Equity Residential - 10-Q quarterly report FY

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2005

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-12252

EQUITY RESIDENTIAL

(Exact Name of Registrant as Specified in its Charter)

(312) 474-1300

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  ý  No  o

The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding on March 31, 2005 was 286,616,340.

EQUITY RESIDENTIAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.             Business

Equity Residential (“EQR”), formed in March 1993, is a fully integrated real estate company engaged in the acquisition, development, ownership, management and operation of multifamily properties.  EQR has elected to be taxed as a real estate investment trust (“REIT”).

EQR is the general partner of, and as of March 31, 2005 owned an approximate 93.2% ownership interest in ERP Operating Limited Partnership, an Illinois limited partnership (the “Operating Partnership”).  The Company is structured as an umbrella partnership REIT (“UPREIT”), under which all property ownership and business operations are conducted through the Operating Partnership and its various subsidiaries.  References to the “Company” include EQR, the Operating Partnership and each of the partnerships, limited liability companies and corporations controlled by the Operating Partnership and/or EQR.

As of March 31, 2005, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 939 properties in 32 states and the District of Columbia consisting of 199,510 units.  The ownership breakdown includes:

2.             Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included.  Certain reclassifications have been made to the prior period financial statements in order to conform to the current year presentation.  Operating results for the quarter ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

For further information, including definition of capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2004.

Stock-Based Compensation

The Company elected to account for its stock-based compensation in accordance with SFAS No. 123 and its amendment (SFAS No. 148), Accounting for Stock Based Compensation, effective in the first quarter of 2003, which resulted in compensation expense being recorded based on the fair value of the stock compensation granted.

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consolidated the results of operations beginning April 1, 2004.  The adoption of FIN No. 46 did not have any effect on net income as the aggregate results of operations of these development properties were previously included in loss from investments in unconsolidated entities.

The Company generally contributes between 25% and 35% of the project cost of the joint venture projects under development (constituting 100% of the equity), with the remaining cost financed through third-party construction mortgages.  Voting rights are shared equally between the Company and its respective development partners and accordingly, these projects were accounted for under the equity method prior to adoption of FIN No. 46.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.  SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity.  On November 7, 2003, the FASB issued FSP No. FAS 150-3, which deferred for an indefinite period the classification and measurement provisions, but not the disclosure provisions (see discussion below), of SFAS No. 150 as it relates to noncontrolling interests that are classified as equity in the financial statements of a subsidiary but would be classified as a liability in the parent’s financial statements under SFAS No. 150 (e.g., minority interests in consolidated limited-life subsidiaries).  The Company does not have any mandatorily redeemable preferred shares/units that fall within the scope of SFAS No. 150.

With regards to the aforementioned disclosure provisions, the Company is presently the controlling partner in various consolidated partnerships consisting of 39 properties and 6,929 units having a minority interest book value of $12.5 million at March 31, 2005.  Some of these partnerships contain provisions that require the partnerships to be liquidated through the sale of its assets upon reaching a date specified in each respective partnership agreement.  The Company, as controlling partner, has an obligation to cause the property owning partnerships to distribute proceeds of liquidation to the Minority Interests in these Partially Owned Properties only to the extent that the net proceeds received by the partnerships from the sale of its assets warrant a distribution based on the partnership agreements.  As of March 31, 2005, the Company estimates the value of Minority Interest distributions would have been approximately $69.1 million (“Settlement Value”) had the partnerships been liquidated.  This Settlement Value is based on estimated third party consideration realized by the partnerships upon disposition of the Partially Owned Properties and is net of all other assets and liabilities, including yield maintenance on the mortgages encumbering the properties, that would have been due on March 31, 2005 had those mortgages been prepaid.  Due to, among other things, the inherent uncertainty in the sale of real estate assets, the amount of any potential distribution to the Minority Interests in the Company’s Partially Owned Properties is subject to change.  To the extent that the partnerships’ underlying assets are worth less than the underlying liabilities, the Company has no obligation to remit any consideration to the Minority Interests in Partially Owned Properties.

3.             Shareholders’ Equity and Minority Interests

The following table presents the changes in the Company’s issued and outstanding Common Shares and OP Units for the quarter ended March 31, 2005:

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The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the “Minority Interests – Operating Partnership”.  Subject to certain restrictions, the Minority Interests – Operating Partnership may exchange their OP Units for EQR Common Shares on a one-for-one basis.

Net proceeds from the Company’s Common Share and Preferred Share (see definition below) offerings are contributed by the Company to the Operating Partnership.  In return for those contributions, EQR receives a number of OP Units in the Operating Partnership equal to the number of Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preference units in the Operating Partnership equal in number and having the same terms as the Preferred Shares issued in the equity offering).  As a result, the net offering proceeds from Common Shares and Preferred Shares are allocated between shareholders’ equity and Minority Interests – Operating Partnership to account for the change in their respective percentage ownership of the underlying equity of the Operating Partnership.

The Company’s declaration of trust authorizes the Company to issue up to 100,000,000 preferred shares of beneficial interest, $0.01 par value per share (the “Preferred Shares”), with specific rights, preferences and other attributes as the Board of Trustees may determine, which may include preferences, powers and rights that are senior to the rights of holders of the Company’s Common Shares.

The following table presents the Company’s issued and outstanding Preferred Shares as of March 31, 2005 and December 31, 2004:

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(1)   On or after the redemption date, redeemable preferred shares (Series B, C, D, K and N) may be redeemed for cash at the option of the Company, in whole or in part, at a redemption price equal to the liquidation price per share, plus accrued and unpaid distributions, if any.

(2)   On or after the redemption date, convertible preferred shares (Series E & H) may be redeemed under certain circumstances at the option of the Company for cash or Common Shares, in whole or in part, at various redemption prices per share based upon the contractual rate, plus accrued and unpaid distributions, if any.

(3)   Dividends on all series of Preferred Shares are payable quarterly at various pay dates.  Dividend rates listed for Series B, C, D and N are Preferred Share rates and the equivalent depositary share annual dividend rates are $2.281252, $2.281252, $2.15 and $1.62, respectively.

(4)   Series B, C, D and N Preferred Shares each have a corresponding depositary share that consists of ten times the number of shares and one-tenth the liquidation value and dividend rate per share.

The following table presents the issued and outstanding Preference Interests as of March 31, 2005 and December 31, 2004:

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(1)   On or after the fifth anniversary of the respective issuance (the “Redemption Date”), all of the Preference Interests may be redeemed for cash at the option of the Company, in whole or in part, at any time or from time to time, at a redemption price equal to the liquidation preference of $50.00 per unit plus the cumulative amount of accrued and unpaid distributions, if any.

(2)   On or after the tenth anniversary of the respective issuance (the “Conversion Date”), all of the Preference Interests are exchangeable at the option of the holder (in whole but not in part) on a one-for-one basis for a respective reserved series of EQR Preferred Shares.  In addition, on or after the Conversion Date, the convertible Preference Interests (Series H, I & J) may be converted under certain circumstances at the option of the holder (in whole but not in part) to Common Shares based upon the contractual conversion rate, plus accrued and unpaid distributions, if any.

(3)   Dividends on all series of Preference Interests are payable quarterly on March 25^th, June 25^th, September 25^th,and December 25^th of each year.

(4)   On February 1, 2005, the Company issued an irrevocable notice to redeem for cash on March 3, 2005 all 1.1 million units of its 8.50% Series B Cumulative Redeemable Preference Interests with a liquidation value of $55.0 million.  The Company recorded a write-off of approximately $1.4 million

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in original issuance costs as a premium on redemption of Preference Interests (Minority Interests) in the accompanying consolidated statements of operations.

(5)   On February 7, 2005, the Company issued an irrevocable notice to redeem for cash on March 23, 2005 all 220,000 units of its 8.50% Series C Cumulative Redeemable Preference Interests with a liquidation value of $11.0 million.  The Company recorded a write-off of approximately $0.3 million in original issuance costs as a premium on redemption of Preference Interests (Minority Interests) in the accompanying consolidated statements of operations.

(6)   On April 1, 2005, the Company issued an irrevocable notice to redeem for cash on May 1, 2005 all 420,000 units of its 8.375% Series D Cumulative Redeemable Preference Interests with a liquidation value of $21.0 million.  The Company will record a write-off of approximately $0.5 million in original issuance costs as a premium on redemption of Preference Interests (Minority Interests) in the second quarter of 2005.

(7)   On April 1, 2005, the Company repurchased for cash all 1.0 million units of its 8.50% Series E Cumulative Redeemable Preference Interests with a liquidation value of $50.0 million.  The Company will record a write-off of approximately $1.3 million in original issuance costs along with a $0.3 million cash early redemption charge as premiums on redemption of Preference Interests (Minority Interests) in the second quarter of 2005.

(8)   On April 1, 2005, the Company issued an irrevocable notice to redeem for cash on May 1, 2005 all 180,000 units of its 8.375% Series F Cumulative Redeemable Preference Interests with a liquidation value of $9.0 million.  The Company will record a write-off of approximately $0.2 million in original issuance costs as a premium on redemption of Preference Interests (Minority Interests) in the second quarter of 2005.

The following table presents the Operating Partnership’s issued and outstanding Junior Convertible Preference Units (the “Junior Preference Units”) as of March 31, 2005 and December 31, 2004:

(1)   Dividends on the Junior Preference Units are payable quarterly at various pay dates.

(2)   On or after the tenth anniversary of the issuance (the “Redemption Date”), the Series B Junior Preference Units may be converted into OP Units at the option of the Operating Partnership based on the contractual conversion rate.  Prior to the Redemption Date, the holders may elect to convert the Series B Junior Preference Units to OP Units under certain circumstances based on the contractual conversion rate.  The contractual rate is based upon a ratio dependent upon the closing price of EQR’s Common Shares.

4.             Real Estate

During the quarter ended March 31, 2005, the Company acquired the entire equity interest in nine properties containing 2,232 units and one vacant land parcel from unaffiliated parties for a total purchase price of $314.5 million.

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During the quarter ended March 31, 2005, the Company acquired additional ownership interests in eleven Partially Owned Properties, all of which remain partially owned.  The acquisition was funded using $18.1 million in cash and through the issuance of 551,229 OP Units valued at $18.2 million, with $35.2 million recorded as additional building basis and $1.1 million recorded as a reduction of Minority Interests – Partially Owned Properties.  The Company also acquired the majority of the remaining third party equity interests it did not previously own in one property, consisting of 60 units. The property was previously accounted for under the equity method of accounting and subsequent to the purchase was consolidated.

During the quarter ended March 31, 2005, the Company disposed of the following to unaffiliated parties (including two vacant land parcels and various individual condominium units) (sales price in thousands):

The Company recognized a net gain on sales of discontinued operations of approximately $151.3 million on the above sales.

5.             Commitments to Acquire/Dispose of Real Estate

As of April 26, 2005, in addition to the property that was subsequently acquired as discussed in Note 16, the Company had entered into separate agreements to acquire nine multifamily properties containing 1,852 units from unaffiliated parties.  The Company expects a combined purchase price of approximately $264.0 million.

As of April 26, 2005, in addition to the properties that were subsequently disposed of as discussed in Note 16, the Company had entered into separate agreements to dispose of ten multifamily properties containing 2,428 units and two vacant land parcels to unaffiliated parties.  The Company expects a combined disposition price of approximately $224.8 million.

The closings of these pending transactions are subject to certain contingencies and conditions; therefore, there can be no assurance that these transactions will be consummated or that the final terms thereof will not differ in material respects from those summarized in the preceding paragraphs.

6.             Investments in Unconsolidated Entities

The Company has co-invested in various properties with unrelated third parties which are accounted for under the equity method of accounting.  The following table summarizes the Company’s investments in unconsolidated entities as of March 31, 2005 (amounts in thousands except for project and unit amounts):

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(1)     Totals exclude Fort Lewis Military Housing consisting of one property and 3,801 units, which is not accounted for under the equity method of accounting but is included in the Company’s property/unit counts as of March 31, 2005.

(2)     All debt is non-recourse to the Company.

7.             Deposits – Restricted

The following table presents the deposits – restricted as of March 31, 2005 and December 31, 2004 (amounts in thousands):

8.             Mortgage Notes Payable

As of March 31, 2005, the Company had outstanding mortgage indebtedness of approximately $3.1 billion.

During the quarter ended March 31, 2005, the Company:

•      Repaid $134.3 million of mortgage loans;

•      Assumed/consolidated $48.7 million of mortgage debt on certain properties in connection with their acquisitions and/or consolidations; and

•      Obtained $24.7 million of mortgage loans on certain properties.

As of March 31, 2005, scheduled maturities for the Company’s outstanding mortgage indebtedness were at various dates through December 1, 2034.  At March 31, 2005, the interest rate range on the Company’s mortgage debt was 2.17% to 12.465%.  During the quarter ended March 31, 2005, the weighted average interest rate on the Company’s mortgage debt was 5.54%.

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9.             Notes

As of March 31, 2005, the Company had outstanding unsecured notes of approximately $3.1 billion.

As of March 31, 2005, scheduled maturities for the Company’s outstanding notes were at various dates through 2029.  At March 31, 2005, the interest rate range on the Company’s notes was 4.75% to 7.75%.  During the quarter ended March 31, 2005, the weighted average interest rate on the Company’s notes was 6.16%.

10.          Line of Credit

As of March 31, 2005, $163.0 million was outstanding and $51.0 million was restricted (dedicated to support letters of credit and not available for borrowing) on the Operating Partnership’s revolving credit facility.  During the quarter ended March 31, 2005, the weighted average interest rate under the credit facility was 2.34%.

On April 1, 2005, the Operating Partnership obtained a new three-year $1.0 billion unsecured revolving credit facility maturing on May 29, 2008, and the Operating Partnership’s $700.0 million credit facility that was scheduled to expire in May 2005 was terminated.  Advances under the new credit facility bear interest at variable rates based upon LIBOR at various interest periods plus a spread dependent upon the Operating Partnership’s credit rating or based on bids received from the lending group.  EQR has guaranteed the Operating Partnership’s credit facility up to the maximum amount and for the full term of the facility.

11.          Derivative Instruments

The following table summarizes the consolidated derivative instruments at March 31, 2005 (dollar amounts are in thousands):

On March 31, 2005, the net derivative instruments were reported at their fair value as other assets of approximately $3.9 million and as other liabilities of approximately $17.5 million.  As of March 31, 2005, there were approximately $17.3 million in deferred losses, net, included in accumulated other comprehensive loss.  Based on the estimated fair values of the net derivative instruments at March 31, 2005, the Company may recognize an estimated $3.5 million of accumulated other comprehensive loss as additional interest expense during the twelve months ending March 31, 2006.

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12.          Earnings Per Share

The following tables set forth the computation of net income per share – basic and net income per share – diluted:

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Convertible preferred shares/units that could be converted into 1,871,194 and 3,553,977 weighted average Common Shares for the quarters ended March 31, 2005 and 2004, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

13.          Discontinued Operations

The Company has presented separately as discontinued operations in all periods the results of operations for all consolidated assets disposed of on or after January 1, 2002 (the date of adoption of SFAS No. 144).

The components of discontinued operations are outlined below and include the results of operations for the respective periods that the Company owned such assets during each of the quarters ended March 31, 2005 and 2004.

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During the year ended December 31, 2004, the Company established a reserve and recorded a corresponding expense of $15.2 million for estimated uninsured property damage at certain of its properties primarily located in Florida caused by Hurricanes Charley, Frances, Ivan and Jeanne.  Of this amount, approximately $12.9 million had been spent for hurricane related repairs through March 31, 2005.  The $2.3 million remaining reserve is included in rents received in advance and other liabilities on the consolidated balance sheets.

As of March 31, 2005, the Company has four projects totaling 1,165 units in various stages of development with estimated completion dates ranging through December 31, 2006.  The three development agreements currently in place have the following key terms:

•                  The first development partner has the right, at any time following completion of a project subject to the agreement, to stipulate a value for such project and offer to sell its interest in the project to the Company based on such value.  If the Company chooses not to purchase the interest, it must agree to a sale of the project to an unrelated third party at such value.  The Company’s partner must exercise this right as to all projects subject to the agreement within five years after the receipt of the final certificate of occupancy on the last developed property.   In connection with this development agreement, the Company has an obligation to provide up to $40.0 million in credit enhancements to guarantee a portion of the third party construction financing.  As of April 26, 2005, the Company had set-aside $5.0 million towards this credit enhancement.  The Company would be required to perform under this agreement only if there was a material default under a third party construction mortgage agreement.  This agreement expires no later than December 31, 2018.  Notwithstanding the termination of the agreement, the Company shall have recourse against its development partner for any losses incurred.

•                  The second development partner has the right, at any time following completion of a project subject to the agreement, to require the Company to purchase the partners’ interest in that project at a mutually agreeable price.  If the Company and the partner are unable to agree on a price, both parties will obtain appraisals.  If the appraised values vary by more than 10%, both the Company and its partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value.  The Company may elect at that time not to purchase the property and instead, authorize its partner to sell the project at or above the agreed-upon value to an unrelated third party.  Five years following the receipt of the final certificate of occupancy on the last developed property, the Company must purchase, at the agreed-upon price, any projects remaining unsold.

•                  The third development partner has the exclusive right for six months following stabilization, as defined, to market a subject project for sale.  Thereafter, either the Company or its development partner may market a subject project for sale.  If the Company’s development partner proposes the sale, the Company may elect to purchase the project at the price proposed by its partner or defer the sale until two independent appraisers appraise the project.  If the two appraised values vary by more than 5%, a third appraiser will be chosen to determine the fair market value of the property.  Once a value has been determined, the Company may elect to purchase the property or authorize its development partner to sell the project at the agreed-upon value.

In connection with one of its mergers, the Company provided a guaranty of a credit enhancement agreement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project.  The Company had the obligation to provide this guaranty for a period of eight years from the consummation of the merger or through May 30, 2005.  The Company would have been required to perform under this agreement only if there was a draw on the letter of credit issued by the credit enhancement party.  Effective May 2, 2005, the tax-exempt bonds were redeemed in full and the letter of credit was cancelled.  As a result, the guaranty was terminated.

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15.                               Reportable Segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by senior management.  Senior management decides how resources are allocated and assesses performance on a monthly basis.

The Company’s primary business is owning, managing, and operating multifamily residential properties, which includes the generation of rental and other related income through the leasing of apartment units to residents and includes Equity Corporate Housing (“ECH”).  Senior management evaluates the performance of each of our apartment communities on an individual basis; however, each of our apartment communities has similar economic characteristics, residents, and products and services so they have been aggregated into one reportable segment.  The Company’s rental real estate segment comprises approximately 99.5% and 99.3% of total revenues for the quarters ended March 31, 2005 and 2004, respectively.  The Company’s rental real estate segment comprises approximately 99.8% of total assets at both March 31, 2005 and December 31, 2004.

The primary financial measure for the Company’s rental real estate segment is net operating income (“NOI”), which represents rental income less: 1) property and maintenance expense; 2) real estate taxes and insurance expense; and 3) property management expense (all as reflected in the accompanying consolidated statements of operations).  The Company believes that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of the Company’s apartment communities.  Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance.  The following table presents the NOI from our rental real estate from continuing operations for the quarters ended March 31, 2005 and 2004:

The Company’s fee and asset management activity is immaterial and does not meet the threshold requirements of a reportable segment as provided for in SFAS No. 131.

All revenues are from external customers and there is no customer who contributed 10% or more of the Company’s total revenues during the quarters ended March 31, 2005 or 2004.

16.                               Subsequent Events/Other

Subsequent to March 31, 2005 and through April 26, 2005, in addition to the subsequent events disclosed in Notes 3, 10 and 14, the Company:

•                  Acquired one property consisting of 467 units for approximately $88.8 million;

•                  Disposed of three properties consisting of 770 units (excluding condominium units) for approximately $31.5 million;

•                  Repaid $7.7 million of mortgage loans;

•                  Had $300.0 million in unsecured notes remarketed as originally contemplated in a remarketing agreement entered into in connection with the original issuance of the notes, with the interest rate

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changingfrom 6.63% to 6.584% effective April 14, 2005 (these notes still mature on April 13, 2015); and

•                  Received $25.0 million in full redemption of its 1,000,000 shares of 8.25% Convertible Trust Preferred Securities of WRP Convertible Trust I, an affiliate of Wellsford Real Properties, Inc. (“WRP”).

During the quarter ended March 31, 2005, the Company received $57.1 million in cash for its ownership interest in Rent.com in connection with the acquisition of Rent.com by eBay, Inc.  The $57.1 million was recorded as interest and other income in the accompanying consolidated statements of operations.

On March 28, 2005, the Company and Bruce W. Duncan, the Company's President and Chief Executive Officer (“CEO”), entered into an Amended and Restated Employment Agreement (the “Amendment”) to reflect changes required in view of Mr. Duncan's planned retirement as President, CEO and trustee to be effective January 2, 2006.  The Amendment also amended Mr. Duncan's Deferred Compensation Agreement entered into in January 2003.  The Company recorded approximately $2.9 million of additional general and administrative expense during the quarter ended March 31, 2005, and expects to record approximately $7.0 million during the remainder of 2005, primarily related to accelerated vesting of share options and restricted/performance shares.

Effective February 28, 2005, the Company and Edward Geraghty, the President of the Company's Eastern Division, entered into a Separation Agreement and General Release reflecting Mr. Geraghty's resignation effective February 28, 2005.  The Company recorded approximately $3.3 million of severance as additional general and administrative expense during the quarter ended March 31, 2005.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

For further information including definitions for capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2004.

Forward-looking statements in this report are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  The words “believes”, “estimates”, “expects” and “anticipates” and other similar expressions that are predictions of or indicate future events and trends and which do not relate solely to historical matters identify forward-looking statements.  Such forward-looking statements are subject to risks and uncertainties, which could cause actual results, performance, or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.  Factors that might cause such differences include, but are not limited to, the following:

•                  We intend to actively acquire and develop multifamily properties for rental operations and/or conversion into condominiums, as well as upgrade and sell existing properties as individual condominiums.  We may underestimate the costs necessary to bring an acquired or condominium conversion property up to standards established for its intended market position or to otherwise develop a property.  Additionally, we expect that other major real estate investors with significant capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development efforts.  This competition may increase prices for multifamily properties or decrease the price at which we expect to sell individual condominiums.  We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.  We also plan to develop more properties ourselves over the next few years in addition to co-investing with our development partners for either the rental or condominium market, depending on opportunities in each sub-market.  This may increase the overall level of risk associated with our developments.  The total number of development units, cost of development and estimated completion dates are subject to uncertainties arising from changing economic conditions (such as the cost of labor and construction materials), competition and local government regulation.

•                  Sources of capital to the Company or labor and materials required for maintenance, repair, capital expenditure or development are more expensive than anticipated;

•                  Occupancy levels and market rents may be adversely affected by national and local economic and market conditions including, without limitation, new construction of multifamily housing, slow employment growth, availability of low interest mortgages for single-family home buyers and the potential for geopolitical instability, all of which are beyond the Company’s control; and

•                  Additional factors as discussed in Part I of the Annual Report on Form 10-K, particularly those under “Risk Factors”.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  The Company undertakes no obligation to publicly release any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.  Forward-looking statements and related uncertainties are also included in Notes 5, 11 and 16 to the Notes to Consolidated Financial Statements in this report.

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