艾芙隆海灣社區公司 (AVB) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Avalonbay Communities' fourth quarter 2010 earnings conference call. (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, Alicia, and welcome to Avalonbay Communities' fourth quarter 2010 earnings conference call.

Before we begin, please note that forward-looking statements may be made during this discussion, and there are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday 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 and reconciliations of non-GAAP financial measures and other terms 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?

Well, thank you, John. Joining me on the call today are Tim Naughton, our President, Tom Sargeant, our Chief Financial Officer, and Leo Horey, our Executive Vice President of Operations. I'll be reviewing our fourth quarter results and investment activity, put the past year in a little perspective and offer some summary comments for this year. Tom will highlight our financing activity last quarter and our financial outlook for '11, and Tim will provide some additional color to this year's outlook and then all four of us will be available for Q&A. So last evening, we reported EPS of $0.31 and FFO per share of $1.01 for the quarter. Our full year FFO declined 11%, after adjusting for some non-routine items.

For the fourth quarter, rental revenue was up 2.5%, capping a year of significant improvement in our same-store operations. Our fourth quarter results also showed another period of significant investment activity. We completed almost $500 million in development, and started construction on five new communities with a total capital cost of about $300 million. We also completed three redevelopment communities last quarter and started work on five new ones. For the investment management fund, we acquired two existing communities, one on each coast, along with a third acquisition last month, for a total of $150 million. So we had a busy quarter and overall, a very active year.

Our decision to ramp up our investment activity was driven by our assessment this time last year, that 2010 would be a year of transition for the economy, for apartment fundamentals, and for our investment activity. This assessment proved accurate as the economy strengthened, with the private sector adding about 1.3 million new jobs last year. And importantly, a disproportionate share of those job gains went to younger age cohorts, who have the highest propensity to rent. Home ownership rate also continued to decline, falling an additional 70 basis points over the last year. This decline created approximately 700,000 new renter households, roughly half of which are estimated to have ended up in multi-family as opposed to single-family rentals. As a result of this increase in demand and a continued decline in supply, our operating results continue to improve year-over-year, starting with rental revenue decline of 4% in the first quarter of last year, and ending the year with an increase of 2.5% in the fourth quarter.

Also through a consistent strategy and a continued focus on balance sheet strength, we're able to increase our investment activity, taking advantage of what most believe will be a period of very strong fundamentals for rental housing over the next few years. Just to highlight, we started seven redevelopments and completed $400 million in fund acquisitions. We started almost $650 million in new developments last year, which was up 70% more than we projected at the beginning of the year, and this was after a year of very low activity in '09. Also during the year, we added over $600 million of new development opportunities to the development ripe pipeline. And we anticipate adding over an additional $300 million to the pipeline during the first quarter of this year, as we complete the due diligence process on several new pursuits.

Few, if any, of our peers have the balance sheet, the pipeline, or the organizational capacity to ramp up that quickly, and this ramp up will be a meaningful contributor to our earnings growth in 2011 and beyond. For 2011, roughly a third of our projected double-digit FFO growth is driven by contributions from the stabilization of prior investment activity. The decisions we made last year put Avalonbay in a strong competitive position to create value and earnings growth as we enter a period of strengthening fundamentals in our market.

Now I would like to turn it over to Tom to discuss our recent financing activity and our outlook for this year. Tom?

Thanks, Bryce. I just have two topics to cover before I'll turn the call over to Tim, and these are our financial outlook for 2011, and the capital markets activity for 2010 and a little bit on the liquidity for 2011.

Regarding the outlook for 2011, we provided an FFO per share range of $4.50 to $4.75 per share, which at the midpoint of the range, is growth of nearly 16% in FFO per share. Revenue growth of 4% to 5.5% is expected, with NOI growth of approximately 6% to 7.5%. And this is slightly higher than the NOI range we provided in November at our investor conference and reflects slightly better revenue growth, combined with needed expense growth. Tim will add some color on the markets and provide additional context for these ranges. I would like to highlight that this outlook includes the impact of our planned sale of a community with a land lease that currently has unfavorable accounting treatment. Accounting for this lease requires that we straight line lease expense such that more lease expense is recorded under GAAP than actual cash lease payments.And we estimate that the sale and the related termination of this excess lease expense, the lost NOI, and redeployment of capital has a net positive benefit to our outlook of about $0.10 per share, and that is included in our outlook range. Our plan projects a midyear sale of the asset and if the sale does not occur, we would not realize this benefit to our earnings in 2011. In adjusting for the midyear sale, the stabilized benefit is closer to $0.12 per share.

Turning to the balance sheet, we sourced new capital in 2010 of $784 million. Approximately $344 million was comprised of equity, which was issued at an average price of about $98 a share, and that was consistently above the average NAV during the year for Avalonbay, as published by independent analysts. Asset sales totaled another $190 million. We also issued new unsecured debt totalling $250 million, and we also redeemed $150 million of secured and unsecured debt. The debt activity is especially notable. The 3.95% coupon rate on the 10-year notes issued in November was the lowest rate ever for a 10-year REIT offering, and this transaction, along with our debt redemptions brings our long-term fixed rate debt to an average rate of about 5.66%, about 25 basis points lower than 2009. Floating rate debt is just 20% of all debt outstanding. So overall, we're pleased with the results of the capital activity during the quarter and the year. And by most measures, the activity was attractively priced and created value for investors.

Looking forward, we enjoy great liquidity today and have good visibility into our sources of capital for 2011. Uses total about $1 billion, and considering that we have no balance out on our $1 billion credit facility, and about $500 million in cash, we can fund all of our capital outlays with internal or committed liquidity. Market conditions are strong today, and with growing earnings and strengthening credit metrics, access to outside capital is readily available. Finally, our assets are highly marketable, and we can recycle capital through asset sales to meet liquidity requirements. The type of capital we access, whether through debt, equity, or asset sales, will depend on the capital market conditions at the time we seek new capital. And retained cash flow after dividend payments will also be a source of capital in 2011.

One final note on the dividend, we don't anticipate to increase the dividend in 2011. Instead, we're going to retain more cash to reinvest in the development and improving our dividend coverage. We've never cut our dividend and it's always been covered from recurring cash flow. And with stronger earnings growth expected in the coming year, we'll add to the dividend coverage such that our payout ratio will drop below 80% in 2011.

And with those comments, I would like to turn the call over to Tim.

Well, thanks, Tom. I would like to provide a little color behind our outlook assumptions, and how the outlook for the economy and apartment markets is shaping our business plan for 2011.

The economic recovery now underway should lead to economic expansion, as both real and nominal GDP reach pre-downturn levels. A pause in job growth that we experienced in late 2010, due to public sector job losses, should give way to meaningful growth in 2011, as moodyseconomy.com is currently projecting, a total of 3 million jobs will be added to the US economy this year. This equates into annual job growth of almost 2.5%, with the same rate of growth projected in Avalonbay's markets. Increasingly, economists are expecting that the rise in corporate profits and liquidity, combined with higher consumer confidence and the extension of the Bush tax cuts, will result in higher levels of business investment and consumption, fueling economic growth and corporate hiring. This improved sentiment is taking hold, despite some potential economic head winds, such as sovereign debt concerns, the prospect of higher inflation, and a stubbornly soft housing market.

In addition to household growth fueled by expected job gains, the apartment industry should benefit from the soft for-sale housing market, as renter propensities are generally expected to continue to increase, due to a combination of negative psychology of would-be buyers, favorable demographics, and tighter mortgage underwriting standards. In addition, the limited level of new supply, which should reach a 50-year low in 2011, and be down by around 60% in our markets from last year, will further enhance very favorable apartment fundamentals, as demand/supply ratios could reach double digits in Avalonbay's markets.

So how does this outlook help shape our expectations and plans for the business? Starting with operations, we expect portfolio performance to accelerate throughout the year, as economic growth and hiring activity pick up pace. By year end, we anticipate effective market rents to be rising by high single digits on a year-over-year basis. As a result, we expect growth in same-store rental revenues to accelerate from around mid 3% in Q1 to over 6% by Q4. Regionally, the East Coast should outperform the West Coast again in 2011, although the West is expected to accelerate at a faster rate. The change in the growth rate of same-store revenues should increase by about 400 basis points over 2010 in the East, and by around 700 basis points in the West. Overall, the same-store portfolio is projected to grow at a rate that is more than 550 basis points faster than 2010, when same-store revenues finished the year down by about 1%.

The mid-Atlantic and Boston markets should continue to perform towards the top of the portfolio, as the Boston economy will benefit from exposure to some of the healthier sectors, such as healthcare, education, and technology, while DC will continue to benefit from elevated levels of federal spending and increases in technology employment. New York and Northern California are expected to come on strong as the year progresses, given their exposure to the strengthening technology and professional business service sectors. Southern California and Seattle will continue to improve as well, but their performance should trail the overall portfolio, as Seattle will experience more supply than our other markets, and Southern California, particularly L.A., is projected to gain jobs at a slower pace than the broader economy.

Shifting now to the investment side of the business, our business plan calls for a significant increase in investment activity, with overall investment levels up around 25% from 2010. We expect to start around $850 million in new development this year. Combined with $650 million of starts last year, we'll have around $1.4 billion under construction by the end of this year, a level consistent with that experience in 2005 and 2006, or during the middle of the last cycle. We believe that by positioning the organization and the balance sheet to take advantage of increased levels of new development early in this cycle puts us in a favorable competitive position that will translate into out-performance as the cycle unfolds. While new development under way is increasing significantly throughout the year, it will still be well below the peak of $2.2 billion that we saw last cycle.

The case for new development is particularly compelling today. The combination of attractive yields, which are generally 150 to 200 basis points above prevailing cap rates, along with cyclically low construction costs and strong fundamentals expected for the next few years, present ideal conditions in which to expand investment in this area of our business.

In addition to new development, we'll be active in the area of redevelopment as well. We expect to start about $100 million in redevelopment this year, or about the same level that was started in 2010. We believe that this is a reasonable steady state volume, given the size and age of our portfolio. The type of activity planned for 2011 will be more offensive in nature, where we'll look to reposition communities to enhance their competitive position in their respective sub markets. In 2010, given the state of the apartment markets, much of our redevelopment was defensive in nature, where capital expenditures were focused on end of useful life components and were really designed to preserve a community's competitive position rather than to enhance it.

Lastly, we'll continue to be active in the area of acquisitions, as the investment period for Fund 2 draws to a close in the third quarter of this year. We plan on investing most of the remaining capacity of the fund, or approximately $400 million, by the end of Q3. In addition, we're planning on some transactional activity of balance sheet assets, where we're planning to buy and sell wholly owned communities to help achieve some of our portfolio management objectives. This activity may be in the form of one-off or portfolio transactions, as we explore different strategies to help shape our portfolio. As we expect to be more active on the investment front, we'll obviously be active in the capital markets to fund this activity. Generally, we plan on match funding new investment activity, either from existing cash or through new capital market activity. It is our intent to fund long-term assets with attractively priced long-term capital, and continue to be conservative in managing liquidity by not relying on the lines to funds new investments.

So in summary, an improving outlook is setting the stage for a sustained recovery in the economy and the apartment markets. We expect that our supply constrained markets will outperform during the next few years, as they have historically done in the expansionary phase of the cycle. And lastly, we'll be more active on all fronts, in terms of new investment activity, looking to put capital to work in accretive investments at the beginning of what appears to be shaping up as a very promising cycle for apartments. With that, I'll turn it over to Bryce for some closing remarks, before opening it up for Q&A.

Thanks, Tim. So we believe Avalonbay is in a very strong competitive position today. In '09, our focus was on building liquidity and maintaining a flexible capital structure. Last year, we increased our investment activity to position Avalonbay for the recovery that's now under way. And in spite of capital constraints and earnings pressure, we maintained our dividend, always covering it from recurring cash flow, and investors were rewarded with a 44% return in '09 and a 42% return last year.

Now, as we return to a period of earnings growth, we have strong internal and external growth opportunities. We have positive revenue momentum in our same-store portfolio, accretive opportunities in our development program, and significant and growing development activity with attractive risk adjusted returns. Importantly, we have the balance sheet to carry this activity through and a management team that's worked together for over 20 years with a proven ability to execute. All of this in what looks to be an improving economic environment, with new supply at record low levels, fueling earnings and value growth into '11 and beyond.

So Alicia, that concludes our remarks, and we'd be glad to open it up for questions.

Thank you. (Operator Instructions)

Your first question comes from the line of Andrew McCulloch, Green Street. Your line is open.

Hello. Good afternoon, guys.

Can you just walk us through the math on the ground lease sale and how that impact, $0.10 a share, is supposed to happen in the second half of the year, and I'm trying to compare that to the run rate? I'm just wondering how it gets up to $0.10.

Yes, Andy, this is Tom.

The ground lease -- the way the difference between the cash payment and the accrual rate works is once you sell the asset, you reverse all previous accruals during the year. That, combined with the interplay of the NOI that you get to keep for the period that you own it, and the redeployment of that capital in other capital market conversations, derives the $0.10 difference.

Okay.

Are you looking to dispose of any of the other ground lease properties?

No, but, but the other ground lease properties represent about a penny a share difference in this area, so it's nominal compared to this one ground lease.

Okay.

And then can you tell us what currently the percent of your operating communities are not in the same-store pool and what kind of growth you're expecting for that group, in terms of NOI, for 2011?

Andy, this is Leo.

Approximately -- I mean, we have approximately 33,000 apartments in the same-store pool and, you know, depending on all the other buckets, there's a total of about 50,000 apartments that we're either working on, or -- With respect to the growth that we expect from those other properties, it's similar to what we expect from the same-store pool. So, for instance, when I'm working on other stabilized-type properties, which are properties that are not in the same-store pool, I'm marking them against the same-store portfolio.

Okay.

And then just one big picture question about development. With what you expect to start next year, development continues to ramp, but you're still quite a bit below kind of your previous run rate right before kind of the peak when your development pipeline got the biggest. What do you think is the current appropriate size of the development pipeline, as maybe a percent of total assets for Avalon today?

Andy, this is Bryce.

Yes, you're right. Our peak development was actually in the first quarter of 2008, where we peaked at about $2.2 billion under way, which at that time represented about 20% of our total market cap, looking at Company size, at that time. Today, we have about $900 million under way at year-end -- at year-end 2010, which is about 6% of total market cap. As Tim mentioned, we expect it to get to $1.4 billion by year-end 2011, which would be about 10%. And the number that I've given before is that we're comfortable with that number moving up to about 15% as a number that, you know, as we think about the constraints relative to organization, market risk, balance sheet issues, earnings issues, you know, getting it up to 15% quite comfortable, getting beyond that, I think our history has shown us, feels a bit much.

So, long story short, we're about a third of what we were back then, so we have plenty of room to run and even at year-end, it would be about half of what it was previously.

Great. Thanks very much.

Your next question comes from the line of David Conney, FBR Capital Markets. You may proceed with your question.

Thank you.

I just want to follow along the lines of Andy and the development pipeline. Could you just talk us, or walk us through the, some of the catalysts or the indicators, that you would need to see specifically with regard to pushing some of the shadow pipeline into the active development pipeline? And perhaps highlight the delta in your starch projection, in terms of what projects would be moved in by year-end.

This is Tim.

I'm sorry. I'm not sure I know what you mean by the delta, in terms of -- the last part of your question, maybe if you could just amplify a little on that.

Sure. In terms of the higher development volume that you're expecting to be at by year-end, what are some of the projects that would be in that pipeline that would be moved to the active side?

Okay. Why don't we start there.

Generally, if you look at the development rights attachment that's in the schedules, it's generally the communities that are towards the top that would move into the -- that would move into the development community basket, if you will, in 2011. So we try

Okay, and along those lines, what would you need to see specifically with respect to some of those projects to sort of commence development? Is it really rent levels, is it stuff that's already under way and probably unstoppable, at this point, and you'll start, regardless? What's the catalyst for moving that up?

Deals won't start regardless. As you recall, late 2008 and 2009, we really weren't doing anything. So, you know, the kind of factors that would need to be in place, you know, it starts with projected returns. We look at both initial returns and, frankly more importantly, unlevered IRRs, and generally we are looking for 10% plus, in terms of unlevered IRRs, and initial returns are generally in the -- in the mid 6% plus range. And as Bryce mentioned, just in terms of the balance sheet and organizational capacity, obviously those things would need to be in place just from a risk standpoint in terms of -- in terms of our comfort of being able to pull those deals through and execute properly.

Are you seeing any inflation indicators with respect to your hard costs? How have you underwritten the sort of risk in that going forward for some of the near-term projects?

Well, that's a -- that's a fair point, and one of the reasons why we are aggressive, at this point in the cycle. We have yet -- we really haven't seen total hard cost inflation. We are seeing it certainly in some of the commodities, but when we look at, you know, across all the -- all the hard cost categories, on average, we think costs are bottoming, they're in the bottoming process right now. And in terms of how we've underwritten into the deals, the deals you see on the development right schedule generally reflect our estimate of what development costs would be as if we're starting the project over the next, call it three months or so. So in a sense, there's not any inflation embedded in those numbers, if that's responsive to what you're looking at.

Great. And then just lastly, can you give us a sense of specific yields on Westmont and Park Crest? Expected stabilized yields?

Well, the yields are based upon current -- current rental market conditions, but they would be in the--on the one case, mid-6s to north of 8% in the case of Westmont.

Great. Thank you very much.

Our next question comes from the line of Alex Goldfarb with Sandler O'Neill. Your line is open.

Yes, hello. Good afternoon.

Tom, just wanted to go back to the ground lease. So I think in your comments, do you say the net effect on an annual basis is a $0.12 increase? Is that correct?

Well, the way to look at this is that we -- the land lease is a -- we're selling the asset during the year. We get to basically recapture all of that excess land lease expense over the land lease payment, but we also lose some NOI during the year for the asset sale. If you had the asset sold at the very beginning of the year, it would be $0.12 a share, which is the exact difference between the excess lease payment And the other comment I made when Andy asked the question was that there is another lease out there that throws off about a penny negative on the same -- on the same concept, in terms of the accounting. That lease stays in place. So for this year, $0.10, but if you had it at the beginning of the year, it would be $0.12.

Okay. Then that's helpful.

And then, as far as the dividend goes, sounded like you're sticking with what you guys said at the investor day, which is just, even though you could increase it and things are looking pretty good, your intent right now, recommendation to the Board for 2011 is to maintain the dividend, is that correct?

Yes, I think in an abundance -- I think we really are very committed to driving the payout ratio down to levels that we normally see in the beginning or the mid- to end of a cycle. And so, you know, we want to hold the dividend steady. The Board is with us on that right now. Obviously, we also want to make sure that we don't find ourselves in an excise tax position again, or in a position where we're underdistributing regular taxable income. If something happened in the year where we sold a significant number of assets that triggered gains that required us to make a special distribution, you could see that policy change. But for right now, we don't anticipate that.

Okay. And just the final question is on -- here in New York on the 421-a, they are contemplating, you know, bringing the program back, maybe. Just in your guys' view, how important is this program? I mean, is it, is the benefit that it brings worth the rent restrictions that go with it? Or, you know, if there's no 421-a, it really wouldn't affect your guys' decision at all, as far as you underwrite New York development?

Alex, this is Bryce.

421-a has been important for us and the development of most rental housing in New York, given the tax structure, some of the owners' realty tax structure in New York, as it relates to commercial properties. It's a little bit of a mixed bag because, you know, there has been and continues to be discussions about re-looking at the tax structure, in terms of property tax in New York. Don't hold your breath on that, but a fair amount of discussion about that. Long story short is, you know, we do think it's important, and it has been one of the ways that has spurred rental development in the city.

Okay. So you support it and it's worth the rent restrictions?

Yes.

Okay. Thank you.

Our next question comes from the line of Jay Habermann with Goldman Sachs. Your line is open.

Great. Good afternoon, everyone.

Can you talk a bit about the difference in yields on some of your planned developments, and even the differences as you see, you know, across the country, between more suburban type locations versus maybe CBD? Are we close to seeing any kind of pickup in CBD development at this point?

Jay, this is Tim.

Just in terms of, in terms of new developments that we're currently looking to put under contract, as well as deals that we're looking to start this year, generally we're looking at initially yields in the 6.5% to 7.5% range, and having said that, I think I spoke to this last quarter. Some of the legacy deals, there are a few legacy deals that don't meet those kind of -- those kind of returns.

In terms of more CBD type development, we're getting closer, just in terms of -- just in terms of the economics. They tend to be still a little bit shy of what we're seeing in some of the wood frame, particularly northeastern suburban stuff. But we are looking to start a number of infills and even CBD type deals in 2011.

Okay, and then even zeroing in a bit, in terms of the rent growth forecast, can you talk a bit about price point and maybe sort of the potential to increase rents on sort of A versus B? Are you seeing still that, you're seeing the ability to push As further because rent's obviously dipped a bit more in the past cycle?

Jay, this is Leo.

We are seeing that we can push them on both As and Bs. Historically, you know, we would say that in the early part of an expansion, we can push As more aggressively, but I do track our revenue performance on both the revenue and an NOI perspective on the properties we classify as As versus Bs, and we're having success -- equal success on both sides.

Okay. And then lastly, I guess some mention on Southern California, you mentioned lagging growth in L.A. in terms of jobs, but can you give us a sense of where you expect NOI to shake out this year versus your overall forecast?

Jay, with respect to Southern California in general, I expect -- if I was to break down revenue growth, I expect Washington, DC and Boston to be above the average, and obviously the midpoint of our range was 4.75%. I expect Northern California and the metro New York area to be basically at the average, and I expect Seattle and Southern California to be below the average, in the high 2s. And, you know, so that's basically where Southern California's going to come in, and that gives you a range of how we're getting to our numbers.

Okay. Thank you.

Our next question comes from the line of Jeff Specter with Bank of America. Your line is open.

Thank you.

Could you talk a little about what you're seeing from competition out there, and along those lines, are you seeing an increase in development opportunities for you?

Jeff, Tim Naughton.

I would say, seeing an increase in both cases. You know, last year we talked a little bit about some of the -- in some of the prior quarters, about how a lot of deals just -- land deals weren't coming to market. We just weren't seeing a lot of activity there. We were seeing some activity with respect, -- some increase in activity with respect to existing assets, but not land deals. As the year progressed, we started to see a little more and we were -- I think we talked about this last quarter. We were working on a number of deals by the end of the year, which we finally started to pull through. So definitely seeing more, more opportunities. It's nowhere close to what we were seeing towards the middle of last cycle, but we are seeing an increase in activity.

And with respect to competition, everyone's seeing the same thing right now, so people are trying to line up, get their platforms in shape, in order to pursue new development. I think, particularly some of the private guys will -- will, you know, restructure themselves in a way that allows them to be competitive in the land markets. I think, frankly, some other guys are going to fall short. But definitely I think everyone sees the same things we see, in terms of favorable environment for new development right now, but not everyone's in the same position we are, from a financial resource and organizational standpoint, in order to be able to take advantage and capitalize, and it really resonates with land sellers right now. To the extent they are going to sell a piece of land, they aren't looking to get in bed with somebody for 12 to 18 months, you know, only to have, you know, that entity not show up for closing. So that is a huge competitive advantage right now, that we don't expect will last the full cycle, but it's particularly helpful at the beginning of the cycle when opportunities are, frankly, more favorable.

Okay, thank you.

And can you talk a little bit more about California, what you're seeing there, maybe dig into some of the submarkets a little bit and just give us some feedback on, you know, where you think things may turn, sooner than other markets?

Sure, Jeff. This is Leo again.

I'll start with Northern California. I will tell you that Northern California, the momentum in Northern California is the best on the West Coast and is strong, even in comparison to what's going on in metro New York and New Jersey. Within Northern California, San Francisco and San Jose are performing the best. Oakland is performing well, but it's behind. So if you said, what markets are the strongest, clearly anything in San Francisco or San Jose.

Moving to Southern California, the three markets down there where we do business are basically San Diego, Orange County, and L.A. I would tell you that they are moving similarly, although our portfolio in L.A. is in the Warner Center, Woodland Hills area, and that's just challenged by some supply. So that's the challenge that we have in the L.A. portfolio. Orange County is picking up and some of the demand/supply statistics for 2011 look pretty favorable there, and San Diego has performed better than the other two areas and is expected to kind of continue to perform as it has been doing.

Okay, thanks. Sorry.

Does that give you what you're looking for?

Yes, and just one follow-up on L.A. The supply, is it A, is it higher quality? Is it condos that are competing? What's the supply?

The supply is new apartments and they are A quality. So it's new deliveries of A quality apartments.

Great. Thank you.

Our next question comes from the line of Karin Ford with KeyBanc Capital Markets. Your line is open.

Hello, good afternoon.

Wanted to ask about your comments about buying and selling balance sheet assets in 2011. Will this be along the lines of the portfolio allocation you discussed in the investment day, i.e. more class B assets, and changing submarket allocation within your existing markets? How big do you think that activity might be, and what do you think would be the spread on cap rates between what you're going to buy and sell there?

Karen, this is Tim.

Yes, it is on the lines of what we talked about at investor day. Having said that, I think we would expect more of this activity to, you know, perhaps happen in the latter half of the year, where we don't have as many of the conflicts with the Fund 2 activity, as it relates to one-off transactions. Sometimes it's hard to do on the balance sheet, given that Fund 2 is an exclusive acquisitions vehicle for the Company. To the extent there are certain carve outs, to the extent that it's a trade, or a 1031, so that if we're buying and selling it gives us a little bit more flexibility. But, the activity is likely to be in the back half, and therefore, you know, maybe not as high as it might be on a go-forward basis, 2012 and beyond. In terms of -- and it would be largely strategic.

And I think we mentioned -- we point out in our outlook that we expect it to be net neutral, so it would be moving, you know, from certain markets to other markets. We said we've been looking to increase our exposure in Southern California, for instance, and decrease it in other markets, but it would also be trading into submarkets that we think are likely to outperform relative to assets we would be trading out of. And to some extent, it would be trading As for some Bs at the margin.

In terms of relative cap rates, we haven't necessarily proforma'ed the difference in cap rates, but I think our difference in expectation might be if anything we're likely to buy at a higher cap rate than what we would sell.

Helpful.

And just following up on the cap rate discussion, have you seen any impact on cap rates from the recent rise in long-term rates?

Not really, but it's also the time of year that a lot of activity -- there's not a lot of actively occurring. You know, the last deals that get priced during the year generally happen late October, early November, and then people tend to put their disposition plan together early in the year. And so we're just starting to see and hear about listings, and so we're not pricing a lot of deals right now. We're not seeing a lot of deals price in the market. We're hearing, anecdotally, about some deals going a little sideways that might suggest that interest rates, particularly for, you know, private buyers are having an impact on values, but we just haven't seen it translate into deals that have actually closed, to this point.

Thank you.

I think Jordan Sadler has a question, as well.

Yes, thanks.

Leo, just following up on the As versus Bs in terms of what you're seeing so far, it sounds like you're seeing a lot of the same, in terms of revenue and NOI growth. I'm just curious, what's embedded in your 2011 guidance? Maybe that's a better question for Tom. Is there a difference, in terms of your expectation, for the As versus the Bs?

Jordan, this is Leo.

There is no difference in expectation. The only difference in expectations would have to do with their general locations, what region they are in or what submarket they might be in.

But generally, if, if you have As and Bs in the same market, the guidance is -- your expectation is that they would perform similarly? Meaning As won't bounce to a greater degree--

Jordan, this is Tim.

I think we spoke about this at investor day. It's not that we necessarily see them performing similarly in every market. It's one of the reasons why we want to -- we want to invest in Bs in certain submarkets and As in other submarkets. I

think what we're saying overall, when you cut through the portfolio, we're not seeing a discernible trend, As over Bs, as an asset class itself. But within individual submarkets, we're definitely seeing some Bs looking to outperform, and in other cases As to outperform. And I think we even shared some data. When you look back over the last 10 or 15 years, As outperformed about half the time and Bs outperformed about half the time, depending upon the submarkets in which they resided.

Okay. Thank you.

Our next question comes from the line of Eric Wolfe from CitiGroup. Please proceed with your question.

Thank you.

For your expense growth guidance of flat to up 2%, could you just give us the breakdown for how much you expect real estate taxes, payroll and R&M to increase this year, and why you're confident you'll be able to achieve this low level of expense growth?

Sure, Eric. This is Leo.

Payroll's going to be up around 4%. Some of that's due to the benefits that's identified even in our attachment eight. I think you asked for property taxes, around 3.5%, and what other category were you asking about?

Repairs and maintenance.

The repairs and maintenance is going to be closer to flat to down slightly, and the reason that I believe that we can get there is the bottom line is payroll and then utilities, largely driven by water and sewer rates and gas rates, insurance and property taxes, I do expect to be up. So we're going to experience some inflationary pressures. The issue is, those things are being offset by bad debt, which is, I expect, to come down and bad debt is an expense. We don't use it as a revenue offset. I expect our snow removal related costs, that have to do with both snow removal and maintenance and payroll related, related to snow removal, to come down, and we are making continued strides in marketing. So overall, I do believe we can get into the range that we put out, and that's how we're going to get there.

Okay.

So even though payroll I guess is going up about 4% and then real estate taxes are going up 3.5%, sounds like some of the smaller -- smaller items, I guess, which comprise a lower percentage of your expenses are coming down. Is that the right way to think about it?

It is the right way to think about it.

Okay.

It's coming down because of some situations that occurred in the previous year. So, in 2010.

Got you.

And I think you partly addressed this in your remarks, but in terms of your rental rate growth expectations for the year, could you give us a sense for how much you expect these increases to trend through the year, meaning, you know, in the first quarter is going to be larger than in the second quarter? You would think it would accelerate through the first half, just given the easier comps, and just wondering how that's supposed to trend through the year.

Eric, this is Tim.

As I mentioned in my remarks, we expected to start the year in the first quarter in the mid 3% range and end in the fourth quarter over 6%. And we didn't really sort of parse it any more than that, in terms of the middle of the year, but I think it's fair to assume that it's going to -- it's our expectation that it would march up throughout the course of the year.

That's same-store revenue, right?

That's all in.

Not just what you're increasing in terms of rents, thinking like first quarter over first quarter, you're pushing rents 5% to 5.5%, then going into the second quarter, you're pushing 6% to 7%?

I'm sorry. In terms of the effective market rent growth, and I think I was mentioning, we expect by the end of the year to reach high single digits and starting the year more in line with what we saw at the end of last year, sort of mid-single digits.

Okay.

And one last quick one to follow up on Andy's question, could you tell us how much you expect total NOI and total revenue to increase this year on a percentage basis, just given the fact that you do have a large non-same-store pool?

You don't have that?

I don't have that number readily at my--

We just don't have that data here.

Is there -- just on the bad debt, how much bad debt was there in 2010 relative to what you're projecting for 2011? It just seems that, as a percentage, to overcome such -- to overcome it on the expense side seems like a lot. Can you just outline what you have?

Sure. In 2009, bad debt ran about 1.5% of revenue, using the 2010 buckets, with 2009. In 2010, using the 2010 buckets, we dropped to approximately 1.2% of revenue and we're expecting that we're going to drop to about 0.9% of revenue for 2011, and that's how we get there.

Why would you expect bad debt to come down in 2011? Why not try to hold flat to be conservative?

Because we expect the economy to improve and things to stabilize even further than what we experienced in 2010.

This is Bryce. Just -- Leo, historically bad debt has averaged--

Back in time, it's been as low as, you know, a half a percent of revenue.

So, Eric, in 2009 and 2010, as the economy weakened, we saw the bad debt start to move up. We've sen it materially move down towards the tail end of 2010 and expect that trend into 2011. So we do -- our basis for budgeting is not to budget the most conservative way. Our basis for budgeting is what do we expect's going to happen, based upon the trends we're seeing in our portfolio.

Yes, Bryce, just to add to that. When we've looked at bad debt historically, it is extremely closely correlated to job growth, and so it would be inconsistent to be expecting job growth of 2.5% and frankly keeping bad debt constant. It's completely inconsistent with our experience.

And, Eric, just to follow back up on your prior question, we're expecting total revenues, including all the buckets, to be up around 9% on a year-over-year basis, and NOI -- total NOI to be up closer to 13%.

Perfect. Thank you.

Our next question comes from the line of Rob Stevenson with Macquarie. Your line is open.

Good afternoon, guys.

Tom, you guys did 52% turnover last year. What are do you anticipating in 2011, and what do you think the impact is, either positive or negative?

Rob, this is Leo.

We expect turnover to go up 1% to 2% for 2011. Obviously that helps on our redebt costs. I mean, that hurts on our redebt costs -- I mean, that hurts on our redebt costs, but not significantly.

Okay.

And then a question on Fund 1. Could you remind us what type of fees or promotes or anything else that you guys are in line for as you sell out here and what, if based on today's appraisal values, what the IRR looks like on that fund today?

Rob, this is Tom.

I think the important thing on Fund 1 is that a lot of those assets still have not been sold, so anything I would tell you would be very speculative. In terms of the promote structure, the fees are about 1.25% on the equity, and that's committed equity. The overall promote structure is staggered based on a performance level above a hurdle rate. And I think we've disclosed in the past that that hurdle rate starts at 10% and we get 20% over a 10 until you get to a 14 and then it steps up.

I don't think you can expect much promote in 2011. Actually, you should expect none, because most of this promote is back ended. We have a hybrid approach -- a hybrid water fall approach. So most of that -- most of the promote that would be earned would happen at the very, very end of the --all of the asset sales in Fund 1.

Okay. And are there disposition fees for you?

There's no disposition fees. So you can see that, for us to project a promote based on an IR today is very speculative.

Okay.

And then lastly, if we have, you know, sort of similar weather in the East and Midwest over the next six weeks, as we have over the last six weeks, is that level of snow removal cost already budgeted in your numbers? Or is that going to result in lower FFO for the quarter?

Rob, this is Leo.

With respect to the way snow removal is handled, in the Mid-Atlantic we do it on time and materials, but in the Northeast and the Midwest, it's under contract. The contract does have a cap. We are under those caps. If we continue to have storms like we're having, we will go above those caps and there will be some impact in our first quarter, but we're not at the caps at this time. So it's really just going to depend on what happens with weather. We should be in a good position, based on the caps we put in place. But the level of storms we've been seeing, you know, if those keep repeating themselves, then there will be some challenges.

Okay. Thanks, guys.

Our next question comes from the line of Jeffrey Donnelly with Wachovia. Please proceed with your question.

Good afternoon, folks.

I guess for Bryce, where do you think condominium prices are today compared to where they were in say, the prior peak for your core markets, such as Boston, New York, DC, and San Jose? I guess as a follow-up, how do you think that compares to what's happened to apartment values over that same period?

I'm going to pass that to Tim, let him take a shot at that one. I mean, it's a very speculative question. Obviously, every market is different and it depends on what price point, but I don't know, Tim, do you have any general thoughts on that?

Yes, my sense is, maybe start with apartment values. I think apartment values are probably back within 7% or 8% of peak, maybe even a -- maybe even closer to peak than that. And then when you look on the for sale side, whether it's single family or condominium, we're still well off peak by 25%, 30% plus, and my sense is condo values are probably well north of 30% off of peak values.

So, you know, the relationship between condominium and apartments has changed fairly dramatically, which has changed the affordability equation, certainly within our markets, and it's something we're keeping an eye on as relates to, you know, the ability to push pricing on rents, but we haven't seen that really be a head wind to date, as it relates to pricing power on the apartment side.

And just to switch gears, maybe following up on an earlier question about construction costs, I noticed in your development rights list you guys had added a property that I think you optioned in Hingham to your development pipeline, which appears to have a per key cost of, I think it was about $210,000, which is about 10% lower than what you developed Hingham Shipyard for. Is that indicative of the reduction in construction cost from peak levels, or is that just the efficiencies of maybe expanding at an existing project?

Jeff, it is not an extension to the Hingham Shipyard. It's a different parcel. It is still the reduction in costs that you're referring to is really a function of two things. Yes, some would be reduction in construction market, but secondly, it is just a different product on a different site with different land economics.

Okay.

And then just last question, at your analyst day, you had talked about increasing your percentage ownership of class B apartments, but for a company of your size, that's a fairly significant figure, even though, I think in percentage terms, it's a slight increase, in dollars it could be meaningful, just given the smaller deal size of those properties. I guess, how do you expect to get there over time? Is it sort of onesies, twosies on acquisitions, because with the development pipeline that you have, it would seem that you're facing a pretty strong head wind there.

Well, it's really a function of multiple strategies, is the way we think about it. Part of it will be one-off transactions, whether it's on the buy side or the sell side. You know, but it's likely at some point to involve some portfolio transactions. Again, whether we're buying a portfolio or whether we think about selling a portfolio, and so I think it's probably be a combination of at least both those strategies.

That's great. Thank you.

Our next question comes from the line of Michael Salinsky with RBC Capital Markets. Please proceed with your question.

Good afternoon, guys.

First question relates just to operations. You raised your same-store NOI guidance, but you also raised your employment forecast. Just curious as to what the sensitivity is relative to the employment forecast, as you're looking at your internal models there.

Michael, this is Bryce.

Certainly, jobs are an important contributor to the projected demand and supply balance for 2011 and out years. The way our actual projections are is very much a marriage between the top down and the bottom up. Leo and his team develop individual budgets at an individual property level, in many ways irrespective of job growth. It's just what is happening at the ground level in terms of rents and competition. And at the same time, we're developing at the corporate level, if you will, you know, a topside forecast in terms of what's happening not just with jobs, but with expectations on the housing market and its impact on the home ownership rate, what's happening with the unbundling of the younger age cohorts, that's been bundled up for a couple of years, and importantly, what's happening to supply. And then we basically iterate between those two, and to arrive at what we believe is a reasonable projection for 2011.

I will say, just maybe to call attention to a couple things. The job growth nationally last year was positive at, call it 0.7%, about 1.3 million jobs, I mentioned. In AvalonBay's markets, basically it was zero. There was really no net new jobs during 2010 in the markets we operate in. It was positive in the first half of the year, and we gave basically all that back in the second half of the year. The forecast for 2011 is for a similar rate of job growth for both the nation as a whole and for AvalonBay's markets, of close to 2.5%.

Now, as I hope you all know, we are not providing -- we are not generating these job forecasts ourselves. We do consider ourselves experts in apartments. You know, we're not experts in job forecasts. We do rely upon third parties, but we think that is a reasonable projection of job growth for 2011. It is up significantly from, you know, where it was in the middle of 2010, and importantly, it's a pretty significant, really dramatic improvement within our market. So supply -- job growth definitely is trending positively and has been increasing over the last couple of months.

On the supply side, you know, supply continues to -- the rate of new supply continues to be reduced. That's true nationally, it's true even more so in our markets. During 2010, the nation as a whole saw a reduction in the rate of supply. In AvalonBay's markets, we have not yet seen that. Supply of apartments was steady between 2009 and 2010 in AvalonBay's markets. It really isn't until 2011 and continued into 2012, where our markets get the benefit of that reduction.

So I'm highlighting this because it is critical to our assessment of the projections we have given that the economy will continue to strengthen and in -- more certainly, the supply will continue to be diminished. Those are two key variables. They are not the only variables. As I mentioned, you do have the issues of homeownership rate, demographics, the impact of any excess inventory in the market. There's a lot of other variables that impact things, housing affordability, which was I think at the heart of a prior question, which we factor all of those in as well. But clearly, jobs and supply are the two most talked about and certainly two of the most important.

Okay. That's helpful.

Second of all, Tim or Leo, I don't know if you mentioned, but what are 60- and 90-day forward renewals running at, at this point?

They are basically running between -- the offers that are out are in the 5% to 5.5% range.

Okay.

Third question, just as it relates to the ram-up of development, how much overhead ramp-up is going to be needed? How much rehiring is that going to relate to? How much should we expect, from that standpoint?

There has been and will continue to be some hiring. Probably not as much as you might expect. Through this downturn, we -- while we reduced development and construction significantly, about 35% to 45% in terms of overhead levels, we kept, you know, it pretty stable at the more senior level, at the officer level, which are more highly compensated. So as we grow and add to the development and construction, particularly the construction, it does increase, obviously, at the project management level, you know, pretty linearly, so it will increase. But we don't have a forecast for -- we have not provided a forecast for our capitalized overhead.

Okay, fair enough.

Finally, Tom, not to leave you out here, quick question on CapEx assumption for 2011, as well as where currently, you know, you could issue unsecured versus secured.

CapEx for 2011 is in the 700 range, Leo, I think per unit?

Yes.

And I think over the last couple of years we had it, it's close to 300 in 2009 and closer to--

450.

450 in 2010. So part of 2011 is certainly a catch-up from some of the past things that did not get completed.

In terms of debt, unsecured debt versus secured debt, today we could do an unsecured debt deal for about 4.5%. Secured debt through the GSC is about 5%, so there's about a 50 basis point gap. Point out that that 4.5% 10-year deal, while it doesn't look as attractive as the 3.95%, if we were to do that deal today, it would be the fourth lowest coupon ever issued by a REIT. So these rates still remain, you know, at historically low levels and certainly gives evidence of how attractive the capital markets and how accommodative they are right now.

That's all for me. Thanks, guys.

Our next question comes from the line of Tayo Okusanya with Jefferies & Company. Please proceed with your question.

Yes, good afternoon.

Just going back to the dividend policy, just given the strong earnings outlook being projected for 2011, just wondering why it doesn't all kind of translate to strong taxable income, which would force to you raise the rate.

Tayo, this is Tom.

The dividend, obviously lots of components to the dividend, but remember that we can call back into -- we can call forward future dividends to cover prior year taxable income, and that's called the 858 election.

Right.

It doesn't have to match every year, and that gives you the ability to manage your dividend more -- in a more stable environment. There really is no reason to change the dividend, based on current year earnings, just because you do have the 858 election that you can rely upon. As I said in my comments earlier, if we were to sell a lot more assets than we're planning to sell, during the year, that could change our view, but right now we feel very comfortable maintaining the dividend at its current level and driving our payout ratio down below 80%.

Got it. Okay.That's helpful.

All my other questions have been answered. Thank you.

Our next question comes from the line of Paula Poskon with Robert W. Baird. Please proceed with your question.

Thank you.

Could you give some color on what you're seeing, in terms of land opportunities and what level of volume would please to you get done this year?

Paula, this is Tim.

I spoke a little bit about it earlier. We are seeing more activity right now, and I think Bryce mentioned in his comments, we've got actually in Q1, we've got about another $300 million we expect to pull through the due diligence process and be adding to our development ripe pipeline next quarter.

In terms of the kind of volume that would make us, that would -- I guess I would start with, you know, we want to make sure they are good deals first. But the organization's probably capable of, you know, doing $800 million a year right now, without really much addition to overhead. To the extent it could be in the $800 million range, I think we would feel pretty good about that as a steady state level. On the other hand, to the extent the opportunities are emerging and we think they are better than opportunities that are likely to come in other parts of the cycle, we're ready to be more aggressive as well.

Thanks.

And just any color on what you're seeing in terms of January trends?

Paula--

On operations?

Yes, Paula, this is Leo.

With respect to operations, you know, occupancy got down to about 90, low 95, 95.2 in December. It has rebounded. It's 95 -- it was 95.6 in January. Early indications for February is we'll be around 96%. You know, turnover in January is in line with the past, so we are pushing ahead very aggressively again.

That's all I have. Thank you.

Our next question comes from the line of Rich Anderson with BMO Capital Markets. Please proceed with your question.

Thanks. I tried to get out of the queue, sorry about that.

But as long as I'm on, can you talk about Fort Green, and how that's leasing up, relative to your expectations? I feel like there's been some change of fortunes there in Brooklyn.

Rich, sure, this is Tim.

In terms of -- in terms of the lease-up, it's close to being done and what we're actually starting to see is renewals. And one of the reasons we had a big increase in the average rents that we reported this quarter, up about $300 from last quarter, is the renewal activity that we're seeing, average renewals have been on the order of 24%, and we're actually seeing renewal rates of over 80% right now, of existing residents. So we're definitely seeing higher prices, a gain in traction in that market, as some of the other lease-ups are coming to an end, and we're getting back closer to the original pro forma level rents that we had originally had anticipated when we started the deal.

Think the arena is having an impact at all in the area, and why wouldn't the other Fort Green, sort of, development right be moved up a little bit higher in that schedule?

You're talking about our Willoughby West deal, which is our other development right in Brooklyn, I think.

Yes.

It may well end up being moved up, as the market continues to improve. It's a large deal. So I think we're -- we'll give it more than a quarter to, for the market to stabilize and in season, I suspect, but in terms of the impact of the arena, I think it's pretty speculative. I'm not the local Brooklyn expert. I think it's -- the improvement we've seen to date has just been a combination of the stabilizations in New York economy and the completion of the competitive lease-ups. That's 98% of it, I'm convinced.

Okay.

Last question, with Archstone having restructured its debt, does that get you any more interested in some or all of that portfolio, in the context of your class B strategy?

Rich, we -- as we've said in the past, we just do not comment on potential portfolio activity at that level.

Okay. I thought I would catch you tired. [laughter]

No. If nothing else, you're consistent.

Thank you.

Our next question comes from the line of Swaroop Yalla with Morgan Stanley. Please proceed with your question.

Good afternoon.

Bryce, you touched upon the homeownership rate and talked about 700,000 households, of which about half moved into the multifamily segment. I was just wondering, is that based on your experience in your own portfolio, or is that based on some third party survey?

Third party data.

Okay, great.

And then just lastly, in terms of the redevelopments you're targeting, $100 million, what kind of yields are you looking at?

Swaroop, this is Tim.

Generally, we're looking for initial yields on enhancement capital, or return on enhancements north of 10%, but frankly what we look at even more closely is, we look at the projected unlevered IRRs as a redevelopment versus if we were just kind of dispose of the assets. So just to try to get a sense of how much value we're adding through the redevelopment process relative to the capital we're investing in order to complete the redevelopment. Takes probably the more important metric that guides our decision-making.

Great. Thank you so much.

Our next question comes from the line of Audra [Stonesiat] from Barclays Capital. Please proceed with your question.

Good afternoon. Can you hear me?

Yes.

Can you comment on your expected capital markets activities in 2011? You said that you expect to issue between $500 million to $700 million of new capital. Can you talk about how much would it be in terms of equity versus debt?

Audra, this is Tom Sargeant.

We don't break out the capital markets activity. It really depends on the current market conditions at the time we seek new capital. What's interesting about the current environment is whether you do debt or equity or even asset sales, for that matter, The incremental impact on earnings in 2011 is nominal between any of the choices. So it really depends on the capital markets condition at the time we seek that new capital.

Understood. Thank you.

(Operator Instructions)

Our next question comes from the line of David Pepperman with Greenlight Capital. Please proceed with your question.

Thanks for taking my call.

In terms of the same-store expense growth for 2011, is the $0.10 benefit from the ground lease transaction flowing through the 0 to 2% expense growth? And then, is the $0.12 gain something that becomes a head wind in 2012?

David, no, it's not flowing through that category. In terms of the head winds for 2012, I'm not sure I understand the question, but it doesn't create a head wind.

I guess I just want to be clear. On the ground lease transaction is catching up for a prior cash versus GAAP differential, but I assume that's a one-time thing that benefits 2011 that you don't get again in 2012, or is that an ongoing annual benefit?

It's an ongoing annual benefit, because you eliminate that excess charge -- you eliminate that excess charge over the actual cash payment, and that elimination is a permanent elimination.

David, just to add to that, just to be clear, it's not reversing any prior year to 2011 period as it relates to the accounting treatment for that land lease before that period of time, so there's no reversal of accruals that we're benefiting from in 2011 that would relate to prior year periods.

Yes, that's correct. There is a reversal, though, during the year to the extent we sell the asset during the year. Anything that we expense in excess of the actual cash payment will be reversed at the time that sale occurs. So it's all within the year. All of the cumulative excess payments are on the balance sheet and that will get reversed, but that's only on the balance sheet.

Okay, thanks.

And then in terms of the 0.6% sequential rental rate growth in Q4, that moderated a little bit versus the prior couple of quarters. Can you just go through what the rental rate growth was in Q4 on expiring leases and how you think about that trend?

David, this is Leo.

I guess there's a couple issues. In Q4, rate growth (inaudible) at about 0.6 and it was offset by a decline in occupancy, which is how we get to the 0.4. What you have to remember when you're thinking about sequential is that 20% of our expirations occur in the first quarter., about 28% occur in the second quarter, 32% in the third quarter, and then 20% again in the fourth quarter. So as we're pushing through rate increase in the second and the third quarter, we have more expirations to force that rate through, in the first and the fourth quarter we have fewer expirations. So you kind of have to normalize it.

So does that bring you to about a 3% kind of expiring lease growth versus -- I think it was a little higher in Q2 and Q3?

Q2 and Q3, we had a much higher, essentially almost 50% more leases expiring in Q2 and Q3 than we do in Q1 and Q4.

Got you, so I guess what was the rate growth for those leases that were expiring in Q4?

In Q4, the, the average, the blended was around 4.5%.

David, I think I understand. This is Tim.

I think I understand the math you're doing. You're taking the 0.6% and dividing it by the 20% of the leases expiring. There's also additional -- there's also less transactional revenue that comes through as a result, and it's a pretty big drop-off, just given how turnover drops -- or expiring leases drop from 32% to 20%, so that's part of what drives that number, as well.

Okay. I appreciate it. Thank you, guys.

There are no further questions at this time.

I would like to turn the call back over to Mr. Bryce Blair.

Well, thank you, Alicia, and with that, thank you all for your time today. We know it's a busy week, and so we'll let you get on to other business. Thank you for participating.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.