Good day ladies and gentlemen and welcome to the Fourth Quarter 2008 Essex Property Trust Earnings and 2009 Full Year Guidance Conference Call. My name is Stacy and I will be your conference moderator for today. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of the conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call Mr. Keith Guericke, President and Chief Executive Officer. Please proceed.

Good morning, thank you for joining our call this morning. We'll be making some comments in this call which are not historical facts, such as our expectations regarding markets, financial results and real estate projects. These statements are forward-looking statements which involve risk 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, Mike Dance and John Eudy. Included in the earnings release on your... on our website you will find our market forecasts for 2009. These forecasts reflect underlying assumptions that support the guidance for 2009. Also included with our earnings release 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 compared to the Essex markets. To get those details visit our website under investors and media. Last night we reported another strong quarter with core FFO increasing 10.2% per share. For the quarter the portfolio grew revenue of 3.4% greater than the same quarter in 2007 and six-tenths of 1% on sequential basis with occupancies at 96.6%. I was originally going to go through a long winded description of what happened to the national economy in the fourth quarter but, I realized everybody already knows what's happened. So I'd really... just we're going to look forward here and basically I think 2009 is going to be a pretty tough year and 2010 is probably not going to be much better. National job losses are going to be somewhere between 2 and $3 million and it's going to hit our markets. We've built our 2009 guidance of the optimistic end…

Thank you, Keith. Fortunately we have been fairly conservative in our development activities. The remaining committed exposure to complete our developments which are under construction is 259 million of which 88 million is funded by undispersed construction financing and the remaining 171 million comes from cash and our lines of credit. Of the 171 million, 100 million of the estimated remaining costs related to Tasman Place in Sunnyvale, can be postponed further by delaying the unit starts if the financial markets continue to deteriorate leaving with us with the net current committed cash requirement of 71 million. We are well positioned to adjust the timing of all our pre-development and land held for development starts to accommodate the financing issues in the market. Building during the cost compression stage of the cycle and delivering into the recovery phase of the economy, of course, would be the best execution. The most important thing to note in our pipeline is the average negotiation date on the land purchase price of our entire development exposure is 2004. So, we avoided the overheated acquisition market of mid-2005 to early 2008. During the quarter we had no additions to our pipeline. Defensively we decided to lease one of our pre-development projects known as Essex Hollywood to credit tenure through July 2012, hence delaying development and lowering our overall exposure. We also sold one of our land held for future volume transactions 90 Archer. On the remaining development activity, Belmont Station in LA is now complete and 80% leased, we anticipate getting to 95% leased by mid-Q2 if the current leasing phase continues. The Grand in Oakland is substantially complete and to date we have pre-leased 74 units out of our offside trailer. Our onside leasing office will in the building itself will open for occupancy,…

Thanks John and thank you for joining us today. Despite gloomy economic conditions, the fourth quarter of 2008 ended on a positive note with revenue growth in each region of Essex's portfolio compared to the fourth quarter of 2007. Again Northern Cal and Seattle led the portfolio performing near or above the high end of our original guidance range. For the year, revenue growth was 4.5% equal to the high end of the guidance range. For the quarter, most of the operating metrics were positive given the backdrop of the deteriorating economy. We made the decision to increase occupancy in each region of the portfolio early in the fourth quarter and then held that level throughout the quarter. Financial occupancy thus increased 0.3% to 96.6% helping push sequential revenues up 0.6%. We've been able to continue the high occupancy execution so far in 2009, as indicated by our physical occupancy and net to lease for the portfolio as of January 26, 2009 of 97% and 4.3% respectively. Delinquencies continued to be less in budget for the quarter, although more people with job related issues are moving out unexpectedly. Finally, same property concessions declined from $262 per turn unit in the fourth quarter of 2007 to $187 per turn in 2008. We commented on earlier 2008 conference calls that we were maintaining the defensive bias toward revenue management based on the weakness in the economy and rental markets. This approach favors occupancy over coupon rents, longer lease durations, diligent collection effort and limited corporate exposure. During the quarter, we experienced widespread job losses and announcements of future job cutbacks. At the same time, we are nearing the peak of deliveries of newly developed apartments in most submarkets, including several condo complexes now being rented as apartments. The combination of peak in…

Thanks Mike. Today I will highlight our 2008 results and provide an overview of our 2009 guidance. Our 2008 funds from operations came in at the high end of our guidance principally due to property operations achieving the higher end of the 2008 guidance in gross... in the net operating income, a very challenging economic environment. Other contributing factors for achieving 2008 results were the low interest rates on our variable rate demand notes and our $3.5 million gains from the early retirement of $53 million of exchangeable bonds. Offsetting these gains was non-recurring items related to severance benefits and a loan loss reserve related to a borrower that files for bankruptcy protection in November. As of December, we have over a $100 million in cash and marketable securities and only $35 million in 2009 debt maturities. In addition, we have over $300 million in capacity on our secured line and bank facility. And we have $60 million of construction financing for the $69 million of remaining cost to be incurred on the Joule development. Our Fund II is remaining, development costs are fully financed. The 2008 net operating income from unencumbered assets exceeds 87 million or approximately 32% of the total net operating income for the portfolio. Our 2008, I'm sorry, our $200 million bank facility has been extended through March 2010, and is our only debt that has financial covenants. We have significant capacity on all these financial covenants and our unencumbered net operating income can be used to obtain 10 years secured financing and provide maximum flexibility and financial strength for opportunities. The cash flow heads liability at December 31, 2008 was 73 million, which relates to 375 million and forward starting swaps that will be settled late in 2010 and 2011. The amount of this liability…

(Operator Instructions). Your first question comes from the line of Michael Salinsky with RBC Capital Markets. Please proceed.

Good afternoon actually. Real quickly, just in the past you've updated us on affordability in your markets. How does that stand today just given the pricing declines we've seen in this single family housing market right now?

The affordability of single family housing you mean?

The affordability gap relative between multi-family and single family.

We did not redo that calculation. What we'll... I'll do is, we'll do it and put it, maybe put on the website, so anybody who wants to see it can take a look at it. Because I don't have that at my fingertips right now.

That would be helpful. Secondly, looking at your portfolio, you have a good mix of both class A and class B assets. Have you seen any significant trading down from the class A to the class B assets?

Yeah Mike, this is Mike Schall. We've seen some of that. I mean... I think the key issue that we're dealing with is sort of a timing issue. You have general economic weakness at a time when the bulk of the deliveries which are all class A assets are hitting the markets. So you have sort of the worst of both worlds. You've got job losses onto one hand, and you've got especially in Seattle and downtown LA, and moving to district of LA and various other submarkets, you've the got bulk of the deliveries coming into the market. And so I'd say typically the As suffer as things compress during economic stress, which is clearly happening now. But the Bs are right behind us. So I wouldn't say the Bs are immune from that obviously. I think everything is in the marketplace. Again, largely driven by just timing factors. And there is just way too much supply coming online at a time when you have demand shock. So I think everyone is affected by that. I think the As are affected to a greater extent, but nonetheless it's painful for all.

Okay.

And Mike, it turns better and your first question, this is John Lopez, even with the changes in the interest rates and prices, in our market our affordability rates are running at or below long run averages and our rent to income are at or below long run averages. So the imputation that too is that, the cost of the renting versus owning is still a breakable for us right now.

So those were words of John Lopez, our Economist.

That's very helpful. Then, third the 2 million of debt extinguishment I think you have in the first quarter there. I'm assuming that's from your exchangeable notes. Do you expect to continue to repurchase additional exchangeable notes throughout the rest of the year?

If it's economically to our advantage, meaning that to take those out, we're going to need to get six and a quarter GSE type financing. So, if we can get yields to put that or at that level or better, we are a willing buyer. But we haven't seen many sellers at those type of pricing. So, we'd love to but it's beyond our control.

Okay. And then finally Keith a question, a bigger picture question for you. You talked a little bit about 2010 as being another challenging year. Just given the gain of lease in place right now in the portfolio as well as the benefit in 2009 from the LIBOR rates, could 2010 be a worse year than 2009?

That's a wonderful question. And we don't think so, we think that '09 is going to be a tough year. We think that the first half of '10 is going to continue to sort of be the front-end of the recovery. And it will still be tough, but it will start getting better. So I'd expect that first half of '10 to be, continue to be pretty tough and then the second half of '10 starting to see the light of day. So, overall for the whole year of 2010 I would expect to be slightly better than 2009.

That's very helpful. Thank you.

Your next question comes from the line of Michelle Ko with UBS. Please proceed.

Hi. I was wondering if you can give us more color on the move outs that you are seeing unexpectedly. Is it because of doubling and tripling up or people moving home with their parents?

Michelle, it's hard to track exactly where are those are coming from but, and so it's more anecdotal than anything else. But, so we had and I would say it's not is a larger factor. Actually, I have said this on the last call for the third quarter. I know in my opinion it's not as larger factor as the benefit we're receiving from lower move outs to buy a home. And, but still it's something that we are beginning to track and trying to keep our eye on. So still not a significant factor. Just something that is entered the equation that's different from six months ago.

Okay. And also can you talk a little bit about renewals, terms like some of your competitors are becoming more aggressive. On the renewal side as well. Are you giving concessions at this point on renewals to lock in occupancy?

We are in some cases and we're not another. So it really is a region by region decision. You can imply from the fact that we'd probably have the highest occupancy out there in the multi-family world that we are being very aggressive with respect to renewals, which means we will give some concessions if we need to. Obviously, when you are faced with turnover costs that can range from a 1000 to $2000, you would rather keep your existing residents in place. And, we're very mindful of that obviously and we spent a lot of time on renewal strategy. And, but I would say that there is no sort of overwriting corporate approach to renewals. It's a little bit different in every market depending upon the factors and conditions of that market. But it's something, yes we are very aggressively pursuing and execute as key part of our overall strategy.

Could you talk about what some of those markets where you might have to be giving concessions, what some of those markets are and how large are some of those concessions?

Well, the concessions are typically in the markets that have the greatest supply. So right now you have very significant amounts of supply coming online in downtown LA and the arena of LA, arena district in Woodland Hills. In Orange County, you've got a number of lease-ups that are happening there. Downtown, Seattle we talked about it. Say all of those are areas that are offering, the new product coming into the market is offering typically two months free. You need to compete with that. And again lot of this just attributable to just the timing of when the bulk of this supply is coming online, occurring exactly when the job market is the worst it's probably been in a long time. So we sort of have the worst of both worlds, you have typically two months free and sometimes more than that in a lot of new product that are coming into these marketplaces and we are competing against that. So you should expect that we can outperform that dynamic by any huge margin. You've got to compete with the factors that are in place in the marketplace.

Okay, great. Thank you.

Your next question comes from the line Michael Bilerman with Citi. Please proceed.

Hi Guys. This is David Toddy (ph). Just a sort of big picture of question. I know you touched upon the government stimulus coming probably aimed at the single-family housing market. Given your relatively optimistic view of job loss for the year, are you more concerned about this single-family home stimulus than job loss, or would you say it's a bigger concern for the later half of year.

The stimulus in a way it's being read, the tax credit in the $7,500 range, that's significant in homes that are $200,000 or less in all markets. It's 400 plus in Southern California, 600,000 in Northern California and 400 in Seattle. That represents 1.1 to 1.2% of the prices. So it is not as big a factor in our high price single family markets.

Okay. And then I'm just moving over to the development pipeline. You've got about a 100 million invested in starts and land parcels. I assume there was a year-end test for value or impairment, given the... I think a relatively optimistic view of your markets going forward. What do you think your tolerance is around that test, the value test for those parcels?

David, this is Mike Dance. The impairment test is only for developments that we are not intending to develop. And so far these are all in-field type markets. We are looking at possibly delaying them, but we have not abandoned any of the development pipeline.

I noticed that you pulled dates off of the two projects in pre-development?

Yes, again that's just provide flexibility as John mentioned in his comments, to make sure we're well positioned to start when financial markets will be able to... where we can get financings for the developments, and provide the delivery of the time is going to be a pent-up demand.

Yeah. And one follow-up, the land base number that we're in at remember is anywhere between four and 4.5 years prior, which put us in a much better position than had they been deals that were tied up in the last two or three years.

How long can you guys carry those projects with that sort of... in terms of an extended start date?

We have the financial power or capacity to carry on for as long as we think there is going to be economics so that they justify the ultimate development.

And another thing to note too, much like the Hollywood deal that we just re-did the lease on, each of them if you go down a predevelopment main street Walnut Creek, we are in the process of vacating it, it includes about 65,000 square foot of office and retail right in the downtown core of Walnut Creek. We can choose, should we decide to at some point to release it. Campus includes about a 12, 13 year old building. We are in just in the process of moving out the tenant and that includes 260 to 2,500 net square feet of completed office buildings. These aren't completely vacant land parcels. They have intrinsic value at numbers that are, have alternative financial decisions that we could choose, should we decide to further delay it, we can change our business plan.

Okay, that's helpful. And then just one last question on your disposition plans, for the100 million, can you tell us anything about your pricing expectations, what types of assets those might be in the timing?

These assets... the assets we're looking at in 2009 are essentially we're looking at assets that we have no debt against, so that would generate maximum cash proceeds from the sale. They are generally smaller properties, generally decent quality. So, we think in the marketplace that decent quality property and those markets are going to be 6 to 6.5. And that would be our expectation that we are frankly we are marketing, marketing situation. So I think any comments beyond that are probably inappropriate.

This is Michael Bilerman speaking. Just on the capitalization on the land and pre-development versus the land held for future, what are you doing in terms of capitalizing interest on that... on those?

To the extent that we're continuing to actively develop which would include getting beds and working on designs, get the most cost effective costs, we continued to capitalize interest to the extent that they are postponed. And we're just waiting for times to improve we've stop capitalizing interest.

And then on the Hollywood side, what was the dollar amount sort of the effective yield you're getting now on the assets?

6 cap.

And dollars?

Dollar amount of the lease?

Yeah. (inaudible).

The base is about 23, $24 million, so six cap on that. I don't have the right number on top of my finger tips sorry.

Okay, thank you.

Your next question comes from the line of Jay Habermann with Goldman Sachs. Please proceed.

Hey guys. Keith, you mentioned job losses of maybe 2 to 3 million at the national level. You guys selected the 2 million number. How much would the forecast change if you had to assume the 3 million job losses? And I think you talked specifically about 100,000 losses in your terrific markets.

Right. Exactly I mean if you look at the various expectations in the marketplace. As I said the range, I mean now we've got access to the Wall Street Journal and other documents, so that loss... job losses range from 2 to 3 million. We looked at what happened in the fourth quarter and again look at the types of jobs that we have in our marketplace and a significant portion of the jobs that have been lost have been manufacturing, number one. Number two is single family or just construction in general. And so if you look... if you take again looking at our markets in the $100,000, 100,000 jobs are really related to the jobs clarification that we have in each of our market. So, John Lop is here and he probably could maybe give you a better answer as to if we looked at the $3 million range, what would be the job loss be?

Well, there is a 2 to 3 million, if you would go to 3 million, my anticipation was because you know some of the sectors that we don't have at worse, the impact could be we could potentially lose, instead of the 100,000, it will could to the 125 135, which would have some small or not a huge impact on our level of growth upfront in '09.

Yeah just trying to get a sense of how much that built into the guidance number. And then I guess to follow on to that is it just seems like Northern California and Seattle seem to be lagging and that they had better performance from much of last year but they are only starting to see the slow down just now.

You have to remember that in... their big cutbacks in economies that we have that are keeping us from being cut back now occurred in '02, '03, '04. Seattle, they lost 100,000 of manufacturing jobs in one year and we didn't gain much of that back. So we went... Seattle and Northern California went through a deep pairing of jobs more than most economies in the '02- '04 period.

Jay, I've got one more thing and that is my comments for Southern California. Remember Southern California has been in the midst of sort of finding the some of the battles with respect to job losses for a couple of years now. Ventura County being the most notable example or San Diego County as well. So I think that as you... we are more concerned about Seattle as I commented early over the longer term. But at the same time I think Southern Cal sort of works through its issues and it may one day be a very significant positive force for us. So that's roughly half our portfolio. So I think you have to look at each piece separately, so if you are going to say gee, Northern California is still going down, don't forget that Southern California probably bottoms out in 2009.

Right, and then and just back to the cap rates you mentioned maybe 6 to 6.5% for your dispositions but if that broadly applies to the market. Does that mean that you need to see development yields now of the mid 8% range? And I guess how far away are we from those kinds of opportunities? Sounds like you are shifting more towards future acquisitions I guess as forward going?

Well, we're stay... as I said we're going to flexible and look for the opportunities. And if we see acquisitions in the 8 to 8.5% range, we'll jump on it. If that happens, it will probably be a very, very small window which isn't going to stay there very long I'd guess. And so the answer is yeah, we've always been opportunistic. We've always tried to stay flexible and development when cap rates in the acquisition front where 4.5 development, a heck of a lot more sense and it will flip around on us. So if... wonderful thing about this market, it flips back and forth, you got to be ready to take your spots and you can't get to focus on any one particular activity.

I'd add something to that too. I mean I think that's the 6 to 6.5 cap expectation and obviously others have reported similar type numbers out there in the marketplace, fairly distinctly different from how the public marketplaces value on our company. So as long as that differentials in place i.e., employ capital of the company relative to the transactions in the private world are as large as they are. They create so I think other opportunities. We obviously wouldn't do a lot of development or acquisition, you would look at the other opportunities such as depositing off some properties and buying their securities back that which is I think pretty unique opportunity right now.

Well you mentioned $100 million but would you expand that?

We're flexible. The issue is that we can do that $100 million and not have to do worry about 1031 exchanges and use all that money for whatever we want to use it for. And if we go beyond that, we have to start looking at 1031s and it becomes less effective but for the right opportunities, yes.

Okay and just lastly, can you talk about homes being rented? I mean how significant is that in market... especially in Northern California?

It's becoming a greater factor to allow our portfolio although it's not a huge factor. It tends to be the largest factor in the more affordable single family markets. So it's for example a huge factor in Riverside County, but still you have this differential where the housing prices are still single family, for sale prices are still very high in most of the coastal markets. And as a result, it's not viable to buy a house and rent it out and expect to make money in that transaction. So it is still the exception rather than a rule, although again it's certainly happening more now than it was a year ago.

And just to add to that, in some secondary markets that we are not currently operating in, you can rent brand new homes competing directly with existing market rents. So in other markets, it's getting much worse.

Okay, thank you.

Your next question comes from the line of Rich Anderson with BMO Capital Markets, please proceed.

Hey, thanks and good morning I guess to you guys.

Good morning.

Keith, can you talk about dividend policy and your thoughts about stock dividends and what the plan might be for Essex?

Yes, our policy has been to increase our dividend on an annual basis approximately at the same rate as our FFO growth has been for the previous year. So last year 2008, we increased our dividend 10%. This year, we've got a 10% FFO increase. However, I would not expect that we would be looking at the 10% dividend increases given the financial markets and that we will increase the dividend but it will be minimally because it makes more sense to keep the cash in house. Number one. Number two with respect to stock dividends, our payout, our dividend payout ratio is in the 70% range. We have plenty of room. We've got a capital plan in place that is... covers this out for three years. So we are not going to go to the stock and cash dividend plan that is being done (ph) around by others.

Okay and then maybe a question for Mike Schall. You mentioned the health, relative health of the San Francisco and Bay Area I guess, and wanted to know if you were seeing any impacts on the negative from a pullback in the venture capital marketplace?

That's clearly a part of what's happened up here. And but I guess the difference is, reading the various press releases out there, it seems like the tech companies are dropping 1000 and 2000, actually HP is a notable exception with its merger but with a much smaller numbers in general. As it relates specifically to venture capital, we've seen some venture capitalists instructions to their portfolio companies to get positive and cash flow and don't expect us to change any time in the near future. And as a result of that they too have laid, have joined the lay-off program and that has contributed to a softer outlook in terms of the Northern California market. But again not in huge magnitude, not huge dollar amounts or job loss amounts and therefore we think that we have built that into our guidance and our job growth expectation for 2009 and John Loop (ph) is here. He may want to comment on that, and follow up on that. Anything specific to venture capital John?

No.

Well, I mean one thing I recall that a year ago is you guys were talking in a positive tone of course about Seattle and that sort of suddenly took a turn this past quarter. Is there any risk that D.C. could have a similar impact, say six months down the road to the Bay area?

I mean obviously anything can happen, but remember Seattle... and again I can't emphasize this enough. This is a cancels a two things: on the demand side you have job losses up there. And again I mean I have looked at a lot of press releases and I got... I have a lot of them here, your typical numbers in the Seattle area are like 5,000 jobs. But look at Yahoo! and e-Bay and those have seen 1 or 2,000 jobs typically and were much bigger market in the Bay area related to Seattle. And then the supply picture, I mean the supply picture in Seattle is pretty huge. And it's all concentrate and it's all hitting now. So to a certain extent a lot of this is just pure timing of when things happen. Obviously, we've got to play the cards that we're dealt and it's going to be a difficult environment. But I'd say the same thing I said, I didn't say today but on the last call which is at the end of that process, the supply pipeline dries up and we are going to be left with a period of extreme housing shortage I think really throughout the West Coast. So I guess to answer your question I don't see Northern California repeating what happened in the 2001 to 2003 period, primarily because I just don't see the... you don't have the overhang of the H1T Visas that we had back then. You had... you had all the Y2K and internet bubble employment that flipped around and went the other direction. You had Venture Capital at all time highs and that bubble burst. So you had a bunch of bubbles back then I guess that's the other key point that sort of burst all at once and gave back most of the employment that was gained in the late 90s. This time around, I'm just releasing like that. I will see a bubble there to burst. And therefore I don't see the downside with respect to the job picture, and conversely you don't have the supply. So I think it's a completely different scenario than the 2001 to 2003 period. And it's a dramatically different scenario as well with respect to what's happening in Seattle and downtown, Belvieu.

Okay, great. Thanks very much.

Your next question comes from the line of Philip Martin with Cantor Fitzgerald. Please proceed.

Good morning everybody. A question for Michael Schall and certainly Keith as well. And it was addressed a bit earlier. I just wanted to fine tune it maybe a little more. But the portfolio is made up of certainly good locations and desirable markets. But you have at least from my analysis, have a relatively more affordable product in your market. It's a bit older. Your cost basis might be lower than some of the competition in that market. Those factors, when you combine them, how much more competitive does that make you in a month... in those markets, given the economy. And when might we see that here in the cycle... when might we see that extra competitiveness that you have that leg up that you might have?

Alright. I think typically having been through a few of these cycles that things tend to compress as the markets deteriorate. So, in other words, the Bs outperform the As in the same marketplace. Now in that scenario, it doesn't mean that one is going or rents are going up in the Bs and down in the As. It just means that the percentage changes are different. They both go the same direction in my experience. So I think you are seeing some advantage of that. I think you can compare the fourth quarter overall revenue results across the board. And I think you are going to see... I think you are seeing some of that basically. Again, it doesn't mean that one is going to go one direction, the Bs are going to one direction and As are going to go different direction. It just means that the magnitude of the change is going to be different.

And from an occupancy standpoint. I know occupancies in your markets are pretty high anyway and they are certainly high in the portfolio. But, are you starting to see even on the occupancies side yet, or you are occupancy is holding a bit more firm than the competitors?

Well, I did go through the occupancy number, including physical occupancy in January '09, end of January and it seems to be hanging in there. It is somewhat more challenging the whole occupancy in this marketplace. And as time goes on, this is sort of a momentum industry and I think we are carrying a fair amount of momentum into 2009. And I certainly hope that holds. I have a little bit of difficulty giving you exact guidance on where occupancy goes. I think that we are budgeted to give up some occupancy because holding 97 in a market that we expect to be in the 95 range, I think does reflect some inherent safety in the B product. And I think will be able to hold a 2% differential, but clearly we are budgeting occupancy above what is in John Lopez's market expectations, publicist part of the supplement.

I guess it was more along the lines of, from the competitive product in your market or what maybe deemed competitive product in your markets as you're relatively more affordable, arguably more affordable, older product holding up or able to hold up a bit better than some of the competitive products in your market.

I certainly hope it's apparent that it is. Because from my read of our fourth quarter results again relative to others, my read is it's holding up better.

Are you out, do you know if you're outperforming the markets in January in terms of occupancy? Are you a 100 basis higher or about equal --

We are better than the markets in occupancy, yes.

Okay, okay.

Yes. And all you have to do is really go to some of the new product in some of these marketplaces and look at what they are renting the new units for. And we can outline give you names of product that you can take a look at. But the issue is if people on the new product... the owners of new product are becoming extraordinarily aggressive with respect to rents, the B product has got to become extraordinarily aggressive with respect to rents. It doesn't... they are not completely independent of one another. They all relate and they all compete within the same marketplace. And as a result there are sort of shades of one another. So, anyway if you like to have a conversation I'll be glad to continue.

No. And my last question is really I mean how transient really is your typical tenant? I mean these markets are not the cheapest markets to live in, whether it's rental or housing, they are close and to major destination et cetera, they are well located et cetera. But I mean how mobile, I mean these are in many cases two income households or families, it's not just real easy to pick up and move and move back in with mom and dad, especially if they are not living in California. So, the tenants I know maybe loosing jobs, they might be having some trouble but I would have to imagine and I might be wrong, but I would have to imagine that they are probably pretty sticky, they need to be there somewhere in that market and is that a fair characterization?

Yeah, I think it is. And remember, I mean the rental market, it changes over time. You've got people to enter that are younger college graduates, entering the rental market. I have three kids, none of whom I assure you want to move home with mom and dad. And they, I would call that pretty darn sticky. I mean there is another piece of the renters pool that represents people that are older that will never be able to afford a home, notwithstanding the mortgage craziness of the last year or two that will never be able to own a home. We like that. We think that makes up a significant amount of our renters. And so I think that there are some inherent sort of safety things in the product and the locations given the housing, the limited housing alternatives that you have here. And I think that's helping us as well.

Okay. Well yeah, if California ever gets affordable I think we are all in trouble. So, okay thank you for your answers.

Thank you.

Thank you.

Your next question comes from the line of Chris Summers (ph) with Greenlight. Please proceed.

Hi. Earlier you referenced your ability and desire to access GSE financing. I was wondering if you could talk about, what your capacity is to access those markets and talk more about kind of what the terms of some of that debt looks like in terms of, it is strictly secured, what types of LTVs do they look for, how long can you go out in terms of duration and where are they kind of pricing? Just to kind of get that feeling for, if you wanted... if you could really all completely refinance your balance sheet with this type of money, how much can that benefit you?

The pros of it is the... there.

Yes sorry.

The pros of having secured financing is as I mentioned in my remarks the fact that there is really no covenants associated with them. So once you have the lot in place, you have that opportunity to do as you described and get additional GSE financing. The GSEs are in business and they are eager to loan. What we have been experiencing is a lot of volatility in the spreads and that volatility is inversely related to the tenure index. So we accept that the tenure takes to pop up, their spreads come down, to accept that tenure goes down then their spreads go up. And they are kind of honing in at the low 6% type range, 6 to 6.25 depending on asset quality. The loan to value is more of a function of a debt service coverage ratio. They are targeting 120 to 125. You can get slightly lower rates by giving them higher debt service coverage ratios. There are five year products, there are 10 year products. Our philosophy has been to have about 10% of our debt maturing in any one year or so. We like the 10-year product. It just kind of letters our cost of funds and we're long term holder. The negative is as Keith mentioned in his call, the 10 year debt becomes inefficient over time as net operating income increases on the asset. And you pay principal payments on a 30 year amortizing loan with the 10 year balloon and five or six years into it becomes inefficient, makes you look at getting second loans on some of those. Probably the biggest determinant is there are make whole provisions that are very onerous if you sell the asset and buyer doesn't want to assume the loan. To answer your other question about what our capacity is, it's a fairly easy calculation. I mentioned in my remarks that we have about $87 million of net operating income. Some of that's needed to fund the $200 million bank facility that we have. They require... one of the covenants is that we set aside some of these encumbered assets to in effect secure the unsecured facility. So it's kind of a moxie moron (ph) but so in essence that even though it is unsecured, they do require an unencumbered pool. But again that's only $200 million of our debt of which none of its currently outstanding or very little of it. So we're not incumbent to keep it. We have the flexibility of not having a bank facility. And so if you take the 87 million divided by 125 debt service coverage, use whatever interest rate you want to use that will imply where our capacity is if we dump the bank facility. Does that answer your question?

Yeah and then, a couple of follow up questions. If the 6 to 6.25% term right now, how does that compare to a year ago?

They are about the same. Again even though the index has dropped, what's changed dramatically is the spreads. A year and half ago, we were getting 80 basis points spreads. Now we're paying 350 basis points spread so.

Got it. And then in terms of the Fed's plan, they to target this 4 to 4.5% mortgage rate. Would you expect that to benefit on your cost of financing as well kind of similarly?

I don't think so. I think they are using the profits they're making from spreads on our loans to fund the losses, the single family. But that's more of an administration, you'd have to... I don't know the answer, so I am speculating.

Got it. So they do treat lending money to you guys differently than the single family market?

Yes.

Got it. And then does the money come directly from Fannie or Freddie or they are just guaranteeing it and then there is other buyers because of that?

Right. The latter.

The portfolio, so I believe that but for the part they sell if off.

Got it. That's helpful. Thank you very much guys.

Welcome.

Your next question comes from the line of Rob Stevenson with Fox-Pitt Kelton. Please proceed.

Thanks guys. Just a couple of quick questions. You guys talked about how you are being aggressive on renewals before. How aggressive are you being these days with credit underwriting? I mean are we to the point yet where you are willing to tweak your credit requirements slightly downward in order to increase the pool of available runners?

Generally no. No, we have not changed our credit or our underlying standards, and we don't expect to other than maybe one in a hundred properties or something. We generally don't want to go down that run because in our experience, you end up creating a delinquency issue which is just difficult to deal with. So we are going on hold tight on credit standards.

Okay and then lastly you talked about assumption of 100,000 job losses in your markets in 2009. What was that number in your markets in 2002, roughly a similar point in time in the last recession?

Rob, just to give you an example, it was almost 100,000 in San Jose alone in one year and...

200,000 in two years.

So it's very little compared to just what happened across our portfolio in that time period. I would say I would probably say we loss almost 2 to 3 times at one year in our markets.

But John, I mean you create the context. The context is there was also a huge run up in to us prior to the 2001, 2002 job losses. So you had essentially all the Y2K and Internet boom jobs and capital created the bubble and then the bubble burst and it came back down. I mean correct me if I'm wrong. It doesn't appear to be a bubble this time. So a $100, 000 a 100, 000 job losses when there is no real bubble to speak of is a much more... is a reason why it won't be worse, we wouldn't expect to be much worse, is that right?

Just an example in Silicon Valley, just two years before that, the job growth which is typically between 1 and 2% was over 5% and I believe 4% the previous year. So there was a huge build up and that's why we think this time came almost all from technology which we haven't had this time. That's why we believe that the tax sector is relatively better off than some of the other sectors that has built up.

Okay, thanks guys.

Your next question comes from the line of David Harris with Royal Capital, please proceed.

Yeah, hi guys. You may have touched upon this. Forgive me if I am asking something you have already gone over. But are you seeing distressed opportunities across your markets and I am talking land as well as rental properties?

I'll let... this is Keith... I'll let John tackle the land but the answer is we are seeing some distress in several Southern California markets. However, it isn't to the level where we feel that our cost of capital makes a lot of sense. But yes, they are essentially... what we are seeing there is we are seeing some condo deals that can't be sold and the developers are broke, the products going back to the bank, the bank really doesn't want to deal with. So they probably like to sell it but we need pretty significant or I think most of the investors need pretty significant prices. And it hasn't been there but there are distressed situations clearly out there.

Keith I think it'll be fair to say that it's... we don't see deals out there as distress as our stock price?

Yeah.

On the land side, we are tracking a few deals, and we would love to tie up and steal a few deals over the next year because being countercyclical, buying the downtimes and deliver on the recovery. But what tends to happen with most land deals in our -- in a core markets is sellers usually have the option of hanging on. It's a general rule unless they're over financed and getting land loans to buy speculative land are very pure and far between even in the really good times. So there are very limited opportunities that we could pursue. We're out in the Valley or Riverside or tertiary markets that would not be the case. But we just have not been able to see things. People pulling their horns, they decide to leave it as a parking lot longer and not sell it. So yes, we'll see a few things that we may end up tying up over the next year but I don't think it's going to be much.

Can you just remind me, have you got any capacity left in the second fund?

We do not.

Okay. Any temptation to talk to investors about a third fund to take advantage of these type of opportunities that may be 6, 12 months down the track?

Yeah, David I don't know if you were in the last, we've actually had the last couple of calls that talked about creating a fund three, and we are investigating that. Unfortunately, most investors, most of the state pension funds et cetera have been suffering from the denominator effect. And as a result, there's not a lot of cash flowing right now. We are continuing to monitor that and that's one of the... I talked about being flexible and that's one of the flexible pieces who are puzzled this year if we can capture some of that type of capital, we will absolutely do it.

But maybe you need to market to a different constituency?

Well, I'll call you after you after the call.

Alright. Thanks guys.

Okay.

(Operator Instructions). Your next question comes from line of Karin Ford with KeyBanc Capital Markets. Please proceed.

Hi guys, juts one quick one. Just wondering about California's state budget woes and the S&P downgrade heavily, do you expect that to have any impact on layoffs? Does that continues and or do you expect any revisiting on perhaps their team if things continue the way they are in California?

I mean right now the Governor has put the employees of the state on a two day furlough. So clearly the state is trying to address these issues and control the bleeding. I don't know I mean clearly if they don't solve some of these priorities, some of these issues, probably some of the state projects will either get put on hold. I expect that part of the federal government's bailout is those cash dollars are going to come to California in a pretty significant way to solve some of the problems, which is a short-term fix. Prop 13 is a subject that comes up all the time. I mean clearly if the Prop 13 was designed to keep the residential, the homeowners in their homes because taxes were going up and people can't afford to live there. If it were to happen, where and there is no indication I mean it comes up all the time and it's always been beaten down. So, if we were to come up very, very clearly, they would go after the non-residential. Clearly the homeowners would vote themselves out and they would be a matter of whether the multi-family people could drive the homeowners curtail. So that's all speculations having said that, and there is no current indications that any of that's on the drawing board.

Let me add one thing Karin to that and that is Arnold Schwarzenegger has indicated its quote unquote the third rail of California politics having been tried several times before, and so politically very undesirable. Not that it could be tired again. But the other piece of it is that requires a two thirds vote which getting a two thirds vote is pretty difficult to state.

Sure. Do you know how does the furlough effect you guys at all or do you have a lot of state employees in your property?

Again it's a furlough of two days per month. So I mean it's not like people are --

Can't afford the rent.

Can't afford the rent.

Got it.

So, I mean it's a factor, but I don't... we haven't had any comment from any of our residents with respect to it.

Right. Okay, thanks you very much.

At this time I'd like to turn the call back over to Mr. Keith Guericke for closing remarks.

Well thank all of you for being on the call. And it ran a bit little bit longer today than normal, but we appreciate your support. And we'll talk to you next quarter. Thank you.

We thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect. And have a great day.