going into the fourth quarter you are going to see some favorable comparisons with respect to insurance. So there is a bit of good news on the insurance front.

And the utility increases will likely carry over I assume into the fourth quarter?

It's hard to know given what happens with gas prices, it's hard to project but gas prices have been going up.

Okay. Just the last question, guys, you will have about $150 million of proceeds it sounds like in the fourth quarter if these dispositions come through and as you just mentioned you are not buyers of real estate right now. So are you thinking about accelerating the development pipeline or where should we expect to see those proceeds show up on the balance sheet?

When we say we are not expecting to accelerate development, as Tim mentioned we will be, to clarify we will be starting as much as we are completing so the development line will stay stable. Also, as Tom mentioned we do have a debt maturity in January of $125 million, so it's another use of capital.

Okay, terrific. Thanks, guys.

Next question is from Craig Leupold with Green Street Advisor.

Hi. Good afternoon where you guys are. Bryce, you mentioned dispositions that you might change the level of disposition depending on what you see happening with cap rates. I know real capital analytics in their most recent quarter is indicating that apartment cap rates might be up 15 to 30 basis points. I haven't heard that from anyone else and I'm curious of what your observations have been in terms of cap rate changes in the most recent quarter?

We haven't seen any.

Okay.

We have not seen any uptick in cap rates or any relenting on the appetite for the properties.

Okay. Tim, could you give us a quick synopsis of the Seattle market and what you are seeing there now and what your prognosis is for the market?

Sure, Craig. Overall I guess I characterize Seattle as still a bit stagnant but one where we actually are able to recover some occupancy in Q3, and if you follow the job forecast it's actually been relatively level there the last quarter or so. As you look forward if you believe the REIT forecast they're suggesting job growth of about a point and a half next year which is well above what we are expecting either nationally or across our markets. One development we did see this past quarter was a material decline in turnover, so the increase in occupancy was largely a function of less move out than it was of increased traffic being generated by higher structural demand. So overall, I wouldn't be calling the bottom on Seattle but it appears to be moving a little bit more side ways than it has in past quarters.

Great. Thank you.

Your next response is from Lee Schalop of Banc of America Securities.

Hi, guys. Could you talk a little more about this development because, Bryce, you mentioned that you see new development being equal to completions. You also said you feel the company is well-positioned that if there's a pick up that you could accelerate that. Talk about what things would make you accelerate it and given your current view of the economy when that might happen?

Well, markets operate differently, Lee, as you know and we are going to be a little bit more comfortable in some markets than in others. You saw us start a couple this quarter, one in Boston and one in the New Haven market in Connecticut where we felt comfortable. In other markets we are not yet comfortable beginning new development. But we are going to be, let me address a little bit about this in his prior comment.

We are looking at job growth projections which are a primary driver of demand and we look and we track supply religiously and very vigorously in our markets and we look at projected supply and demand ratios in our markets out two years. So those are projections though and you want to see a little bit more traction in the economy, a little bit more traction in actual job growth before you are going to begin something based upon projected improvements in demand and supply. We have ten-year plus history of underwriting on current rental revenues and that has not changed. We are not incorporating rising rents into our underwriting analysis for development. It has to underwrite on current rents. In many markets it simply does not do that today.

If we get a pick up in the economy which improves on rental rates it's going to improve yields in some of those markets that have been beaten down more, you would expect our development volume to increase. We certainly have the capacity in our pipeline. We have the capacity in our organization and we have the capacity in the balance sheet. Market constraint, not company constraint.

Thanks. Karen Porter has a question.

I just wanted to ask one more detail on the Fairfield-New Haven market since it is your largest. The rental revenue change between the second quarter and the third quarter was pretty dramatic from positive 3.4% to negative 3.6%. You attributed some of it to slower financial services recovery. Can you talk about, was it also impacted by supply? Are there any other things that caused such a dramatic swing in that market?

Well, Karen, this is Tim. First of all it's being driven mostly by occupancy changes. As I mentioned in my remarks, we actually had an increase in occupancy of last quarter only to give it back in the third quarter. With respect to supply, we are actually seeing sort of a last bits of supply coming into the Stanford market from this last cycle, and actually it was a pick up in demands in the Stanford and Fairfield area. If and when that materializes I think the market will stabilize pretty quickly because I don't see a lot of supply occurring there over the next 12 to 24 months.

Okay. Thank you.

You're welcome.

Your next question is from David Rogers with McDonald Investment.

Hi, guys. Only one question left. That's on the recurring CAPEX portion. I know you expense a lot of your property maintenance, et cetera, recurring CAPEX appears to be per unit of 18% this year and I was wondering what to expect going forward.

I'm sorry, you faded at the end. What to expect in the fourth quarter?

In the fourth quarter and just going forward, if this is a higher run rate et cetera.

I think for the year you can expect CAPEX to be about 325 to 350 per apartment home. Going forward, no accounting changes expected so it should be along that same run rate depending on how our portfolio matures in terms of age, the older the average age the more the CAPEX is going to be.

I would have expected it to perhaps go down a bit as you were selling, as Bryce said, some of the older assets or taking the opportunity to lower the age of the portfolio.

Well, just to clarify, we are selling newer assets as well as older assets. The Fair Lakes assets as Tim mentioned we completed just four years ago. We have another asset scheduled to close that would be in that three or four-year range as well. I think it would be a false conclusion to assume we are just selling all their assets. We are selling assets that we think were we can get the best execution on.

Great. Thank you.

Our final question is from Richard Taylee with ABP.

Hey, guys, I know it's been a long call. I just have a couple of quick follow-ups. On the concession question that Rich Anderson asked, Tim, can you give me an idea of the market that has the most prevalent concessions and where they are in terms of months free? And then just identify a couple of the markets that do not have any concessions at all. And then I have another question after that.

All right, Rich, let me take a quick look here.

I don't necessarily need the numbers, just get an idea, these numbers might look like a half a month across the board, is it all in Santa Clara County, for example?

No, no. In fact actually on the high end, Seattle and DC actually have among the higher concessions which is closer to three quarters of a month to a full month. Then on the low end maybe like a quarter of a month markets like Baltimore and Long Island which have been pretty healthy through this entire life cycle.

Right, okay. And then just a question on the G&A trend, I know the summer is a trough month for you guys historically on that number because of reporting and things like that, but what can we expect for 4Q and in particularly on the compensation side, I guess that can influence things, what's the general thought there?

Well, I think generally, Rich, you can expect the G&A in the fourth quarter to continue to run in the 3.3% to 3.6% range. In terms of compensation, I'm not sure I understand that part of the question.

If I remember correctly, some of your executives last year didn't get much in the way of increases. Do you have an idea of, I guess it's the Board or I'm not exactly sure who makes that ultimate decision, but what's the thought process there?

Are you talking about '04?

I guess it becomes effective in '04. I think of them as year-end bonuses versus something vehicle that, or year-end reviews.

Rich, this is Bryce. Let me try to address that. 2002 was certainly a tough year for the industry and a tough year for AvalonBay and our compensation is very much incentive based and so you are correct our compensation suffered last year as did some of our shareholders and that's the way the game is played. In terms of 2003 we accrue based upon estimated achievement levels throughout the year, the actual award is determined by the Board and that is done in February of next year. So we have been accruing throughout the year, it's not a fourth quarter adjustment. It's an accrual throughout the year based upon our expected achievement of some very objective performance standards, the specifics of which I obviously wouldn't go into on this call.

Sure. And then in your December projection you will have a better idea of what you are looking at for next year, fair?

Yes.

One final nitty point, on the $125 million rollover, the debt maturity, what's the existing rate on that?

It's in the 6.5% range.

That's an unsecured.

Unsecured.

Where do you think you can do that today, if you can do it today where do you think you can do that type of paper on a similar maturity?

Given the attractive long-term rates, if you did a ten-year transaction, you are talking about a ten-year treasury today, which there's been a rally today, yeah, yeah, say 425 range plus 105 to 110 basis points. You are talking about 525 to 550.

Okay. I appreciate your time. Thanks for the call.

Thank you, Rich.

There are no further questions at this time. I would now like to turn the conference back over to management for any further comments or closing remarks.

Well, thank you. It has been a long call. So my closing remarks will be very brief and that is to thank you for all your time and the good questions and we look forward to seeing many of you next month at Nay Reed [ph] in Boston and with that we will say good bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may now disconnect.