住宅地產 (EQR) 2003 Q2 法說會逐字稿

Good morning. My name is Dawn and I will be your conference facilitator today. At this time I would like to welcome everyone to the Equity Residential second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number 1, on your telephone key pad. If you would like to withdraw your question, press the pound key. Thank you, Mr. McKenna you may begin your conference.

Thanks Dawn, and thank you for joining us to discuss Equity Residential's second quarter results. Our featured speakers today are Bruce Duncan our President and CEO, David Neithercut, our Chief Financial Officer and Gerry Spector our Chief Operating Officer. Certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities law. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. And now I'll turn it over to David.

Thank you Marty. Good morning everyone. Thanks for joining us on today's conference call. For the second quarter of 2003, Equity Residential earned 41 cents per fully delight share compared to 32 cents per share for the second quarter of 2002. This increase was driven primarily by a $45 million increase in gains on property sales. Funds from operations were 57 cents per share, versus the 63 cents per share we reported for the same period of 2002, a reduction of 9.5%. On a same-store basis revenues decreased 3%, operating expenses increased 5.3%, and net operating income decreased 7.7%. On a sequential basis, from first quarter 2003 to second quarter 2003, same-store revenues were virtually flat decreasing .01%, operating increased .9% and our net operating income decreased .6%. The slight .01% sequential decline in total revenue was a result of slight decline of June monthly revenue however same-store revenues in each month of the second quarter were still above last December's monthly revenue which you'll recall was a benchmark that we would use to 2003 comparisons. And July revenues were slightly above June. So from a revenue standpoint we are pretty much where we thought we would be following the spring leasing season.

As expected our same store quarter over quarter revenue decrease was the result of negative variances in each of the three prime primary drivers. A 1.15% reduction in occupancy a .9% decrease in rental rates and a 30% or 3.3 million dollar increase in rental concessions over the second quarter 2002. As expected in a tough economy with significant job loss, our bad debt expense increased 30%, or $855,000 quarter over quarter to $3.8 million. As a percentage of revenue, bad debt expense increased from .65% in the second quarter of 2002 to .86% of total revenues in 2Q '03. On a sequential basis bad debt decreased $283,000 from the first quarter of 2003. While higher than we would like this level of bad debt is not outside of an acceptable range. Our property management team is focused on managing this number and I don't expect it to increase much from these levels. And the answer of the inevitable question are you seeing a reduction in the credit quality of your tenant, is that our typical tenant today does not make as much as he or she made a year ago but they still qualify on the rent in the same standards just at a lower effective rental level.

As I mentioned earlier, same store to store operating expenses increased 5.3% or $8.7 million quarter over quarter. The three line items contributing most to this variance were utilities which were up 7.4%, and representing 21% of the increase, payroll which increased 6.3%, representing 29% of the total increase, and finally our maintenance expenses which were up nearly 15%, and represented 22% of the overall increase. As we mentioned last quarter, our onsite staffing and maintenance costs would increase as a result of our initiative to improve product presentation, and increase the quality and number of units available for occupancy.

Sequentially, operating expenses were relatively flat with the first quarter up only .9% with the increase coming from higher maintenance, leasing and advertising expenses, which are not unexpected given the seasonality of our business. Our corporate housing business continues to suffer from the overall stagnant economy. Nevertheless the ECH team has managed to gain some market share and sales for the second quarter are slightly over $16 million, up 10.6% sequentially from the first quarter. 90 days ago our expectation for ECH was to operate at a loss for the year of $2 million compared to our original budget of break-even. We are now forecasting for ECH to lose less than $1 million in 2003 while paying EQR $12 million in rental revenues. Notable capital market events during the quarter included the issuance of $150 million of 6.48% series N perpetual preferred shares and the redemption at par of $100 million of our 7.625% series L preferred shares. Our original intent was to issue $100 million to replace the callable security but at 6.48% for perpetual capital with a call option we couldn't refuse the extra $50 million. It is important to note that the series L was issued by Maryland and not EQR, we will not recognize any earnings or FFO reduction as a result of the new accounting requirement to expense these costs upon redemption.

Upon the balance sheet I would like to note we have currently $290 million of unrestricted cash and 137 million in 1031 balances. These have accumulated from property dispositions from our March debt offering and the excess preferred share issuance. Identified uses for this cash include a $100 million bond note that matures next week, $90 million of bonds in November, and $130 million in mortgages that mature between now and the end of the year.

I'd like to now add a little bit of detail to our development joint ventures and how they impact our unit count figures. As noted in the port folio roll-forward section of our supplemental disclosure, we add completed joint venture development properties to our unit count upon completion. If the joint venture subsequently sells the property to a third party we include that sale in our disposition count at the cap rate realized by the venture but include only the cash proceeds realized by EQR as our disposition profit price. For example, in the second quarter the venture sold a 2 254 unit in Tampa for $26.4 million. After retiring $16 million of debt EQR received $7.4 million which is farther of a 3.3 mill we list in the supplemental package for the second quarter. Excess he proceeds net of closing costs were distributed to our development partner and EQR recorded a 3.3 million gain on this sale which was reported as a gain on unconsolidated entity.

Also in the quarter we acquired from one of our partners their economic interest in newly developed unit in Braintree Massachusetts. Because this had previously been included in our unit count this process does not change our unit count nor is it listed as an acquisition for the quarter. As we have done for the last year or so we have provided supplemental disclosure of our joint venture development business. As many of you know recent accounting changes will require us to consolidate into our financial statements beginning in the third quarter. Doing this will have no impact on our bottom line earnings or FFO amounts. It will however, increase our investments in real estate by approximately $1.3 billion, will reduce our investments in unconsolidated entities by $495 empty, and increase mortgage notes payable by $834 million. I'm not sure yet what changes we will make to our supplemental information in the press release about these joint ventures as a result of this consolidation but we will be sure to provide adequate disclosure on these going forward. Like to turn it over to Bruce Duncan.

Thanks David and good morning. As expected our second quarter results showed quarter over quarter declines in same store total revenue and net operating income compared to the second quarter 2002. But the declines are slightly small smaller than in the first quarter. The 3% decline in revenues and 7.7% decline in NOI on a quarter over quarter basis were in line with our expectations. The negative comparison as we have discussed before is a function of the steep declines we saw in 2002. As we progress through the remainder of 2003, the negative comparisons will decrease. On a positive note, as David mentioned, sequentially from first to second quarter, same store to store total revenues were virtually flat and monthly total same-store revenues continue to run slightly above last December's levels. Remember, we had said that we believe if December 2002 revenues were in approximate level at which we would operate throughout 2003. So far this is proving to be the case, but it is still too early to order the cake and say that we see a turn.

Based upon a recent announcement from the commerce department there are some signs that the economy is in an early stage of a recovery. GDP growth was at 2.4% annual rate in second quarter, versus the 1.4% in the previous two quarters. Federal spending increased 25% fueled by a 44% increase in defense spending and offsetting slight declines in state and local spending. Business spending increased by nearly 7% and consumer spending rose at a 3.3% annual rate versus 2% in the first quarter. Additionally, a very positive survey of U.S. service sector was released last week by the Institute for Supply Management. This is the bellwether metric for nonmanufacturing activity and a score of 50 means flat growth for the service industry that includes tourism finance retail sales and restaurants. July's number jumped to 65.1 well above the June number of 60.6 and represented the fourth monthly increase in a row. Probably more significantly July's numbers were also the highest level since the survey began in 1997.

Now, although we're encouraged by these positive signs, we cannot escape the fact that the economy did lose another 44,000 jobs in July. There have been recent announcements of layoffs that will continue to have a negative impact on certain markets. For example Seattle, Boeing announced more layoffs and Detroit is cutting another 2,000 jobs. We do not anticipate much improvement in our business until we have positive job growth. In addition, new supply continues to be a problem. Annualized multifamily construction starts have waited on a month by month basis but have remained a little above the 300,000 unit level over the past couple of months. Markets have continued to be impacted by over supply included Atlanta, Denver, Houston San José and west Palm Beach.

Let me turn over to the transaction marketplace. Year to date there has been an extraordinary, apartments. Since the beginning of the year, cap rates have tightened fairly dramatically between class A and B and C type properties. With the recent increase in long term interest rates this could mad rate somewhat, and we are hearing some noise from buyers of the B and C type properties complaining that the borrowing costs have gone up. But to date we have not seen much change in price or demand. We could see some pricing impact nevertheless, if interest rates continue to rise from the current levels. We continue to believe this is an opportune time to recycle capital out of our older properties and smaller slower growing markets as well as those in locationally challenged areas into newer properties in better locations and larger and more dynamic markets. As we stated at the beginning of the year we want to reduce the number of markets we are operating in from 44 to around 30 within the next three years. And have an even greater presence in our major markets.

To that end, as it relates to our portfolio management activities, in the second quarter we sold 6308 units for a total sales price of $303.4 million for an average cap rate of 7.5 %. These properties were located in Milwaukee, Salt Lake City, Alabama Albuquerque and Charlotte. We sold 44 properties consisting of over 10,000 units for a total sales price of $498.4 million. The average cap rate on all these dispositions was also 7.5%. In terms of acquisition activity, as mentioned in our press release, in the second quarter we bought three properties consisting of 1038 units for a total purchase price of $166.2 million as an average cap rate of 6.6%. These properties were located in Boston, the Bay Area and Alexandra Virginia. Three properties consisting of 1958 units for a total purchase price of $277.7 million, the average cap rates on these was 6.8%. So when you add up our total acquisitions and dispositions for the first six months we were a net seller to the tune of approximately $221 million. Now, clearly with $500 million of dispositions done in the first half of the year, we are well on our way to exceeding our goal of $700 million. But with interest rates up, we may not see the same demand in pricing levels in the second half of the year. As a result, we are keeping our guidance for the year at $700 million.

Now, with respect to our development activity we currently have 11 projects with 2827 units under construction for a total development cost of $597 million. For this development, we have funded 98% of our total equity funding obligation of $163 million. The 11 projects currently under construction are 69% complete and seven of these will be complete in 2003 with the remainder being finalized in 2004. The take-away from the development discussion is that we have reduced our development exposure significantly. In 2001 we started $570 million of new projects and in 2002 another $265 million. For this year, 2003, our development starts will be down to less than $150 million, all of which will be in Washington, D.C.

Now, let me review our five best and worst markets in terms of revenue growth for the second quarter in our largest 20 markets. I'll start with our worst markets. Minneapolis St. Paul was our worst market in second quarter with 9.3% decline in same store revenue compared to the second quarter last year. The Minneapolis economy remains stagnant having nearly two years of steady job loss. The hardest hit sector is manufacturing. The transportation and warehouse industries also continue to shed jobs. Another issue has been too much new multifamily construction but that is showing signs of abating. With the Minneapolis economy not likely to rebound into 2004, we don't don't expect much improvement until then.

Our second worse market in terms of same store revenue decline was Denver down 8% on a quarter over quarter basis. While it appears that the severe slide in jobs that occurred during 2001 and 2002 is beginning to end the Denver economy has still lost 12,500 jobs so far this year. On the supply side new multifamily construction continues to come on line. Overall, there will be an estimated 8,000 new units added to the apartment market by year end. Near term, the Denver apartment market remains bleak and will experience gradual decline by the rest of the year. This will begin to turn later in 2004 as the pace of new deliveries flows considerably and the impact of the job loss in the that last three years begins to did I pate.

Our third worst market is the San Francisco Bay area which continues to remain very weak with same store revenues declining 7.9%. The Bay Area lost more jobs in 2002 than any other metropolitan area in the country. Losing 93,000 jobs. Which represented 27% of the total job loss in the country. This rate of job loss has decreased sharply but layoffs continue throughout the second quarter. The submarket of San José lost 63,000 jobs in 2002, after losing 100,000 jobs in 2001. This apartment market remains extremely weak given that 2,500 units currently in leaseup and equal number of deliveries anticipated for the remainder of 2003 and into 2004. Concessions in the two-month range are not uncommon for that submarket and we believe there will continue to be downward pressure on rents for the remainder of 2003 and 2004. The Oakland East Bay area is more supply constrained and will continue to show signs of relative stability as a result of it’s diversified economic and relative insulation from the technology sector.

Atlanta was our fourth worst market in terms of same store revenue decline which is down 7.8% on a quarter over quarter basis. The economy is still staggering from layoffs in the telecom tourism and transportation industries. Projections for job growth vary widely ranging from 3,000 to 3900 jobs. Our best estimate at this time is for job growth of approximately 10,000 any jobs. Atlanta is still impacted by too much multifamily construction, low interest rates fueling home buying and job loss. Full year multifamily deliveries are projected to be 10,500 units which is down from the original projection of 13,000 units, however there is still too much supply for Atlanta. Moving concessions plus discounts continues to be in the three-month range. No meaningful improvement in this market is expected in the near future.

As it was in the first quarter, Dallas is our fifth worst market which declined 6.1% compared to second quarter last year. The Dallas Fort Worth with 30 to 40% of these jobs in the technology and telecommunication industries. American Airlines eliminated approximately 3,000 Dallas based jobs in June and more cuts are expected in September. The supply of new apartments is beginning to slow in the Dallas Fort Worth area and the supply demand imbalance experienced in recent quarters is narrowing. Construction of new multi-family units is connected to slow to 8900 in 2003 down from approximately 10,000 units in each of the past two years. We believe that the Dallas economy is nearing bottom and will start recovering in 2004.

Now let's start to our best markets. The number one market for us was the Inland Empire with same store total revenues of 5.1% in the second quarter versus the same period 2002. The inland empire has been the only area in California that has been adding jobs albeit at if lowest levels since the 1993 recession. For the first six months of this year it saw the addition of 4,000 jobs. As a result of continued population growth retail and construction jobs are the leading job growth in the inland empire, with construction jobs at an all-time high. Relative to other markets in California, the inland empire continues to post strong results. However, with 4,000 new multifamily units now coming on line we have seen some concessions creep back into the market. Continued single-family and multifamily construction will have some impact on occupancies and concisions in the short term but we expect continued growth over the long term. Our New England market excluding Boston was our second best performing area with total growth of 3.6 percent in the second quarter this year versus second quarter 2002. Included in this market are assets we punched in the Grove transaction and individual markets such as Hartford. The economy in New England is weak, but the lack of new multifamily supply and the high price of sickle family homes in these markets combined with the excellent location of our properties have contributed to the overall performance of our assets in these markets.

Our third best market was North Florida which for us consists primarily of Jacksonville with same store revenue growth of 2.5%. Jacksonville is least affected of all our Florida markets by the falloff in tourism which is primary reason is weathering the current economic market better than the is rest of Florida with less reliance on tourism, the economy has not contracted the last several years. Jacksonville is a strong military presence with over 35,000 people employed at the Jacksonville naval air station and the Mayport naval air station as the navy retrofits many of its air crafts. The U.S.S. Kennedy, increasingly modestly and we've been able to backoff of discounts and concessions during the last half of 2003. Rent, stable throughout the remainder of 2003 with occupancy at around 94 to 95%. Los Angeles was our fourth best market in the second quarter with a 2.4% increase in same store revenue quarter over quarter. This market has performed reasonably well, but is beginning to show some signs of stress as indicated by the decrease in sequential same-store revenues. Job growth in LA was expected from the defense and entertainment industries but both have lost jobs year to date. The service sector is one bright spot adding 20,000 jobs. Overall the LA market is stable with an average occupancy of 96%. Construction of new multifamily product is on the rise with 9600 units under construction, approximately 6,000 of these will be delivered in 2003, which represents a 15% increase over 2002 deliveries. The Washington, D.C. suburban Maryland market was our fifth best market in the second quarter with a 1.3% increase in same store total revenue compared to the second quarter 2002. While the district has lost 4400 jobs in the last 12 months, Montgomery County Maryland has gained 5,000 jobs and more limited development. In suburban Maryland occupancy remains flat from the first quarter at 94.7%. New supply continues to temper rental income growth in the D. C. metropolitan area. The Maryland subgroup will average 2,000 units per year through 2005 and between 4,000 and 5,000 units delivered in the district over the next 18 months.

While we're talking about the Washington, D.C. area one of our positive surprises this year has been the performance of our portfolio in the northern Virginia area of Washington, which has come back much faster than we anticipated after a very weak 2002. Fairfax County gained 10,600 jobs in the last 12 months and that market has firmed up a bit. It is anticipate added that Northern Virginia would deliver between 3,500 and 4,000 units over the next year.

Now let me to our guidance for the third quarter and the balance of the year. At the beginning of the year, we said we expected same-store revenues for 2003 to operate in a fairly tight band of between 1% up to 1% down from our December 2000 revenues annualized. As we mentioned in our first quarter call, same store revenues were higher in each of the three months than December 2002. In the second quarter, same-store revenues for each month were also slightly higher than the month of December. July's numbers were slightly higher as well. So from an operating standpoint, business continued to track the way we thought it would for the first half of 2003, and the third quarter looks like more of the same. While this is good news, the increase is very slight, and we are concerned that we haven't seen much traction. We worry that as we get later in the year, with less traffic and little pricing power, we could see a fourth quarter falloff similar to what we saw last year. Hence we remain cautious about business. Our guidance for the third quarter FFO is 55 to 56 cents per share. For the full year we are maintaining our previous FFO guidance of $2.25 to $2.40 per share but again acknowledge that we are at the bottom of that range. This guidance is based often our original disposition plan of $700 million. To the extent market opportunities exist that allow us to increase this amount at favorable pricing levels we could significantly exceed that goal. While this would accelerate our long term portfolio management goals it would have a dilutive impact in the short term.

Let me now turn to corporate governance. We stated at the beginning of the year that it is important to us to be a leader in this area. To that end we've undertaken a number of measures such as declassifying our board and requiring annual elections of all trustees rather than staggered terms of three years. Additionally we have reduced the number of non-independent trustees. As a result of these and other measures institutional shareholder services, ISS, as of August 11th ranked Equity Residential fifth all the top 500 companies in the S&P index in terms of good corporate governance policies and practices. We are proud of this ranking and will remain a leader in good corporate governance.

Finally, I would like to acknowledge and thank our 6300 employees working very hard to make things happen. We have a great culture here at Equity and blessed with great people who have passion about our company to be America's choice with apartment living. With that I'd like to open it up for questions. Operator.

At this time in order to ask a question please press star then the number 1 on your telephone key pad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Rob Stevenson from Morgan Stanley.

Good morning guys.

Good morning Rob.

What was unit turnover for the quarter and how is that trending thus far in July and the first part of August?

For the quarter is 17.8% which is, you know, very sort of spot on last quarter. Second quarter '02 was 17.9%. And in terms of as it relates to since the end of the quarter?

Yeah.

I think it's about the same. It was the third quarter --

Yeah and year to date Rob, 33% which was again spot-on with year to date for the prior year.

Okay. So you guys haven't really felt any increased from turnover or turnover expenses again you haven't seen any reduction from the '02 sort of levels either?

Turnover expenses are certainly up because upgrading of certain units, aspects of our units as well as we're actually trying to create more available inventory. Those expenses are up even though the turnover rate itself is relatively stable.

How are you guys faring versus expectations this year in terms of taxes?

Real estate taxes?

Yeah.

We're going to be inside our original expectation. We'll be currently sort of running sub3% and our expectation is by the end of the year, it will be -- mid 3s or maybe even low 3s.

Okay. I mean have you seen any increasing propensity of some of these locales to try to put things through in the fall election or anything else that would wind up hitting you in '04?

Yes. I mean, they're always trying. I mean, we've got consultants working around the clock in all these municipalities trying to beat them back and we're being extremely successful. We've had an exceptionally successful year in dealing with -- in having success on our tax contests.

Okay. And on the acquisitions you guys made this quarter is there anything notable about occupancy levels or any sort of trends there, providing you opportunity you guys basically sort of buying market occupied assets in those three locations?

I would say most of the assets we've bought are market.-occupied. They haven't been substantial vacancies in there. I would say that some of them, in terms of one of the ones we bought in California, we tried to buy it a couple years ago, we bought it for like 30% less or 35% less than what we were trying to buy it for, you know, a couple of years ago. We think it's decent pricing. But again, the occupancies are market.

Are you guys seeing any material levels of portfolios out there to be bid on these days? Even if you guys aren't successful in bidding on them or is basically is everybody still trying to break them down into smaller pieces to get sort of the max bids?

There are some portfolios out there, you know, we have one out there. But I think at the end of the day you look to try and figure out how you can maximize pricing. The nice thing about apartment business is they are easily divisible. You can tailor portfolios as to what people want.

Okay. Lastly David you've got some debt coming due in the back half of the year and decent amount next year. What are you thinking at this point, is any of that stuff that you could refinance now before rates start moving up?

Well I've essentially and I mentioned in my remarks here Rob sort of prefunded most of the debt that matures between now and the end of the year. We are looking at the $400 million out in the next year, we do have some hedges in place for some portion of that. But we're also just watching the disposition process, and being cognizant that we could be a net seller going forward and we'd have excess cash and we'd have that cash available to deal with that as well.

Okay. And then last question Bruce, you said each of the last three years that your development starts have been reduced basically almost halved I think, if you're, you know, getting towards the end of the cycle here and you know, the outlook becomes brighter, you know, 12 to 18 months out, when you would start delivering stuff that you would go into the ground today and you're having a difficult time acquiring, why not start gradually ramping up development.

I think you're going to see next year, next year numbers will be up significantly. We do think in terms of you're trying to time it so we think if you start a number of projects next year you know that will be good time when they come on in 2005. So I would be thinking you should anticipate that those starts would be up significantly for next year.

And could you remind me how you guys handle land and land options? Is that stuff basically taken care of by your JV partner?

Yeah, that's all done in the venture.

Okay. Thanks guys.

Thank you. Before we go on let me add, I misspoke on the real estate taxes, currently we are running sub3 and we expect to end up mid 2% range for year over year real estate taxes.

Your next question comes from Alexander Goldfarb with Lehman Brothers.

Good morning. Could you just talk a little bit about the Water Terrace development, I see it's completed, could you talk about the leasing status, stabilization and expected NOI return on costs.

Sure. That project is completed. It's 45% leased. We are doing, oh, about 20 leases a month. Our lease rate, if you will, the monthly -- the monthly rate is above where we were -- what we anticipated. But we're giving two months' concessions versus when we started we didn't think we were giving any concessions. The concessions are up, but our average monthly rental is about $4,000 a month. We have been very successful renting the lower half of the building, the higher floors we haven't leased as many of those, we're going to see what happens on that, because those are more expensive.

Okay. So what is, just to get a sense what is the price range from the low to high?

The average represent pr square foot is about $3.20 or so, $3.20 a foot. So the high end at the top of the thing you're probably seeing rents of six to $7,000, $8,000 on the larger units.

Okay, okay. I know that you reaffirmed your disposition goals. What about the acquisition goal of $500 million.

We're keeping, if you notice in the first six months we did about $277 million. So annualize that that's about you know, $540 million.

Okay. You know it seemed on track. And just confirming the JV consolidation of the developments that's per Fin 46?

Yes.

Could you just talk about the Florida expenses? They seem to be up across the board which made it sound more like it was a statewide issue rather than market-specific issue.

No, I -- the Florida expenses are running pretty much at the same rate that we are in other areas. I mean, there's certainly increases in leasing and advertising which we're seeing everywhere. We're also seeing pretty significant increases in the maintenance side. But beyond that, there's not really anything that unusual with Florida.

Okay. So it wasn't insurance or real estate taxes or anything?

Well, insurance for sure has gone up in Florida but it's not allocated that way. It certainly is a higher cost for the insurance side.

Okay.

But that's kind of been embedded almost two years already, the higher increase in cost. You see more nominal increases in insurance at this level.

Okay. And then finally, have you -- has there been any happenings with any mold? Has that been an issue or it hasn't been?

You know, certainly we run across mold issues and we treat them very aggressively. You know, where you have condensation in closets from furnaces and whatnot. You're going to find a certain amount of that but we don't have any major mold issues literally, we are very careful to do preventive maintenance, we take a much more aggressive action when we turn a unit. We have taken some very pro active points and that is part of the increase in our maintenance cost. But we're not running across any major problems at all in terms of a property having a lot of mold elements.

Okay. And then just circling back what did you say the stabilization date is? For the Water Terrace?

We are 45% leased, leased 205 units, averaging leasing about 20 a month. So I'd say next ten to 12 months we'd be leased up.

And then what did you say the NOI return on cost is expected to be?

I didn't. Currently about 7.8, and that's down from original expectation of about 8.6.

Okay, thank you.

Your next question comes from Osad Kazem with Reese Securities.

Hi everyone. Wondering you talked about using the cash on the balance sheet to pay down the debt going forward. Seem to be deleveraging the balance sheet. How do you plan on using all the capacity going forward? Is it more in acquisitions, or are you guys ramping up development and you talk about buying back stock, et cetera.

Well, I would say again, we continue to look at acquisitions. What we're trying to do from a portfolio standpoint is move out of a lot of these smaller markets and focus on our major markets. So we spend a lot of time on that. If you look at where our acquisitions have been to date, they've been in California, in Boston, you know, that sort of focus in terms of where we're going because we think it's a great opportunity to trade assets in terms of what we're selling these assets for, and the assets we've sold are approximately 1983 vintage so they're 20 years old. We are moving into higher growth markets. We’re looking for those. We don't see the number of opportunities we are hopeful of although we're 277 units in terms of -- I mean $277 million of acquisitions, we're continually look at that. We also in terms of -- we have a lot of cash as David mentions that we've been sitting around waiting for opportunity. We haven't seen the opportunity yet, but we think that that could be coming. So we'll wait and see. And as he mentions, we do continue to want to maintain great financial flexibility with our balance sheet. For opportunities as they may come into play.

Great, thank you.

Our next question comes from Karen Ford with Banc of America Securities.

Hi, good morning. Just want to know what the components were of the flat sequential revenue. Occupancy was up 50 basis points sequentially so what was the sequential rent decline?

Bear with me a minute there Karen.

Sure.

Revenue sequentially, total revenues were relatively flat. Rental revenues decreased just .08%. And then what else did you want to know specifically?

Okay. What was the average represent per unit?

Average rent per unit for the second quarter '03, 800 -- well, with lecture, 821 without lecture 880.

And the 7.5 cap rate on the disposition assets, I guess you kind of answered my question, the reason why that was on the higher side is they were older assets and smaller markets. Is there anything else you want to add to that?

If you look at some of the markets we sold in the first half, we got out of Birmingham, Alabama, we got out of Louisville Kentucky, slow growing markets. That's what we've been doing.

All right, thanks very much.

Your next question comes from Jonathan Litt with Smith Barney.

This is Jordan Sadler. You commented on portfolio you have out for bid, would selling that portfolio blow through your guidance for the year for dispositions for the full year?

It would be close. I mean, in terms of the total size, you know, its in the, you know, 200, 250 million range.

And just moving back to the portfolio operations for the quarter, did you mention what concessions were and what concession activity has been like during the second quarter, and subsequently?

We mentioned that concessions were up in the quarter over quarter.

30%.

30% of $3.3 million.

And what's the experience been like in July and early August? Similar?

Yes. Slight -- just a very slight increase in the concession, you know, there month to month, very slight.

Okay. And then would you guys just walk me through the condo sale gains that you guys recorded during the quarter? David I think it was $2.4 million or so. I was just curious, you're booking them -- are they booked on a gain on depreciated book once you start or how does that work?

Once we transfer property to the condominium TRS we stop depreciating the property. When we sell an individual unit we recognize not only the gain from EQR's original basis to the transfer price to the TRS but also the increment above that transfer price. And it is only that increment above that transfer price that net which is included in the FFO because at that point in time is no longer depreciating that asset.

Okay. So it is on a depreciated number, though, once the --once it's transferred the gain is based on a depreciated book value?

There is two gains there, one is the recognition of the gain from EQR's original basis to its transfer price to the TRS and then there is the gain that the TRS realized. Only the gain the TRS realized is included in FFO.

Okay. And I guess just you guys monitor single-family home move-outs and the percent of move-outs as it relates to this?

Yes, we do. Again, it's been rung historically about 23% and we is a no change in that number.

Okay, thank you.

At this time, sir, there are no further questions.

Thank you. Well, we appreciate very much your interest and please if you have any questions, give us a holler. Thank you very much.

Thank you for participating in today's conference call. You may disconnect at this time.