艾芙隆海灣社區公司 (AVB) 2009 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to AvalonBay Communities second quarter 2009 earnings conference call. At this time all participants are in a listen-only mode. Following remarks by the Company, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference call, Mr. John Christie, Director of Investor Relations and Research. Mr. Christie, you may begin your conference.

Thank you, Amanda, and welcome to AvalonBay Communities second quarter 20009 earnings conference call. Before we begin, please know that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is discussion of these risks and uncertainties in yesterday's afternoon's press release as well as in the Company's Form 10-K and Form 10-Q filed with the SEC. As usual, the press release does include an attachment with definitions of reconciliations of non-GAAP financial measures and other items which may be used in today's discussion. The attachment is available on our website at www.avalonbay.com\earnings and we encourage you to refer to this information during the review of our operating results and financial performance.

With that, I'll turn the call over to Bryce Blair, Chairman and CEO of AvalonBay Communities, for his remarks. Bryce?

Thank you, John. With me on the call today are Tim Naughton, our President; Leo Horey, our EVP of Operations; and Tom Sargeant, our Chief Financial Officer. Tim and I will have some initial prepared remarks and then all four of us will be available to answer any questions you may have.

Last evening we reported EPS of $0.22 and FFO per share of $0.90. Our results this quarter were impacted by several non routine items, the most significant of which related to impairment and writeoffs of some development rights and related severance charges. Adjusting for non routine items, our operating FFO was $1.18 which equaled the mid-point of the range that we provided in last quarter's outlook.

Clearly the economy remains weak and despite lots of talk about green shoots, there are many signs of continued stress. Job losses continue, losing an additional 1.3 million jobs in the second quarter. Job losses for the full year are now expected to exceed five million. Unemployment stands at 9.5% and many expect it to approach 11% early next year. Home inventories remain high at nine to ten month supply with as many as one third of the houses on the market being bank owned. While June sales of new homes were up over the prior month, a more relevant comparison is versus the same period last year. According to the recently released Census Bureau data, the volume of new home sales for June were down over 20% on a year-over-year basis. And while home prices may be stabilizing on a sequential monthly basis, it's still down significantly on a year-over-year basis. According to the Census Bureau data, June data shows median home prices down 12% while the Case Schiller data shows a year-over-year decline of 17%.

The Conference Board's consumer confidence index fell to 47 in July. A reading below 60 is generally considered to reflect recession-like pessimism and this is the 15th month the index has been below 60. Business investment remains low. A recent report showed spending on business equipment and software during the first quarter was down almost 40% on a year-over-year basis. So while there may be a green shoot here or there, overall, we're still losing jobs and unemployment is rising. The housing market remains very weak and consumer confidence and business investment remains very low. Given the continued weakness in the economy, it's no surprise that we continue to experience deteriorating apartment fundamentals which will continue to put downward pressure on rental rates for the balance of this year and in 2010.

So what actions are we taking to respond to the near-term challenges while ensuring we're well positioned for future opportunities? I want to share with you some thoughts in three areas of our business, operations, development and G&A. And I'll start with operations. While the operating results for the quarter were as expected, it is clear that the rate of revenue decline will accelerate in the second half of the year as the toll from the cumulative job losses rolls through the portfolio. Nonetheless, we believe we are maximizing NOI in these difficult economic conditions by carefully managing occupancy based on individual sub market conditions and by minimizing expenses through the renegotiation of service agreements and aggressively pursuing tax appeals where warranted.

Despite this market weakness which is expected to carry over into 2010, according to Axiometrics, our markets are expected to show the strongest revenue performance of any apartment read by 2011. In their second quarter report, AvalonBay is ranked number one or number two in terms of projected revenue performance for the 2011 to 2013 time period. I think this is important as we're often questioned about our high interest strategy and whether we would consider entering some of the higher growth Sun Belt markets. Our commitment to our supply constrained markets remains strong as our experience and third-party forecasts continue to show long-term outperformance for those companies focused on supply constrained markets.

Turning to development, over the years we have created significant value from our development activities. Today we're not. As rents have fallen and cap rates have risen, many development deals simply don't make sense today. We continue to evaluate our development pipeline and in this quarter we made the decision to write off or impair three development rights. Including the reductions at the end of last year, we have now reduced the size of our development rate pipeline by almost half, writing off or impairing 20 development rights. I think we've acted prudently to reduce the size of our pipeline, yet we remain committed to development as a core component of our value creation strategy. We continue to have the largest pipeline and the most experienced development and construction executives in the sector. These are assets that while out of favor today will be significant sources of future growth.

And finally, regarding G&A, given the current economic climate and our reduced development activity, we've taken the necessary steps to reduce our overhead costs. At the end of last year, we announced some overhead reductions and in last evening's press release, we announced further reductions in overhead and a related $2 million severance charge. Adjustments such as these are never easy, yet we believe they are the appropriate response to the current market realities. And while we've made some organizational reductions, we have preserved the core productive capacity to pursue growth opportunities as they emerge.

I'll now turn it over to Tim who will provide an update on investment activity and regional market performance. Tim.

Thanks, Bryce. I'll focus my remarks on three areas. First, I'll provide some color on apartment market conditions and portfolio performance. Second, I'll discuss what we're seeing in the transaction market where activity has increased as of late. And finally, I'll provide some additional perspective on how we're thinking about the development platform given the current conditions.

So far in 2009, apartment market conditions and portfolio performance have certainly felt the impacts of the deteriorating job market we've experienced since Q4 of last year. In fact, any benefit in net apartment demand that we've seen over the last two to three years due to decline in home ownership is now overshadowed by the bleak employment picture. We're seeing significant household consolidation, particularly in the younger renter-oriented age cohorts where the unemployment rate has risen faster than the general population. This has translated into lower traffic and higher turnover in our portfolio which in turn has put pressure on rental rates as year over year new move in and renewal rates turned negative in the same store portfolio for the first time.

While demand is likely to stay weak for the near term, supply should continue to fall across our markets. Total net new addition to supply after taking into account units removed from service due to obsolescence or destruction will approach zero by the end of 2010 and be at levels not seen in decades. Given capital market conditions and the projected returns on new development, new deliveries should stay in check through at least 2012 which bodes well for apartment market conditions once economic recovery takes hold and the job picture begins to improve. Regionally, the West Coast is showing the most pressure as both northern and southern California have experienced significant job losses to date. And are projected to lose about 8% of their job base by 2010. On the for sale side, the entire state of California is undergoing a significant and well publicized housing correction with pricing down by 30% to 40% over the last year alone and half of the sales occurring via foreclosure and short sales.

On the rental side, northern California is weakening the most of all our regions with same-store revenues down sequentially from Q1 to Q2 by about 3.5% and effective rents rolling down year over year by more than 10%. Southern California, which started to decline earlier than other regions, still remains weak, but experienced more modest erosion sequentially than either northern California or Seattle. Of the southern California markets, San Diego's projected to recover first with little supply on the horizon. In Seattle, the employment outlook is better, however, supply is a concern as new deliveries there are projected to be the highest as a percentage of inventory than any of our markets across the country.

On the East Coast, the portfolio is holding up better led by DC and followed by Boston DC is obviously benefiting from increased government expenditures while Boston is benefiting from its exposure to the education and health care sectors, two parts of the economy still growing. New York and northern New Jersey are experiencing pressure on the rental rates side, but occupancies have held up reasonably well despite the number of financial service jobs lost in those markets.

So overall, apartment conditions are weak and should remain challenging through 2009 and into 2010. All parts of our portfolio are being impacted by weaker economic conditions than originally projected. For the stabilized portfolio, we've reduced our projections for same-store revenue declines from our original outlook by about 1.5%. In addition, on new developments, rental rates are trailing pro forma, putting pressure on yields that will continue for the balance of the year as we respond to declining market conditions.

I want to shift now to the transaction markets where we have started to see some pickup in activity. After essentially shutting down for two to three quarters, the transaction market is starting to show some signs of life. In most cases, deals are being brought to market by partnerships or institutions that are looking to bolster liquidity or lower their exposure to real estate. Given the presence of the GSEs who continue to provide significant liquidity on the debt side, real estate owners are viewing apartments as the safe trade or the asset class where transactional execution is most probable and therefore the most reliable way to raise liquidity and/or reduce real estate exposure through asset sales. Much of what is being brought to market is of higher quality, often core product and many of the best long-term performing markets which in the sellers' mind further reduces transaction risk.

In addition, most assets are smaller in size, widening the buyer pool and potentially appealing to buyers who either aren't ready to make big bets or the more entrepreneurial private investors who have practical limits on what they can buy. Distressed transactions are rare as most sellers to date are consciously choosing to sell rather than being forced to sell. Most truly distressed assets such as failed condo deals, if brought to market, have not traded as most owners of these assets have opted to restructure rather than to sell at what they view to be bottom of cycle pricing. The number of bidders varies by opportunity, but often sellers are receiving more than 10 offers from qualified buyers. In fact, for the two dispositions that we have priced so far this year, we received 12 offers on one transaction and 25 on the other. Despite the number of qualified bids, the market remains somewhat fragile as oftentimes it takes moving through two to three buyers before a transaction is completed.

Although activity has increased, pricing is quite variable with wide spreads in the range of bidding which is what you might expect during the early parts of the price discovery process. In our markets, it appears that assets are trading at cap rates ranging from the low to mid-6% to low 7% range or roughly 6.55 to 7%. Given the declining NOI environment, however, it's probably more helpful to talk about IRRs. Based upon our estimates of cash flow growth during the investment horizon, assets are trading projected unlevered IRRs of 9% to 10% and levered IRRs in the mid-teens. Asset values are off by about 25% to 30% from their peak, which is fairly close to tracking trends on the single family side. So while we're early in the revaluation process, liquidity and confidence is starting to creep back into the transaction market.

So how does all this affect our transaction activity? We began the year with modest expectations to sell around $150 million without really having much confidence about the state of the market. We're now marketing four communities and have selected buyers on two properties. Based upon market reception, we expect that we may sell a bit more than originally planned and have increased the mid-point of our outlook for dispositions by $100 million to $250 million, which is about two thirds of what we've averaged over the last few years. Our motivation to sell assets at this point in the cycle is driven by portfolio management objectives as well as our view that dispositions is a source of liquidity that is both balance sheet neutral and reasonably priced compared to other alternatives. In a sense, asset sales are another way to tap the most cost effective form of capital right now in the marketplace, that being GSE debt without increasing leverage.

Lastly, I'd like to expand on Bryce's remarks about how we're thinking about new development. As Bryce mentioned, it is difficult to make new development underwrite with yields deteriorating and cap rates rising by about 175 to 200 basis points. Our existing development community portfolio is seeing yields erode to sub 6% which is clearly dilutive to NAV today and we have not started any new development in 2009. Given the combination of land values, construction costs and operating fundamentals, we've chosen to abandon a number of opportunities in our development right portfolio. As you recall, at the end of last year, we abandoned 14 deals resulting in impairments, abandoned pursuit costs and related severance. In this past quarter, we've completed another comprehensive review of our development portfolio and have determined that there are three additional deals that are not probable, and as a result we've recognized additional impairments, abandoned pursuit costs and severance of just over $20 million.

So while development is challenging today, for those of you that have followed or invested in AvalonBay for a number of years, you know that it has been a great source of value creation for much of our existence as a public company, as Bryce referred to in his remarks. It has allowed us to build one of the best portfolios in the sector. It's been a unique competitive advantage that admittedly has little value today. Having said that, we believe that the economic recovery, combined with the elimination of many merchant builders which should continue to contribute to historically low supply will result in many compelling opportunities for us in the future and that we need to be positioned to take advantage of this. Some of these opportunities may simply be developing from our remaining development right pipeline, much of which is being replanned and in some cases where the land is optioned, repriced. In addition to these deals, we believe that more opportunities will emerge, often on entitled land owned by financial institutions or equity partners that need to be reentitled or replanned for more practical and economic programs.

With respect to new activity over the next year or so, much of the focus will be on securing low cost land options. However, we believe that there may be opportunities to take advantage of falling construction prices and start construction on a few deals as well, timing them to deliver on what is projected to be a better operating environment in late 2011 and 2012.

Overall, we believe it is critical to maintain the core productive capacity of our development and construction groups while responding to the realities in the marketplace. We've written some deals off, reduced our overall pipeline and cut back overhead. We've also made a conscious decision to hold on to other deals, reworking them to be in better positions when an economic recovery takes hold. Clearly a single approach doesn't fit every deal or every part of the cycle. We recognize that transition points in the real estate cycle requires bifocal vision, the ability to see what's right in front of you and react to it while not losing sight of what opportunities may emerge on the horizon and not stripping the organization's capability to respond to them. Our view on development probably embodies this notion more than anything we do, so we thought it would be helpful to give you a little more perspective on our thoughts and approach to this part of our business.

So with that, I would now like to turn it back to Bryce for some summary remarks.

Thanks, Tim. So as we sit here at mid-year, it's clear that the magnitude and duration of this recession will be deeper and longer than most expected at the beginning of the year. Job loss estimates for the year have increased from approximately three million at the beginning of the year to an estimate of over five million today, with sustained job growth not expected until the second half of next year. The weaker than expected economic environment has resulted in some revisions to the previous financial outlook that we provided in February. While we provided a road map outlining these revisions in last evening's press release, let me highlight a few of the changes.

First, as you know, changes in revenue are highly correlated to changes in employment. The significantly larger than expected year to date job losses will negatively impact our portfolio in the second half of the year and into 2010. As a result, we expect revenue declines for the year between 3.5% to 4.5% as compared to about 2.5% in our original outlook that we provided in February. Second, as Tim mentioned, we expect to increase our disposition activity to approximately $250 million, which is an increase of $100 million from original outlook. Extending dispositions will have a nominal earnings impact due to the timing of the planned sales, but they could result in a special dividend. Third, the reduction in G&A is in large part offset by a reduction in capitalized interest. And finally, our reduction in planned development activity resulted in a noncash impairment and writeoff that totaled $0.28 a share.

In total the first three things resulted in expected operating FFO at the mid-point of our range at approximately $4.50, which is a $0.15 decline from the mid-point of our February outlook. When factoring in the noncash impairment and writeoff, we expect our FFO per share for the full year to fall within the range of $4.15 to $4.30.

Downturns are inevitable and each one is unique. Our executive team has worked together for almost 20 years and we've managed our business through a number of downturns. We managed through the real estate-driven recession of the early '90s, which in large part led to the modern REIT era as private companies embraced the public equity markets. We managed through the tech led recession of '01, '03. While the economic contraction then was not as severe nationally as the current downturn, the pain was very significant in AvalonBay's markets given our heavy concentration of tech and financial services jobs. Also during this period the housing market remained quite strong, which negatively affected rental demand, particularly at the higher income levels. This time the economic contraction is not only more severe, it's also more evenly distributed. Virtually no industry and no geographic market has been spared. The capital markets are fragile and the housing market is going through a fundamental reset in terms of pricing and volume. During each of the past downturns, we had to make some difficult choices in terms of how to respond to the challenges and opportunities, and in each case I believe we emerged an even stronger company with an enhanced competitive position. And I think that will be particular true this time. Our markets are expected to be top performers as the economy improves, our development organization and pipeline will be a key source of future value creation. We've enhanced our acquisition and redevelopment platform through the creation of our fund business, and our balance sheet and divided coverage remain among the strongest in the sector.

And with that, Operator, we'd be glad to take any questions.

Thank you. (Operator Instructions) Your first question comes from Michelle Crowe at Merrill Lynch.

Hi. In terms of your lower revenue and NOI expectation for the year, can you tell us which markets in particular you expect the most weakness.

Michelle, this is Leo. I'll break it down generally into three different areas. The most favorable areas will be in Washington, D.C. and in Boston, of consistent with Tim's comments. They will be negative, but just marginally negative during the second half of the year. Then moving to the New York metropolitan area, I expect those to be at the average for the back half of the year. And then the most challenged markets, also as Tim's comments related, will come from the West Coast markets, Seattle, northern California and from southern California, all of which will be above the average that will occur in the back half of the year to get to our guidance.

Okay. And can you give us more color on New York City and Seattle for the quarter? Rental revenues were higher than we had anticipated, so I was just wondering if you could give us a little color around what's going on in those markets.

Sure. In Seattle, basically what's going on there, as Tim alluded, the rate of job losses is somewhat abating, but there still is quite a bit of supply coming in that market. To break it down, I would tell you that the northern suburbs up near Everett and Bothel are the most challenged areas, I would also tell you that the Bellevue area because of the supply and the amount of supply is challenged. The best areas in the Seattle market are downtown followed by Redmond. Is that responsive to the Seattle piece?

Yes, that's great. Thank you.

Okay. On the New York side, in our portfolio, just to remind you, our same-store portfolio is not Manhattan assets, it's assets from Long Island City, Westchester and Rockland counties. When you look at the results, you have to keep that in mind. To speak more broadly about the New York metropolitan area, we do have stable assets in New York City. Those assets, occupancies are exceeding 97% and while, as we've discussed the last couple of quarters, the rents are absolutely down in the 15%-plus range, we are seeing some stability there where the concessions that have been offered are either stable or coming down a little bit and so New York City, or Manhattan, specifically, is pretty stable.

Moving to the other markets around the city, Stamford is more challenged or southern Fairfield county, and that's really for two reasons. One because it has a bunch of financial services jobs, but secondly we are seeing people with the reduced rates in New York City move back into the city. The similar situation is occurring along the Jersey water front. So that's what's going on in the New York area. Bryce, do you have something to add?

Yes, just one other comment. Michelle, I think part of your question about New York is a question we've had for many quarters where people have expected New York to really fall off the proverbial cliff in terms of performance and certainly it is weak, as Leo has commented. But when you look on a relative basis across the nation and across our other markets, New York is expected to lose about 2.5% of its jobs for calendar year '09 compared to about 4% job loss nationally. And most of our California markets are seeing job losses, 4% to in excess of 5%. So I think we all tend to get maybe a little too myopic on New York thinking about the financial services -- the impact of the weakness in financial services sector on New York, which it is a significant component of that economy, but is still not the key driver.

We looked at some stuff earlier. If you look at FIREA jobs, finance, insurance and real estate, they comprise about 6% of jobs nationally. In our portfolio it's about 9% of our residents' employment, where they are employed, and in New York it's about 18%, so obviously significantly higher than the national average, but it's still, obviously the majority of our residents are not employed in that sector. So just offer some perspective because we follow it very carefully because we're concerned about it and we know you all are as well.

Okay. Thank you. That was very helpful. Also just last question, I was wondering if you could give us more color on renewals, what the spread in rates have been between renewals and new leases? Some of your peers are seeing spreads of 800 basis points and I was just wondering historically, what's been the widest spread that you've seen?

Michelle, this is Leo again. In the most recent quarter, we've seen new move-in rents stable at about 12% down. On the renewal side, we've actually seen them decline over the past quarter and within the quarter. For the entire quarter, they were about 0.6% less with each renewal. So that spread is really about 12% or 13%. You know, historically, if you went back, a couple of years, the spread's really been more like 700 basis points or 7% and we are seeing, while we're seeing new move in rents stabilize, we are seeing the renewals, more pressure on renewals and they're coming more into alignment.

The blended number, just so you know, between the renewals and the new move-ins for the last quarter was about 7.5% down. So when you take the 12 and then the minus one effectively, based on the number of renewals and the number of new move ins, it gets to about a negative 7.5.

And the negative 700 basis points that you said was historical, was that the widest range or was that just on average?

That was more typical.

Okay. What has been the widest in the past?

I just don't have that figure.

Okay. And what kinds of concessions are you giving on renewals?

Almost in all cases we don't use concessions on renewals. We use just effective rents. That's not to say that it couldn't happen in select circumstances. But in general, and as we talked about last quarter, we really moved more to an effective rent both with new leases and renewals.

Okay. Great. Thank you so much.

Your next question comes from Rob Stevenson of Fox-Pitt Kelton.

Good afternoon, guys. Leo or Tim, can you just talk about on the development side these days where you are versus your expectations on lease up in some of the more difficult areas. Obviously, California, given the comments there would expect to be challenging from a lease up perspective. Are you meeting the numbers but having to give a lot on rental rate? Can you help me understand where you are on the give and take there?

Rob, this is Leo. Just so you know, right now we have 11 communities actively in lease up. For the second quarter we averaged about 23 net leases per month per community. 23 net leases per month per community. To give you some perspective, in the fourth quarter of '08, we averaged about 16 leases per month per community, and in the first quarter we averaged about 17. I will tell you from an absorption perspective, we're meeting our expectations. Clearly, however, as Tim's comments alluded, we've had to adjust rate to get there. So you understand that we are closing about 30% of the traffic that comes through. And to give you a perspective of where things are going well as opposed to where things are more challenged, the lease ups that are in the markets that we've already talked about that are under pressure, those being the West Coast or around the New York metropolitan area, are the lease ups that are most challenged, the lease ups that are in Boston or the lease ups that are more our lower price points like at Charles Pond are performing better.

Okay. If I think back to the last recession, that recession there was a lot more supply that was in the pipeline at the time that the market turned down, and so there was a very rapid hitting of development lease ups spilling over and infecting stabilized communities. Have you started to see that as of yet or is it really still very segmented, development, lots of concessions and difficult time leasing up, but not really moving in in northern California and New York areas to see the concessions from the development really infecting those stabilized communities?

Rob, it just depends on where the communities are located. If there's a new lease up that's immediately adjacent to one of our stabilized communities, it is having some impact. Just so you know, we're not using a lot of concessions, so I wouldn't look to concessions, we're really leasing at effective rents. So in any set of circumstances, when new supply comes into a market, especially when the demand has been so challenged by the economy, it causes some impact to the surrounding communities.

Yes, Rob, this is Tim. As you'd see on attachment eight, the effective leases particularly in the California communities came down pretty significantly this past quarter. I think they were all down double digits just from Q1 between 10% and 15% or so. We clearly haven't seen that kind of degradation in market rents on the stabilized portfolio. So I think it's probably hurting the development portfolio more than the stabilized portfolio, probably for some obvious reasons. They tend to be higher price points and the increase in availability is dramatic when you're delivering in batches of four at one time into a market where demand is relatively thin. So I think it's probably affected the overall market, but clearly the pricing's been more impacted on the development portfolio.

Okay. And then last question, where was bad debt during the quarter and where is that versus the last few quarters?

Rob, this is Leo. Bad debt for the quarter was about 1.25%, just to give you the perspective with the context. In Q4, '08, it was about 0.8% and in Q1 '09, it was about 0.9% and one year ago, so the same quarter a year ago, it was about 0.7%.

All right. Thanks.

Your next question comes from David Toti from Citigroup. Your line is open.

Hi, everybody. Michael Bilerman is here with me, as well. Just a couple of quick questions on the development pipeline. The expected yields continue to tick down a little over the quarter. Do you have a sense where those could level off given what you're seen in your operating portfolio and where the most recent rents have been in those developments?

David, Tim here. As you mentioned, the average yield did come down by 20 basis points driven largely by what we're seeing in the California markets. And just to remind everyone, the current yields do reflect basically the current leases in place for those developments. They have been coming down and so I would say there is risk that the average yield on the development portfolio will continue to trend down just based on what we're projecting to happen just even within the stabilized portfolio. In terms of where that might go, frankly, it's unclear and it's going to turn largely, I would tell you, on what's happening within those California communities.

I also noticed that none of your stabilization or delivery dates have really changed. So can we infer that you're more willing to sacrifice on the rent side than push out on the stabilization dates in terms of the strategy?

Yes, that's generally the case. As Leo mentioned, we've averaged about 23 leases per community per month and that would be pretty typical. When you have an average community size of about 300, you're going to want to try to get it leased up in about a year's time, so you've got a price to absorb within that year or you'll just be competing with yourself and potentially exacerbating the situation a year later.

I see. And then is there any way for you guys to quantify your development spend expectations for 2010 or provide a range potentially?

David, this is Tom. 2010 is an open book right now in terms of we haven't released any outlook for 2010. What we do provide you on attachment ten is the current amount that remains to be funded from what's under development and that number as of the second quarter for what's under construction is about $395 million. That's second quarter and you can see it falling off to the point where in the fourth quarter there's only $169 million left to fund in 2010 with respect to development, and then we have some redevelopment you can see below that. And we haven't decided what we will start, if anything, the rest of the year. If we have any starts it would likely be modest, but that's the best indicator we can give you for 2010 right now. Fairly modest level of development spend.

Maybe just following up, it's Michael Bilerman speaking. Tim, I think you had talked a little bit about the potential to maybe start development because construction costs have come down, you have this picture towards 2011 and 2012 that look a little better as your markets start to recover, that you may get tempted to put the shovel in the ground. And I guess what we're trying to figure out is how do you underwrite the expected return that you need baking in a certain level of risk that if things and rents don't drive to those levels that we're not back in the same spot?

Clearly it wouldn't be every market that we would consider starting something in. Frankly, probably it would more likely be suburban northeastern communities that frankly are a little more protected. But at the end of the day, it's going to be based upon our projections of the IRs taking into account the direction in cash flows over a reasonable investment horizon of seven to ten years. So if you start something say in 2010 and you expect rents to trend down for another year, we would incorporate that into our anticipated cash flows and it would just need to be an adequate projected return in the form of an IR to justify the investment and the risk.

And do you have a sense if the current projects today are five, seven, which doesn't take into account the projects that are not yet in lease out. That if you were to do something that your initial target would be, I don't know, north of an 8%?

I think that's about right. I think it would need to be in the neighborhood of 8% in order to get to an IR that probably justifies the investment.

And that would be on today's rents or what your forecast is in the future in terms of rent levels?

It would be on today's rents. It might potentially be a little less than that, again, depending on your view of the market over the next year or two. If you're assuming a more robust recovery in a market, that obviously would factor into what you would underwrite from a current yield standpoint. But again, I just really point you back to the IRs, and I know that we haven't typically disclosed projected IRs, we typically have just tried to disclose based upon what we know which is current rents, but it would be projected IR that would really drive a lot of that investment decision.

And I can't remember if it was Tim or Bryce you talked about, it was either last quarter, a couple of quarters ago, that while you were disappointed on the yields on the development given the dramatic decline of rent, that you build these things once and lease them every year and a short-term hit could be a long-term positive. As you look at the stuff that got delivered last year, you had about $1.1 billion of development. This year you have just about $850,000 and you peel back to almost 2007, you've got $500 million. Where are those current yields today if you took the composite of the last two and a half years of completed development, so about $2.5 billion, where is that current yield today?

Yes, I don't have those numbers in front of me. They would be a bit north of where we're projecting the existing basket just based upon most of them had a cost basis that were less given where construction pricing was going at the time. But I suspect it's in the 6s. Again, not clearly dilutive or accretive from an NAV perspective based upon prevailing cap rates. As it relates to the years you mentioned, which is going back to '08 and '07.

Bryce, this is David Toti, again, this will be our last question, I promise. I'm just wondering from a high-level view looking at the multi-family space, do you think there's any danger in an overreliance on the GSE? The GSE capital is obviously underwriting current values and providing some liquidity in the market, but do you see a danger in this almost 100% market share?

I'll provide a comment and Tom may want to jump in here. I guess I can answer from two perspectives, one from an industry perspective and then from an AvalonBay perspective. From an industry perspective, clearly the agencies have provided an important source of liquidity at a time when it was certainly desperately needed and has been a stabilizer in terms of asset values for the apartment sector. So it's been a good thing and it is one of the only properly functioning areas of the credit market, so I think that extends just even beyond the apartment sector, to the extent the apartment sector has a source of liquidity, that means we're not tapping other sources of liquidity that other sectors need. So I think it's been good for the apartment sector. I think it's been good for real estate in general and while there has been a fair amount of discussion a few years ago about reigning in the agencies a lot of that discussion has dramatically quieted down at a period where the administration is desperately trying to get capital moving, not constrain it.

In terms of from AvalonBay's perspective, as you all know, we have been and remain committed to being an unsecured borrower. That doesn't mean we don't take on secured debt on occasion, and this happens to be certainly a time where it's absolutely the right thing to do, but to the extent that GSEs did go away, that would certainly be much more problematic for the private companies who don't have access to the unsecured markets or public companies who don't have a corporate rating. So we remain committed to one of our principles from the day we went public which is to have a variety of sources of capital, debt and equity and not over reliant on any one particular component.

So long-winded way of saying GSEs have been good for AvalonBay, apartments, real estate in general. I personally don't think there's a huge danger of them going away or being severely constrained any time soon, but our business model is not predicated on them being a significant source of ongoing capital for us.

Great. Thanks for your perspective today.

Your next question comes from Ian Hunter from Oppenheimer. Your line is open.

Hi, I'm here with Mark Bifford, also. Can you provide a little more color on the acquisition that the company's Fund II made during the quarter and what is the status of the Fund II balance sheet?

Ian, I can certainly take the first part of that question. The acquisition was a community built in the mid-'90s in downtown Bellevue. It's actually adjacent to an existing community that we developed a number of years ago, so a market or sub market, we felt like we had a fair bit of insight into, and like this particular community because it was an interesting price point relative to what else is available right now within the Bellevue market. The purchase price was around $150,000 per unit and cap rate around the 7% range based upon next 12 months estimated cash flow which would have had rents trending down.

Okay. And what about other opportunities you're seeing for the companies for the Fund II?

Well, we are evaluating a number of other deals but I would say we've been a bit selective in terms of the ones. We've taken a little bit more of a rifle shot approach, particularly early in the fund investment period. We think pricing is relatively rational today based upon the 25% to 30% movement in asset values and just the return thresholds that seem to be clearing the market today. So we intend to continue to be active, obviously not in every market. We are focusing on a few markets in particular we think where valuations may be a little more attractive relative to long-term potential.

Do you have an objective for the amount to invest for the rest of the year with that fund?

Not per se, no. We're being a little bit more opportunity driven at the moment. While there's some life in the transaction market, what you're seeing, a number of sellers pulling back their offerings when they're not willing to accept the kind of values and cap rates that are clearing the market right now. We're not trying to force a certain amount of dollars out the door between now and the end of the year.

Okay. Thank you very much.

Your next question comes from Dave Haberman of Goldman Sachs. Your line is open.

Thanks. Good afternoon. You talked about the spreads on new leases and renewals. Can you comment a bit about pricing for class A apartments versus the Bs and where the gap is today versus maybe where it's been either a year ago or historically?

Jay, this is Leo. With respect to As and Bs, as we've discussed in the past, we typically find that Bs do outperform As in the early part of the cycle. We've also talked about the fact that our new product has been under somewhat more pressure. To quantify it, I don't know, I'd probably say on the revenue side maybe 50 to 75 basis points, something like that.

Okay. But in terms of the gap today versus where you've seen it historically, do you see it much wider, i.e. rents ran up more significantly in the last couple of years?

I wouldn't say that we see it significantly higher. I would tell you as we get further into the cycle, it collapses and when things are better, I would think As would outperform Bs, as they have in the past.

Okay. And just turning to guidance, based on your Q3 forecast and then going down to Q4, it looks like you are at a $0.90, $1.05 run rate. Can you just give us specifics there? Is it purely NOI, is there development drag and help us think about as we switch to 2010?

This is Tom speaking. We gave you a road map of the changes in the outlook for 2009 and the components that break that out. So I don't know that I can really add much to answer your question other than to point you to that road map that we provided and a lot of that obviously deals with NOI declines. The $0.16 NOI and other capitalized interest is going to hit us by about $0.04 per share, and obviously the impairments, one-time charges make up the majority of the revised outlook. And that's on the fourth page in of the press release.

Sure. But you don't see the development drag growing significantly into next year?

I don't know how you define development drag. We will lease up these assets in the normal course. We may have rent concessions that would be more than we would like to have during a lease up, but then those will stabilize and start growing in 2011. So it's hard to speak to a development drag. As you wind down your development pipeline, there actually is in terms of FFO changes somewhat of a positive because you don't have the negative lease up deficits that you would otherwise have as you ramp up development. So it actually is a little counter intuitive. You're likely to see less impact in FFO per share from development because we're reducing the amount of development activity, not picking it up.

Sure. And you mentioned, obviously, being proactive on taxes. Can you talk a bit about your property operating expenses and there was a jump year over year and perhaps some opportunity toward the latter half of the year?

Sure. This is Leo again. For the quarter, basically what drove the expenses was bad debt and we've talked about that, and then some maintenance related expenses. And in this quarter, it was offset, those increases were offset by insurance and, interestingly, property taxes. But the property tax issue was one community where we received a refund that exceeded our expectations. For the year, I expect property taxes to actually be one of the factors that is driving up our expenses. And we talked about property taxes in the past, we are very vigilant about fighting property taxes and appealing the assessments that we receive. Unfortunately, that process frequently takes at least a year and pushes any success into subsequent years. So I think any relief that we'll see based on market conditions are more likely to manifest themselves in 2010 than 2009.

For the full year, I still expect property taxes and bad debt to be driving expenses. And also landscaping, and that may seem unique, but we actually had a multi-year agreement with a vendor that we had to replace and in replacing that, it drove expenses up disproportionately. We still are seeing success on the marketing side by focusing and being diligent about our marketing expenses, that serves to offset some of the growth, as does insurance this year.

And lastly, can you just comment on dispositions? I know you raised the target by $100 million, but can you talk about which markets and obviously price sensitivity?

Sure. This is Tim again. It's a bit of a mix of markets. We were looking at selling some assets both in the Northeast and the West Coast and there's been actually still a pretty strong reception to the West Coast assets despite some of the weakness we've seen in those markets. In terms of the range of pricing, like I mentioned in my remarks, we expect that to close over time as just a lot of these deals go to settlement and pricing becomes just more transparent in the marketplace, but right now you will see some people bidding, they're pricing maybe 15% to 20% off of where the prevailing price is. But what we are seeing, if you're getting 12, 15 bids on an asset, there tends to be four or five prices that are clumped together towards the top. So there is pricing support at the numbers for which these things are trading, but there is still a pretty wide gap from top to bottom.

You mentioned sales as an attractive source of funding. Where do you think unsecured would be issued today?

Well, I'll let Tom answer that, but obviously sales have a different impact on the balance sheet with respect to the leverage neutral, but Tom you want to speak specifically to the unsecured piece?

Yes, the unsecured markets continue to recover and right now a ten-year offering could be probably achieved 7% to 7.25%, probably on the lower end of that range compared to GSE financing which I guess it was a pretty good market data point with another company in the 5.6% to probably high 5% range. So you're seeing about 125 basis points to 150 basis points difference between the two markets.

Okay. Thank you.

Your next question comes from Alexander Goldfarb from Sandler O'Neill. Your line is open.

Yes, thank you. Good afternoon. Just want to go to the impairments for a second and understand the parameters, the filters that you used when you took impairments in the fourth quarter and then now, what's changed in your view of those developments that caused you to mark them down now versus before? Is it tighter underwriting, is it rent? What's changed?

Certainly, as we mentioned in our remarks, the economy is worse than we had anticipated at the beginning of the year and with those two particular deals that were impaired, they had different sets of circumstances. One was in a market that's a sub market and a market that's eroded more dramatically than we anticipated and, therefore, we just viewed the likelihood of being able to develop that deal economically was quite low. And that had changed really in the last call it six to nine months. And the other deal had, frankly they were both entitlement and market issues to it that, again, essentially resulted in our belief that development was not a problem in that particular case and therefore we needed to take an impairment.

But the factors that drove those decisions, are you seeing those continue to decline such that you may have concerns about further impairments or has the decline from fourth quarter till now moderated that you feel more comfortable with where you are as far as your development portfolio?

Yes, a lot of this turns on whether you just think it's probable that the development will be economic at some point in the future and so we do take into account our view of the future in terms of whether we think it's probable. To the extent it's probable, essentially you're not going to have an impairment situation. So I don't know if that answers your question or not.

Okay. So it sounds like it may be leveling off, it's not continuing? I'm just trying to get a sense for you guys had some big write downs in the fourth quarter, you just had another batch six months later. I'm just trying to get a sense for, you had some big writedowns in the fourth quarter, you just had another batch six months later. I'm just trying to get a sense for the reasonableness that this may be behind us or there's continuing risk because the fundamentals are continuing to decline at such a rate that it's possible that this stuff continues in another six months?

I think it depends on the direction of the economy relative to expectations. To some extent all land deals are out of the money options right now and how far out of the money is going to depend upon your belief of the opportunity down the road in that particular market. So we've done a pretty comprehensive assessment of our development right portfolio and based upon our view of the world today and how it's likely to shape over the next couple of years these represent low probability deals that would move forward.

Okay. Then jumping to interest coverage, in the first quarter it was 4.4 times and now in the second quarter it's 2.9, but debt only went up by, it seemed like, $200 million or $300 million. What was driving the delta on the interest coverage?

It's non routine, the non routine charges.

Oh, they're included in there?

Yes.

I got you. Okay. And then the final thing, the $2 million, the severance and the legal settlement, which line items are those in?

G&A and they're both offset.

They're both in G&A?

Yes.

Okay. Perfect. Thank you.

Operator, just before we take the next question, we do still have a number of people in the queue, so just out of respect for everybody, we're going to try to limit your question and follow-ups to no more than 12. But seriously, we can try to keep the questions a little bit more brief so others can move through, we'd appreciate it. I wasn't picking on you, Alex, but just in general, we're getting a lot of follow-up questions. Next question, please.

Your next question comes from David Brag at ISI. Your line is open.

Thanks, good afternoon. Just want to follow-up on something that you brought up earlier which was the third party study that suggests a stronger recovery for your portfolio in 2011 through 2013. I want to ask you for your thoughts on that. Do you view that as supply driven or do you also view that there's going to be stronger employment recovery in your markets and also at your price points?

This is Bryce. The study that referred to again was Axiometrics, I'm sure many of you are familiar with them, but there are a lot of people that obviously do projections and I'm sure you'll find some that have offered different projections. I think what their study does point out is for us always to be reminded that it is not demand that drives revenue performance, it's the relationship between demand and supply, and that's been an underpinning of our strategy since the day we went public. Tim commented in his comments that we're seeing a period where supply is virtually coming to a stop. When the markets return to demand growth, I think it's fair to say the markets that will see an increase in supply first are not supply constrained markets. And so what their study does is look at those relationships and then to project forth changes in revenue. And what they do is, if you're familiar with the study, they just look at the market concentration by REIT. So they'll look at what our concentration is in X markets, and Y markets and EQRs and others, and they roll up to get a projected revenue projection. So we think it doe, or I think it does, pass the smell test, if you, will and it does reflect a similar performance to when we came out of the '02, '03 recession where we saw strong revenue growth in our markets that was not primarily driven by job growth.

Okay. And in the IRR models that you discussed, what's your willingness to model a spike in NOI during that time period?

This is Tim, Dave. We often refer to a number of third-party forecasts and then make judgments on our own based upon if we feel like we've got a different insight than perhaps the market forecast might have. But most third-party groups will forecast revenue growth by market for the three to five-year period. So we'll generally look at it based upon, as best we can, third-party forecasts and then we'll look at some sensitivity cases, particularly if we feel like we've got an insight in that market. So to the extent they're forecasting a spike, we'll incorporate that.

Okay. Thank you.

Your next question comes from Rich Anderson from BMO Capital Markets. Your line is open.

Just e-mailed John my other questions to save some time here. Just one question on the special dividend. If you could tell me or give a sense of how close you are to a potential special dividend vis-a-vis your special disposition program?

Rich, this is Tom. A couple of thoughts on dividends. First, dividend policy is something we review each year with the board and we review that in February. We do keep ongoing dialogue with the board on dividend policy, but we really haven't vetted with the board a special dividend. What we're trying to suggest is that if we expand our disposition program and if it is successful, that will put upper pressure on dividend levels and could lead to another special dividend. So that's really what we're trying to suggest is that if we're successful with this program, you may see another special dividend sometime between now and September of 2010, which is when we file our tax return. But nothing set in stone and those discussions with the board aren't that far along, but we just want to telegraph that there is pressure on dividends and it's because we've historically been very successful in our investment and operating strategy and we are in an excise tax position that requires us to distribute more not less.

So if you do what you have communicated to us, at this point that would not require, you're not that close?

If we do what we said we would do in terms of expanding the disposition activity, it would make a special dividend more likely than not.

Okay. How do you feel about stock for the special dividend? Has that been vetted with the board?

Neither a dividend nor how we would pay it has been vetted, but as you know in the past we did have a special dividend, it was paid in stock. And we maintained our current dividend level which resulted in actually a dividend increase of 3.5% for 2009. So we've done it in the past and can't say we'd do it again in the future, it depends on a lot of things, but we are comfortable going down that path because we've done it before.

Great. Thank you.

Your next question comes from Michael Salinsky of RBC Capital Markets. Your line is open.

Leon, probably more of a question for you. Can you touch upon trends throughout the quarter, whether you saw renewal rates, and rates on leases drop as the quarter progressed and how July has played out so far relative to expectations?

Mike, this is Leo. The new move-in rents remained flat through the quarter. So if you were to look at the figures for April, May and June, it was basically around 12% each of those months. On the renewal side, they started slightly positive and by June, they had gone negative. So they started positive by a little more than a half a percent and in June they were negative by a little more than a percent which got us to that minus 0.6 number that I gave you earlier. But again, blending those two together, it averaged to about 7.5% for the quarter. I don't have statistics yet on July, the month is not closed out yet.

Okay. And second, a bookkeeping question for Tom. Are there any projects remaining in the pre development pipeline that have a sensitivity in terms of time or financing that need to be started, say, in the next six to 12 months? And also just a clarification on the tax expense, the $3.2 million of tax expense, is that expected to occur in the fourth quarter?

Let me answer the second apartment part of that question and let maybe Tim kick in on the the first part. The excise tax would be required if we did not declare a special dividend in 2009 and therefore that would be accrued in the fourth quarter once we've determined that we are not going to accrue that special dividend. So that would hit in the fourth quarter as it did last year. And then, Tim, in terms of time sensitive --

Yes, Mike, I can't think of anything off the top of my head that has any kind of really performance obligation in that kind of time period. From time to time we have permits that expire, but for the most part, we've been able to get those extended when we've needed to and we haven't been ready to move forward because of economic or capital market considerations. The only thing I can think of is maybe a land closing, I think we mentioned on the Brooklyn land there's still some additional land that essentially we closed into through a land lease structure that might get converted to fee in the next 12 months at the sellers' option. But that's the only thing I can think of that would impact liquidity.

Thank you.

Your next question comes from Michael Levy from Macquarie. Your line is open.

Good afternoon. I was wondering if you could talk a bit about turnover during the quarter, whether it varied by market and whether it was particularly weak or particularly better than you had thought in certain markets?

Michael, this is Leo. Turnover for the quarter was at 64%. It was up 5% via the similar period for the previous year. That's about the rate at which it's been increased over the last three or four quarters, just to give you some perspective. Where was it up most significantly, we saw the biggest increases in turnover on a year-over-year basis in both of the California markets on the order of 10% higher. So in northern California and southern California it was approximately 10% higher than it was in the previous period a year ago. Interestingly in the Pacific Northwest it was down just slightly.

Thank you very much.

Your next question comes from [Dustin Peeslo] from UBC. Your line is open.

Hi, guys, it's actually Ross Nussbaum here with Dustin at UBS. I'm trying to figure out a way to gauge the performance of the roughly 17,000 units that are not in the established same store pool. I know you talked a little bit about, Leo, what was going on in Manhattan. Is there any way to give us a sense of what's going on? It's a big group of properties.

I don't know how I would give you -- I would tell you that the other stabilized communities, because they are newer, can be a little bit more volatile than the same store, we just don't have the same operating history, but in general, their performance tracks the sub markets in which they are located. So a little more volatile, but we watch the performance and we expect the performance to be consistent with the same store portfolio. I think that's probably the best indication I can give you.

So we shouldn't assume that because they're newer necessarily that there's more volatility in terms of the decision making of the tenants in those properties?

I wouldn't say that there's more volatility in the decision making. I would point you to the fact that we said that the upper end product, which is typically the newer product, is under a little more pressure.

Dustin, this is Tom. One of the things, you raise a good point and that is we have a large basket of assets that are not in the same store pool because we pull those out if they're either under redevelopment or if they're newly added but don't have a comparable period to qualify them for same store basket. We reset that same store basket once per year and we pull assets out that are under redevelopment so that we are not buying NOI from new capital expended. So we try to keep that basket clean. One thing we are looking at to try to get more of those assets as a indicator of performance is looking if it's possible for us to change our basket quarterly. We haven't come to a conclusion yet, but because we have so many assets that are in that basket, we're trying to find a way to get more visibility to the investment community. So stay tuned. If we can find a way to do that that's meaningful and relatively easy to administer, we're going to try to do that for you.

I think my thought is yay proposal. Thanks.

Your next question comes from Andrew McCulloch from Green Street advisors. Your line is now open.

Most of my questions have been answered. I just had one follow up on the impairment. What was the magnitude of the impairment versus book value and how does that break out between land, auction and pursuit costs?

The impairment, it was on the land. It represented about just under 50% of the book value of those assets, roughly $20 million of impairment against a little more than $40 million worth of book value.

Okay. And then just a follow-up question on the dividend. You guys seem to run a fairly conservative dividend policy and balance sheet policy overall. How comfortable are you with a dividend level once it starts getting close to your cash flow after CapEx?

Yes, just maybe a couple of comments on the dividend overall. If you exclude the non routine items, our FFO coverage was about 1.3 times which is probably one of the strongest in the industry, certainly the strongest in the sector. We went into the downturn with one of the strongest dividend coverage levels. We paid a special dividend this year. We actually increased the dividend levels by 3.5% in connection with those additional shares as I mentioned earlier. If you look at the last downturn, we covered the dividend from recurring cash flow throughout the entire downturn. We never paid out more than we took in on a recurring cash basis, but during that period we took some steps to enhance our ability to cover the dividend during a downturn.

What did we do? One, we expanded our use of tax exempt debt and floating rate debt knowing that there's a natural hedge between revenue declines and interest rate declines. We added the investment management platform and the related fee stream that comes from that business and then we did diversify the portfolio to add more moderately priced product. So as we went into this downturn, we're in an even better position to cover our dividend from recurring cash flow and it's very difficult for us to model a downturn that would cause us to really have to rethink that dividend level. Certainly if the downturn becomes more severe or more extended than anticipated, all bets are off, but for now, we're pretty comfortable with our current dividend level. As I've said before, the expanded disposition program does put some upward pressure on dividends and there could be a special dividend. But I think you can expect that our dividend policy is going to need to remain fluid as we work through the impact of sales and as we work through the impact of the economy on our portfolio and as we review this with the board over time. I hope that's responsive to your question, but I wanted to address to some extent what was different about this time and what we've done to make sure that we feel that we are comfortable with current dividend levels.

That is helpful. Thanks, guys.

Your next question comes from Paula Poskin from Robert W. Baird. Your line is now open.

Thank you very much. Apologies if I missed this in your earlier comments. The severance charges, were those mostly cash or noncash charges?

At this point they're noncash because they haven't been paid, but they will result in cash. That's why we didn't designate them as noncash.

Okay. And what was the nature of the legal proceeds received?

Paula, this is Tom again. Those were legal settlements in connection with some previously disclosed legal actions that we were involved in with vendors and those were net payments to AvalonBay just to make sure that's clear. Those were cash in, not cash out.

And then I think you had said that those offsetted one another essentially in the G&A line?

Correct.

What's the more normalized run rate for G&A going forward?

Let me just give you the three G&A lines. You've got G&A that you see in attachment two. Probably a good run rate for that would be about $6 million per quarter. RS overhead or property management, I think it's referred to as property management and other indirect operating expenses, probably $8 million is a pretty good run rate. And then investment management is about $1 million quarterly.

I appreciate that. Thanks very much.

Your next question comes from Rich Fitzgerald from Castle Point. Your line is now open.

Hey, guys, thanks for taking the call. I'll try to be quick here. Just had a quick question with respect to your debt covenants. Correct me if I'm wrong, but the coverage and other metrics you provide in the appendix to the earnings release, those are slightly different than the covenants that are part of your credit agreements, right?

Yes, there's a lot of detail. There's two different set of covenants. One's for the unsecured notes and one's for the unsecured revolving credit facility and so yes, they are different.

Okay. And so the disclosure in the appendix of the earnings release is different than your legal covenants. I was just hoping to get a sense of to what extent are you guys close to any of those, whether it's in the notes or the facility and which covenant it was, whether it was leverage or interest coverage or what-not?

We are very comfortable in all of our covenants. The one covenant that is always the tightest is the debt to undepreciated book value. But even that covenant, we have a very strong position in that covenant as well.

Okay. Thanks for the color. Appreciate it.

Your last question comes from Chris Sommers from Green Light. Your line is open.

The question was largely answered, but I wanted to just go back to the dividend coverage point. And maybe we can talk more about maintenance CapEx going forward, but a year ago when you guys were running north of $1.25 of FFO per share, your dividend was about the same or maybe a little lower and your guidance implies you're leaving the year close to $1.00 per share of FFO and the dividend is $0.90. So the wiggle room is much less than before, and I appreciate that income is more diversified these days, but it seems that 2010 is similar to 2009. What can you guys do there to help maintain that dividend and make sure that cash flow is in excess of the dividend pay out?

This is Tom. You've done a bunch of rounding on these numbers. But we have adjusted for the non routines, we're at 118, our dividend is $87.25 per share, so that's a 1.3 coverage. In terms of the things that we can do, I've outlined the steps that we've already taken that take years to put in place, getting your floating rate debt up, getting your investment management platform in place and diversifying your portfolio. The other things that we obviously pursue is making sure that we control our expense growth. The markets give us whatever revenue we can get from the markets. And we control our overhead.

The other component to being able to cover your dividend is making sure that you are executing in the capital markets environment and making sure that every layer of capital that you add to the capital structure is cost effective. I think we're doing all of those things and I think we're doing them pretty well, but there's nothing certain in life and we think we're as well positioned as anybody in terms of our dividend and I think if you're looking at the overall dividend coverage from AvalonBay, I think you'd find that we're probably at the top of the sector, near the top of the sector.

Got it. Thank you.

We do have one last question from David Coti from Citigroup. Your line is open.

Just a quick follow-up. Just on the 17.5 thousand communities, can you just break that up between recent development, redevelopment and then what I guess is your asset sale bucket?

We don't have that break out. Tom, do you have it? We don't have that in our hand, David. If you want to follow up, I'm sure John can provide that to you offline, but we don't have it at this time.

Effectively what it would comprise, you're effectively taking out -- is it just the '08 developments or you would go back to '07 just as we try to think about it?

You go back to the point where at the beginning of 1-1-2008, the asset was stabilized so that your 1-1-2009 comparison is accurate. So it's whatever was stabilized on new development as of 1-1-2008.

So there's clearly some of the '07 development.

That had not stabilized as of 1-1-2008, correct.

We'll follow-up offline on the break down. Thank you.

There are no further questions. I turn the call back over to you.

Operator, thank you for moderating the call and thank you all for your interest and we'll sign off at this point.

Thank you, ladies and gentlemen, for your participation today in this conference. This concludes the program and you may disconnect now.