Essex Property Trust Inc (ESS) 2003 Q3 法說會逐字稿

Good day and welcome to the Essex Property Trust, Inc. third quarter earnings results conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Keith Guericke, please go ahead, sir.

Thank you. Welcome to our third quarter earnings call. This morning in the call we'll be making some comments, which are not historical facts such as our current expectations regarding markets, financial results and real estate projects. These statements are forward-looking statements, which involve risks and uncertainties, which could cause actual results to differ materially. Many of these risks are detailed in the company's filings with the SEC and we encourage you to review them.

FFO for the quarter was $1.07, up one penny often consensus. I have reviewed our history and since going public I believe this is the first time we've missed consensus. We would pride ourselves in knowing our business in delivering. This event has not gone without a lot of personal displeasure on my part. But the pig picture, Southern California performed well with 97% occupancy and 3.8% revenue growth for the quarter. However, the combination of Northern California being significantly worse than we expected coupled with concessions that were greater than our previous run-rate caused us to miss.

Mike Schall will address this issue further in his comments as well as Bob Talbott then reviews operations. For the remainder of my comments I wanted to discuss three things, our markets with expected job growth and supply, new supply, acquisition and development pipeline and what -- how much of the turnover was attributable to home purchases by market within our portfolio. The performance as we measure it by job growth and rental growth across our metro's remains mixed. Some areas continue to decline while others showed signs of stabilization or improvement.

We did see an increase in both market and portfolio occupancy across all of our markets which we believe in most cases was more than a seasonal effect. We will update you on changes in our outlook for each market; in addition, we are providing you with our outlook for 2004 for each market. We have added economic data to the supplement on our web site so that you can easily -- more easily follow the discussion of each market's economic condition.

To find it this information go to our web site, go to Investor Relations, click on analyst resources, click on earnings release, and then there is a tab called job supply, so you get there that will follow the jobs in the new supply data. In addition we continue to post residential permit data in our estimates of single-family of affordable for our markets and in the larger U.S. metros.

As always, we believe that low, single-family home affordability is a fundamental strength for an apartment market and that will lead to stronger apartment absorption. As job growth returns to our markets, especially given the anticipated increase in mortgage rates.

Now, let me address each of our three major markets starting with the Northwest, which represents 22% of our portfolio. In Seattle we expect a new supply to remain at low levels. However, we have lowered our expectation of job growth for 2003 from 6000 jobs to flat. Despite this revision, we feel confident that our significant positive job growth will soon return to the metro.

The largest drain in the market in the job market has been transportation manufacturing due primarily to Boeing and construction due to severe cutback in commercial building from the boom years of 2001 and '02. The service-producing sector of the Seattle metro, which is almost 70% of total jobs has grown by 8000 jobs in this year-over-year period ending September.

Based on the strength we expect to see 17,000 jobs produced in 2004. In recent months, the construction market has stabilized and we don't expect continued losses in this sector. Job losses at Boeing have been in line with our expectation. Recent news for the company has been the announced elimination of the 757 line of production

And should not have any significant impact on our expectations as the line has been replaced by the newer 737's. We have factored into our estimates small job losses at Boeing to continue given their level of new orders. We expect the construction and transportation-manufacturing sector to be relatively flat for the foreseeable future.

The unemployment rate is up slightly from last year to 7.1% versus 6.7% and the labor force has declined by 6-tenths of a percent. So offsetting this initial unemployment claims in the state were down sharply in the third quarter. Initial claims were 2% lower than the same time last year compared to 1.8% for the U.S. The office market experienced a decrease in vacancy for the first time since the second quarter of 2002. By far the strongest areas were downtown Seattle and Bellevue the industrial sector vacancy increased slightly due to being putting 1.2 million square feet of space for lease in Neosho County.

However, half of the space was absorbed during the quarter. The apartment market occupancy rate for the MSA increased from 93% to 93 and three quarters for the third quarter; however, in King County where the majority of our assets are, the rate increased from 93 in a quarter to 94 in a quarter. Market rents were flat during this period. Economic conditions in Portland continue to deteriorate, the labor market continued to shrink and unemployment rate is 8%.

An increase of eight tenths of a percent from last year. Initial unemployment claims in the state of Oregon during the third quarter were flat compared to the same period last year. And the apartment market occupancy remained flat at about 92% with market rents declining slightly. Office and industrial market conditions continue to remain weak in the third quarter.

Going to the Bay Area where we have 17% of our portfolio, our forecasted new supply is very manageable levels and virtually unchanged from last quarter. We're maintaining our job core forecast for San Francisco and Oakland and San Francisco the unemployment rate was down in September to 5.1% from 6.1% a year ago. The labor force has declined by half a percent for the trailing three months over that same period indicating small job gains during this period.

The unemployment rate in Oakland is down from 6.4% a year ago to 5.8% today and the labor force has grown by 1.3% for the trailing three months indicating increased employment. The apartment market occupancy rate in San Francisco increased from just over 94% to 95% in the third quarter during this time occupancy rate remained flat at 95% for the Oakland MSA in both markets rents were down slightly.

San Francisco office market continues to improve as the vacancy rate declined due to positive absorption for the first time in four quarters n Oakland, the office vacancy rates also declined again for the first time in about a year. The industrial market remains stable.

As market occupancy held steady. Now then to San Jose, the economic conditions continue to deteriorate causing us to revise our expectations down for job to actually lose jobs will be negative by 28,000 for the year. The unemployment rate in September was 7.5%, a decrease from 8% 8.8% a year ago; however, the labor force has declined by 4% over that trailing three months from last year indicating a sharp drop in employment. Office absorption was positive by almost 360,000 sq. feet, about the same as last quarter and the vacancy rate was down slightly.

However, industrial market continues to weaken with negative absorption of about 2.8 million square feet for the quarter and vacancy increasing. The apartment market occupancy increased slightly from 93.5% to 94%; however, market rents were down two to 3% during this period. Southern California, which has 59% of our portfolio, is expected to produce the best results for us in 2003 and 2004.

New supply is at low levels, new multi-family deliveries at 1% or less for all the markets except Ventura which is delivering about 1.4% or 700 units which is fairly nominal. The employment picture in Southern California is much more positive than our other markets. We've lowered our expectations for Ventura slightly, however, maintain the overall expectation for Southern California at 58,000 jobs.

Looking at our industry job growth data, unemployment data and the residential supply data, we remain very confident that the Southern California apartment market will meet our year-end expectations for occupancy and rental growth. As mentioned last quarter with respect to Orange County, there was a discrepancy between the unemployment figures and the industry job data.

This discrepancy has spread to LA. and San Diego. Overall unemployment rate for Southern California was 4.7% for the trailing three months ending in September. During the same period, the labor force grew by 1.1% indicating increase in employment at approximately the same magnitude which would indicate our 58,000 job forecast that I mentioned would be conservative.

Another positive indicator is initial unemployment claims fell by 3% compared to last year. In Ventura County the apartment market outperformed expectations in the first nine months of the year given the jobs and unemployment statistics. We attribute this result to the opening of the new Cal state campus in Camilo and the strong performance of the San Fernando valley which is in LA. County.

In addition, there has been virtually no new apartment supply this year in Ventura County. During the third quarter, the office market in Ventura experienced 70,000 excuse me yes 70,000 square feet of an absorption or 1% of the stock.

The industrial market suffered a decline in absorption primarily due to 600,000 square feet of new stock being delivered. The apartment market in LA. increased from 95% to 96% occupancy during the quarter and at the same time rents increased slightly and concessions declined. In LA., the office market vacancies were flat. The stronger areas were in San Fernando Valley and downtown. The industrial market vacancy fell from 2.9% to 2.5% due to the net absorption of 3.7 million square feet.

And construction for industrial has picked up to over 8 million square feet during the quarter. In Orange County, lower leasing rates in the office market spurred absorption in 750,000 square feet were leased driving vacancy rates down. Actually for the second consecutive quarter and this is the first time since 2000 so that is hopeful. The industrial market was relatively flat. The apartment market occupancy in our Orange County area increased 95 to 95.5% during the quarter and rents were flat to up slightly and concessions declined.

In the San Diego market the impact of the military deployment is behind us. The estimated market occupancy for multi-family at the end of the third quarter was just above 97%, up from 95% at the end of the second quarter and rents are up slightly.

And concessions are virtually disappeared down in that market. Office markets experience positive absorption of 310,000 square feet, vacancy declining, industrial market experienced net absorption of 410,000 square feet. Vacancy rent increased slightly, construction for that sector is up sharply during the quarter. As we've always said, we believe that the single-family homes have a significant impact on the operations of a multi-family market.

We've chosen to operate in markets with relative lip real relatively single-family homes. The following data represents a relationship between the family affordable and Residents buying a home across our portfolio. The data is nine months year-to-date. Starting with Seattle, 20% of the turnover was a result of home purchase, Portland it was 24.9%, the Bay Area 14.8%, Los Angeles, 11.2%, Ventura, 15.7%, Orange County, 14.9, and San Diego, 15.7. These results track affordability very closely with Seattle and Portland being the most affordable single-family markets we operate in. Now we go to the pipeline a little bit and talk about acquisitions and development.

We've had a very active acquisition program this year. During the year we acquired $234 million of assets in our targeted markets. The key to these acquisitions has been the ability to match financing ranges from 4 and 3.25 and 5.25% with acquisitions having cap rates in the six and a quarter to 6.5% range. At the time of our common stock offering we discussed $94 million of potential acquisitions. We've closed $68 million so far, which is included in the $234 million above.

One transaction for about $30 million was willed in the due diligence process. Currently we have $78 million in various staging negotiation primarily in Southern California. We expect to close approximately 50 to $60 million in additional acquisitions on the balance sheet at which time we'll evaluate our capital alternatives and there will be a significant evaluation of a potential fund to.

If I could review GAAP-rates quickly by market. In Seattle, we're seeing GAAP rates in the six and a quarter to 6.5% range. In the Bay Area, there is very little sales activity; however, the transactions that are taking place are in the 5.5 to six GAAP range. In Southern California, despite being a very large market, GAAP rates seem to be very consistent in the six and a quarter to 6.5% range.

Going to develop, we've not approved a new development in approximately two years. The four projects currently under construction, San Marcos Phase II, Hidden Valley, river terrace and Chesapeake will be delivered primarily in 2004. Unfortunately, there is not a pipeline behind those projects. The basic problem is two-fold, number one, we haven't seen any deals with GAAP rates better than seven in the last two years in our underwriting, and at a seven cap rate, we're only a half to three quarters of the cap better than acquisitions.

Given the risk associated with development, ranging from time delays to cost overages, that is not a large enough risk premium for us. Honestly I think our development group is as good as any out there, but we're going to exercise judgment and discipline and we're going to avoid building for the sake of a good story.

As a result, you should expect to see approximately $172 million in development deliveries in 2004 and probably zero in 2005. Let me -- one last thing under the heading of debt dispositions. In the SAT merger we acquired several RV and mobile home parks.

We're in the process of leasing these parks to operators with options to purchase starting in the fourth year. By mid-November, we expect all the parts will be under lease and the economics of the transactions are as follows, they're going to be 5-year triple net leases with an option to buy starting in year '04 going through year '05.

The annual lease payment will be approximately 90% of the current NOI and there is a prepaid lease payment that was paid up -- that is being paid up-front that will be amortized over the five-year lease period, which is approximately $750,000 annually. We expect the FFO impact of these transactions to be moderately positive and that the lease structure will reduce the earnings volatility associated with these properties.

Now I'd like to turn the call over to Michael Schall -- excuse me, to Bob Talbott.

Hello Good morning. As I have done on previous calls, I'm going to update you this morning on major markets try and give you a little flavor what we're experiencing out there on the frontline, so to speak. Before I do that let me comment on our turnover in lease exposure. On our last call I discussed our exposure to higher turnover during the third quarter. During the quarter approximately 20% of our leases expired. Additionally our month-to-month exposure was nearly 18%.

As you may recall, we target a majority of our leases to expire in the second and third quarters when demand is typically the strongest. In the first month of the quarter we also saw our net availability beginning to trend upward and for everyone we define net availability as the sum of any unrented vacant apartments and any apartments on notice that we have not yet pre-leased.

After considering this and that we are in a period of economic uncertainty, we put aggressive programs in place to minimize turnover and more importantly to reduce our exposure to turn turnovers in the fourth quarter. In Seattle, Portland, and the Bay Area where the economy is particularly uncertain and we're already in a concessionary market we used concessions to encourage lease renewals.

This accounts to the increase you are seeing in our concession activity during the quarter. When you consider the cost of a turnover we feel that our average concession per turn, which that number includes the renewal concession activity of $660 in Seattle and $786 in the Bay Area, that that was a good trade off.

As a result of this effort, our turnover in the third quarter was slightly lower. Our lease exposure in the fourth quarter is 20% and our month-to-month exposure is down to 14%. Our occupancy is also higher than the market in Seattle and in the Bay Area.

As a result we've essentially eliminated concessions on lease renewals and for new leases we have continued to meet the market to remain competitive. Now let me turn to some of our market specifics. Let me also just remind you that the occupancy numbers I'm providing are for a point in time as opposed to the financial occupancy numbers noted in the earnings release. Those figures reflect the average financial occupancy for the quarter. Looking first at our portfolio as of October 26, we were 96.5% occupied.

In Seattle, that market continues to show some signs of improvement with occupancy this week at 97% comparing favorably to 95% one year ago. We also see some slight tightening in concessions as concessions in our portfolio our new leases in October were down 20% from the August and September levels. We can just hope that that trend continues.

Let me also mention the status of our two recent additions to the portfolio. Our transition has gone well with the rent in property forest view is currently 95% occupied and the via property in canyon view is 94% occupied. Our net availability is presently 5%. Traffic was up 22% from the second quarter. Let me caution every one that traffic can be volatile. While it is consistent with our improved occupancy and turnover it doesn't necessarily indicate a trend on its own.

Now let's turn to Portland. Weak deployment continues to make Portland a challenging market. Surprisingly we're still competing in a concessionary market about a month free. As of this week our occupancy is the same as last quarter at 93% with net availability of 10%. Traffic is up about 9% from the second quarter. This is likely attributable to seasonal strength rather than any kind of a market indication.

In the Bay Area, occupancies continue to be stable. San Jose continues to be our highest occupied Bay Area sub-market at 96%. One might find this surprising given want current employment data; however, we believe this occurs because San Jose is a core job market and single-family homes are still expensive. Most likely are higher occupancy is coming at the expense of the outlining markets. As of this week occupancy in the San Francisco and Oakland MSA's is 95%.

Given these high occupancies, we do continue to look for opportunities to increase market rent but as we stated before, job growth is the market force required, for rental growth and we have yet to see that materialize. We continue to operate with a strategy to maximize cash flow.

Concessions do continue to be common in the market, however, because of our higher occupancy we have been able to reduce concession activity in October by approximately 30% from our August and September levels, again that is on our new leases. Net availability for San Jose and San Francisco, Oakland is 6% and 7% respectively. Traffic is down about 6% from the second quarter. That is more likely a function of our higher occupancy and low availability than any kind of a market indicator.

Now let me turn to Southern California and first let me comment on how the forest fires have been affecting us. The fires in the north Los Angeles semi valley have not damaged any of our property at this time and temporary road closures have made travel difficult for our residents and employees and the situation is a bit stressful, we're able to conduct business with minimal disruption.

On the other hand in San Diego, while we have not sustained property damage at this time, the fires have been disruptive to our operations. Earlier this week a few of our properties were placed on voluntary evacuation alert. This meant resident and employees were told to prepare to evacuate if required and in some cases some of our residents chose to evacuate any way.

Additionally, smoke and road closers have made travel very difficult. Our greatest concern for us were our two Alpine properties. The fire has destroyed several homes in the immediate area but our properties were not damaged and they do not at this time appear to be in a immediate risk. However, authorities have evacuated those properties over the weekend and our residents and employees are not allowed back into their homes and offices until Tuesday. Power has been out since the weekend and the power company has informed us that we should not expect it to be restored for another four to five days. As one might expect, many in the industry are responding to this disaster.

We are presently working with the San Diego apartment association in a coordinated effort to make availability known to the Red Cross and insurance companies to help get residents whose homes have been destroyed into interim housing. In fact, we have been renting apartments at our Alpine properties even without the power.

To balance the potential market opportunity with being a corporate citizen we're waiving one-time fees and offering short time leases to those affected in order to get them into housing as quickly as possible. The reality is many of these people will require interim housing for several months while they wait for their homes to either be repaired or rebuilt.

Let me just recap our sub-market activity. In L.A. Ventura, the market continues to be stable with minimal concession activity. If a concession is offered we're seeing, you know, $200 to a half month. Our occupancy this week is 97% and our net availability is 4%. Traffic is down 13% from the second quarter. Most likely again this is a function of our higher occupancy and lower availability rather than any indication of a trend. Orange County the market is also relatively stable. Concession activity is also minimal.

In the Southern California area we do see some concessions and if it is offered we're seeing $300 up to a month free. As of this week, our occupancy is 96% and net availability is 5% traffic was up 5% from the second quarter. San Diego continues to be stable. We see little to no concession activity and a very few isolated instances we have seen some concessions of $200 or a month free but that is typically on a vacant apartment.

In total our San Diego portfolio is 97% occupied and 4% available. Traffic was down 15% compared to the second quarter and as with L.A. and Ventura, this is most likely a function of our higher occupancy and lower availability.

Now let me turn the call over to Mike Schall.

Thank you, everyone, for joining us on the call. I'd like to start by noting that the press release in our supplemental reporting package are available on our Web site or you may contact our Investor services department at the corporate offices in Palo Alto for a copy. I will be discussing the following topics on the call. First, quarterly financial results, second loss to lease, third, the impact from recent accounting pronouncements, fourth, the balance sheet, and fifth, estimates of FFO. Starting with the first topic, quarterly FFO results.

As you know, FFO for the quarter declined way by 4.5% to $1.07 from $1.12 in the third quarter of 2002. The difference can be attributed to the decline in the miscellaneous income and further decline in sequential NOI. Drag on NOI from the company's Northern California portfolio was the primary factor in the decline in sequential NOI. Despite the overall declines the various Southern California markets generated 3.8% revenue growth and 4.9% NOI growth.

Our supplemental package provides a detail of the change in same property revenue by County both year-over-year and sequentially since the last quarter. That page indicates that all Counties in Southern California contributed to the overall revenue results. Southern California led the portfolio on a sequential basis as well generating at 2.1% increase in revenue as compared to the June, 2003 quarter. As previously indicated, the performance of the Northern California portfolio was disappointing.

The rate of decline in Northern California revenue during the quarter was minus 10.3% ending the string of improvements that we saw in the last several quarters. The 10.3% decline compares to a 7.9% decline last quarter. Sequentially, Northern California revenues was up 5.1% which heavily influenced by properties in the greater Silicone Valley area which includes Santa Clara County and Southern Alameda County.

Most of this reductions, actually 78% is attributable to scheduled rent. Scheduled rent per unit was $1204 for the quarter versus $1305 in the prior year's quarter and 20% was attributable to concessions and occupancy. Sequential numbers are a bit better. Of the $652,000 reduction in sequential revenue in Northern California, $315,000 or 48% is attributable directly attributable to the increase in concessions.

As with the last several quarters, the Northwest revenue trends generally follow a pattern similar to Northern California, although the magnitude of such reductions and revenue are not as large. I have several comments about the quarterly results starting with internal growth. Overall sequential same property revenues declined by 1.1% is a strength of Southern California was not sufficient to offset the declines in Northern California in the Northwest. The 1.1% decline, which was $458,000 is entirely attributable to the $473,000 increase in concession. Bob has discussed concession activity for the quarter and our expectation that it will decline somewhat in coming quarters.

Also our policy of expensing concessions up-front rather than reporting leases on a net affective basis tends to magnify the impact of concessions on the quarterly results. Based on these trends we now believe that there will be a small sequential decline in revenue in the fourth quarter of 2003. Following are the components of the quarterly same property revenue decline of 3%. This is year-over-year declines. First component is occupancy, which on the same-store portfolio was essentially flat as compared to the prior year was 96.1% last year to -- as compared to 96%. Therefore, occupancy in Q3 of 2003 versus 2002 did not significantly impact the same-store revenue numbers.

Second component was the decrease in same-store revenue is the decline in schedule rent which is 2.5% of the overall decline and same-store revenue. As reflected in the loss loose numbers I'll commented in later. Market rents by the quarter dropped 2.9% relative to September 30th, 2002. This was comprised of 6.8% reduction in Northern California of 5.8% reduction in the Pacific Northwest and an increase of 0.5% in Southern California.

The third component of the drop in same-store revenues is concessions. The amount of same property concessions recognized during the quarter increased by $371,000 relative to the quarter-end of September 30th, 2002 and was 0.9% of the same-store revenue decline. Concessions per turn, which is now indicated on the property operations page of the supplement on the same property portfolio were $562 per turn for the quarter-ended September, 2003, versus $358 for the quarter-ended June, 2003, and $377 for the September '02 quarter.

This comparison, however, is not perfect as we sometimes provide concessions on apartments that are re-rented so it is obviously do not result in a -- in a unit turn so there will be a concession event that is not necessarily related to a unit turn and, in fact, that is a part of what happened during the third quarter.

Turnover percentage from the supplement from the quarter was an analyzed 66%, down slightly from last year's 68% and an increase from the 63% analyzed rate in the June, 2003 quarter. This is typical since we planned for greater lease expirations in the summer months. Next I'd like to address operating expenses which decreased by 0.2% for the quarter and actually the only comment I want to make here is that we expect to hit our targeted expense increase for the year.

So expenses will be a little bit higher in the fourth quarter so that we hit the range of three to 3.5% for the year. Also wanted to make a couple of additional comments on our Southern California properties and review the components of those results. For the third quarter of 2003, occupancies in Southern California were 97%, up from 95.9% in the last quarter and 96.3% in the third quarter of 2002.

A quick breakdown of the 3.8% increase in same property revenue in Southern California was first scheduled rents increased by 2.5% or leading to 2.5% of the 3.8% increase on increase in occupancy was .6% of the 3.8% increase. Concessions were affectivity flat and the balance was a small change in other property income and a decrease in delinquency. A small decrease in delinquency.

Brief update on the results of the Sachs portfolio which we acquired by merger in December of 2002, for the quarter we were ahead of our acquisition budget for the portfolio as we indicated last quarter, we were significantly behind budgeted at the end of the first quarter on three properties located near military bases due to the troop deployment to Iraq as indicated last quarter and as further confirmed this quarter. Troop deployment issue appears to be behind us.

Interest in other income has become significantly larger over the years since we've increased our co-investment program. Interest and other income including the add back for joint venture depreciation decreased by almost $1.7 million to $5.6 million versus $7.3 million in the third quarter of 2002. The non-recurring portion of those fees in Q3, '03 is only $31,000 as indicated in the supplement versus 925,000 a year ago. Interest in amortization expense increased by $2.1 million to $10.8 million in the quarter. It was attributable to three factors.

First, outstanding debt balances, weighted average, outstanding debt balance increased $169 million for the quarter. Mostly due to the Sachs merger in December 2002. Second component was an average -- the average interest rate on long-term debt was 6.5%, and the third component was a decrease in our line of credit rate from approximately 3.1% in last year's quarter and to approximately 2.3% in the current quarter. The favorable interest rate reduction on our line of credit contributed approximately 236,000 to FFO during the quarter. G&A increased 196,000 to $1.7 million components of G&A are indicated in the supplement.

Under the second topic, loss to lease, I'm just going to hit this very briefly. It's detailed in the supplement. Briefly we define loss to leases as a difference between market rents per pricing sheets and scheduled or in place rent. Loss to lease for the portfolio as of September 30th was $5.2 million or 2.6% of scheduled rent down slightly from 3% in the prior quarter.

Negative loss lease in Northern California increased to $1.09 million or 1.9% of scheduled rent and the Pacific Northwest was essentially flat. Southern California loss to lease was $6.4 million or 5.3% of scheduled rent. As indicated in previous calls we expense free rent up-front rather than amortizing into net affective rent so the concessions are not reflected in the loss to lease numbers.

Third topic is the impact of accounting pronouncements. As you know, there has been considerable discussion about the impact of FAS 150 and FIN 46 on reeds. As you already know as well, we have adopted FAS 150 affective in the third quarter. In the last couple of days at a FAS-B board meeting, the Board decided to indefinitely defer the affective date of statement 150 as it relates to the classification and measurements requirements for mandatorily redeemable financial instruments. That become subject to statement 150 solely as a result of consolidation.

As a result, entities that have mandatorily redeemable financial instruments that are non-controlling interest in subsidiaries that were subject to the classification and measurement provisions as stated in 150 only upon consolidation no longer fall within the scope of 150.

That announcement unfortunately came a little late for Essex and other companies because we had completed the evaluation before the recent FAS-B board meeting and we had concluded that in the course of our evaluation, the implementation of FAS-150 did not impact the company's balance sheet or income statement in the third quarter.

You're also aware that the company is required to adopt FIN 46 in the fourth quarter of 2003. FIN 46 requires and evaluation of the company's unconsolidated entities and certain contracts and may require consolidation of certain of these entities. Where we're in the process of completing this analysis with our auditors.

Some people have asked whether these accounting developments will change our decision to enter into co-investment transactions. The answer is an emphatic 'no'. These ventures are in our opinion are essential for the success of the company. As Essex approaches its tenth year of becoming a public company, the reality of the market is clear.

One of the realities is there will be brief windows that capital can be accessed within the public market at a cost that will upon an investment of real estate will lead to growth in FFO and NAV. Since these are as I said brief windows, a capital source is needed when these windows are not -- when these windows are closed. They're not available to the company. Therefore, it is absolutely essential to maintain diverse capital sources and these co-investment transactions represent a very attractive source.

On to the third -- the third section, which is the balance sheet. CAPEX is expected to approximate $375 per weighted unit, which we expect to grow at inflation for the foreseeable future. In light of increased interest and capitalized cash or cash flow statement filed as part of our 10-Q provides additional detail for the items, additions to real estate. Interest coverage was 3.6 times EBITDA, debt-to-market cap was 32.5% as of September 30th.

I would like to update you on the activity of Essex apartment value fund. The fund has been an active acquired properties especially in Southern California. Based on the activity this year including the funds purchase of our previous co-investment partners interest in the Coronado and Newport Beach, the fund is now considered fully invested.

Overall, the fund has made investment commitments of approximately $640 million, which includes acquisitions to date, the development commitments at estimated total cost, the cost of Mow Bryce apartments, which was previously sold and the funds pro rat a share of the debt on Coronado apartments.

The difference between the $640 million actual investments and the $700 million overall target that we have discussed previously is primarily due to lower overall leverage on the properties acquired. So once again, we are now fully invested on the fund. We're also very pleased with the results of fund one and are beginning to evaluate a second fund. In the interim many acquisitions will be completed on the company's balance sheet.

Next topic is funds from operations. Last quarter you'll recall we tightened and lowered our FFO expectations for the remainder of 2003 to a range of 428 to 434. It now appears that without consideration to the -- to several transactions, which I'll discuss in a moment, we would have expected to end the year at the lower end of that range. However, this result is further adjusted to take into consideration several financing transactions, which are described in the press release.

For the sake of clarity, let me review the basis for the FFO guidance indicated in the press release. Again range of guidance in the press release is from 419 to 421 and if you subtract the FFO generated through September 30th of $3.23 that would leave a Q4 estimate ranging from 96 to 98 cents. I would like to break that into a couple of -- a couple of components.

First component is the estimated FFO run-rate before certain transactions, which we'll discuss in a moment. And that would be a low of 105 to -- a -- to a high of 106. And then in the first piece is the impact of issuing the series F and redeeming the series C preferred stock, which under either the lower or high scenario we gauge as 4 cents per-share and then the common stock offering essentially the dilution from that offering pending investment of the proceeds into real estate, which under the lowercase scenario is 4 cents and under the higher case scenario is 3 cents a share and then, finally, we may be writing off an abandoned project in the fourth quarter that would be 1 cent per-share. So totaling those up you would end up with the Q4 estimated results from 96 to 98 cents.

A couple of comments regarding these amounts. The first comment is the redemption of the 9.125% series E preferred would save $328,000 a year in dividends. We believe that it is important to the improve our permanent capital base whenever possible. So even though the impact of this issuance is negatively impacted Q4 with a one-time charge, the long-term benefits are obvious.

Our next comment is the dilution associated with the investment of the common, maybe somewhat larger than originally expected. Overall our plan has been to investment $110 million of which we've completed $68 million. We plan to have the balance of these funds invested by the end of the fourth quarter. Once completed, we expect this program to be FFO neutral.

As for 2004, we're still in the process of finalizing our budget. I think you can appreciate the changing economic -- the change in economic environment makes this task more difficult as we attempt to evaluate when improving economic outlook can be expected to impact our results. In addition, we have not finalized our plan with respect to the

Prudential redemption of $105 million (inaudible) preferred in July and September of 2004, and these are securities that paid dividends from nine and a quarter to 90.3%.Accordingly, we'll plan to release our 2004 guidance in December of 2003. That concludes our comments. Now I would like to give you an opportunity to ask any questions you might have. Thank you.

Thank you. If you have a question today, simply press the star, key followed by the digit one on your touch-tone-telephone. If you are using a speakerphone, please release your mute function to allow your signal to reach our equipment. And once again, that is star, 1, to ask a question and we'll pause for just one moment. And our first question today t will come from Jay Leupp with RBC Capital Markets.

Hello, good afternoon. Here with David Ronko. Bob, in your comments about San Jose and the fact that you were about 96% leased at the moment, do you think sometimes in 2004 you'll eventually get a little pricing power to raise rents in that marked? And secondly, do you have any thoughts as to when pricing power returns to Portland and Seattle?

Jay, all three cases it is going to be contingent on the job growth. If the job growth starts to recover and that will -- that will be the indicator for us. So, you know, I think that the prognosis is that we should start to see job growth hitting us back in 2004 and if that happens I think the occupancy suggests that there will be some opportunity there for us.

OK. And then, Michael, in your comments about the penny on abandoned project I'm assuming that is just an unnamed project that you just gave up on, in terms of what is sewing process.

l I will be slightly more positive and I'l l say job growth will return eventually. The question is whether it will happen in 2004 or early 2004 or late 2004 and actually I guess and I think Bob would agree with this that we probably rank the markets in order of recovering, Seattle first, and then actually Portland and the Bay Area actually Bay Area second and then Portland Province

OK. And then just given your overall comments that all three of you had made, should we expect any revisions in terms of your expectations on--

Say that again.

Given the comment that you've made so far, should we expect any downward revisions on your expected yields on either your development committee or your communities or your redevelopment communities as they come on-line in 2004?

I think the redevelopment communities are fine with respect to what we have. We have scaled that program back pretty significantly and what we have got going is pretty much on track. With respect to the development communities, you know, I think basically our costs are -- are under control so it will be a matter as of these things come on whether or not rents are there.

The ones, you know, that are probably -- the one that is closest to being delivered right now is hidden valley which is Semi valley and I think our rents are not far off of where we underwritten it so it is going to be in -- unfortunately costs in that project had gone up prior to putting the trigger on the thing so it is going to be in the 7% range. As I said earlier, we haven't seen the underwriting on anything look very much better than seven and it is supported by what we're delivering right now, you know, in the -- in the 7% range and perhaps slightly better than that on the San Diego deal.

OK. And then just one last questions in terms of use capital questions ,min terms of use of capital opportunities in 2004, how are you going to prioritize between either doing your next joint venture, doing on balance sheet acquisitions or development and also,

Well, the preferred redemption? It is going to be important to us. I put that as a high priority. You know, we've had an acquisition program that's generated, you know, between 250, $300 million a year and that is a very high priority to us. Whether we do that on balance sheet or in the fund format is going to depend on a number of things, you know, including, for example, you know, our ability to raise money in the fund format obviously.

But other things as well. So continuing the acquisition program, continuing 'm not again capital fund, find the appropriate capital source for those acquisitions, whatever is most beneficial to the company. Both of those will be very, very high priorities for us going forward. That rates those at the top. Anyone want to comment or add to that?

Thank you. Our next question today comes from Brian Legg with Merrill Lynch.

Hello. As I recall last time before you started acquiring assets for your first fund, you were warehousing assets on balance sheet and then contributed them to the funds. Are these acquisitions you're acquiring given you issued equity, are these expected to stay on the portfolio or maybe will these be contributed to funds?

Yes, these are expected to stay isn't the portfolio, Brian. We're not at this point planning to wear house assets.

OK. OK. And I guess you're not going to make any announcements in what, what type of structure the second fund might take or the investment focus and so forth or the timing?

I think it is, I think a lot of it, a lot of the pieces will be similar to the first fund. We have not negotiated transactions with, you know, with potential investors at this point in time so I think it would be premature to talk about what the official structure is of the fund. But, essentially what we're, we're doing what we said we would do up-front which is evaluate the potential acquisitions both on balance sheet and fund format and decide which is more beneficial to the company.

And then based on that try to make an intelligent decision about, you know, what the appropriate source of capital is. I mean, our view is that the fund is a diversifier of our capital alternatives and there to make the company, you know, essentially more money in the long hold. And, so, that decision is one that we take very series seriously. Obviously, we can go any direction at this point in time and, you know, we're going to do what is best for our shareholders.

And, Bob, it sounds like that part of the decline in the same, the sequential revenue growth in the Pacific Northwest and Northern California can be attributed to the fact that you just saw your availability creeping up so you're aggressive with your concessions which, obviously increased both the concessions and decreased in a wire grid. How much of it, of the decline is related to you just trying to anticipate the higher availability rate and how much of it would be attributed to just another leg down in these markets?

Well, I would throw something out there. You know, as we were walking through the third quarter it became pretty apparent like, I don't remember exactly what, when it was but, you know, sometimes in July, late July that, that we, we, the way we've run this, run the business I think the right way to run the business is to try to be, try to get your occupancy level up by the end of the third quarter.

So, when that didn't appear to be on-track in late July, early August, you know, we thought it was important for really the sake of Q4 and Q1 of next year really to make sure that we ramped up our activity. So that, that change, and Bob had a number of programs both to keep existing residents so essentially, you know, renew people, lower the month-to-month exposure and, you know, increase occupancy all of which occurred.

Clearly there was a price, you know, and as you know we expense our concessions up-front. So we bear the brunt of that in the current quarter even though the benefits of doing that, are there for the next several quarters. So, you know, I think that sort, how it played out and obviously it was the appropriate thing to do not withstanding the impact of the concessions on the current, the current quarter's run-rate.

And finally just add, Brian, let me just add, Bob has been tracking concessions and declines in concessions for October and the concessions in the Seattle area have dropped about 20% from the third quarter and for the Bay Area about 30%. So that's, you know, one set of facts you can sort of look at and then the second thing is, we think that rents in the Seattle area have remained flat and we think that rents did in the Northern California actually declined 2% to 3% in the third quarter. So again that would be something that you might be able to factor into your numbers.

And just, just talking about San Francisco area, seems like everybody has their occupancy and I ask the question everyone, everyone has their occupancy rate above 95%. Why do you keep on having to cut rents if occupancy rates are, for the market are at 95%?

Well, Brian, there is two parts to it. We're holding that occupancy level but we continue to have the turn over issues that face us and while the rates have not gone up appreciably, we have, the factor is based on our availability and to us it is an, if an apartment is available or unnoticed hasn't yet been pre leased and there is less than two weeks before that unit is going to turn, we're thinking of that unit as vacant.

Particularly, right now, when without the job growth and the job losses that we're seeing and the job losses we have been seeing in San Jose there is not a lot of strong demand in terms of new people coming in the door. I appreciate it is a bit puzzling and candidly, this times when, I kind of, scratch my head about it at times but the reality is there is so little supply built in this market for so many years, you know.

I think, I think when this kind of availability, when the units start to become available it creates opportunities for other things to happen whether it's households to be formed or people to move in from outlying areas.

And the last question, it doesn't sound like there is any impact in the discussion of this sequential decline that you talked about in the fourth quarter, Mike, from the fire North Sea San Diego. Pfizer in South Dakota. There is going to be any operational impact from that?

It is a little hard to tell. It is maybe a little premature. I think as Bob said, some significant number of homes have been destroyed in that area. And, you know, I don't, I certainly don't want to, obviously, you know, I wish this hadn't happened but I think the realities are of what has happened is generally positive in that marketplace.

I mean, it pains me to say that I have to say, I have to tell you. You know, economically we debated what is, what does that do to the overall economy and I don't think that we have come up with a scenario that is negative from that perspective either because it is going to be a tremendous amount of money that will be focused on Southern California area that will re built that will take construction employment upward from what we can tell.

I don't think there will be a construction worker in, you know, the neighboring states that will be unemployed as a result of that as Southern California attempts to rebuild with the amass I've amount of money that will be focused on those communities. Plus, it doesn't appear there was a significant impact to the business, you know, the overall businesses tend in South Dakota, for example, to be along in the coastal area which have less of an impact. So we're not thinking that go that is going to have a negative impact. But again, it is still a bit premature to perhaps to conclude that.

OK, thank you.

Thank you. Our next question will come from Andrew Rosivach with Piper Jaffray.

Hello, guys. I guess it is a good morning for another couple of minutes for you. Just to follow up on South Dakota and again before I ask this San Diego I think you guys are being very sensitive to the community and doing the business the right way, but in terms of property and casualty insurance, if you could just give an over of your policies and what your exposure can be for both PNC and business interruption insurance in terms of deductibles and the like?

Yes. The deductible we do have business interruption insurance and I don't have the policies in front of me overall it's I believe $360 million which should be adequate, I would certainly think. The deductible is, I believe, and I have to go and check. It is 100,000 per occurrence. So, that would, I'm not sure how the occurrences would work in this case but, any way, that is the summary of the insurance coverage.

Got you. And then I wanted to go over your full you might have given this, Mike. What is your full year same-store assumption and how I'm trying to remember right, two quarters ago you had a flat '03 same-store assumption. Last quarter I think you dialed it down to maybe negative two and I'm wondering how the full year is going to come in now?

Do we have that -- let me come back to that one, Andrew in a minute. Mark and I will work on that one for a second and give it to you in a minute.

Sure. And then lastly I would be interested to know, Keith, the deal that you walked away from, the reason why? Was it pricing or another factor?

It was another factor. It was in contract. It was with a newer property and the way we look at it, we start with the market and we say, is the market we can operate in and if it is, we always believe that we can -- we can through our redevelopment program can fix and asset. This asset was actually three or four years old.

It was a nice asset in a market that we were bullish on but what happened is we got into our due diligence and we discovered some physical defects that are significantly greater than -- they were physical defects that had fixing them would not have increased the rental stream so it just made them -- it made it uneconomical to go forward so we had -- you know, it was the right thing to do.

Got you. Another thing guys while you're researching that number, is there another update on the mortgage Nuervine either positive that it's getting started to lease out and you may be able to get income out of it or is it still empty and under review?

It's becoming more positive. We have a 40,000 square foot well, we don't. The borrower has a 40,000 square foot tenant that he is very close to inking in the next couple of days and then there is a 15,000 square foot tenant behind that. So the -- the news is becoming more positive and part of it as I noted in my comments about Orange County, office rents have been lowered in the marketplace and as a result of that, 750,000 square feet was leased up this last quarter so we're seeing some activity down there and this particular building is also benefiting from that activity.

Great. Thanks.

Hello, Andrew, this is Mike. Just kind of looking at it I actually if I need zero (inaudible) I don't have all the data here in front of me but my gut tells me that the result is going to be the third quarter results going to look pretty comparable in the fourth quarter on the same-store basis. Just, you know, based on where third quarter, fourth quarter was last year and based on what we're expecting.

The full year will be a little better because the first and second quarters were better than the second half funds, right?

Yes. Let me throw one more thing out. The coverages is -- are pretty much what I said but there were other coverages for the different -- a couple of different entities so that is not inclusive of everything. That is the main portfolio coverage.

Got it. OK. Are there are entities is it any like Sachs?

No, other entities like different subsidiaries like the fund actually the fund is included in there but a couple of the other off balance sheet databases are not included in that.

I mean, I apologize and keep asking a ton of questions. That reminds you of another question. A lot of folks have mentioned in California that the one part of property 13 that seems to be easy to go after are the joint venture structures. When you guys contributed the assets that you had to the fund, did the tax basis get stepped-up or is there some risks that they could be written up if joint ventures are looked pretty hard at by the current state administration?

Remember what we did with the fund. We did not contribute any of our low basis assets. All we did is we warehouse some assets and we contributed them at cost.

Great.

It didn't so all those are current profit 13 numbers.

OK, thanks, guys.

Thank you. David Harris with Lehman Brothers has our next question.

Yes, hello, Mike, a couple of questions for you if I might. Can you remind me, limited life does that clock start from now?

The fund does have a limited life and know that the clock, you know, I don't remember exactly what is in that document. It was scheduled to be essentially two year -- a 2-year investment period followed by a 5-year, you know, essentially creates a value type of period followed by a one to two year disposition period. So that is the way it was scheduled. That is the business transaction. I'm not sure exactly what the expiration date on the, in the document is.

Somewhere effectively at the beginning of the five year, the second five-year period?

Essentially, yes, four, five-year period.

OK. And could you give us of the interest investment income? Other income line I should say, it has been pretty consistent around 3 million bucks a quarter. Is that a reasonable go forward number for the fourth quarter and looking ahead? I know you don't want to get too specific about '04 but that obviously has been somewhat of a volatile line in the past?

David, did you comment on the equity income line item?

Yes.

Being that there wasn't any additional fund activity in the third quarter, any new acquisitions, this would be a reasonable run-rate.

That good for '04? Without getting too specific?

Well, you know, you have to kind of make your own assumptions, but the base assets, the asset base is in place and, you know, right now no acquisitions or dispositions that would change that.

Yes, you know what the miscellaneous non recurring piece of that is?

OK. And then my final question is, I'm just trying to reconcile and this might be for you, Keith, on your estimate on rent growth in '04 the back page of the supplemental you're suggesting that your logistics were flat over the year, and I am just kind to reconcile, that would be the sequential revenue numbers, whether the income are out of that market place. Could you give us an idea of how you profile this? Are we going to go down some, and then we have a recovery in the second half? Is it stable from here on out, or are we going to go down a lot and then spike back up again in the second half?

Basically what we think, you know, and frankly I feel good about the flat in all those markets, the one I'm a little considered about is San Jose, but basically again we're saying this is market rent in essence to the extent, that our portfolio has rent in place that is greater than market. You'll see some potential burn-off yet on the page, on our page in the supplement where we have got the loss to lease or gain to lease clearly in the Bay Area where we have got some burn-off left to go.

But I think in, you know, certainly in these markets, I would actually expect to see some rental growth in Seattle. I think Portland clearly is flat and San Francisco, Oakland, probably we have some minor growth in San Jose being flat from this point forward so that is how we, that is how we looked at it and how we were in the process of constructing our budget for the individual properties.

Just to draw again on the Bay Area your view is we're now at the point of stabilization on market rents?

Well, you know, David, I feel like an idiot because we said that we think we're close to the bottom a number of times and we have been wrong a number of times. As I told you in my comments in San Jose, we have lowered our view where we expect jobs to be another 28,000 jobs lost this year in San Jose alone, so, you know, the news seems to be that we're getting to the bottom if you look at you know, the third quarter for the U.S., there was a terrific spike-up in results. The problem is, we just haven't seen great job performance yet. So, yes, I'm saying we think we're at the bottom and that is how we're constructing our budget going forward based on market rents to date being the bottom and going forward.

OK. Well, that was a brave guess.

That was a very brave guess.

Thank you.

Thank you and now we'll hear from Josh Butterman from JP Morgan.

Hi, it is Tony Paolone and Josh. Just to clarify your answer real quick about David's question about the equity income from the JV's. You did make two transactions in the quarter, didn't you, the acquisition for about 30 some million dollars in one sale that was -- that was a few million bucks is that right?

There was a 30 unit San demos results and in the Coronado transaction that was actually a second quarter transaction -- that was -- I'm sorry, that that was at the beginning of the third quarter so that run-rate won't be substantially impacted by that one because it was early in the third quarter.

OK. I just wanted to understand that. In the core looking at your expenses sequentially you had a big drop off in the Pacific Northwest, why was that and how does it look going into the fourth quarter?

Tony, you know, on a year-to-date basis the Northwest is at a 2.7% increase and it is right in line so digging into it there wasn't anything that really popped out as being, you know, causing that and it was in a sense just timing and we are on-line with our expectation there and on a year-to-date basis we're at 2.7%.

OK. And then just to clarify, when you're talking about the acquisition expectations for the balance of the year, you have done $68 million thus far out of the roughly 95, I think you outlined around the time of the deal and you said one fell out of bed but then you had some others lined up. Can you just kind of walk through that again?

Yes. At the time that we did the deal we had, you know, the deals that we closed plus one other deal for approximately $30 million that were, you know, we expected to be able to close the $30 million deal in our due diligence process again we start with the market. We like the market very much. The asset was about a four-year-old, five-year old asset and we expected there would be very little potential for, you know, a problem in due diligence.

However, when we got into the due diligence we discovered some significant structural issues that caused us to drop that deal. So that deal that deal with the -- plus the deals we closed was the 94, $95 million we talked about at the time of the offering. The deals that we have currently that that we're working on are Southern California deals, there is three of them. You know, all about, you know, 25 to $30 million each. We're close on -- we're close on all of them but due diligence isn't complete on any of them so but we do expect to, you know, close another 50 to $60 million between, you know, Michael was brave and said by the end of the year. I have would say by the end of the first quarter for sure.

OK . And then that would complete sort of the pipeline that year you're pretty close on at this time?

That's correct.

OK, great. Thanks.

Thank you. And now we'll hear from Craig Leupold with Greene Street Advisor.

Good afternoon. Mike, can you just give us the sequential expense in NOI growth from the second to third quarter?

Yes, Craig, I have that. This is Mark. Let's see. The revenues in the press release write-off 1.1% and expenses are were favorable 2.6% for an NOI of minus .5%.

OK.

That is on same-store portfolio.

All right, and on the lease transaction on the trailer and RV parks, what is the timing of that and can you just quickly explain how the accounting would work for that?

Well, the timing is about, it's all done except for one park as of today. And the idea was to create a lease with an option to purchase so that we've made sure that we're in compliance with all the rules that are floating around out there. The idea was, they're triple net leases structure with a fixed purchase price negotiated today and that's in four years from now and the lease payment going forward is fixed for the period at approximately 90% of today's NOI. In addition, there was an up-front payment that was put in place. Some portion of it was a portion of it which is about $750,000 a year for the next five years is was considered as a prepaid lease payment and then there is some additional fees for the option in the future.

Will that 750,000 be amortized over the term of the lease or will that be recorded and taken up-front in FFO?

That is the amortized. It is already amortized. That is one-fifth essentially of the up-front lease payment. Essentially, the up-front lease payment was to make sure that the owner of that, of the option and the lessee was heavily financially motivated to, you know, essentially make these work appropriately. So, we got that amount up-front.

All right. And then one last question on your forecast market conditions where you show estimated year-end vacancy for the various markets, when you're going through the occupancy levels for the markets, I understand that it is not a perfect point in time but it appeared to me that most of the numbers that you gave had occupancy rates currently that are well above your estimate or not well above but above or equal to your estimates for year-end vacancy?

That estimated year-end vacancy for 2004.

Right, but, for instance, in Seattle I think the number you gave was 97% occupied. Are you calling for 250 basis point decline in vacancy from today through the end of next year?

Well, again, what we, there are sort two of issues. If you look at the Seattle market today, the King County market is 94.5% occupied. The market, our portfolio is 97% occupied so we're performing and again these are trying to forecast market conditions. Our port pore is actually producing occupancy of several hundred basis points greater than marked. So, that is actually the difference you're struggling with.

OK. Maybe in summary could you give us any kind of thoughts in terms of from a market standpoint where we are today versus your estimates for the end of next year? Is this an increase, a decrease, or something fairly is it esthetic?

This is something fairly esthetic. In Seattle actually the market today is 94.5% and we're calling that flat. So essentially these rates are fairly static are fairly flat from where we believe the market occupancies are today.

OK, great. Thank you.

Thank you. Our next question today comes from Dave Rogers at McDonald Investments.

Good afternoon, guys. First question, Mike or Bob maybe can address this, but on the operating expense ratio which increased after the Sachs acquisition during the fourth quarter of last year, you have been working it down throughout the year of this year. What can we expect going forward? It was swap stable during the second and third quarter somewhat. What can we expect going forward on that?

Well, it is sort of a regional thing. You know, operating expenses, operating margins vary by region to a certain extent so to a certain extent it depends on where we, where we acquire and what the composition of the portfolio looks like. Mike, do you have anything to add to that.

As it relates to the margin and what is going to happen with the Sachs Portfolio is that the question? I'm unclear as to the question actually.

You know, it just looked to us like you had been performing at a fairly stable operating expense ratio prior to acquisition at least by our judging and after the acquisition it had spiked. I don't know if it was in relation to that acquisition but it has been coming back down through the course of this year and wondering if there is more room to go?

That portfolio does have a lower rent per unit than the portfolio so that could cause and does cause a change to that margin.

So that's it. I'm not sure that we've looked at that specifically.

OK.

Because in our -- in the way that we manage the business, you know, sort of the rent roll is one set of what we focus on and then another vein we look at operating expenses and we look at them as a portfolio as opposed to margin on any one particular building. You know, essentially you try to optimize the net result, which is operating margin by keeping your expenses in line which we, you know, which we have certain discipline to do that and then maximizing revenue and they are two really separate disciplines within the organization.

OK, thanks. Second question really about redevelopment and I know Keith mentioned there is nothing really in the development pipeline for '04. I don't know if that specifically addressed redevelopment as well and if it didn't, the acquisitions that you've made recently, do we expect any redevelopment of those?

Yes, we will have going forward the Coronado south, the Coronado project, which is approximately 1500 units, half of it had been redeveloped, half of it is waiting. That is something that we'll probably get -- will be put into the pipeline this year.

As far as the Sachs Portfolio, there is two to three properties that can benefit from a redevelopment program and those are currently being evaluated. So it will have, you know, we're putting together budgets right now but I would guess in between those four potential deals or somewhere in the $15 to $20 million that would be committed in it would probably take a year and a half to two to complete them so maybe $10 million a year for the next couple of years.

And so nothing on the Seattle acquisitions that you made recently in terms of redevelopment?

No, the Seattle -- one of the Seattle acquisitions was relatively new and it really doesn't need anything. The second one could benefit from it but until we see some real strength in the settle market, we're not going to go in and pour -- put a bunch of additional dollars into that market.

A final question maybe for Mike. Do you have the recurring CAPEX total that you spent during the quarter? I think you gave a total CAPEX number per unit?

No, actually, that is the recurring.

That was, OK. And that was for the quarter not year-to-date?

That was for -- that is an annualized --

OK.

'03 number, expectations.

Great, thanks.

Thank you and now we'll hear from Richard Paole (ph) with ABP Investments. Mr. Paole your line is open.

Hello. Can you just back up on the mobile home park transaction for me? I think you mentioned something about seasonality and in the numbers and where is the seasonal high-. I guess, in that region of the country I imagine it might be different from others?

Richard, maybe you missed our comment but -- well, first of all, the RV parks, their seasonal high is the winter months and so from about October through March is when they're primarily occupied and during the summer months they're less occupied. However, we have structured a transaction where we have leased those parks along with the mobile home parks to some operators -

Right, and I'm just curious is that why you do the 90% of the current because I think you said specifically the current NOI?

Oh, no -- yes, the NOI was based on the annual NOI or annual budgeted NOI for this year for 2003 was how we established the net payment and the reason for that is this is a triple net deal. They have got -- they're responsible for all capital improvements that are going to go into it and there are -- there are capital improvements that need to be expended so the 10% they're keeping is really going to allow them to put some capital into these factors and continue to improve them without coming out of their pocket and having absolutely no return to them.

OK. So and I know you're not getting into, you know, '04 projections but versus what you would have expected the type of cash flows you would have expected from, you know, running this yourself versus farming this out, if you will, it's essentially mildly accretive you said? Is that right?

Yes, it will probably be in the 3 to 400,000, you know 3 to $400,000 range at the end of '04.

OK. Thank you.

And, gentlemen, at this time it appears there are no further questions.

Well, thank you for joining us and we appreciate your support. Thank you.

That does conclude today's conference call. Thank you all for your participation.