CWS Capital Partners Revenue and Competitors

CWS began buying manufactured home communities in 1969 in the Los Angeles area. Over the next thirty years, CWS partnerships acquired a portfolio of 35 manufactured housing communities from California to Florida. The sale of the CWS portfolio to an affiliate of Security Capital Group in 1998 was made very close to the zenith of manufactured housing community prices (timing is very important). As graph 1 illustrates, the three largest manufactured housing REITs performed quite well during the three years prior to the sale contracts being signed. Their cumulative three year returns ranged from 50% to 70% for the three companies. Since putting the CWS properties under contract, however, market conditions for manufactured housing community REITs have changed dramatically in the subsequent two years as graph 2 on the preceding page shows. The cumulative returns for the past two years for the three companies has ranged between -10% and -15%, dramatically less than the overall stock market. The poor stock market performance has made it difficult for manufactured housing REITs to raise money to purchase more communities. Not only were we fortunate to time the sales when we did, but we also benefited by selecting a well financed, private REIT that did not rely on the public markets to fund the purchase of our properties. Had we selected one of the public REITs as our buyer, they may not have had the financial strength to purchase all of our properties. The strategy to exchange into Class A apartments has allowed us to move tax deferred from 25 year old manufactured housing communities to one to three year old apartment properties in demographic areas where knowledge-based workers are thriving, i.e., Austin, Dallas, Charlotte, and Denver. Investors look for the payoff in the apartment properties in the form of tax-deferred cash distributions with a preferred return rate of 9%, and the CWS goal is to get to our distributions to equal or exceed that return as soon as possible. The annual increase in CWS investor equity complements the dividend payout to generate a projected annual compounded return of 13% (IRR). For example, this can be achieved through the combination of a 7% dividend payout plus a 6% increase in the value of the equity (total capital invested). Overall, the CWS investor pro forma is to return your invested capital, plus distributions, and increase property value to deliver a total return of 13% or better per year for the 7.5 years from the date of our Class A apartment purchase. For many of your apartment projects this will be 2007; the date investors can expect to have the option of cashing out or to keep investing in CWS future projects. In addition, we have also invested some of the exchange proceeds in the development of new luxury apartment communities. This allows for the potential to earn higher rates of return as compared to purchasing existing communities. Higher potential returns naturally come with greater risk since we are involving ourselves in the construction and lease up process. The reporting system that keeps you informed about progress towards the original property pro forma and the current year's budget is delivered to investors quarterly. Spending 15 minutes with the quarterly report is a great way to follow the progress to pro forma and the results compared to the annual budget of your property investment. As many of us recently enjoyed, each March the annual partners meeting is a time to see many long time friends and reflect on the overall real estate strategy of CWS. As an investor, you have placed a great deal of money and trust with CWS, and you should expect CWS to perform at the highest level compared to its peer group of apartment owners and managers. You can track the peer group's performance by observing Apartment REIT stocks such as Archstone (ASN), Post Properties (PPS), Summit Properties (SMT), or Equity Residential (EQR). These are publicly traded Real Estate companies with diversified apartment holdings similar to our CWS portfolio. It is the stated goal of CWS to perform at a level of excellence that is appreciated by all CWS investors.