Defining A New Strategic Focus Management changes always offer a good chance to assess, examine and re-evaluate corporate direction. Through the summer, I and a number of other Gables associates spent an enormous amount of time taking a zero-based look at the Gables property portfolio and investment strategy. We purchased a number of independent research products and met with numerous market research professionals. Not since my undergraduate days at Caltech have I spent so much time perusing obscure academic publications and information searching for truth. Let me assure you, there are no absolute truths when it comes to evaluating historical and prospective real estate trends. However, our research did bear fruit and provides the foundation for our Company’s investment strategy going forward.

For starters, it reaffirmed the attractiveness of our chosen market niche: class AA/A residential apartment communities. We like this category because our residents are renters by choice. For a variety of reasons, they choose to live in an apartment community even though they could afford to purchase a house. As a result, they tend to be less sensitive to rent increases due to higher income profiles and tend to stay longer. Because they expect the highest quality, we invest more in our communities up-front, which produces a lower, more predictable level of capital expenditures over the long term.

The Macro-Market Strategy Our investment goal is to assemble a portfolio of assets that provides a highly predictable earnings stream that is low in volatility and has growth characteristics that substantially exceed the national average. We can create maximum shareowner value by ensuring that every property investment decision we make is within the context of this underlying objective. With this in mind, we have ranked each of the major national Metropolitan Statistical Areas (MSAs) on a risk/return matrix.

We then overlaid the existing Gables portfolio to evaluate the economic diversification, as opposed to geographic diversification, and growth potential for each MSA. While the herd mentality today seems to favor looking only at the supply side of the supply/demand equation, this is shortsighted. When making a real estate investment decision that will have earnings consequences for years to come, the demand side of the equation is equally as important and cannot be ignored.