Essex Property Trust Inc (ESS) 2005 Q4 法說會逐字稿

Good day, welcome to the Essex Property Trust call. With us Mr. Keith Guericke. For opening remarks I would like to turn the conference over to Mr. Guericke. Please go ahead, sir.

Thank you. Good morning. Welcome it our fourth-quarter earnings call. This morning we'll be making some comments in the call when are not historical fact such as our expectations regarding markets, financial results, and real estate projects. These statements are forward-looking statements which involve risks and uncertainty 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. Joining me on today's call will be Michael Schall and Mike Dance.

Last night we reported another strong quarter with FFO of $0.98 a share. For the quarter the portfolio grew revenues at 5.8%. Greater than the same quarter in '04, and 1.2% growth on a sequential basis. On the website, you'll find our expectation for market rent performance for 2006 by market. Also on the website is scheduled -- is a schedule titled new residential supply which includes total residential permit activity for the larger U.S. metros as well as information on median home prices and affordability as ist's compared to Essex markets. To get those details go to the website under analyst resources.

I'm sure you would all like to hear some details about the TCT transactions. Essex is part of a join venture with AW, and UBS Wealth Management has made an offer to purchase all the shares of Town & Country Trust for $39.50 a share. At the -- at the advice of counsel, I really can't say anything other than that. However, I can talk about the strategy as to why we're looking at that particular company. As you know, we built our success on investing in supply constrained markets that have strong job growth and a relatively inexpensive single family home portfolio.

Our analysis concludes there are no markets west of the Mississippi river that we are not already investing in that meet those standards. However, the Baltimore, D.C., northern Virginia markets have traits that are very consistent to the West Coast markets we invest in. Our challenge has been to enter these markets in an efficient manner. A majority of the TCT assets are located in these markets.

The following itemizes similarities to our West Coast markets. The Baltimore metro is roughly the size of our Seattle MSA, and with respect to jobs and total housing. The residential supply in that market has held to about 10,000 units annually over the last 10 years, which is about 1% of stock. The current median single-family home is priced at 282,000. Our data indicates that market occupancy for apartments has been at or above 95% for most of the last 10 years except for 2001, 2002. And household incomes are strong. Currently at about $61,000. Baltimore has been a relatively strong rental market since the mid 1990's. Despite this fact market rents remain on the low -- remain low in relation to median household incomes and low in relation to home mortgage payments. We believe Baltimore represents a market with very high probability of performing as well or better than the top U.S. metros in both the short and long run.

The Washington, D.C., metro contains 2 million total housing units, roughly 90% the size of Essex Bay area markets combined. Total residential supply over the next few years is forecast at 31,000 units annually or about 1.5% of existing stock. Like Los Angeles, a large portion of this new single family supply is occurring outside the core. Washington, D.C., is geographically supply constrained except to the west. A large component of the new supply specifically single family is occurring in the outer western counties such as Loudon, Prince William, and Stafford in Virginia. These counties comprise roughly 15% of the metro housing stock, but 50% of the new single family supply. Over the last four years, total supply has averaged 15,000 units in these markets. The rest of the metro averaged total annual supply of 18,000 units or 1%. US Census data indicates these relationships of relative supply will continue going forward. In the core areas, we expect single family supply of about 11,000 units and multifamily supply of 6,000 units over the next three years. Which equates to about 1% of existing stock.

Median single family prices have risen significantly over the last 10 years and currently at $440,000 per home. Apartment occupancy, again, has been strong over the last 10 years at or above 95%. Again, except for 2001, 2002. And median household income is estimated at $75,000. Very consistent with our West Coast markets. Over the last 10 years, Washington, D.C. has been one of the most consistent job engines in the nation. We expect this relative strength to continue going forward. Unlike supply, job growth has and will continue to be centered in the core areas of the D.C. metro. A large majority of the commercial stock into construction lies within the core areas. As you can see, these markets are very consistent with our existing markets.

Now let me talk about our markets. The industry growth across our three regions showed strong recovery in 2005. In addition, the household survey, again which is a different data source indicated significant improvement in employment. Labor force growth increased sharply while unemployment rates declined in each of our regions. Preliminary data indicates overall Essex markets added 188,000 jobs or 1.5% growth rate December over December.

Matching these -- this US performance year-over-year for the fourth quarter the Essex market experienced 1.9% labor force growth while the unemployment rate fell from 5.4 to 4.6, which was far superior to the corresponding U.S. values. Total permit activity during this time represented 1.1% of existing stock for all of our markets combined. Let me just touch on each of the markets briefly. In Seattle, we're looking at a growth rate of 2.6% for jobs, which is about 36,000 jobs. Single family supply is forecast at 11,000 units or 1.6% of existing stock. And multifamily supply is forecast at 2,300 units or 0.6% of stock. This represents a total new supply of 1.3%. We expect market occupancy to rise to 95.25, and effective rent growth to be about 4% in 2006.

The Seattle apartment market should -- showed clear signs of recovery especially in the second half of 2005. The reduction of concession was a large part of the effective rent growth. We expect job growth to remain strong across all sectors, as was the case in 2005.

The forecast year-over-year job growth for northern California is 46,000 jobs or 1.6% growth. Single family supply is forecast at 10,000 new units or 0.7%, and multi-family supply is forecast at 7,000 new apartments or about 0.9%. This equates to about 0.8% of total existing stock. We expect market occupancy to rise to 96%, and effective rent growth to be in the 4.5% range by the end of 2006. In southern California, the forecast year-over-year job growth is 117,000 jobs or 1.6%. Again, single family and multifamily new production is each at about 0.8%. We expect market occupancy to rise to 96% and effective rent growth to be in the 4% range. That would be 3 to 4.5% depending on the submarket. For the first time in five years job growth was significantly positive across each market. We expect the core Los Angeles and Orange County markets to remain the strongest individual submarkets.

Now, let me quickly go through a couple of other items. Acquisitions, the goal for the year is $200 million. To date we have closed 57 million, and that was on balance sheet. With respect to dispositions, we've talked about over the last couple of calls, some condos, properties that we have listed or had listed, there were five of them. As you recall, the Global facilities at subforecast, we haven't achieved that yet. And none of those are actively being marketed currently. In the first quarter, we sold two small properties totaling 66 units for a price of about $7 million. The remainder of the year we may sell opportunistically, however the intent would be to reinvest the proceeds via 1031 exchange.

Cap rates last quarter, I went through cap rates in the ranges by market that information has not changed at all since that point. In the development arena, as disclosed in the supplemental, we have $133 million of development projects in the pipeline. In addition, our shadow pipeline is growing pretty consistent with last quarter at about $450 million. And those deals are primarily in northern California. Again, this more aggressive look at development is really the result of the cap rates that we're experiencing on the acquisition side in the 4.75 to 5.25 range. As we said, we're seeing development cap rates based on today's rents and expenses in the 6 to 6.5% range, and we think that's providing a large enough spread to accommodate the risk that is consistent with development. So we think the risk premium is there today. So I'd like to turn the call over to Mike Schall now.

Good morning, everyone, and thanks for joining us. As you know, Bob Talbott has led the property operations discussion on previous calls. Bob recently resigned, and so I will be leading the operations portion of the call from this point on. Fortunately, Bob left me with a very capable support team which included Eric Alexander, the division manager for southern California, and JoAnn Petrie, the division manager covering northern California and the Pacific northwest. Following the format of previous calls, I'm going to discuss conditions in our major submarkets. Broadly speaking conditions continue to improve throughout our coastal markets. Southern California has continued its steady and consistent pace which we expect to continue throughout 2006. In all of 2005, the 5.3% revenue growth in southern California was the best performance in the region since 2001. As we predicted, northern California has continued its strong recovery, and has gained momentum more quickly than we expected. The result driven by demand that cannot be fully explained by the job growth statistics that we've had. In essence, as you probably -- may recall, we lost roughly 200,000 jobs in 2001 from 2000 to 2003, and we just recently started producing jobs. Yet at the same time, occupancy levels have recovered very strongly, and rents have started moving.

As with previous recovery cycles in northern California the impact of small employers is often underestimated in the industry job survey. The 5.9% revenue growth for the quarter in northern California equaled the results for southern California, and that hasn't happened since the second quarter of 2001. Similar to northern California, Seattle continues to gather momentum as the local economy improves. Following up on the theme of the last several conference calls, we have pushed rents more aggressively while being less sensitive to occupancy. The tradeoff between rents and occupancy are more pronounced in the fourth quarter, which is seasonably our weakest due to declining traffic. We had success pushing rents through October and backed off on higher availability during the holidays. We also used shorter term -- shorter lease terms to manage short-term weakness and availability. Again, particularly in the holidays, and where renewals were substantially below market.

As of February 5, 2006, our physical occupancy of the portfolio stood at 96%, which was range -- which is a range from the low of 95.4% in San Diego to a high of 97.4% in the San Francisco MSA. Again, as of February 5, 2006, our net availability was 5.2%, which ranged from the weakest portion of the portfolio, 8.1% in San Diego to the strongest portion of the portfolio of 3.7% in Seattle. And to give you a benchmark, we currently are targeting throughout our marketplaces net availability in the 6% to 7% range.

Now I'd like to comment on each major region of our portfolio. Turning first to the Pacific Northwest, we continue to see strong results in Seattle, which generated 5.5% same property revenue growth, and Portland performing as expected with 3.8% revenue growth. Both downtown Seattle and our core east side locations continued to be the strongest. Concession activity continues to decline. Average concession per term was $98 compared to 239 a year ago and 114 in the third quarter, 2005.

In Seattle, traffic was down sequentially, so fourth quarter over third quarter, 23% year-over-year down 2%. In Portland traffic was down 31% sequentially. At 19% year-over-year. This decline in the fourth quarter follows the typical seasonal pattern. Occupancy in Seattle was 96.2% -- I'm sorry. Physical occupancy as of last Monday was 96.2% net availability of 3.7%. In Portland, same statistic, 95.5% occupancy, net availability of 4.2%.

A key concern in the Northwest has been the level of home purchases and its impact on apartment operations. Relative to California, Seattle has high -- like California, Seattle has high median household income levels, but it has more affordable median priced housing. Home purchase activity for quarter represented 27% of our moveouts in Seattle compared to 19.2% a year ago. In Portland, moveouts for home purchases were 45.4% versus 27% a year ago. These year-over-year increases are larger than the average of our entire portfolio of approximately 20% of our moveouts leaving to purchase a home up approximately 2% from the previous year. However, we believe that limited for sale supply and higher interest rates, particularly on variable rate loans, will reduce the level of moveouts for homeownership in 2006.

I note that Portland's single-family supply equals 2% of its housing stock, which is the highest level of any of our core markets. And is still on a relative basis, when you look at areas that produce a lot of single-family housing, it's a half to a third of those markets. And again, it's the highest of the West Coast markets that we're invested in. Finally, I want to note that we added Morning Run to the portfolio in early October, and it's currently 97.7% occupied.

In northern California, the market continues its upward trend. Strongest part of the market continues to be San Francisco, followed by the East Bay, and finally Silicon Valley. As you know, our greatest concentration is in Silicon Valley, which is a step behind. Partially due to leaseups. You may recall that Silicon Valley had significant apartment supply pipeline following the huge runup in rents from 1999 to 2001. We are finally nearing the end of that supply pipeline which actually following the leaseup of the last phase of IAC's development in San Jose is expected to further tighten apartment occupancy levels. So what we basically expect is for the next couple of years, we expect very limited deliveries of new apartment supply, and then as everyone knows, I think construction activity will pick up again after that.

Again, northern California just a few facts. Concession activity per turn was $55 for the quarter compared to 453 in the fourth quarter of 2004. A pretty dramatic swing. And 135 per turn in the third quarter, 2005. Concessions per turn were actually lower in northern California as compared to southern California for the first time in many years. Traffic for the quarter was down 17% sequentially, and 16% year-over-year. The sequential change is due to seasonality. It was down 22% in the prior year. And actually the year-over-year decline of 16% is something that I don't have a good explanation for. I've got some theories, but no good explanation for. And that obviously is one that we're more concerned about since the sequential change is seasonal.

Moveout activity attributable to home purchases was 18% for the quarter compared to 19% a year ago. Physical occupancy and net availability as of last Monday was 97.4% and 4.9% respectively in the San Francisco MSA. For the East Bay, which is Alameda and Contra Costa counties, occupancy and net availability were 95.2% and 6.3% respectively. And finally in Santa Clara, occupancy 96.2, net availability of 5.5%. Finally, during the quarter Fund 2 acquired the 637-unit Enclave property in San Jose, which now has 92.8% physical occupancy. That is lower than the market obviously due some management transition issues.

Finally, onto southern California. All of our major submarkets are performing well with limited concessions. L.A. and Orange Counties are the strongest portions of southern California followed by Ventura and San Diego. Concessions are only used to marginally improve occupancy in select locations. Overall concessions per turn for the quarter were $60 compared to $183 a year ago and $83 in the quarter ended September, 2005. Traffic, L.A., Ventura was down sequentially, 28%, and virtually flat year-over-year. Orange County down sequentially 35% and up 7% from a year ago. And finally, San Jose, traffic down 22% sequentially, and up 6% from a year ago. Again, sequential declines don't worry us as they are seasonal, and similar to declines in the prior year.

Physical occupancy as of last Monday in the L.A.-Ventura market was 96.2%, net availability of 4.8%. In Orange County, occupancy at 96% and net availability of 5.6%. Occupancy in San Diego was 95.4% and net availability at 8.1%. The net availability of San Diego is the highest in our portfolio. And relates to the deployment of the USS Reagan along with some other support vessels. And troop rotations out of Camp Pendleton which we contemplated in our 2006 budget. And actually, I just heard our regional manager called me in San Diego and said that it appears that the USS Reagan has mechanical problems and is returning which will help us marginally. We also, but irrespective of what happens to the USS Reagan, we believe that this situation is temporary, as we should begin building occupancy with the return of the USS Pearl Harbor in late February and the expectation of positive troop rotation earlier this year.

Moveout activity was 15% that is moveouts attributable to home purchases, I'm sorry. For L.A.-Ventura, 15%. About the same level as the prior year. Orange County, 21%, about the same as last year. And San Diego, 12% versus 11% a year ago. As you know, our 2006 guidance called for 4% revenue growth led by northern California at 4.3%, and southern California and the Pacific Northwest at 3.9%. One month into 2006, we appear to be very well positioned to generate at least that growth rate. Thank you for joining us. I'd like to turn the call over to Mr. Dance.

Thanks, Mike. Today I will discuss our results for the fourth quarter and the year end December 31, 2005, and I will provide highlights on our 2006 guidance. Funds from operations for diluted share for the quarter was $0.98 diluted share or a $0.01 increase over the fourth quarter guidance we provided on our third-quarter conference call. During the fourth quarter of 2005, same property revenue increased approximately $3.6 million compared to the fourth quarter of 2004. This increase resulted from each of our markets achieving increases in rental income of over 5% year-over-year, as concessions and delinquencies for the quarter decreased by $400,000, vacancies decreased by $545,000, and scheduled rents increased by $2.515 million compared to the same quarter last year.

On a sequential basis comparing the fourth quarter of 2005 with the third quarter we increased same property revenue by 1.2% even with an increase in same property vacancies. Same property operating expenses were up 4.3% compared to the 2004 fourth quarter, and increased 3% in 2005 compared to 2004. The mid point for our guidance assumes a 3.9% increase in same property operating expenses.

As discussed in our last conference call, during the quarter we used some of the proceeds from our 225 million exchangeable bond offering to prepay 10 mortgages totaling $89 million, and we incurred prepayment penalties of 1.6 million compared to our original estimated prepayment cost of 2 million. The increase in short-term interest rates actually reduced our prepayment penalties under the make hold provisions of some of these mortgage. Our only remaining 2006 maturity is the $12 million mortgage on Windsor Ridge. Our remaining fixed rate debts has an interest rate of 5.9% and our exposure to variable rate debt as of December 31, 2005, was less than 10% of our total borrowings. We have also hedged some of our interest rate risk on 2007 and 2008 maturities of fixed rate debt with two forward starting swaps totaling $100 million that settle in 2007 and 2008.

During the fourth quarter of 2005, we recorded a $1.3 million impairment loss on our Houston, Texas, asset to write down the book value to its estimated fair market value. This impairment charge reduced the fourth quarter and the year's FFO by $0.05 a share. Had we not recorded this impairment, FFO for the quarter would have exceeded our guidance by $0.06 a share. After our guidance was released last month, we received a number of questions concerning the 2006 increase in these general and administrative expense, and the 2006 sources of the nonrecurring FFO. I will take this opportunity to respond to both of these questions.

First I will address the guidance for our 2006 general and administrative expense. During 2005, we have filled a number of key management positions in our acquisition and development teams, and we now have the infrastructure to grow our fund business. Historically we have included the costs of providing fund management services with our general and administrative expenses. The 2006 guidance of 21 million includes our true general and administrative expenses plus all of the costs of providing Essex value funds one and two, property management, asset management, acquisition, development, and redevelopment services. Beginning in 2006 we will separate the component of the $21 million to reflect the cost of our fund business as a separate line item in our statement of operating expenses.

The next question concerns the sources for our 2006 guidance of nonrecurring funds from operations totaling 6.4 million. The $6.4 million guidance is the net amount after a provision for income taxes and management incentive compensation. Our 2006 guidance includes the net profits from selling the 30 townhomes we are developing in Tracy, California. And the net profits from the Eastridge mezzanine loan. Both of these projects are expected to generate funds from operations in the second half of 2006.

In addition to these two projects we have several opportunities to change the current use of existing assets and then to sell the assets. If we added up all of the net gains from these opportunities, the result is a number that far exceeds the $6.4 million guidance. Given the inherent uncertainties as to the best timing to execute on these opportunities and management's propensity to be conservative in our guidance, we have provided a number that we have a high level of confidence that we can deliver in 2006.

The last item that I want to discuss is the 2005 capital expenditures and our guidance for 2006 capital expenditures. During 2005 we incurred $595 per door, and in 2006, we are estimating $770 per door for nonrevenue generating capital expenditures. Given the rental demand in our markets in 2006 we are incurring an additional $320 per door on revenue-generating capital expenditures for properties that do not have the scope of work to be considered for our redevelopment program. These per-door amounts exclude the $24 million that will be spent on the properties in redevelopment that are listed on S10 on our supplemental schedule. That includes my remarks. And I will now turn it over to the operator for any questions. Operator, you can now open up the conference call to questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from David Harris of Lehman Brothers.

Yes, hi, guys. Keith, maybe I missed this. But did you make any remarks with regard to your sense as to the level of condo activity? And what you're seeing across your markets?

No, I didn't. What I did say is that five properties that we had listed and that we spoke about in the last several calls, we have not sold. The goal was to sell them. We had for sub for cap rates, we have not achieved those kind of offers and, therefore, have not sold them. I would suggest that in this -- especially the San Diego market, things are slowing down. I think northern California, we have one project where we have a loan out. It's dealing in the -- the Eastridge deal. And the last quarter things slowed down a little bit with respect to sales. Generally you'd expect that in the fourth quarter. So the Super Bowl has now come and gone, which sort of signals the new selling season. So we'll be able to give you a lot better sense for that on the next call.

Would those remarks extend across both to -- for sales to condo converters themselves as well as your sense as to -- for want of a better description end users?

Yes. I think the condo converters are sensitive to the demand by end users, and that affects their appetite.

Okay. Would you care to comment about your sense as to what's happening in the markets that TCT is operating in in terms of condo?

Our sense is that it's, especially in the Virginia markets, things are slowing down. I think northern Florida, where a couple of the assets are, the condo markets are still fairly strong. And I would guess southeastern Florida things are little bit saturated.

Okay. I know you're reluctant to get into any details with regard to the TCT bid, situation. I perfectly understand that, as I'm sure most of the listeners do. Would it be possible to make any comment as to the nature of your ambitions if you were to get this portfolio? Would you consider -- should we think of this as being almost entirely an acquisition with a view to long-term investment, or could we think of the partners here are looking to sell aggressively part of the portfolio to Condo Converters?

Our attorneys have really asked us to not comment on it at this point time. And I think it's my judgment that I should listen to them.

Okay. Then if I could just sort of press you a little bit more, though, in a more stress free expense on this issue. Is it -- your company has been awfully successful over many years, focused purely on the West Coast markets. What do you think you will add to your shareholders by diversifying on a more national basis? Does it really send a signal as to what you see as your opportunity set in your existing markets?

I think when we talked about -- in my comments, we talked about these -- a little bit of what we saw in those markets. And we see those markets as very similar with respect to demand, with respect to supply that we have here. I think the one difference in those markets is the cap rates are a little bit different. And there are -- we have a strong rehab program in our company. And we think that we can use those skills in those markets just given the general supply that's in those markets. And so it's an opportunity to just increase our opportunities.

It doesn't say necessarily anything with respect to our markets. We love our markets. It's tough going here and that's why we've been successful is because it's very difficult to produce supply and, therefore it's helped us a lot. So we're very committed to these markets. I guess the one other thing -- that this does for us is we've been very active in the fund business. And this opportunity is set up as a fund. And we see that as continuing that business.

Okay. Thank you very much.

And our next question comes from Craig Leupold of Green Street Advisors.

Keith, I guess a question related just to, kind of following up on David's question. When you look at northern California, southern California, Seattle, and you look at the prospects and the characteristics of those markets versus those of Town & Country, what kind of cap rate spread do you think is appropriate across -- between those markets? Between those regions?

Well, I would -- I would tell you that northern Virginia and D.C., the cap rates are fairly similar to our California markets. I would suggest that the Baltimore markets are -- are probably anywhere from -- depending on the quality of the property -- 25 to 75 basis points different -- or fatter if you will. And given the basics we have here, I think those are appropriate cap rate spreads. I think what we're looking at is consistency of those markets to perform. And the cap rates maybe don't adequately reflect the risk. The risk may be less than what the cap rates reflect is what I'm trying to say.

Okay. I know you guys aren't going to comment on pricing. But I just -- it appears that at least the cap -- the initial cap rate depending upon what your assumptions are for NOI, that there's really not much of a differentiation between southern California and northern California versus the implied pricing that appears to be reflected in the current bids for Town & Country. Maybe a question for Mike Dance. In your guidance, is there anything related to the pursuit costs for Town & Country, or would those pursuit costs end up being capitalized?

If we are successful, they will be capitalized. If not, they will be a charge to FFO.

Can you give us any kind of range as to kind of where those pursuit charges are at this point?

No. Not really.

Okay. Thank you.

And we will take our next question from Bill Crow of Raymond James.

Good morning, guys. I'm sure we're going to beat the horse dead by the end this thing. But what is the contemplated ownership structure of the group that you formed to go after Town & Country? What would your percentage be?

Bill, we -- again, we have not disclosed that. And I think it's a bit premature to talk about that until we find out what happens with the transaction.

Have you looked at other entities out there, whether they're on the West Coast or East Coast, or was this just kind of an opportunistic situation where the Company was in play already?

We've -- we have covered the East Coast from an economic research perspective for the better part of our careers here. And more -- in much more -- much greater detail than actual -- actually, John Lopez is here if he wants to comment. In much greater detail for the last five years. We have been active, looking at portfolios on the East Coast for the last three years. And actually on a single asset basis, as well. So I think that -- I think that covers it.

If -- putting this particular transaction aside, if cap rates are essentially equal between markets that would imply that the barriers would be similar or the growth rates would be similar. Is that kind of how you view that region of the country compared to your existing portfolio?

We -- as Keith said, and -- and I think maybe I'll -- I'll use different words to say the same thing. Which is, we haven't changed how we believe you make money in this business. It's a combination of growth rate, cap rate, and risk assessment. And if we did not find an attractive combination of those three factors, I don't think we would be doing what we're doing. So I think that we -- we're not -- we've never been a company that has been focused on growth for the sake of growth. We've tried to be purposeful, and sort of rifle shots into areas that we think are going to improve our company, improve our portfolio. We're not trying to build the biggest REIT out there. We're trying to build FFO and NAV, and growth per share. None of those things has changed.

So we think that given, as Keith said, the funds structure, given that -- it isn't just the fact that we're on the West Coast -- I mean, the West Coast has lots of markets that we're not in. And Fresno, Sacramento, Inland Empire which we're -- we have an asset or two, but no significant location, it's not just the West Coast. It is the conditions and components of the market and the market analysis that has really made us the Company that we are. And if you see those conditions in other places and don't -- it would seem to me that we sort of have a -- an obligation to try to figure that out.

All right. Good. You guys have done a great job the last 10 years we've covered you, creating value. Hopefully that will continue. Thanks.

And our next question comes from David Rodgers of KeyBanc Capital Markets.

Hey, guys, first question, was curious about kind of what your on balance sheet expectations are in terms of investment. You did several acquisitions subsequent to the end of the quarter. What are your plans for those? Are those redevelopment? Are those map for condo? How are you looking at your own investments although I know they're limited at this point?

Are you talking about acquisitions?

Yes.

We're looking at $200 million of acquisitions for '06. I would guess the first deal that we did, 57 million was on balance sheet, was to accommodate some exchange needs that we had. So that would indicate we try and do another $150 million in the fund. Now, to the extent that we sold anything else during the year, we would do a 1031 on that and hopefully that that would not eat into the dollars or the acquisitions put into the fund. As you recall the fund we have until October to invest the rest of the fund. We have an opportunity to extend that for a period of time and probably will need to do that because we need to about $450 million to complete the total firepower that's available in the fund.

On your development front, I think in the guidance that you put out in December, you mentioned ramping the development pipeline. I think today you said 450 million of backing well or shadow development. What's the spending look like in 2006? As you ramp throughout the year?

It's $125 million in total. If you need that by quarter, I don't have that. But we could follow-up with you if you need that on a quarterly basis.

Not a problem. Going back to the G&A, Mike Dance, that you had mentioned. Is there any way you can give us just an annual breakout of what those two numbers were between the fund activities versus the core Essex business?

That's a project we're working on that's in progress be so not at this point.

Then something else that, Mike, you said in your comments, question for Keith. In terms of the management incentive payments that Mike referenced that are built into your numbers. Have you been able to create some long-term incentives around this as the job market continues to heat up a little bit more? Is that something that you're focused on?

I'm not sure of what you're asking.

Long-term incentives as opposed to the short term.

I think with -- the end of the last fund there were some large payments that were made throughout the Company. Is this maybe more focused on longer term incentives? Are you thinking about it in those terms to retain people longer term?

Yes. I'm sorry. I understand. Yes. That's part of the program and that's a work in progress as we go.

Okay, and Mike Dance, I guess back to you for a couple of questions. How much do you have available on the line of credit today?

About -- well, we're currently renegotiating the line. But at 185 million, we have about 150 million. Plus we have an accordion, plus we have another $75 million on our Freddie facility.

Then how much -- I don't know if this is valid or not. How much unconsolidated debt would count against you from a financing perspective that may not be showing up from a consolidated perspective?

That would just be the fund assets that are listed in the supplements.

Having said that, most lenders, believe that the fund is a completely viable entity. And I don't think that they attribute that debt to us. Typically. We own 22.8% of the fund. Fund S11 of the supplement.

I'll go through the calculation, but that helps, Mike. Then last question is related to additional fund activity in the future. How much capacity do you have within the Essex organization to add additional funds, and what would the additional G&A needs be if you had to add additional funds?

Our goal has been and as we've discussed in the past is to finish -- to have a fund in process at all times. So really had we not sold fund one in bulk we would have -- the goal was to have three funds. Have one in formation, one in maturation, and one in disposition format. So clearly with the acquisition staff we have and development staff, a minimum we would maybe add a couple accounting people, but that would be about it. So I think we have tremendous capacity that we're sitting on.

Thanks, guys.

[OPERATOR INSTRUCTIONS] Our next question comes from Tony Paolone of JP Morgan.

Thank you. You talked about your target availability in the portfolio being 6 to 7%. But then it sounded like all of the actual numbers were lower. I mean, what kind of rent bumps does that imply you can push before you sort of reach your target?

Tony, it's Mike. The only one I think that was actually outside that range was San Diego at 8.1%. So there was one outlier. But generally you're right. Availability, this market is a fast moving market. It changes fairly significantly. We were actually significantly above the numbers that I -- the numbers I gave you were as of last Monday. When you get into the holiday season, they were significantly above that. And we were struggling to maintain our target availability and being concerned about dropping rents and -- being concerned about dropping rents and locking ourselves in was a problem. So what we opted to do was shorten lease terms a bit. And try to bolster availability on some short-term reductions and rents.

So even though as of last Monday those numbers all appear under our target, it has not been that way consistently throughout the quarter. And the market moves pretty rapidly. And we try to react to it. So I think right now with that, with the availability that we have going forward, we are seeing rent increases, depends on -- in many cases on renewals you have bigger potential increases. But we are really throughout our markets able to get 5% type rent increases. Really the general statement.

Okay. On the expense side, looking at just the full-year expense growth by your regions versus your original guidance, what happened in southern California versus the other markets where it was kind of just backwards from what was originally projected?

Let me try that. The -- I think you really need to focus on the year. I think the quarter has some anomalies going on in it and doesn't take much of a dollar swing to make a significant percentage swing.

That's what I was looking at. It seemed like your original guidance was for the leased expense growth in southern California. And that turned out to be the most. And kind of vice-versa, some of the others.

Tony, I think you're splitting hairs here, frankly. I think that, with these percentages, you just -- the budget is a -- or the guidance is a educated -- I don't want to say educated guess. It's based on -- we build the budgets from the ground up, we take our best shot. And actual doesn't necessarily equal what we expect. So -- and the other thing is that, relatively small amounts of overall dollars can influence these percentages fairly significantly. So I don't think -- I think Mike is going to tell you that it's a combination of many different things that would be difficult to go into on the call. I don't think there's any significant trends or issues that are lurking in these numbers. And it's not a question that's easily answered. Mike, did I take the words out of your mouth?

Pretty good. Thank you.

Okay. Thank you. Then, Mike Dance, on -- can you go through your CapEx numbers again. Particularly the revenue-generating ones?

For 2006, we expect to incur revenue-generating CapEx of 320 per door. The nonrevenue-generating 2006 is $770 per door. Actual for 2005 was $595 per door.

Okay. What's creating the big jump there?

We -- given the opportunities to raise rents in 2006, we're focusing on revenue generating. Our redevelopment team has a full pipeline. So these are opportunities that we're doing outside of our redevelopment program. And the 770 just reflects some of the deferred maintenance that we need to get caught up on in 2006.

Okay. In the 320, though, on the revenue-generating side. Is that pretty well spread across the portfolio?

Probably, maybe 10 assets.

Okay. Okay. Thanks.

And our next question comes from Rich Anderson of Harris Nesbitt.

Thanks. Are TCT's rent below market, in your view?

We can't talk about TCT's rent.

Okay. Then maybe this question. When you first saw the TCT assets, were they in better or worse shape than your impression was going in?

I think with respect to TCT, we're not going to be able to comment until this whole process plays itself out. So I don't want to make any comments about their assets and what we -- what our expectations are, et cetera. I just think it's not appropriate, and we've been advised not to.

Okay. Well, then that's the end of my questions.

Sorry.

[OPERATOR INSTRUCTIONS] At this time, we have no further questions. And I would like to turn the conference back over to Mr. Guericke for any closing or final remarks.

Thanks for joining us. We appreciate your continued support, and we will have -- we will keep you all informed as to what goes on, and we will have conference calls as appropriate and bring all the questions out and answer them. But we appreciate your understanding and knowing that we just can't talk about certain things today. Thanks a lot. See you next quarter.

That does conclude today's conference call. We thank you for your participating. And you may now disconnect.