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Essex Property Trust, Inc. (NYSE:ESS)

Q4 2008 Earnings Call

February 05, 2009 2:00 PM ET

Executives

Keith R. Guericke - President and Chief Executive Officer

John D. Eudy - Executive Vice President, Development

Michael J. Schall - Senior Executive Vice President Director and Chief Operating Officer

Michael T. Dance - Executive Vice President and Chief Financial Officer

John Lopez - Economists

Analysts

Michael Salinsky - RBC Capital Markets

Michelle Ko - UBS

Michael Bilerman - Citi

Jonathan Habermann - Goldman Sachs

Richard Anderson - BMO Capital Markets

Philip Martin - Cantor Fitzgerald

Rob Stevenson - Fox-Pitt Kelton

Karin Ford - KeyBanc Capital Markets

Operator

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.

Keith R. Guericke

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 of that range assuming 2 million jobs will be lost nationally with approximately 100,000 of those job losses in our markets.

All markets are going to suffer job losses. What will differentiate Essex is the low level of new supply being delivered. There is still fairly large differential in the cost of single family versus multi-family and the quality of life factor that historically has kept our population in place even during economic downturns.

There are a few positive signs in the market. Single family transactions have increased due to price corrections and very low borrowing rates. Lower oil and other commodity prices resulted in a flat PPI for the December 2008. Current trends indicate significant year-over-year PPI declines by summer of 2009.

In addition, a majority of the home sector jobs, particularly corporate finance, have already been cut back to pre-bubble levels. When the financial markets do show market fundamentals will be strong for departments, consumers will be stronger positioned and the residential supply pipeline, both apartments and single family will be low. Modest job growth should drive... has in the past driven strong rental growth.

Now let me comment on each of our markets quickly. Demand conditions have changed in Seattle. We now expect a loss of 15,000 jobs based on expectations of lay-offs at WaMu, Boeing and others and related sub-contractors. New apartment supply is forecasted 5100 units or 1.3%. The job losses in the new apartment supply, however, is tampered by the steep drop in single family production.

Only 4400 new homes or six-tenths of 1% will be delivered in 2009 leading to total supply of 9500 units or less than 1%. This is down from 12,600 units in 2008. By contrast the lowest previous growth of new single family homes was 1.2% in 2002 and on average... an average production rates since 1990 has been 1.6%.

In addition, Seattle has very low exposure to the financial... to financial jobs after the loss of WaMu. We expect market occupancy 95% and market rate declines of 2% in this market. Performance by sub-market will vary with the weakest components being downtown Seattle where job layoffs and overlap with new supply. Newer high rise buildings will be the weaker segment of the Seattle apartment market.

In Northern California, San Francisco and San Jose had minimal exposure to single-family construction and mortgage finance jobs. We expect the Essex to continue to outperform the general economy. In addition, San Francisco has the lowest exposure to manufacturing among major metros and the San Jose economy has already experienced their steep manufacturing cutbacks in our last downturn in the early 2000.

San Francisco and San Jose are expected to lose approximately 11,000 jobs or six-tenths of 1%. They are almost equally across those two markets. We expect occupancies to stay at or above 95% and rents to be flat in 2009. New total supply in San Francisco and San Jose is 5900 units or four-tenths of 1%.

Oakland has more exposure to manufacturing and had a larger exposure to single family construction industry. The area had shed most of those jobs. Jobs are expected to decline by 10,000 in 2009 compared to 27,000 in 2008. Single family construction and financing jobs have been cut back to pre-2001 levels.

Southern California, overall the Southern California markets remain some of the most supply constrained in the U.S. However, like Seattle the recent multi-family supply pipeline was concentrated in high end, often high rise condo projects. This pipeline will be all but completed by the end of 2009, particularly in West LA and downtown Los Angeles, their Irvine area of South Orange County and downtown San Diego. Majority of our portfolio in Orange and San Diego are older lower price product outside of these central nodes.

New total supply is forecasted 7400 single family units and 13,400 multi-family units which is approximately four-tenths of 1%. The housing finance jobs concentrated in Ventura and Orange have been cut back to 2002, 1990 levels respectively -- 1998 levels excuse me. Job losses of 68,000 are forecast for 2009, this is down from 86,000 in 2008.

Rent growth will range from flat in San Diego to down 4% in Los Angeles with each market performance will vary across submarkets. Occupancies will range from 93 to 95 across the submarkets. 2009 is going to be a tough year as I mentioned earlier. We believe that all markets (ph) will experience job losses in 2009, some more than others. However our business strategy that has been in place since 1994 which focuses on locating and supply constrained market with high exposure to technology oriented service jobs will continue to serve us well.

In preparation for the coming tough times, we took the painful step in December of reducing our workforce by 22 employees, primarily in the development and redevelopment areas.

We're going to continue our strategy of defensively operating our portfolio keeping occupancies high. Our balance sheet will remain one of the strongest in the multi-family sector maintaining a low debt to market ratio and a strong fixed charge coverage ratio.

Finally, we're going to remain flexible with respect to opportunities. 2009 will be tough but I'm confident Essex will prosper. And I would like to turn the call over to John Eudy.

John D. Eudy

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, February 15.

Fourth Street in Berkeley and Joule Broadway in Seattle are progressing ahead of schedule and are below our original development cost estimates to date.

On Tasman Place in Sunnyvale, we've moved back the anticipated start date to September 2009 to better time the delivery date into early 2012, a time when we believe both, there will be both a dearth of new inventory and the current job market will improve.

We're also seeing construction number substantially below our initial estimates and we expect this cost compression trend to continue for the near future. Our two fund development Studio 40-41 and in Studio City and CLO in Chatsworth are both slightly below our scheduled development cost estimate and Studio 40-41 will be delivered on time and CLO will be one month late.

We have been able to avoid the pitfalls of development by limiting our exposure, having income operating options to delay development much like the Essex Hollywood deal where we extended the lease to the our tenant for three years and most importantly by not being aggressive on land acquisitions over the last four years.

Our conservative platform has positioned us to have the flexibility to better time some of risk inherit in this business.

At this time, I would like to turn call over to Mike Schall.

Michael J. Schall

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 new supply and reduced jobs continue to weaken our already soft Southern California markets and change our rental dynamics in Seattle from favorable to challenging.

While our best rental market remains Northern California, it will content with limited job reductions from many employers, including Hewlett-Packard, Intel, Yahoo! and eBay. The shock of these events and the normal seasonality was apparent in our loss to lease statistics which turned negative creating gain to lease as of December 31, 2008 of 2.8% of schedule brand.

Meaning that scheduled brands pursuant into places, which is greater than economic rents as compared to a loss to lease of 1.9% of scheduled brand as of September 30, 2008. I should point out, however, that we used loss to lease statistics as an indicator as they can vary considerably from quarter-to quarter and are affected by a variety of factors.

We revised our outlook for 2009 on several occasions over the last four months and each revision was negative given the extraordinary change in employment picture and expectation for a long term recession. The outlook now incorporates limited rental revenue reductions in each major area of the portfolio.

Essex is we believe well positioned for this difficult period given its supply, its coastal supply constraint, quality of life markets and strategy based on B quality properties in A quality locations. As a result, we expect to continue to perform in the top tier of the multifamily companies.

Now I'd like to briefly review each major part of the portfolio starting in the Northwest. The Seattle area experienced a significant change during the quarter as newly built apartments and condos rented as apartments continued to enter the market amid lower demand due to job losses at WaMu and other employers.

Lots of corporate demand added to the supply demand difficulties. Deliveries of competing housing are expected to continue well into 2010, leading to our expectation of a challenging operating environment for the remainder of 2009 continuing into 2010.

As of January 2009, our Seattle occupancy included approximately 2.4% Boeing employees, 0.5% WaMu employees and 6% Microsoft employees. As of January 26, 2009, physical occupancy in Seattle was 97.3%, net availability of 3.8%.

Home purchase activity represented 11% of our move-outs for the quarter compared to 18% a year ago. In Northern California, we expect to experience layouts and it has experience layouts in a limited development pipeline. And we expect it to continue outperform Seattle in Southern California. We see very limited similarities between the current market conditions and those of 2001.

San Francisco and Silicon Valley are expected to be the best performers of the Bay Area submarkets while the open MSA is expected to experience moderately larger job reductions and greater supply of computing housing. As of January 26, 2009, physical occupancy was 97.9 in Northern California and net availability was 3.5%.

Home purchases represented 11.7% of our turns for the quarter compared to 15.7 a year ago and then Southern California. The softest experience in Southern California will continue throughout 2009 as most of the major submarkets will continue to be affected by job losses and continued delivery of competing housing.

However, in most submarkets, we expect the new housing deliveries to occur -- the remaining new housing deliveries to occur in 2009 which should represent a bottom end of the housing market. As a result, we believe the challenging operating environment in Southern California will continue in 2009 but that growth will resume in 2010.

On January 26, 2009, physical occupancy and LA Ventura was 95.8% net availability of 5.3%, Orange County occupancy -- physical occupancy was 96.4%, net availability of 4.9%. And in San Diego physical occupancy was 97.4%, net availability of 5.5%.

For our Southern California portfolio combined move out activity attributable to home purchases was 11.5% for the quarter compared to 13.1% a year ago.

Now I'd like to turn the call over to Mike Dance, thank you.

Michael T. Dance

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 reflects the extraordinary stress and volatility in the financial markets that existed at the end of the year, and we believe the ultimate settlement amount of these contracts will diminish or become favorable as the credit markets stabilize over the next 24 months.

Our 2009 guidance was predicated on the economic outlook that 2009's gross domestic product will decline by a 1.3%, which will reduce the jobs in our markets by approximately a 100,000 or 1% decrease in employment. These job losses coupled with known supply increases will decrease our net operating income from the 2009 same property portfolio by approximately 8.7 million.

The 2009 guidance includes an estimated $1 million increase in property operating expenses for change in our fixed-asset policy. The higher than expected increase in the Seattle regions 2009 operating expenses is attributable to two items: the first is the high assessment of property values, which has increased to region same property estimated tax expense by $900,000; a 20% increase over 2008. We will be appealing several of the property tax assessments and may be able to reduce some of those projected increase.

The second major increase to Seattle's operating expenses relates to our cost accounting change and our method of allocating overhead cost, which increases Seattle's same property corporate allocation by $600,000 or 50% increase.

General and administrative expenses for 2008 totaled $27 million. The increase in the fourth quarter compared to the first nine months was partially caused by the complete rollout of the Yardi YieldStar at level one during the third quarter, while the change in overhead that allocates these costs to the properties will be effective on January 1, 2009.

The 2009 guidance assumes over $2 million decrease in general and administrative expenses attributable to cost reduction initiatives and by increasing the allocations of property management overhead to property operations as I mentioned in my earlier remarks concerning Seattle's projected increase in operating expenses.

Our estimate for 2009 funds from operations per diluted share will range from $5.50 to $5.90 per share. The mid-point of the 2009 guidance is $0.19 per share below the first call consensus estimate due impart by the additional interest expense required by the adoption of APB 14-1, which will increase interest costs by $0.11 per share in 2009.

The 2008 results after restatement for APB 14-1 will be $6.04 a share compared to our 2009 guidance of $5.70 per share. The biggest contributor to the $0.24 drop in the 2009 guidance is that our estimate of the non-recurring funds from operation items in 2009 will decrease by approximately $8 million or $0.27 a share, from the $10 million of non-recurring FFO items in the restated 2008 results.

APB 14-1 requires the 2008 gain on retirement of debt to be restated from $3.5 million to $4.9 million. In January 2009, we retired $18 million in exchange of bonds which will result in the $2 million in other income in our 2009 guidance. The mid-point of the 2009 forecast assumes that the weighted average APB 14-1 book value of these bonds will be approximately $148 million with an imputed interest rate of 5.75%.

This concludes my remarks. And I will now turn the call back to the operator for any questions.

Question-and-Answer Session

Operator

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

Michael Salinsky - RBC Capital Markets

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?

Michael Dance

The affordability of single family housing you mean?

Michael Salinsky - RBC Capital Markets

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

Michael Dance

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.

Michael Salinsky - RBC Capital Markets

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?

Michael Schall

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.

Michael Salinsky - RBC Capital Markets

Okay.

John Lopez

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.

Michael Dance

So those were words of John Lopez, our Economist.

Michael Salinsky - RBC Capital Markets

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?

Michael Dance

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.

Michael Salinsky - RBC Capital Markets

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?

Keith Guericke

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.

Michael Salinsky - RBC Capital Markets

That's very helpful. Thank you.

Operator

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

Michelle Ko - UBS

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?

John Eudy

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.

Michelle Ko - UBS

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?

John Eudy

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.

Michelle Ko - UBS

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?

John Eudy

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.

Michelle Ko - UBS

Okay, great. Thank you.

Operator

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

Unidentified Analyst

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.

Michael Schall

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.

Unidentified Analyst

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?

Michael Dance

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.

Unidentified Analyst

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

Michael Dance

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.

John Eudy

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.

Unidentified Analyst

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

Michael Dance

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.

John Eudy

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.

Unidentified Analyst

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?

Keith Guericke

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.

Michael Bilerman - Citi

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?

Michael Dance

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.

Michael Bilerman - Citi

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

Michael Dance

6 cap.

Michael Bilerman - Citi

And dollars?

Michael Dance

Dollar amount of the lease?

Michael Bilerman - Citi

Yeah. (inaudible).

Michael Dance

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.

Unidentified Analyst

Okay, thank you.

Operator

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

Jonathan Habermann - Goldman Sachs

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.

Keith Guericke

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?

Unidentified Analyst

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.

Jonathan Habermann - Goldman Sachs

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.

Keith Guericke

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.

John Eudy

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.

Jonathan Habermann - Goldman Sachs

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?

Keith Guericke

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.

Keith Guericke

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.

Jonathan Habermann - Goldman Sachs

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

Keith Guericke

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.

Jonathan Habermann - Goldman Sachs

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

Keith Guericke

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.

John Eudy

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.

Jonathan Habermann - Goldman Sachs

Okay, thank you.

Operator

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

Richard Anderson - BMO Capital Markets

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

Keith Guericke

Good morning.

Richard Anderson - BMO Capital Markets

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

Keith Guericke

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.

Richard Anderson - BMO Capital Markets

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?

Michael Schall

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?

Unidentified Analyst

No.

Richard Anderson - BMO Capital Markets

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?

Michael Schall

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.

Richard Anderson - BMO Capital Markets

Okay, great. Thanks very much.

Operator

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

Philip Martin - Cantor Fitzgerald

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?

Michael Schall

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.

Philip Martin - Cantor Fitzgerald

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?

Keith Guericke

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.

Philip Martin - Cantor Fitzgerald

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.

Keith Guericke

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.

Philip Martin - Cantor Fitzgerald

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 --

Michael Schall

We are better than the markets in occupancy, yes.

Philip Martin - Cantor Fitzgerald

Okay, okay.

Michael Schall

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.

Philip Martin - Cantor Fitzgerald

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?

Michael Schall

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.

Philip Martin - Cantor Fitzgerald

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

Michael Schall

Thank you.

Keith Guericke

Thank you.

Operator

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

Unidentified Analyst

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?

Michael Schall

The pros of it is the... there.

Unidentified Analyst

Yes sorry.

Michael Schall

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?

Unidentified Analyst

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?

Michael Schall

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.

Unidentified Analyst

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?

Michael Schall

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.

Unidentified Analyst

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

Michael Schall

Yes.

Unidentified Analyst

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?

Michael Schall

Right. The latter.

Unidentified Analyst

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

Unidentified Analyst

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

Keith Guericke

Welcome.

Operator

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

Rob Stevenson - Fox-Pitt Kelton

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?

John Eudy

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.

Rob Stevenson - Fox-Pitt Kelton

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?

John Eudy

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

Unidentified Analyst

200,000 in two years.

John Eudy

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.

Keith Guericke

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?

John Eudy

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.

Rob Stevenson - Fox-Pitt Kelton

Okay, thanks guys.

Operator

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

Unidentified Analyst

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?

Keith Guericke

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.

Unidentified Analyst

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?

Keith Guericke

Yeah.

John Eudy

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.

Unidentified Analyst

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

John Eudy

We do not.

Unidentified Analyst

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?

John Eudy

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.

Unidentified Analyst

But maybe you need to market to a different constituency?

Keith Guericke

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

Unidentified Analyst

Alright. Thanks guys.

Keith Guericke

Okay.

Operator

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

Karin Ford - KeyBanc Capital Markets

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?

Keith Guericke

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.

Michael Schall

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.

Karin Ford - KeyBanc Capital Markets

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?

Keith Guericke

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

Karin Ford - KeyBanc Capital Markets

Can't afford the rent.

Keith Guericke

Can't afford the rent.

Karin Ford - KeyBanc Capital Markets

Got it.

Keith Guericke

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.

Karin Ford - KeyBanc Capital Markets

Right. Okay, thanks you very much.

Operator

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

Keith Guericke

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.

Operator

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

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Source: Essex Property Trust Q4 2008 Earnings Call Transcript
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