住宅地產 (EQR) 2005 Q4 法說會逐字稿

Good morning. My name is Dawn. At this time I would like to welcome everyone to the 2005 fourth quarter earnings conference call. [OPERATOR INSTRUCTIONS] Thank you. Mr.McKenna, you may begin your conference.

Thank you, Dawn. Good morning, and thank you for joining us to discuss Equity Residential's fourth quarter and full-year 2005 results and outlook for 2006. Our featured speakers today are David Neithercut, our President and CEO, Donna Brandin, our Chief Financial Officer, and Gerry Spector, our Chief Operating Officer. Our release is available in PDF format in the investors section of our corporate website, equityresidential.com. 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. Now, I'll turn it over to David.

Thank you, Marty. Good morning, everyone. Thanks for joining us. 2005 was a terrific year for Equity Residential on many fronts. And so I'd like to start today by recognizing the 6,000 men and women across the country that make Equity Residential America's choice for apartment living, and I want you to know that they honor our commitments to our residents and investors every -- each and every day, and I'm extremely grateful for their contributions to our success. We had a terrific fourth quarter as noted in the release.

Job growth was strong, economic recovery continues in our core markets. Strong occupancy exists in those markets. There's been little new market-rate rental supply added and units have been taken offline and converted to condominiums, so fourth quarter performance was phenomenal. We've also made tremendous progress on our goal to reconfigure our portfolio, having acquired $2.5 billion of acquisitions in 2005 in our core markets. Leading the way there, obviously, was our acquisition of Trump Place in New York City, and we also made terrific investments in Seattle, California, Florida, and Virginia, and this is having a big impact on the Company. We've also made great progress with our initiatives in 2005.

We started rolling out our management -- revenue management and procurement systems. We began installing a new operating platform. We already began to see benefits from those in the fourth quarter of 2005. With 2006, I'll tell you, we've still got a lot of work to do. We're going to continue working on our portfolio reconfiguration. We've budgeted $1.5 billion of capital to be reinvested in '06. We're going to complete the rollouts of our revenue management and procurement initiatives through the the year, and we're going to complete the implementation of a new operating platform. And I will tell you, these are no small tasks given the number of sites involved and the amount of training that will need to be done. We're excited about the benefits we saw in the fourth quarter of '05, and what we expect to see in '06 and '07 from these, when fully implemented, and Donna will give you a bit more color on this in just a moment. But I'll tell you we know we have to show you, our investors, the benefits of these initiatives, and I assure you that we will. So I'd like to now turn it over to Donna.

Thanks, David, and good morning, everyone. For the fourth quarter of 2005, Equity Residential earned $0.74 per share versus $0.48 per share for the fourth quarter, 2004. Funds from operations for the quarter were $0.66 per share compared to $0.56 per share for the same period of 2004. The $0.10 increase in FFO was attributed to the following items. Same-store results improved, contributing an incremental $0.05 per share. Higher condo sales were a big driver in the fourth quarter of 2005. In the fourth quarter, we sold 652 units versus 456 units in Q4, 2004. Sales of condominiums resulted in a contribution to FFO of $35 million after taxes or $0.11 per share versus a contribution to FFO of $16 million or $0.05 per share in the fourth quarter, 2004. We had only anticipated a contribution to FFO from condos in Q4, 2005, of $16 million, which will be described later.

In the fourth quarter, we also sold the remaining portion of our parcel of land in Tyson's Corner, which contributed $0.05. These positive variances were offset by higher interest expense of $0.02 and Wilma hurricane expenses of $0.03, which were included in the guidance. For the full year, FFO was $2.52 per share, which was above the guidance range of $2.43 to $2.46 per share due to better than expected performance in Q4. These results exceeded guidance due to condo sales of $0.05. The increase was primarily the result of the better-than-expected condominium sales at two Florida properties. In addition, same-store performance was $0.01 better than expected. Actual fourth quarter 2005 same-store NOI was 6.4%, which exceeded our 11/1/05 guidance of 5.6%.

Now, let me turn my attention to the balance sheet. Equity's debt to market capitalization continues to be very strong at 37% at the end of Q4. Since the end of Q4, equity stepouts increased $1.1 billion. This increase is driven by the following facts. Acquisitions exceeded dispositions by approximately $600 million, 271 million in preferred stock was redeemed, and $200 million in development loans were incurred. Our percentage of floating rate debt increased from 15% of total debt at the end of Q3 to 25% at the end of Q4. This increase in floating rate debt was a result of short-term borrowings to fund our 1.4 billion in fourth quarter acquisitions.

On January 11th, 2006, we issued $400 million in unsecured 10-year notes which reduced our floating rate percentage to a number more in line with our historical levels. We currently have $415 million outstanding on a $1 billion line of credit as of today. Let me now turn my attention to 2006 guidance. The same-store revenue range is forecasted at 4.75% to 5.75%, driven by expectations for relatively strong job growth and limited supply. Costs are forecasted at 4.25% to 5.25%. This resulted in a forecasted NOI range of 4.5% to 6.5%. This is a significant improvement over 2005, year-over-year NOI results of 2.8%. Of note in this guidance, you may recall we indicated on prior calls that our revenue initiatives will increase one-time costs in 2006 and 2007 by $0.03 or $9 million, which are included in same-store sales. I'm sorry, changed our costs, excuse me. Without these costs, the same-store guidance range would be 3% to 4% range versus the 4 .25% to 5.25% current guidance range. However, we also recognize benefits from these revenue initiatives. Based on the data we have seen today, we anticipate $10 million of incremental revenue lift in 2006 from our revenue initiatives with incremental benefits to be realized as the programs continue to be rolled out in the future. Related to our centralized purchasing initiative, we continue to anticipate $12 million savings during 2006 of which approximately 50% is capital-related. The above savings are included in our 2006 guidance. Let me turn my attention to FFO guidance for the year and the quarter. For the full year, FFO per share guidance is $2.30 to $2.50 per share. In order to provide clarity around the guidance range, I want to provide some comparative color to 2005 results. 2005 FFO per share of $2.52 was favorably impacted by two items. Sale of Rent.com contributed $0.18, the sale of Tyson's land contributed $0.09. Offsetting these $0.27 of favorability was approximately $0.08 of hurricane- and severance-related charges. Therefore, excluding one-time charges in 2005 FFO per share, we would have been at $2.33 per share.

In addition, at this time, we are budgeting nearly $0.17 less in FFO contribution in 2006 from condo conversions due to fewer joint venture transactions and a full year of taxation. David will provide you with more detail on this topic. Our 2006 guidance range of 2.30 to 2.50 is therefore premised upon improvements, which we have begun to see in our core business. We expect our 2006 GNA run rate to approximate $50 million. For the quarter, the FFO per share range is $0.51 to $0.56 per share. The first quarter is lower sequentially as compared to Q4, 2005, primarily due to lower condominium sales. Finally, acquisitions are expected to be funded from disposition proceeds for 2006 and are estimated at $1.5 billion each. Now, let me turn it over to David to give you more information regarding a variety of strategic issues impacting 2006.

Thank you, Donna. During the fourth quarter, we continued to execute our strategy of repositioning the portfolio, recycling capital from older assets and our slower growth markets into newer assets in our target markets which include most of the high-barrier markets. In fact, we recycled nearly $6 billion over the last five years. And I want to give you a couple of examples of the benefits of that repositioning. In 2004, we added 8,342 units to the portfolio. And were added in the first nine months of '04, therefore, because having been added in '04, they are not included in full-year 2005 same-store performance. However, because they were added to the portfolio before the fourth quarter of '04, they are part of our fourth quarter '05 guidance.

I'll give you an example of the benefits that that provided. We did 5.8% revenue growth in the fourth quarter. These properties -- these units, these 8,342 units added in 2004, delivered 8.1% revenue growth in the fourth quarter '05. And on an NOI comparison, the 6.1% for the entire portfolio compares to 10.2% NOI contribution from those properties acquired in the first nine months of 2004. In 2003, we added 5,820 units to the portfolio through acquisition or development. Those contributed for the full year, 2005, 5.8% revenue growth versus the 3.9% the entire portfolio showed. And on an NOI basis for the full year '05, those properties acquired in '03 delivered 7.3% versus 2.8% for the entire portfolio. So, significant impact on our performance and significant impact to the Company from these acquisitions from this portfolio recycling.

And I just want everybody to remember that our '05 acquisitions will not be in full-year same-store until 2007. And again, that represents $2.5 billion of acquisitions, 12,000 units that will not be in full-year same-store until '07. And so the benefit to the lift we realize in '06 will just establish a new base off of which '07 will be compared. So this continues to be a long-term portfolio strategy, reconfiguring the portfolio. We're going to continue to reposition, we'll continue to reduce the number of markets in which we operate. We will continue to focus on those markets with growth forecast and expectations that exceed the national average and with barriers to entry and high costs of single-family homes.

So in the fourth quarter we acquired 15 assets totaling 4,891 units for $1.4 billion. The weighted average cap rate on that portfolio was 4.7%. With a weight -- with an average age of 11 years, and this includes a property we acquired in Virginia which I'll speak about in just a moment that was 35 years old. The average price per unit was $284,000 and nearly 60% of the quarter's activity was the Trump Place acquisition in Manhattan for $809 million, 1,325 units. We do count that as three different properties, the 140, 160 and 180 buildings. In addition to Trump Place, we acquired four properties in Virginia, that includes the Skyline Towers property. Again, a 35-year-old property which has been significantly rehabbed. We will continue to complete that rehab. That's based in Falls Church, Virginia. We acquired that property at a 5.16% cap rate. $169 million purchase, 939 units, $180,000 per unit, about $163 a foot. That's located in a p.u.d. in Falls Church with 2,000 similar units for a total of 3,000 units in this particular p.u.d. All of the other 2,000 units have previously been converted to condominiums and they currently trade in the secondary market at about $300 per foot. Following the completion of the renovation that is already in process, we will be on a basis of less than $200 per square foot, and we like that arithmetic.

We acquired two properties in the California's Inland Empire for $72 million total averaging $186,000 per unit. These properties are three years old on average and were acquired at a 5% cap rate. We bought a $99 million property in Orlando, Florida, $147,000 per unit, five years old and a 5.17% cap rate. Also during the fourth quarter, we acquired three properties for 492 units, $93 million directly into our condominium taxable REIT subsidiary for future conversion, and that's one property in Virginia, one property in Seattle, and one property in Phoenix.

On the disposition side, we sold 11 properties in the fourth quarter, 2,636 units, totaling $275 million at a weighted average cap rate of 5.2%. These properties averaged 19 years of age and sold at an average of $104,000 per unit. Markets in which we sold include Hartford, where we sold two small properties, one 37 years old and another 45 years old at a 5.35% cap rate. We sold a 21-year-old property in Austin, Texas, at a 4.28% cap rate. A 20-year-old property in Detroit at a 6.24%, in Florida, an 18-year-old property at a 4.4% cap rate. And in Stamford, Connecticut, a 16-year-old property at a 3.55% cap rate. Our fourth quarter IRRs on an unleveraged basis were 15.3%. Our fourth quarter gains, and these are on the third-party apartment sales only -- they exclude any land sales and any condominium conversions, at a total gain of $132 million, of which $91 million, or 69%, represent the economic gain.

In the fourth quarter, as noted in the press release, we sold three land parcels for $72 million. The first and the largest of those was the completion of the sale of the property in Tyson's Corner, Virginia, which Donna mentioned. We have sold the first parcel in the first quarter and this now completes the -- that sale that was a 50/50 split with a joint venture partner and our net gain for the year was about $30 million on that trade. We also sold two other land parcels adjacent to existing properties that we own, one in Portland, Oregon, where a builder will build for-sale townhome product and another in Denver, Colorado, where the buyer will also build a for-sale product. For the full year 2005, again excluding condominiums, we sold 50 assets totaling 12,848 units. And to the best of our knowledge, about 10 of these assets, 20% or so, were sold to buyers intending to convert these properties to condominiums. And I will tell you of the properties that we currently have under contract, about eight assets currently under contract, we think about four of those are for sale to condominium converters at cap rates of 4.3% to 4.9%.

So I want to reiterate a point I made on our last call, and that is that we are converting assets for our own account, by our own conversion team. We're also selling assets at very strong pricing to third-party converters. And, as I noted, we are buying some assets directly into our condominium TRS. We're trying to be opportunistic. We evaluate the risks and rewards of every asset, and the decision to convert our sales is based on the expected profit compared to the highest price we might receive from a third-party buyer. If it makes more sense to sell, we'll go ahead and sell. If not, we'll undertake the conversion ourselves. But we have certainly taken advantage of the opportunity to sell assets directly to converters. And the decision to buy an asset for conversion is really no different than the decision to not sell an owned asset. The net profit must justify the purchase and the conversion risk.

As Donna noted, the condo business produced excellent results in 2005 and continues to represent a terrific opportunity for us to create additional value for our shareholders. In the fourth quarter, there were 652 units closed producing $35 million of FFO. This was about $0.05 per share ahead of budget due to a couple of things. Number one, an incredible job by the sales team at Watermarke in Irvine, California, that managed to complete the closeout of that property in the fourth quarter. And secondly, a truly heroic job of our conversion team in Florida getting units closed. Hurricane Wilma hit on October 24th. We did our third quarter earnings call on November 1st. So just one week or so later. At the time of our earnings call, there was no power at our -- at the properties that we were ready to start closing units at. And the power company was saying that it could take as much as six weeks to restore. Well, as a result, we cut our original expectations for fourth quarter Florida closings. But as you know, we are all about velocity in our conversion business. So when power was restored the next week, our team tracked down the buyers, provided office space to the title company, who was still without power at the time, and got the closing done. All those closings done. I want to congratulate our condo team for getting that done. That was truly a heroic effort.

As noted on page 21 of the supplemental, pretax and preoverhead, the condo business delivered $100 million in 2005. After taxes and overhead, our condo business delivered $89 million of FFO for the full year, 2005. About -- for the full year, about 40% of that business was from joint venture partners, and those from the two transactions in Washington, D.C., and from our Watermarke property in southern California. So about $40 million or 40% of that $100 million from third parties. In the two -- our 2006 outlook for our condo business as currently budgeted, we have no third-party contributions, and so that will not be replaced in 2006. So that's going to be a big hole on a year over year basis, that $40 million. But we're going to continue to grow our business.

You'll note the two Virginia deals on page 21 of the supplemental. Our current budget calls for $62 million of pretax, preoverhead FFO, which is about the same that we did on our own business last year. We currently expect to close 1,600 units in 2006, and that's about 70% of what we closed in 2005. The primary reason? We do not expect the same sales velocity we experienced in 2005. The mania is over. Gone are the weekend sellouts, and we're going to return to a normal, healthy market, which is exactly how we underwrite all of our deals. And we're going to go back to selling two or three units a week and 10 or 12 units a month, and that's how the business is going to run. That's how the busin -- we always expected the business to run and we believe we'll continue to be extremely profitable running the business like that. The one improvement is that we expect to earn nearly $39,000 per unit in 2006 on an average pretax FFO contribution versus about $28,000 per unit from the EQR conversions in 2005. And secondly, as Donna mentioned, we fully utilized our NOLs so we will be in a full tax-paying mode in 2006.

The effective tax rate will be about 35% after accounting for some structuring that we can do to create some intercompany debt and thereby mitigate just a small bit of the tax bite. And therefore, net FFO budgeted for 2006 for condo conversions is about $37 million. And this is down about $50 million from '05 levels. The difference really there is $40 million in the third-party conversions and about $10 million of extra tax.

I just wanted to fill you in a little bit on success to date in the condo business. Through the end of 2005, we've totally closed out 9 conversions. And these are properties averaging 17 years of age in which we transferred to our condominium group at an average price of about $93,300 per unit. Effective after a full tax charge, the net in our pocket at the end of the day on those was $114,350 per unit, a 22.5% improvement in realized NAV. We think this is a great value creation opportunity.

On the development side, you'll note two new developments were started in the fourth quarter of '05 which can be found on page 20 of the supplemental schedules. The first is Highland Glen in Massachusetts. this is the second phase of a project we acquired as part of the Grove merger. We will handle this development on our own. This is 102 units, $21.6 million budget and about a 7% expected yield. The second deal added in the fourth quarter was Silver Springs Gateway in Silver Springs, Maryland. This is our fifth deal with JBG, a partner with whom we've developed our four hugely successful projects in Washington, D.C. This is 457 units, $145 million budget and anticipated stabilized yield of 6.7%. These starts brought our total for 2005 to three properties, starts for the entire year to three properties totaling $221 million.

In addition to the two I just mentioned, you recall we started a 300 unit development in Ontario, California in the third quarter, and that's about a 7.7% targeted yield. We did fall short of our $300 million start goal because the expansion of our Charles River Park property did not get started until early January. So it will technically be considered a first quarter '06 start. And that 310-unit, $161 million development is projected to yield approximately 6%.

During the fourth quarter, we completed the Indian Ridge property in suburban Boston. That property is still in lease-up and is projected to stabilize at a yield of 8.2%. Also during the fourth quarter, our deal at 1210 Mass Avenue in Washington, D.C., was stabilized and we're expecting a 2006 yield from that asset of about 7%. As noted in the press release, we acquired four land parcels in the fourth quarter, one was the Silver Springs property that I mentioned. We acquired another property in New York City. That we're in the process of trying to assemble a larger land parcel. A property in Irvine, California, and a Riverside County deal and all of these deals have a development yield expectation of 6% to 7%.

We're currently working on about $1.5 billion of development deals primarily on both coasts for 2006. We're projecting development starts of about $500 million, which includes the Charles River Park expansion, which I just mentioned. In Irvine, California, in New Jersey, again Massachusetts, and perhaps in Seattle. Of those $500 million of '06 starts about a third of this will be handled for our own account. That's mentioned the Charles River Park property and the Highland Glen transactions.

And again, as I guess you all know, construction costs are up. 20% or so-plus on hard costs, 2005 really saw those costs spike. We're continuing to expect those costs to increase throughout '06 but will not see the same rate we experienced in 2005. So just wrapping up, I want to mention that we -- remind you that we've dramatically changed the portfolio of the Company and again, that is a job that's not yet done. We expect impressive returns from our revenue and procurement initiatives that will be fully rolled out this year. And the business fundamentals are as good as we've seen in a very long time. We're 94% occupied; we've seen incredible single family home appreciation in most of our markets. And it's really widened the affordability gap. There's been very little new supply of market-rate rental product because most of what has been built has been for-sale product. In addition, there's been a lot of rental units taken off the market as more and more of those units are converted to condominium. At the same time, we continue to see good job growth and economic activity in our markets, which is increasing demand for our rental properties. This has led to a very strong performance in the fourth quarter of '05 and we'd expect these market conditions to again drive a very strong fundamental performance for us in 2006. With that, Dawn, we'll be happy to open it up for questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of John Stewart with Citigroup

Hi, it's John Stewart here with John Litt. Donna or David, can you help explain, I guess, the hurricane charges in the quarter? Specifically, your same-store NOI reconciliation? It looks like -- I'm not clear, are you adding back an insurance recovery in the fourth quarter, or adding back charges?

Basically, we don't have the charges flowing through for Hurricane Wilma through same-store performance. It's about $11 million. The view on that was, if by including it in the same-store revenues, it would distort the results as we move forward and be more difficult to give comparability and performance. So on what we deem as a catastrophe event, we pulled that out of same-store performance. So it is not in the numbers.

Okay and where does that show up on the income statement? Is that what drove the big increase in GNA from the third quarter?

It's basically in the insurance charge and the gross amount just for your purposes, the total loss was $19 million, net of an $8 million receivable that we're expected to receive from the insurance companies, netting to the $11 million. Just like last year, when we incurred the $15 million in hurricane expenses for the four hurricanes, we did not include that in same-store performance, either.

Okay. And then can you explain why the taxes on the condo gains were so low during the fourth quarter? I kind of expected, based on your comments from the third quarter call, that you would have been at the 35% rate in the fourth quarter.

Basically, we ran out of NOLs in the fourth -- in the middle of 2005. And so we started to accrue taxes at a range of around 35% in the last two quarters of the year. And those charges basically got reclassed to discontinued operations as we do with other condo-related activity.

Okay. Can you just come back quickly to the GNA? It looked like it was up about $11 million bucks from the third quarter to the fourth quarter. What drove that?

There were several one-time items that occurred in the fourth quarter. One item related to litigation expense related to the Florida class-action lawsuits. The other related to $2 million of taxes related to the Tyson's land sale. And then we also had some incremental profit-sharing accruals that occurred. So if you sort of strip that out and looking to 2006 as a sort of a normalized GNA run rate, that would be around a $50 million run rate.

So, the three one-time items, is that the whole $11 million?

That's predominantly the whole $11 million. That's still a little bit of severance that's coming through, but that's small.

Can you comment, you said you'll have about $1.5 billion in sales and acquisitions. What's your expected spread on that?

We are building in 1% dilution, and we're assuming that the acquisitions and dispositions occur evenly through the the year. So we widen the spread from 75 basis points last year to 1% this year.

The fact that there's more land sales that you might do in '06 the way you did in the fourth quarter?

Right now. We're not forecasting any substantive land sales.

You talked about the JVs in the condo business. Can you just expand on the mechanism, how that works?

Sure, John. It's David here. When we completed the two developments with our partners JBG and DC, as well as with our partner Sares-Regis, in Irvine, California, we established with them a valuation, a third-party transfer valuation of that property at that time, And transferred the property at that valuation, our share into a taxable REIT subsidiary, and the profits that we realized -- our share of profits are off of that sort of stepped-up basis.

The reason you don't think that's replicable because it's just the amount of volume of condos that you're going to try to convert?

Right. Aw we sit here today, we have no plans for converting any third-party condominium, I'm sorry, any existing third-party development deals.

So the absolute volume is going to be lower.

That's correct. You look at -- we sold 450 or so condominium units at Watermarke in Irvine, California. In 2004. Well, we will not be able to replace that.

You'd also said that the development starts this year will be one-third for [inaudible] count? I don't know if I got that right.

Two-thirds of that $500 million will be done with joint venture partners, one-third will be on our own.

On that two-thirds, what's your prorata share?

Well, it differs per deal. But we -- we -- again, the basic structure has been the same. But we put up all the equity capital; we get a preference on our investment; and then there's a participation over certain thresholds. And it's different on all deals. But again we get a preferred return on our invested capital, and the development partners begin to promote us over certain returns, which ramp up. They get a higher percentage. They will ultimately, can ultimately get to 50%.

If you're saying $1.5 billion is what you're looking at in development, and $500 million in starts, is there reason to believe the starts could exceed the $500 million? Is that like a shadow pipeline? Or is that -- how should we think about that?

I'd say that's our best guess at this time. We've got properties that are going through the planning process; we have options on properties; we're continuing to look at budgets. Our best guess today is that that's what will start in 2006.

And so I guess my question is will that $1.5 -- is only $500 million realizable or is that another $500 million might start in '07 and another $500 million in '08?

I'm not suggesting that that $1.5 billion will disappear. Some of it may. But of that $1.5 billion, we expect to do 0.5 billion in '06, and the balance in '07 or beyond. But there's also a chance some of that may just fall away.

Thank you.

Our next question comes from the line of Lou Taylor at Deutsche Bank.

Thanks. Good morning, guys. Donna, can you just clarify in terms of the taxes on the condo sales, what line item was that in in '05, and where is it going to be in '06?

Yes. In '05 what we're going to do, because we didn't have the full taxation throughout the the year, we put the -- we put taxes in discontinued operations where we put normal condo activities, once we decided it was going to be moved to the TRS for condominium purposes. In 2006, however, what we're going to do, because of the magnitude of the taxation, and the fact that we'll be paying tax on a full year run rate basis, we're going to break out an effective tax rate provision, so you will see income from continuing operations on a pretax basis, and then you will see a tax provision and an income from continuing operations after tax. And then what we'll do is we will restate the prior year so that you'll have comparability.

Okay Did you have taxes and GNA at some point in '05?

We had a small amount of taxes of -- in GNA in '05 related to state and local taxes that we do pay. And they're not significant in terms of size.

Okay, great. Now, David, can you talk a little bit about your markets in terms of exposure in Atlanta and Boston? I mean, how do you feel about your exposure in those markets right now? And do you see yourself -- sound like an increase a little bit, certainly, in Boston. But could you talk a little bit about your exposure in Atlanta, whether it's likely to go up or down this year?

I'll let Gerry jump in. He's here and will be able to talk about the markets. But I tell you, we feel good about really nearly every market we're in. We're going to -- we've got some markets that we're selling out of. But I'll tell you, a lot of the markets that have been soft over the past few years are beginning to turn the corner, as well as I'll tell you in a market like Atlanta, we've sold some of our older stuff and have bought newer properties in more of sort of the urban cores and we expect those properties to perform pretty well.

I would also say that there's still in my opinion, a also bit too much supply going into Atlanta. So I think that's going to kind of stall it a bit. But I think the supply is significantly down from prior levels. And we're not directly affected by a whole lot of the production coming out of there. So I think Atlanta will start to improve, but it won't be a stellar market for 2006. Boston, we continue to see tremendous results in the downtown area. We're really -- we have an issue with some of the properties on the outside perimeters around Boston that have been soft over the last two years. Frankly, just out of the recession in 2002, 2003 to 4, those markets performed very well. But now we're seeing kind of a falloff in those markets and that's kind of an offset to the strong performance we're having in the downtown area of Boston. It's kind of dragging it a bit.

Okay. David, then, can you talk about your dispositions then for '06 in terms of, are you likely -- is it likely to be evenly spread or is your exposure in some markets going to be going down this year and what would those markets be?

We continue, Lou, to have for sale much of our assets in Minneapolis and in Detroit and in Chicago, for instance. Those will be to the market exits for us. If and when pricing allows. I believe we're getting fair and reasonable pricing. And we'll continue to, we're looking at San Antonio, as well. And Tulsa and so there are a handful of markets that we're looking to, that we could exit in their entirety this year. And then we will also sell assets in markets in which we intend to remain and operate for a long time period as we recycle capital within those individual markets.

Okay and the last question is, given the condo gains in '05, do you anticipate putting more pressure on your condo group to give EQR side of the house a better price?

It's funny. The condo guys complain that we're a tougher seller than they can get out on the street. We try and establish what we believe is a fair and reasonable and appropriate sort of transfer price, Lou. That is the price that the company would receive if we were to sell the market to a third party. Regardless of what the intentions were of that third party, whether they were a 1031 buyer, a TIC buyer, a condominium converter, we don't care. What's the highest price we could get for that asset? And it is from that -- It is that number that we will transfer to the condo group if they are willing to take it at that number and if we deem the potential upside from that number makes sense. And if it doesn't, we'll go ahead and sell the property to a third party and if the condo guys want to run it at that level and it makes sense, we'll go ahead and let them do it. But I'll tell you, they complain quite a bit that the pricing at which we're transferring our properties to them.

Good enough, thank you.

In your next question comes from the line of Robert Stephenson with Morgan Stanley.

Hey, guys. Donna, did you, and I might have missed it. Did you say what the litigation charge in the GNA was?

Excuse me, approximately $3 million to the penny.

Okay. And is there any litigation charges in the '06 guidance?

Nothing of substance.

Okay. And then, what are the expectations with the preferred Series C and G Preference interest this year? Are those likely to be redeemed? And if so, is the impact of that in the guidance?

It is in the guidance. We do plan to take the preferreds out at a matter of policy, both now and on a continuing basis. We recognize the $4 million unamortized charge that we'll take, which is going to predominately effect the third quarter which is the biggest chunk of the redemption. So yes, that is in the guidance.

Okay. And then, last question, maybe for Gerry, what was the average of rent in the portfolio, both on a same-store basis and then also once you include the 8,000 units on the total portfolio that David was talking about before?

Okay, well, the same-store average for -- and you got to remember that it includes our Lexford properties which are at a very low -- fairly low average rate -- was $882 was our -- of our same-store. And then the adding in of all the new acquisitions including Lexford brings that total up to $954. Without Lexford, the average monthly rent would be, including all the new transactions we're talking about, over $1,000, $1,027.

Okay. Thanks, guys.

Thanks, Rob.

In your next question comes from Jamie Feldman with Prudential.

Thank you. I was hoping you could give some more detail on where condo sales are slowing or where you project them to slow over the course of the year most, by market.

I think Phoenix and Florida. The investors have generally left those markets, and again, our guys are telling the sales people there that it's time to get back and get back into the sales business, because the buyers aren't waiting in line overnight and selling these things out in a weekend. I'll tell you, what we do in Chicago has typically been sort of an owner-user, and we're not expecting there to be a great deal of change there. And I also believe in Seattle, which is primarily an owner-user, we continue to expect similar levels of sales. But Florida and Phoenix, the investor is gone. The mania has sort of left the market. But the business is not collapsed. It's just now going to revert to what we think is a more normal condominium market. We continue to be very pleased with the price point at which we offer our product. That the very attractive first home price point, the units that we sell in our markets are, half if not less of single-family homes in those markets. So we think there will continue to be a very strong market, but just won't see the mania we've experienced the last couple of years.

And then if were you to list the next group of markets in terms of risk in the condo market, what would those be?

Well, I guess we continue to look at other markets as I mentioned. We're going into Virginia. But again, I think that the real soft, real volatility has been in those markets that have had big investor buy, that's Florida, that's Phoenix, and Las Vegas, which we're not in. But other than that, we've seen just normal sales. I will tell you we did extraordinarily well in southern California. My guess is if we were to do one there, we don't have one, we'd see the investor leaving that market, as well. But the other markets, we think will just be slow and steady.

And then in terms of your comment on rising construction cost, is that a regional phenomenon, or would you say it's a national issue?

You're going to have some variance -- some variability market by market. But generally, that's across the country.

If you were to give percent growth rate by region?

I can't give it to you by region. I can just tell you that the properties that we bid, or the deals we bid early in '05 compared to how we bid them at the end of '05, - we were up high teens, mid-20s, depending on the market. I can't tell you off the top of my head which market is which. We're experiencing, in general, plus 20% growth. We are expecting them, those costs, to continue to escalate about the certainly not at the rate that they did in 2005.

And finally, I think I may have missed it -- did you give an average yield for the development pipeline, the projects under development?

I gave yields by devel -- by individual transaction. I won't go back and repeat those, but I will tell you that we have typically been -- the deals we're looking at have been in the sixes to low seven range. Some of the deals that have recently been completed will be higher than that. But the deals that have recently been started will be in the 6% to 7% range.

Okay. Could you see yourself going any lower? Or is this the bottom of where you're willing to do it in terms of rate --

Only time will tell. It's a function of what properties are trading at, what cap rates are and IRR expectations and where interest rates and yield expectations are, so I mean, who the heck knows?

All right, thank you.

Your next question comes from the line of Ross Nussbaum with Banc of America securities.

Hi, good morning. A couple of questions. First, I was hoping you could give some color on the 5.9% same-store revenue growth during the quarter. Obviously, some of it was attributable to the occupancy gain. But what was the same-store increase in rental rates?

Hard to say. We don't really -- we have net effect rents in most parts of the country. And the biggest gain is the increase in concessions still. There's a slight pickup in occupancy, but it's still being primarily driven by a reduction in concessions. Rate is going up. Okay? Rate's going up about 3%. But your gains are primarily decrease in concessions still rolling through, some occupancy gains and rate is picking up. We're switching to more and more net effective rents and markets, which is wiping out the concession concept.

Okay. And I guess a follow-up to that when I look at your same-store NOI guidance for 2006, even I guess the low end of your same-store NOI guidance is 4.5%, which is a good 200 bips off of what you did in the fourth quarter. Is it just that you're expecting the occupancy gains to go away? Is that why you've got the lower end 200 bips lower?

I think to a certain degree, it's a fourth quarter phenomenon that affects NOI. But what we expect is continuing strength in all the markets and actually the midwest markets are going to continue to moderate, not really move as much. But when you just do the math, the last part of the year really picks up the big rollup of fall increases, et cetera. And then it starts to moderate in the first part of the year.

Yep, okay.

Except over the summer. So your rent increases are in full force in the last quarter.

Sure. Just switching gears to the condo side. You contributed six projects in the fourth quarter of '05. What have you budgeted for contributions into the condo pool for 2006 in terms of the number of projects?

We got several more projects that we -- unidentified assets that we could, we hope to add through the -- during the year. But most of what we're currently budgeting will be delivered by those currently identified.

Okay. The last question is just a market-specific one. Just some color on the difference you're seeing right now between suburban D.C. on the Virginia side versus the Maryland side. It's clearly a big difference in terms of the numbers you're reporting there. Why such a stark difference?

The thing that's really affecting us in the Maryland market is, we have in our same-store numbers, two renovations that are reflected in there, where the occupancies have dropped as a result of inventory being taken offline. So there really hasn't been any significant change in either of those markets in terms of where they've been and where they're going, in my opinion. Our numbers are reflecting a little bit of softness in Maryland because we started a couple of rehabs, renovations in the last part of this year and have taken units offline, which is dragging down our occupancy and certainly to a certain degree, our revenue growth there. That's what I consider to be a short-term phenomenon. We do not pull, at this stage in the game, renovations out of the same-store numbers. They're in there.

Thank you.

The next question comes from the line of David Harris with Lehman Brothers.

Good morning. Gerry, while you're on stage and maybe I missed this, I apologize if I did. Could you just explain why there was a 4% decline in same-store expense growth and in the fourth quarter?

Sequentially?

Yeah.

I mean, again I think it's, okay, it's a seasonality issue in the last quarter, where you have a lot of your turn costs into the second and third quarter of that starts to moderate. Your utility costs actually drops a little bit in the fourth quarter, building costs. So it's primarily seasonal. We had some insurance, hurricane costs that got reflected in the last quarter from hurricane activity. The third quarter.

That goes back to in the third quarter, when I talked about catastrophic hurricane expenses through, we don't put them through non-same-store sales. For smaller ones, we do run those through same-store sales and in the fourth quarter, it was $1.8 million of costs associated with Katrina and Dennis, which were recorded in the cost numbers, which are driving those sequential numbers down a little bit artificially.

Okay. When we're looking out to your budget for expenses into '06, Donna, are you assuming that the level of hurricane damage that we saw in '05 is a one-off?

We are not forecasting any kind of hurricane expenses in 2006.

Do you think that's prudent?

Your guess is as good as mine. I don't think it's prudent to put it in there and then have to pull it out if there's not a hurricane. I think we'll realize it when it is incurred.

Okay. One final question. Is a CapEx of 1,000 bucks a unit in terms of maintenance on annual maintenance charge, is that a fair number?

That includes real, what we define as CapEx in our policies, as well as replacements. Okay? It doesn't include just operating maintenance categories.

Okay. I mean, if we think of, in the number that many other companies would use, $500 or $600, is your $1,000 comparable to that $500 or $600 or do you think that --

I can't tell you how they report. Exactly. But I can't believe there's anybody out there that's doing $500 for capital replacements on a combined basis.

Well, not on a portfolio like yours, I don't think.

Right. A lot of it has to does with the age -- average age of the portfolio too. The older portfolio is going to have just overall higher run rate in both replacements and CapEx. But even a brand-new portfolio, if everything was within five years of age, that would be a pretty tight number.

If you were at $1,000 last year, what sort of rate of increase do you think we might see on that number this year?

I don't think we'll see much of an increase at all, actually. I think you'll see flat maybe down a bit because of selling off of older assets and buying of new. So I think that will continue to moderate the CapEx replacement.

Because you got material costs are obviously kept pulling the other way from the sales of the other assets.

That is correct, you're right. But I think that what we're seeing is we're managing that --, half of our procurement savings that we're realizing from our initiative is helping us to manage down some of these replacement costs as well as some of their capital costs.

Okay. Thanks so much.

Let me just add to your comment about the budgeting for the hurricane. Our -- Gerry's 30-some-odd years of experience in this business and EQR's experience as a public company, we always have fires every year. We always have hail storms; we always have some sort of damage. And we do budget and accrue for that certain level of normal recurring kind of events that happen each and every year. What we don't think is appropriate is to just assume that we're going to have another $15 million of catastrophic hurricane damage. And then if that doesn't happen, then sort of outperform some sort of expectation. If that happens we'll let you know what the impact is, but what's imbedded in our numbers today is that normal level of recurring casualty that occurs that we've experienced over many, many years of operations.

Well, I hope your optimism on meteorology is better than my forecast, David.

Well, look. I'm just telling you. The fact that we're fully disclosed what's in there and what's not is sufficient. Certainly there are people who have sort of said that maybe we're in some kind of time period in which it could be more recurring down there. If in fact that starts to happen, we'll have to approach it differently.

Okay. Thank you very much.

Your next question comes from Craig Leupold from Green Street Advisors.

Good morning. Gerry, maybe you can probably be the first -- best one to answer this question. I'm trying to understand for your revenue growth forecast for '06, how much of that would you say is just kind of a collection of loss to lease, versus further rent gains?

Loss to lease, That's a -- I haven't--

It's an old concept from several years ago.

Again, because in many markets, especially as we move to our yield management model, we're talking about net effective rents and it's really hard to look at loss to lease, to be honest with you. I don't even think I could comment on that piece of the puzzle anymore.

Maybe if I ask it this way then, as you're signing new leases now on either renewals or turnover, what's the difference between the old rate and the new rate on an effective basis?

Gosh, it's -- three -- I would say the rate looks like it's going to be close to 4% on average, 3.8%.

Okay.

Kind of what we have embedded there. Markets obviously all across the board. We've got markets we think we're getting 6% and 7%. We for sure are. And there's some that are relatively flat still and some of the rust belt areas.

I'm trying to kind of assess sort of how much of it is already kind of in the bag versus how much requires further improvement.

Right. And look, we're looking about half a point to pick up in occupancy. So that's a wild card. Could be up to a point, who knows? We have upside opportunity there. Concessions are again getting those up against it. So, it's hard -- I don't want to give you a number specific, you'll have to figure that out. But I think you got half a point to 1% really of occupancy that I think is your biggest -- again, we're running in our portfolio, a little over 94% occupancy. That portfolio ultimately could get to 96%, I think.

Okay.

An ideal situation.

All right. And as I look at pages 10 and 11 of your supplement and look at the results for your top 20 markets versus all other markets, on the -- for the full-year basis, there was certainly differentiations but it wasn't nearly as significant as we're seeing in the fourth quarter in terms of either revenue growth or NOI growth. And I'm curious as you look in '6, do you see a divergence in market performance, a greater divergence?

You know what, to a certain degree, there's some changes that are occurring within the markets. They're not all moving at the same pace. But the primary, in the top 20, I would say they're pretty much rolling on the same momentum as before. There's a pickup, for example, in Minneapolis that is just been realized in the last quarter. And we're going to see some stronger movement there. We're not really seeing any real falloff in any of the other markets in the top 20. They're all kind of performing in the same sequence as you'll see in the fourth quarter. I'm looking here to try and see if I can see any difference.

Okay, I'm just trying to get a sense how broad-based the recovery is. Certainly all the markets are getting better, but it seems like we're moving to a period where maybe there is divergence between the best markets and the lowest markets, greater than there has been throughout most of '05.

I would say again, there's very -- again, as the recovery is gone through this process, there's almost - there's only really one market that we play in here of any significance that's down for next year and that's Detroit. We all know that story. But everything else, we're seeing some pretty decent pickup relative to what we saw last year and even in this year. Everything is moving a little bit more positive. But I think that the deals that are generating real high rent growths are going to have month moderate, because there's just an absolute rent value that you're going to be able to extract from people. So I think you have a -- what you'll end up having is your Florida markets and maybe even Phoenix and they'll start to move down a little bit, but be higher certainly than the rate of inflation. And you have got some ability to catch up a little bit in the Dallas and Atlanta markets. That's what you see actually existing in California. California's never, in my opinion, other than San Francisco for a period of time, never been a runway market. It's always performed well, above inflation. I think that Florida and Phoenix will move more into that space as the year goes along. And that you'll see because of the value that you have in the Midwest markets, you'll see prices there actually probably having a little more positive move. But not necessarily enough to take our average and bring it up, because if we're going to average 5.2% revenue growth -- the markets, even if they do 4%, it's a drag on that average.

Okay. And then one last question from an accounting standpoint, how do you treat utility reimbursements? Are they shown grossed up in revenues and expenses or are they shown as an contrary expense?

No they are grossed up into revenue. Our recovery of our roughs, our utilities, that's shown as a revenue item.

Okay, great. Thank you.

Your next question comes from the line of Rich Anderson from Harris Nesbitt.

Hi, thanks. How difficult was it -- or has it been selling out of Detroit? 6.4 cap rate looks pretty good for that market.

Well you compare that to some of the other cap rates and it will look awful high. Look. We're still in the process of selling assets there, Rich. And my guess is that pricing there will be not as strong as what we've seen in other markets. But there's such a strong bid for income-producing property nearly everywhere, we believe we'll be able to sell those at reasonable prices.

Have you thought of and are you combining your exit market strategy with condo conversions? In other words, not disposing of assets but converting them and thereby exiting markets in sort of a win-win-type situation?

Well, we're not exiting Phoenix or Seattle or Florida or Virginia. We're adding product in many of those markets. But what we have done is used it as a way to help recycle capital from older assets into newer assets. Again, the average age of much of the product that we're converting is close, pushing 20 years. And so the $30,000 or so dollar per unit renovation really fixes those properties up nicely. They're nice infield locations and we're able to sell those and reinvest those capital in other properties in the same markets.

Okay. And last question is, for the two-thirds of the development pipeline that you have JV partners, how are those partnerships or joint ventures unwound at the end of the day after stabilization? Is it the same way as prior JVs where you had to pony up the money to buy the JV's interest? Or how does -- how does it work?

Well, there's -- again, they differ from partnership to partnership. But in general, some period of time following stabilization, there's kind of a -- a -- an ability we have to start a process or ability the partner has to start a process. So we don't -- we have to be in these -- most of these partnerships for really no more than about a year following stabilization. When one party or the other has the ability to unwind.

Okay. So like if you were to look at this on an NAV basis, when we do our NAV models, we sort of develop to, say, a 7 and a half and then you can place a value on that NOI stream at a 5 and a half with the market -- prevailing market. It just sort of muddies that analysis a little bit since EQR would be the one would have to be buyer Is that a fair way to look at it?

I guess I'm not sure. Certainly it muddies the water the fact that the -- there's a certain amount of equity capital we get back first and then a preferred return on that and there's different levels of splits based at different levels of returns. But in general, on these assets, if you were to value them and look at Equity Residential as maybe owning 60% or so percent of the up-- of the deal that might be a good rule of thumb.

Do you have a preference to go more on your own account in the future? Do you like the 60 -- the two-thirds, one-third split?

We continue to build at our own capability. We've got senior vice presidents on both coasts and teams being built on both coasts. But in addition to trying to build product for our own account, we've got some just terrific joint venture relationships with terrific builders, and we look to continue to do business with them. As I said in 2006, we'll do about a third our own and two-thirds with partners. And I'd like to see that go to 50/50, and we'll sort of see where it goes from there. But we've got incredible relationship 's with good partners with whom we've made a lot of money together and see no reason to turn our backs on those relationships. We want to enhance what we're doing on the development side by making sure that we have that capability on our own balance sheet.

Okay. Thanks.

Your next question comes from the line of Chris Pike with UBS. Chris, your line is open. Please check to see if your phone is on mute.

I'm sorry, can you hear me? Sorry about that.

We can hear you now.

David, I just wanted to circle back to your comments about the condos being almost twice as much as originally forecasted. I thought I remember in my notes you indicated that the Q3 number was a little higher than expected because you borrowed forward. And then today, you indicated that your expectations were tempered because of some hurricane damage. So could you just reconcile --

Hold on, hold on. Hold on. I'm not so sure I said that we doubled our expectations. What has essentially happened, as generally in condos, is that the condo mania in many of our markets have enabled us to sort of sell some of our product out faster than what we had expected. Every single project that we underwrite, we expect and we underwrite at a -- about a 10 to 12-unit per month sellout. And what has happened in Florida and in Phoenix is we've had weekend sellouts. And so that what we might have thought when we started a project might have been sold out in '05 and '06, ended up being totally '05. In addition, the Watermarke property was never expected to close out totally in 2005. We would have expected it to go into 2006 as well. So there were sales done in '05 that we would have originally projected earlier in '05 to occur -- some of which to occur in '06 which did occur in 2005. Let me address the four quarter specifically. There were projects that we thought we were going to -- units that we had expected to close in the fourth quarter that, following hurricane Wilma, we thought that we might not be able to because we had no power on our property and no ability to find the buyers and get them to the closing table. So we had to reduce our expectations by $0.03 or so cents in the fourth quarter when we gave guidance on November the 1st. And as I mentioned though, power was restored earlier than expected, and our team was able to get everybody to the closing table, and we were able to do most of what we had projected at one time of the year, but then had to kind of cross off the list. So, again, we did in '05 have sales -- closings occur we might have thought were going to occur in '06 and certainly in the fourth quarter we did, when we thought we were going to push closings into '06 because of the hurricanes.

I just want to get this straight, so On your third quarter call, when you said that third quarter condo sales were greater than expected, because the sales that were expected to happen in Q4, not '06, but Q4, happened earlier than expected, at that point in time, you were still concerned or you couldn't find closers associated with the Wilma properties.

Correct. So we did. Every quarter in '05, we closed units earlier than what we had expected. So that occurred throughout the entire year. So certainly in the third quarter we exceeded our expectations. In the fourth quarter we exceeded our expectations because, as I said, in '05, we closed a lot more units than we had thought we had closed when we were budgeting in January of '05.

Right. And then in terms of buying into the taxable REIT subsidiary to flip, your total contribution in '06 to condo -- condo FFO, directionally is there any percentage of that total contribution that's going to be attributable to assets that you're actually going to go out and buy? And then flip?

I don't know what the breakdown of that will be.

Directionally, I mean, is it half, is it 20%?

No. It's not half. It might be maybe a third. But we continue to have established really terrific teams in Seattle and Phoenix and south Florida. And we believe there continues to be opportunities to create this value, and we look at assets on our own balance sheet, and we also do look at asset that is come across the threshold from third --

And they're going to be in the same type of first homeowner-type range?

Absolutely. In Virginia, you'll see on the condominium conversion page, two new deals in Virginia. One of those was a third-party buy; another was a transfer from our own balance sheet. And the model there is exactly as it is in Chicago, Phoenix, south Florida, and Seattle. This is low price point. These are in neighborhoods surrounded by single-family homes that are 2x or 3x our sales price. And what we believe will be very attractive first-time starter home buyers.

Now, with the condo bid waning in some of these hotter markets, what does that say regarding cap rates? What kind upward pressure in overall caps?

I'm going to answer the question a little differently because it's not just cap rate. We talk a lot about way we expect to be very strong '06 increase in revenue performance. So let's just talk about value. We're not expecting to see values deteriorate in many of these markets. But nor are we expecting to continue to see them escalate at the rate that they have. There may be some markets where you're going to continue to see increases in value. But because of sort of this waning condo bid, you may start to see some valuations start to kind of flatten out.

And are those comments consistent across both A type -- A property types and B property types, or could you actually see a little more upward pressure on the Bs?

Again, I'm -- we're seeing in some markets, continuing to see a strong bid for good quality A product, maybe the condo guys aren't there, but there's so much demand for the income investor as evidenced by what we're seeing in Town & Country Trust right now, for instance. There continues to be strong demand, condo buyer or no condo buyer. In other markets, with the condo, sort of buyer out, the condo converter route. What may be out in many of those markets is the less well-capitalized, less experienced condo converter that some of the more experienced guys still may be able to play. So you may see some moderation in prices in many of these markets, but we're not expecting there to be a deterioration in pricing. You looks at land values; you look at replacement costs, we think these valuations are pretty solid. And again, I can't think of a better example of that than what's going on at Town & Country Trust.

And I guess, Gerry, you've seen effective rental growth of a larger crescendo on the B property types in your portfolio, versus the As or the other way around? Or is it all pretty much equal across both types?

I think it's fairly equal. I'm not seeing a significant difference in the movement. I think a little bit slower on the, say B-, C+ properties. I don't think that those have come up to where they can eventually. But I've seen pretty close to the same pricing on As and Bs right now.

And David, just one big picture question here. When we start at the apartment recovery, 12, 18 months ago, folks kind of argued that it's going to take six to nine months for any kind of visible job growth to transform into apartment demand. And then we've also had the help of condo conversions taking supply off, you know, on the way back down, what kind of lag do you think there is, if we're, let's say for argument's sake in the next 12 months we see a leveling off in employment trends. How -- how long do you think that takes to manifest -- manifest itself and to perhaps weaker apartment demand?

Again, I'm not sure that we're going to -- weaker just being a relative term. I think that we're going to continue to see very strong apartment demand for some time. Given the dynamics at least in our core markets. Single-family home prices are very strong. Job growth has been pretty good and there's been no new supply. So we think that maybe -- perhaps things could moderate somewhat. Certainly we're not going to expect to see high single-digit growth in some of these markets for -- for year after year. Things may moderate to a more normal level. But there's no reason why on average, we shouldn't -- we couldn't go back to a 4% or so rental growth level on a regular run rate basis.

Great. Thanks a lot.

Portfolio wide.

Thanks a lot.

In your next question will come from the line of Jay Habermann, Goldman Sachs.

Hi. Thank you. Just a quick question on the guidance in the $0.20 range. Is that more to do with the variance in NOI growth or more to do with timing of acquisitions and dispositions next year as well as the condo sales?

It's probably, it's a combination of same-store as well as condominium contributions. We're going to have a little bit more volatility in our sort of earnings guidance and sort of our view, because of the not only same-store performance but because of the contributions FFO from the condominium conversion business.

Okay. So you don't anticipate significant dilution from the timing of sales as well as acquisitions?

Well, what we've budgeted is sort of midyear average of that acquisition disposition business and 100 basis point spread. To the extent that that's more front-end loaded or back-end loaded, it will have some impact on that but I don't think it'll be demonstrable.

Okay.And just a quick question on the condo business. As you look out for the next two to three years, do you suspect that will be a continuing part of your overall business?

Absolutely.

Great. Thank you.

Your next question comes from the line of William Ashen from Merrill lynch.

Thank you. Not to beat a dead horse or at least one that's running a little bit more slowly, the condo math goes from $90 million contributions this year minus $40 million in third party deals gets you to $50 million. You're saying the contribution goes from $50 down to $37 million?

Yeah, there's also about a $10 million swing of being in a full tax-paying mode.

Okay. The $37 million was after tax, though, right?

Correct.

Okay. And then you got most of my questions. With the ramp-up in the development pipeline, capitalized interest, do you have any guidance for that?

Basically, we're relatively comparable, on a year over year basis, but about $7 -- $7.5 million.

That sounds good. And then just in terms of the sequential occupancy dip of about 80 basis points, I'm assuming that's more of a seasonal occurrence rather than a response to the higher rent rates?

It may have a little bit to do with both, but it's primarily seasonal.

Okay. Thank you very much, guys.

You bet, Bill.

There are no further questions, sir.

Great. Thanks, everybody, for participating on the call today. Again, fundamentals look really good in 2006. But as I mentioned earlier, we've got an awful lot of work to do. And I want you to know that the equity nation, we've got our sleeves rolled up and we're going to work very hard to have a successful year to continue to position us for success in the future and reward your trust in us. So thanks very much for your time and have a great day.

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