艾芙隆海灣社區公司 (AVB) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to the Avalonbay Communities third quarter 2011 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 call, Mr. John Christie, Director of Investor Relations. Mr. Christie, you may begin your conference.

Thank you, Sarah, and welcome to Avalonbay Communities third quarter 2011 earnings conference call.

Before we begin, please note 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's 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 your 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. And welcome to our third quarter call. With me on the call today are Tim Naughton, our President and CEO-elect, Tom Sargeant, our CFO, and Leo Horey, our EVP of Operations. Tim and I will each have some prepared remarks and then all four of us will be available to answer any questions you may have.

In both Tim's and my prepared remarks, we'll be commenting on four broad themes. First, that we enjoyed a strong quarter with near-record NOI and FFO growth. Second, that we expect fundamentals to remain healthy, as we look forward into 2012. Third, given this positive outlook, we are continuing to increase our overall level of investment activity. And fourth, we're executing this heightened level of investment from an extremely strong financial position. So a strong quarter and expected continued healthy fundamentals that are supporting an increased level of investment activity funded from a position strength.

Let me begin by commenting on the first theme, that of the strong quarterly results. Last evening we reported EPS of $0.49 and FFO per share of $1.17. On a year-over-year basis, our FFO per share increased by over 19%, which is the highest growth rate in six years and among the highest level of growth in our Company's history. This growth is achieved, despite $0.03 dilution from our recent equity offering, and is being driven by excellent NOI growth and contributions from new development activity. Our NOI growth of over 9% is the highest in five years and it's also among the highest in our Company's history, being driven by revenue growth of 5.8%, and continued flat expense growth.

Our full-year outlook for our portfolio remains unchanged, but our FFO outlook has been revised, primarily due to the effect of the recent equity offering and some debt prepayment charges that occurred in October. Overall, a very good quarter, with near record levels of NOI and FFO growth. We're also expecting a strong fourth quarter, with NOI up about 8%, driven by 6% plus year-over-year revenue growth. The strong operating growth will be tempered by early debt retirements that have already occurred, of $0.02 per share. And dilution from the equity offering of approximately $0.05 per share.

The second theme I mentioned up-front was for expected continued healthy fundamentals into 2012. Near-term, we expect the pace of new move-in and renewal rents to moderate as we move into the fourth quarter, which is in part due to the normal seasonal slowdown. In terms of longer-term fundamentals, they remain quite strong and the current apartment recovery is still quite young. While no two cycles are the same, as one point of reference, the previous cycle for Avalonbay lasted four-and-a-half years, from middle of '04 to the end of '08. With revenue growth peaking after 10 quarters at about 7.5%. We're only into our fifth consecutive quarter of revenue growth, during this up cycle. It's also interesting to note that the prior up cycle, while driven by good jobs growth, also happened during a very strong for-sale market and during a period of much higher department volume deliveries. Nearly opposite conditions exist today, and today's are arguably more favorable for apartment fundamentals.

Driving the healthy fundamentals is a record level of renter household formations which is being met with historically low level of new apartment deliveries. Over the last 12 months, rental household formations have grown by over 1 million, which is about 3 times our historical average. This strong level of rental household growth is being driven by job growth, which while modest, is positive and disproportionately benefiting the younger age segments, our primary customer base. Secondly, by a weak housing market, which is resulting in continued decline in the home ownership rate and continued growth in renter households. And third, population growth, primarily in the younger age segments. In all, this is being met by very little new supply. Over the last 20 years, the supply of multi-family units have averaged just under 300,000 units per year. During all of '11, new completions will total just over 100,000. And for 2012, they're estimated at approximately 150,000, or a rate of about half the long-term average.

The third theme I mentioned was our increased level of investment activity. Given the current and expected continued strong fundamentals, we have been and expect to continue to be very active in all aspects of our investment activity. In addition to our development underway, which now totals about $1 billion, we've been quite active in terms of redevelopment, acquisitions, and dispositions. And Tim will touch on this further in his comments.

The fourth and final theme I mentioned up-front was one of financial strain. As we execute this large and growing level of investment activity, we're doing so with the strongest balance sheet in the sector, and arguably the strongest balance sheet in our Company's history. We've always maintained a strong balance sheet. And following our $725 million equity offering in August of this year, we are very well-positioned to execute our growth plans in a fiscally prudent manner.

Let me just highlight a few financial metrics that are as of quarter end. Our debt to total market cap is approximately 20%. Our debt to EBITDA is approximately 5 times. Our interest coverage ratio of 3.5 times. We have zero out on our line of credit. And $700 million of cash on hand. Our strong growth this year is not the result of financial leverage. In fact, we've been able to delever, strengthening our balance sheet at the same time that we're enjoying near-record NOI, FFO growth, a nice combination that prepares us well for strong earnings growth into '12.

I'll pass it to Tim, who will provide more information on both portfolio performance and our investment activity.

Thanks, Bryce. As Bryce mentioned, I'll comment on a couple of areas, starting with portfolio operations. In Q3, we continued to see improvement in portfolio performance. Same-store NOI topped 9%, driven by strong same-store revenue growth of 5.8%, and lower same-store expenses. This rate of annual growth was 130 basis points greater than last quarter, and was the highest since the second quarter of 2007. On a sequential basis, same-store revenues grew at a healthy rate of 2.5% from Q2, driven by an average rental rate increase of 2.9%. Same-store rental revenue growth was widespread, with every region posting growth rates above 4.5% on a year-over-year basis.

A few points worth mentioning about specific regional performance. First, the strongest growth occurred in the technology-oriented markets of San Jose, San Francisco, Seattle, and Boston. While job growth on average has been roughly flat in our markets over the last six months, these markets all experienced healthy job growth over that time period. So, while we have been benefiting from some positive fundamentals unique to our industry, despite a weak macro environment, relative market performance is still being driven by the relative strength of local employment markets.

Second, Southern California, which has been lagging in its recovery, showed some momentum in Q3, by posting an increase in same-store revenues of almost 6%, with a pickup in economic occupancy of 120 basis points on a year-over-year basis. And finally, the DC market began to show signs of deceleration, as sequential same-store revenue growth was up only 1.7%, below the portfolio of averaging 2.5%, and down from the 2.3% sequential growth experienced in that market in Q2. After having outperformed other markets over the last few years, employment growth in DC has been flat of late, as the impact of increased public spending from the fiscal stimulus has worn off. With apartment deliveries picking up in 2012 and '13, DC will need a healthy recovery in its employment market to sustain solid rent growth and absorb the new inventory that is on the way.

While the performance in the third quarter continues to reflect some of the solid fundamentals that Bryce described, we did start to see some moderation later in the quarter and into October. Some of this may be seasonal in nature. And it does appear, like last year, that the summer slowdown and economic and job growth combined with lagging consumer confidence may be contributing, as well. July and August reflected a continuation of many of the trends we saw in Q2, as renewal on new move-in rent changes were in the 7% range. In September and October, we saw average rent increases in the 5% range for the same-store portfolio, driven mostly by moderation in the level of increase for new move-in rents.

As a result, we're projecting year-over-year same-store revenue growth in Q4 to stabilize at around 6%. It's our sense, however, with supply remaining below historic norms well into 2012 and '13, that a modest pickup in the macro environment in the form of stronger economic and job growth, against a backdrop of strong industry fundamentals, could well result in a reacceleration of rental rate growth. Similar to what happened in the first half of 2011 after the sluggish economic performance in the summer and fall 2010.

Shifting now to investment activity, I'll start with development and redevelopment, where we are as active as any public or private company today, and which should fuel external growth over the next few years. We continue to ramp up new development, as we started 4 new communities in Q3, 2 on the East Coast and 2 on the West Coast, totalling $210 million. During the quarter, we completed 2 small communities, totalling $45 million. Total development underway now stands at around $1 billion. In addition, we anticipate starting almost $600 million in Q4, including the $275 million West Chelsea deal in Manhattan that we touched on last quarter, which is currently in the final stages of permitting.

The current development portfolio of 3,600 homes averages around $280,000 per unit in projected cost, which is about 5% to 10% below many analyst estimates of the implied value per unit of our existing portfolio, which has an average age of almost 17 years. The average projected rent is over $2,300, which is about 20% higher than our same-store portfolio. The average projected yield for the development portfolio stands at 7%. And for those communities in lease-up, rents are generally at or above proforma, so actual yields have been in line with original expectations. As a result, we believe the current development portfolio will result in significant value creation, as communities are completed and stabilized.

In addition to the growth potential embedded in the current development portfolio, we are well-positioned with a future pipeline of 29 communities, totalling $2.6 billion in projected costs, and another 8 communities in due diligence totalling $700 million. This $3 billion-plus pipeline should support annual development starts of around $1 billion, plus or minus, over the next two to three years.

We've been very active in the area of redevelopment, as well. Having ramped up annual spend from about $20 million or so a few years ago to around $100 million to $125 million today. Over the last few years, we've built a dedicated business unit focused on redevelopment, which has allowed us to ramp up activity and integrate best practices across regions, leading to much stronger performance, while allowing us to reposition a good portion of our portfolio at the same time.

In the third quarter, we completed the redevelopment of 3 communities and started 3 more. Each of these communities represents a major repositioning with an average budget of more than $30,000 per unit. Despite the extensive redevelopment scope, all 6 communities have been or will be redeveloped on an occupied unit basis, which has become the norm for our redevelopment program. Even with full kitchen and bath replacements, we are usually able to complete unit renovation in a week or less, while still providing residents with working bathrooms and running water when they return home each night. The benefit of this approach is shorter, more predictable production schedules, and a much higher level of occupancy during the redevelopment process.

Redevelopment programs are often being completed within a year from inception. And economic occupancy has averaged around 94% over the last year for the redevelopment portfolio. It wasn't long ago that most of the renovation was done on a vacant unit basis, schedules often lasted two years, and average occupancies were in the 70% to 80% range. Residents have accepted and embraced this approach, as evidenced by the strong customer service scores and healthy rent premiums we've been able to achieve during the renovation process.

Turning now to transactions, volume and listing activity are picking up in the transaction market, which, combined with the greater economic uncertainty, is leading to some unevenness in transaction execution. In general, high-quality assets in core markets are continuing to attract wide bit coverage, while deals a little out of the strike zone have been more mixed in terms of market reception. In the third quarter, we began harvesting fund one assets, while bringing initial investment period for fund two to a close. For Fund I assets, while bringing initial investment period for Fund II to a close. For Fund I, we sold 1 asset in Redondo Beach, California for $33 million, at a sub 4% cap rate. We have another community under contract for around $40 million, scheduled to close later this month. Finally, we have a couple more in the marketing process, which should close in the first quarter of 2012. We'll continue to sell down assets from Fund I over the next couple of years as the funds hold period draws to a close.

On the acquisition side, during the quarter, we closed on 1 asset in Lexington, Mass, for Fund II. And then another $124 million deal in San Diego in October, also for the Fund II. We now have a total investment in this Fund of around $770 million. We have one other $60 million acquisition in due diligence for Fund II, which if it closes will be the last investment for the Fund. And lastly, we have 2 wholly-owned assets in marketing that are expected to close in Q4, totalling around $210 million. Both communities are located in the DC metro area.

So in summary, portfolio performance reflected the continuation of strong industry fundamentals in Q3, despite the mid-year economic slowdown. We're continuing to pursue an aggressive growth strategy through new development and redevelopment. We're also looking to take advantage of any disruption or softness that may occur in the transaction market to add to our wholly-owned portfolio. and plan to continue the process of asset recycling as part of our portfolio management activities.

Now, prior to turning the call back over to Bryce, I would be remiss if I didn't take a moment to acknowledge that this is Bryce's last earnings call with Avalonbay As you know, Bryce will be stepping down as CEO at year end, and staying on as Chairman, devoting about half his time to various management activities, which he has made clear will not include quarterly earnings calls. Bryce has participated in over 70 of these calls over the years, with more than 40 of those as CEO since 2001. During that time, the Company has flourished under his leadership, tripling in total market cap from around $5 billion to over $15 billion today. While delivering a compound annualized total return to shareholders of around 15%. Despite having to navigate through 2 very challenging recessions for the apartment industry. Our ability to thrive and grow during the challenging economic climate of the last decade, while many companies struggled or drifted away, is due in large part to the energy, passion, and leadership he's brought to Avalonbay.

So with that, I'll turn it over to the man himself, Bryce, for some closing remarks before opening it up to Q&A.

Thanks, Tim. I appreciate those nice comments. And certainly while I am pleased with the strong numbers Tim mentioned, I think what I'm most pleased with is having hopefully played a key leadership role in positioning Avalonbay so well for the future. I think whether it's our portfolio, our investment pipeline, our balance sheet, R&D, just the strength of the organization, they are all in great shape. A CEO transition can, at some companies, be disruptive, particularly when it's associated with some weakness in the industry or issues within the Company, or sometimes if it involves bringing in someone from the outside. Hopefully it's obvious that none of these are the case at Avalonbay. Our fundamentals, industry fundamentals, are very strong. Avalonbay's competitive position and financial strength are excellent. And we certainly have an experienced and talented leader in Tim.

So I will be stepping down as CEO. And I'll be doing so with great pride for what's been accomplished. And certainly with great confidence in Tim and the whole Avalonbay organization's ability to continue its strong performance in the years to come.

I appreciate having the opportunity to pass on a couple of those comments and words before we open it up to Q&A. Which we're ready for now, operator.

(Operator Instructions) Jay Habermann of Goldman Sachs.

Just to start off on the rent growth, and you talked about a bit of a moderation you're seeing, maybe in Q4, and in part due to seasonality. Can you talk about some of the pushback you are seeing? Are there any markets specifically? It sounds like obviously you're seeing good strength in Boston and Northern California, but maybe some of the price points or even urban versus more suburban-type assets?

Jay, this is Leo. Clearly, we feel that Boston and Northern California, as you have pointed out, are doing very well. We're also very encouraged with the direction that Southern California is heading. And we talked about that a little on the last call, and we continue to see those trends being very favorable. The one market that we're clearly keeping a very close eye on is Washington, DC. Tim talked about that in his opening remarks. And the real issue in Washington, DC is just the amount of supply that's coming. When you look across all of our markets, the only market in 2012 where supply appears to be a concern is in DC. And without job growth, it's going to be a challenge to get all those apartments absorbed and sustain the rent growth that we've experienced to date.

Otherwise, the New York metro area has been doing well for us. Clearly not as strong as Northern California or Boston. And then the only other market I'd point out, and I believe this is a temporary issue, is Seattle. And in the situation in Seattle, I think there's a couple things going on there. Number one, we push very aggressively on rent and we may have held on too long. That caused some decline in our occupancy. And that decline in our occupancy is also meeting a very seasonal or cyclical time of year for us. And then the only other little issue in Seattle is we've seen some disproportionate moveouts from corporate apartments. And those disproportionate moveouts from corporate are people whose contract ended, where the employers are hiring people who are already located in the market. So I think that gives you some perspective on where relative strength is right now, as well as areas that we're keeping a close eye on.

And maybe taking into account DC, as you look out to 2012, I assume many of the factors that you guys have identified remain in place. Can you give us some sense of perhaps your initial look at 2012 in terms of what pricing power you might assume going forward?

Jay, it's Tim. I can give you a sense of how we're viewing the market without getting into, obviously, too much detail about how we think that might translate exactly into pricing power. But, if you just look just broadly at demand/supply fundamentals, we think 2012 is likely to shape up as another favorable year, similar to 2011. In our markets, we're expecting demand/supply ratios of over 4. We think 2011 at the end of the day will be over 5. Both of those are well over longer-term trends. That compares to the US average of around 3, just to put it in perspective.

Obviously in 2011, what's been driving it I think as much as anything, as Bryce talked about, is just, on the demand side anyway, the falling home ownership rate and the increase in the level of rental households. It certainly hasn't been driven by job growth, which is, I think at the end of the year, we're expecting Q4 to Q4 job growth in our markets to average only about a 0.25%. We expect that to roughly doubtful, be about 0.6% or so in 2012. So maybe get a little bit more lift from the jobs side of the equation. And then supply will continue, despite our concerns about DC, to a lesser extent, Seattle. Supply will continue to be abated, as Bryce mentioned in his comments, well below the long-term averages. We're expecting 2011, supply is about 0.3% of total inventory. If you exclude Seattle and DC for next year, that number only goes up to 0.4%.

So, again, demand and supply fundamentals are shaping up. I think they would be quite good, maybe get a little bit more out of job growth next year, maybe a little less out of falling homeownership rates on the demand side. But the supply side should continue to be a favorable picture through 2012 in virtually all of our markets, with the exception of DC. And obviously all this is coming on the foundation of a very strong occupancy going into the winter, 95.5% plus. So 2012, we're quite optimistic about in terms of the outlook. And any increase in the macro environment, I think could propel it from where we're at today.

Lastly for Tom on the timing of the expenses, I know you had the benefit in Q2, and then there was some carry-over to Q3, I think, with the difference maybe versus our number. Could you give us some perspective maybe going forward in terms of should that normalize going forward? Or is that a recurring reduction going forward?

Are you speaking to the expenses, are you trying to annualize the third-quarter expenses?

Yes, the $0.03 benefit on the overhead interest in other.

Yes, I think normally what you would expect in the fourth quarter is to see some pickup in expenses given the timing. We think that you'll see some expense growth in the fourth quarter, in the 2%, 3% range year-over-year. So we do expect some of the benefit we received year to date in timing to reverse in the fourth quarter.

Jeff Spector from Bank of America.

Just trying to tie some of the comments on '12, you talked about a healthy '12, but you need a pickup in the economy 5th quarter versus 10th quarter. I know it would have been early, but did you think about providing maybe '12 guidance at this point to help investors out a little bit more?

Jeff, no, not really. This has been our practice for some time now. We are always prepared, as I think Tim just did a nice job of commenting qualitatively on how we see the year shaping up. We are in the middle of our budget process. And as we have done in past years, we'll be giving guidance basically at the end of January, early February.

And so just maybe focusing on the comment on the pickup in the economy, and the comment on the job growth you expect next year in your markets, is that enough to keep the momentum going? And tying back to the peak comments about quarters 5 or 10 in the past?

Just One thing on that. And Jeff, it's interesting, Tim mentioned how little job growth we're seeing in our markets in 2011. When we gave our guidance in February of 2011, the projected job growth in our markets and the nation as a whole was about 2.5%. In mid year when we updated our guidance, it was just under 2%. And we're finishing the year at basically negligible, 0.25%. And if anyone had told us in the beginning of '11 that we would have generated 5% plus revenue growth, or if we had told you all, we're going to generate 5%-plus revenue growth on 0.25% job growth, I think we would have had a lot of skeptics. But it's what we've been saying for sometime now, and others as well, is there's a lot of factors driving the apartment fundamentals. And principally, they are all contributing to dramatic growth in renter households. As I mentioned in my comments, running at a rate more than 3 times historical average. That is not being driven by jobs. It's being driven a little bit by jobs, but by population growth in those key rental segments and a decrease in the homeownership rate. So we think some of those trends are long-lived. And to the extent we get any lift in the job side, it's certainly going to have a positive effect on overall performance and demand in '12.

And Jeff, maybe just to add a little bit more perspective. As I mentioned before, our current projection is only about 0.6% in our markets next year, which, as Bryce mentioned, is well off of what we were thinking at the beginning of this year, either for '11 or '12. As I mentioned in my prepared remarks, the markets that have done the best, the technology markets, the annualized level of employment that they have seen in those markets over the last six months, in the 1% to 2% range. So maybe 2 times what we're expecting for our average market. And those markets have been generating rent increases in the high single digits, 6.5% to as much as 10% as you get into certain of the markets in Northern California. And even though those numbers are well below what you typically see in a recovery. So the point of my prepared remarks is that it really doesn't take a whole lot of job growth, I think, when you put that on top of these industry fundamentals that are quite unique right now, based upon any other time we've seen in our career, to generate rent growth that is substantially in excess of inflation. But it's going to take more than zero, is our sense.

And [Yan] is here with me, she has one final question.

I think on last quarter's call, you mentioned interest in value add or larger community acquisitions. I was curious if you're seeing that type of product on the market. And then if you're unable to get the pricing you want on that type of product, would you look to bring forward some of your development pipeline?

This is Tim. It wouldn't necessarily impact how we think about the timing of our development pipeline. For the most part, we're going when ready with respect to the development pipeline. There's 1 or 2 markets where we're being a little bit more judicious. Southern California comes to mind, although we did start a deal in Irvine this last quarter. In terms of what we're seeing on the transaction market, we're just seeing more of everything, to be honest. We are seeing a bit more deals that have a little bit of hair on them, which I think will present some interesting opportunities for us as the transaction markets grapple with the fits and starts of what we're seeing in the economy and capital markets. So we're still looking at those deals and for those kinds of deals. Our sense is we'll see more of them as the year unwinds and we're early into 2012 and we're hopeful that we'll be able to pick up some of them.

Swaroop Yalla from Morgan Stanley.

Tim, just following up on that question, the last question, your cash balance increased this quarter. So just can you talk a little bit about the uses? What kind of spend is expected on development for the remainder of the year and next year? And then if you're looking at acquisitions beyond that.

Swaroop, this is Tom. We do have about $750 million of cash on the balance sheet. And as we mentioned during the equity offering, we are essentially raising that cash to prefund development activity. So I think you can expect over time that that cash balance would go down as we fund development activity for the rest of the year, redevelopment activity and debt maturities, both debt maturities that are scheduled to occur, some of which happened in early September, as well as some early January debt maturities. In terms of 2012, we're not prepared yet to give outlook on 2012 development activity. Tim, do you have any thoughts?

Yes, I would say the principle use would be the development activity, as Tom mentioned. Even as we're looking for acquisitions. In some cases, we're going to be recycling, as I mentioned in my prepared remarks. We haven't come out with guidance in terms of what we expect net acquisition or net disposition activity to be in 2012. But we expect to be active really on both fronts.

Tim, also, one of the themes we're hearing this earnings season is the difference in performance of A's versus B's. And you had obviously in the past talked a little bit about shifting the portfolio up from 15% to 25% for B's. Was wondering if you're looking to reconsider that strategy, given what we're seeing now and prospect for more modest growth in the country for the next year or so.

We're not necessarily in our portfolio seeing a pattern where A's are decidedly outperforming B's or B's decidedly outperforming A's. We may be seeing a little differently than maybe how some of our peers are talking about. But I think importantly, as we've talked about in the past, it really comes down to submarket and submarket positioning. And again, the objective to go from whatever, 85/15 to 75/25 is really more of a function that we just think there's just s going to be a lot of markets and submarkets where the B's are just fundamentally better positioned assets than A's within that particular submarket. And that's just naturally going to pull up the allocation. So it hasn't made us rethink the broader strategy. On the other hand, as we get into actually doing asset recycling, it's going to be somewhat a function of the opportunities that are out there. So the activity from one quarter to the next is going to be as dependent upon the opportunities that are in the market.

And just lastly, in San Diego, I noticed a big occupancy gain of about 250 bips. I was wondering if it's related to military troops withdrawal from Afghanistan, or if there's any other things in that market happening specifically.

Swaroop, this is Leo. With respect to San Diego, actually we didn't see a lot of military activity at all in the most recent quarter. So in general, we're focused on getting the portfolio stabilized and moving the occupancy up so that we are in a good position as we head into 2012. The challenge in San Diego is based on the nature of our portfolio. Just to remind you, we have a fairly small portfolio there in the same-store sale bucket. It's really dominated by one community, which is Avalon at Mission Bay. That is the place where we do see higher turnover. That would be the market with our highest turnover this past quarter.

Eric Wolfe from Citi.

Just for follow up on Swaroop's question, what level of cash can we expect you to end the year with? I'm just trying to get a sense for how much you're going to be spending to either pay down debt or on development.

Eric, this is Tom. We should have about $500 million on the balance sheet at the end of the year roughly, depending on what happens with some late quarter transactions that could occur that we mentioned in the press release.

And I think as you mentioned in your remarks, the major driver of the guidance reduction was obviously just equity raise and the dilution around that. But assuming that you're going to be spending the cash on development, for 2012 the equity ratio should actually be accretive, right? Just thinking about it, if you're capitalizing at 5.2% and then versus where you raised, let's called mid 4% cap rate, it should be accretive, right?

We believe that the development activity that we raised that capital to fund is accretive. That we are currently, the portfolio that we have under construction, has about a 7% yield on it. And we will be funding that portfolio and new things that we start. We think it also could be accretive short-term in terms of the FFO yield that capital was raised at, compared to what we could raise debt at or even fund an acquisition or new development. So I think it's fair to say that by raising that cash now, we do have some drag on our earnings, but going forward, there's a potential for that to be a propellant for earnings growth and value creation next year.

And then I'm sorry if I missed this in your remarks, but could you tell us what you're seeing for November and December in terms of renewals? And also just how traffic levels have been holding up through the slower seasonal period?

This is Leo. Renewals for the third quarter went out in the 5% to 5.5% range. And traffic has been up around 8% in the Q3 period. Q3, ending Q3, traffic was up around 8%. And renewals for Q4 going out in the 5%, 5.5% range.

And traffic so far no October has held up, or you haven't seen anything that is concerning?

Traffic has absolutely held up. We haven't seen anything that's concerning. The reality is all the markets are up save the Mid-Atlantic, which was down around 5%.

Alex Goldfarb from Sandler O'Neill.

Just going back to the guidance, as far as the interest expense line and just trying to get a better handle on capitalized interest, have you guys at all adjusted the pace of development? Have you either sped it up or perhaps slowed it down since you raised the capital?

Alex, Tim here. It's really since we raised the capital. We're always projecting that we would start about $800 million in the second half of the year. The one deal that was at the margin, whether it was Q3 or Q4, was the West Chelsea deal. That's why I called it out in my prepared remarks.

But it's not like you've slowed down the pace of development from earlier in the year?

That's correct.

Alex, let me just add that capitalized interest during the quarter actually did go up during the quarter, so that would imply that we had more on balance going out, more underway during the quarter, if that helps.

Tom, it does. That's what's in our models as well, so just trying to make sure that we're getting the pace of capitalized interest in check with what you guys are forecasting. Certainly I think it's helpful and some companies put out a guidance update following equity raises, but certainly your comments, it helps to understand what's going on there. And on the Bryce farewell tour, what's the potential impact from the option exercise? Is that something that's going to be meaningfully additive to the share count, or is that effect minimal?

Alex, this is Tom. It certainly adds to the share count. But, as you recall, we use the treasury method and the effect of options in the money are already considered in our diluted shares outstanding. So there shouldn't be any impact to earnings, any meaningful impact to earnings on those share exercises.

And just the final thing, as you guys put out your asking rents, just curious where your asking rents are versus what's ultimately accepted by the residents. Just anecdotally have heard from a few of your residents in the area who have gotten rent increases, that have gotten the rent increase at X, gone in, talked to the manager, it's been knocked down to Y. Just curious portfolio-wise what the delta is.

Alex, this is Leo. Essentially as I've told you, we put out in the fourth quarter, 5% to 5.5%. It's not so much the renegotiation, which is I think what you're alluding to. It's that the range of renewal increases are broad. There are some that are much higher, there are some that are much lower. Sometimes the much higher ones are not accepted. So the erosion that we've seen typically in that rate that I've given you runs 30 to 60 basis points.

Yes, the people I was hearing from were getting increases of 14% to 20%. So I guess that's why I was hearing about them.

You're in New York. That could be the case.

It was New York and Stamford.

Derek Bauer from UBS.

It's Ross Nussbaum here with Derek. Leo, can we just go back to the rent stats you gave? July-August, I thought you said you were up about 7% on new and renewals. September-October, 5%. And you'd just gone through the renewal numbers in that last question. So that implies that the MOV during that period was on the new lease rates?

Yes. That's the way it would occur. The new move-in rents are generally more volatile. When things are strong, they move up very quickly and then when we're trying to build occupancy, they can move down more quickly. And to give you perspective, we finished September at about 95.6% occupied and early indication for October is we will get to around 96%. If that holds up, we'll be more aggressive very quickly on the new move-in rents.

And how did the turnover for the quarter play into what transpired? It looks like your turnover for the quarter was up pretty notably year-over-year. Which is a little different trend than we had seen in the prior quarter.

That's a great question. Turnover was up, it was up about 4.5% to just over 67% for the third quarter. That really can be attributable to three areas. Number one, we had about 3% more expirations in the third quarter than we did in the same period of the previous year, over the same portfolio of properties. And that was by definition. In the fourth quarter, that number is down by an excess of 5%. So, we're watching what our traffic looks like and where the pressure comes. So the first issue that pushed our turnover up was just we had more expirations in the third quarter than the same period of the previous year.

The second is, we were very aggressive with renewal increases. So reasons for move-outs due to financial ran about 19%. Same period last year, it was about 14%. The last area, which was less of an issue, but an area that was up, was just corporate apartment homes, furnished apartments that moved up from roughly 4% a year ago to about 6.5% this year. So that's what pushed turnover. And we do believe the fourth quarter is well positioned because we took those expirations into the third quarter of this year and a lot of them came out of the fourth quarter of this year.

And then just related to the equity offering, was any of that offering either from a timing, a sizing perspective? Was it contemplated there was going to be potentially some near-term acquisition, or was it always the intent that it was all going to be prefunding development?

Yes, this is Tom. There was no short-term acquisition target or plan for that capital. It was truly raised primarily to fund or prefund development activity for the rest of this year and into next year and just general working capital.

Rob Stevenson from MacQuarie.

Tim, in the release you guys talk about the 6 land parcels that you guys bought and expect to start development on in the near term. Can you talk a little bit about, were those assets under control by you guys? Because they had to have been basically ready to go, right? So the cost on that versus what you're out there on the market for, et cetera?

It's a bit of a mix, Rob. First of all, I think 4 of the 6 we're planning to start within the next three months, to be clear. Among them are deals that we actually acquired that were entitled, ready to go. An example is the Natick deal in Boston, which essentially was plans in place when we stepped into it. Others are deals that we've been working for a couple years under an option contract. And where we had gotten an entitled, and we're required to close under the terms of that deal.

And can you talk a little bit about what the environment is today, as you look to backfill your land pipeline?

Sure, and I think we've spoke to this on the last couple of quarters. We really moved from looking at entitled deals, deals that were more or less ready to go, and try to take advantage of the construction market right now. Which were principally 2010 deals and maybe early 2011. To really more longer dated and entitled deals, deals that require some entitlement dollars, pursuit cost dollars to be invested before they're ready to go. What we have found is the deals that are entitled, ready to go, much like improved assets, were getting bid up to the point where land values were close to or approaching, if not having exceeded in some cases peak land values last cycle. So we started to steer clear of most of those kinds of deals, Rob. And are back to old-fashioned way of doing the business, which is muscle it through the entitlement process and use the platform that we built and maintained over the last few years to our advantage. And those deals often are less about capital, in some cases it's more about track record and organizational talent in terms of who the sellers decide to choose. And they tend to be a little less aggressive in terms of the pricing expectation. And then with Fund I starting to liquidate, Fund II basically topping out either today or after this next acquisition, what are the thoughts about Fund III?

This is Tom. First I'd start out by saying we like the fund business. It's been a great vehicle or lever for us to pull in terms of growing our portfolio and getting an insight into the transaction market. Having said that, we have some internal portfolio goals that we would like to achieve that are better achieved without having an investment management fund in place at a time. Doesn't mean we wouldn't be interested in doing another one, but right now, we're going to hit the pause button. And we would likely come back to that later, but for now, we are not planning to raise a third fund.

One quick one for Leo. When you guys are thinking about how hard to push rents in a market, what are you implicitly implying as your turnover cost for a unit?

Rob, hard costs are around $500 an apartment home across the portfolio but the reality is the truly fully loaded, when you look at vacancy and all other costs, it can run 4 to 5 times that. So $2,000, $2500 when an apartment turns.

Steve Bragg from Zelman & Associates.

Leo, just going back to DC, can you talk about the relative outlook there for Class A versus B, given you had the general employment concerns, but also specialty in the second half of next year combined with that outlook for supply that you discussed, which we would expect to be more competitive with the A's?

Yes, Dave. Certainly they are more directly competitive with the A's because the brand-new product is going to be at the higher price points that are going to be competitive. But what we also find, and I think what we talked about during the downturn is there is an effect where it indirectly affects the B's or affects the B's over time. In other words, as prices become more competitive, then people who are living further out or in B product, they look to move up into the A. So it's really during the early part when the product first starts leasing that it has a greater impact on the A's, that new supply. Then over time it equalizes.

And then just over recent months, given the market volatility and uncertainty, what have you seen as it relates to development financing and that environment for your peers?

Dave, Tim here. Actually, a number of us were at ULI last week and that was a subject of a lot of the council discussions. Generally we're seeing a couple things. One, in some markets, yields are not as healthy as they were a year ago, and therefore, you're starting to see the equity requirements go up. Which is putting a little bit more stress in terms of some of the private sponsors. But, in addition to that, you're starting to see some of the banks that are active in this area starting to fill up. They are clearly still very focused on sponsorship. So for all the people that want to do new development, many of them are still not, in that they are not getting the bank financing. Or for those that are, they are not getting as much as they would have last cycle, just based upon the equity requirements and any of the co-investor requirements that would be required. So I think there is a bit more of a constraint on the capital side than maybe we would have even thought just given the amount of liquidity that's generally out there in the capital markets.

So more constrained than a quarter ago?

I don't know that I would say more constrained than a quarter ago. We still haven't seen a whole lot of starts. But, you're still seeing production levels I think that are still quite low relative to normal patterns. And as you're coming out the downturn and you're starting to, you're in the recovery phase of the cycle.

And last question, also on supply. Can you talk about Northern California? You expressed the concern over supply in DC. But the permit data out of San Jose and San Francisco seems to suggest a level of permitting closer to the long-term average in those markets. Could you talk about that and what your expectations are there?

Over the next couple of years, really not a big concern until '13 in San Jose. And then San Francisco, I think you would be out to '14 and '15 before it's really more of a concern just in terms of getting back to or above long-term averages.

Rich Anderson from BMO Capital Markets.

The question, first of all, just to revisit traffic, you said it was up by 8% in the third quarter and held up in October. Can you bifurcate that a little bit? Define for me traffic in terms of web hits and foot traffic. Are you saying actual visits to properties is up 8%? Or are you talking about a more vague definition of traffic?

No, it's actually unique visits to the properties. It's not a vague definition. To give you some perspective, the source of our leads from the Internet has obviously grown, continues to grow, and it's running about 70%. But when I say traffic, I mean actual unique visits to the property.

And that's documented through applications or something like that? Or is it something that could be a subjective type of measurement from property agents?

It's the information that we get from the property agents, filling out the guest cards, so actual real visits.

In terms of some of the land implications this quarter, into the fourth quarter. Do you expect any more activity like that in the coming quarters in terms of gains and losses that you might absorb?

Rich, I may be able to jump on that, and Tom, you may have some thoughts as well. We currently, just to put it in perspective, we've got about $250 million of land, of which about $180 million is held for development. That includes associated pursuit costs. And about $70 million that's held for investments. Those are the deals that we've been looking to sell, or where there's potentially exposure on impairment to the extent we get market information or market feedback, suggesting an impairment is in order. This past quarter, as you know, we mentioned we had 3 impairments, 2 of them amounted to most of it. And those were the deal in Chicago and a deal in DC, both with which we had decided to really push into the hold for investment categories. Which means we'll look to sell at the appropriate time.

And those deals were both out for marketing. We were getting feedback in terms of market value. One of the deals actually is under contract at this point. So the inventory where there is potential exposure is limited to $70 million at this point. And there's been some impairments already on on that pipeline. But for the deals that we have sold to date, for the most part, the couple that we sold, the 2 or 3 that we sold, we actually had $13 million in gain this past quarter. So generally, been coming at or above relative to our valuation we've actually gone to market.

And so where you had the gain because there was a previous impairment a few years ago, how does that reflect a broader view of how land prices have changed over that period of time? In other words, is that recovery in the value of those 2 parcels of land representative of the markets that you're in, or are they outliers?

No, I think they are probably representative of the markets we're in. And in the one case, basically the sales price recovered all the impairment and a little bit more in another case. It was still sold at probably 30%, 40% of our total cash basis in the deal and that was just a weaker sub market and location. I think it's probably a function of when we bought it too, last cycle, whether it was an '07 deal or '05 deal. So I think all those things play into that.

(Operator Instructions) Mark Biffert from Bloomberg Research.

Good afternoon. Tim, I was wondering if you could expand a little bit. You had mentioned that you're planning to sell more of the assets in Fund I. I'm just wondering if you can give an expectation in terms of the timing of those sales? Are you currently marketing all those assets today and it's just a matter of pricing?

No, we're not marketing the whole thing. We've got another couple years for the whole period there, so we're really looking to average down over the balance. And there are some extensions potentially within that whole period. But I think I mentioned in my prepared remarks we've got 2 other assets right now that are in marketing that we would expect to close sometime in the first quarter of 2012. And I'm sure we'll sell some other assets later in 2012 and as we get into '13, we've still got the majority of the assets to sell.

Is there any promote income or anything that goes along with that when you sell them?

No, it's a Fund test, really, so when you sell an individual asset, even if it seems to be well on the money and very high IRR, it doesn't necessarily there's not a promote that necessarily flows to the entity until you get to the end of the fund.

And then Leo, have you ever given average residents' income level for your portfolio?

Sure. I can give you that. I think on the last call, Bryce talked about the average household income for the portfolio was about $112,000. The good news is, the end of the third quarter, it was up to $114,000. And just to complete the circle, right now, our rent to income levels on a household, are actually below 20%, which makes us feel pretty good. When you hear it quoted in our markets, it could easily be 22% or 23% and over an entire cycle, it could range anywhere from 20% to 26%. So we feel good about where incomes are going. And furthermore, we feel good about the percentage of their income that our new residents are paying.

And then just lastly, Tim, you mentioned on the acquisition front that you're seeing more deals in the market that have a little bit of hair on them. I was just wondering if you could give a little color on the type of hair you're seeing on those deals, the volume level that you see in the markets and the demand for the assets on the buyer side.

Sure. When I say a little more hair, in some ways, it's gone back to more like it was. As we came out of this downturn, the assets that were getting marketed for the most part were the safe trades, if you will. So they were the core deals in coastal markets. You saw a ton of stuff get sold in DC, to a lesser extent Southern California, a lot in New York. Those are the three largest markets where you saw trades. For the most part, again, they were core deals. You're seeing more value add type opportunities today, where the assets are in need of capital, repositioning. So that's what I mean by that. Or maybe some financing, above market financing, that you got to deal with somehow. So it's really a function of, in some ways, just a more normal market where there's some core deals, but we're seeing more and more older assets that need some attention and capital.

And the funds that are focused on the core market, are they willing to do those types of deals, or is it the field of buyers much smaller?

You still see some value adds funds that are out there. Some investors have gone with strictly core, but there's still certainly some value add funds out there/ They tend to be more a little more entrepreneurial in nature and leadership that's running them. So there are buyers for those deals. They tend to be more thinly bid, though, just because there's oftentimes skills that are required that not every buyer has in order to either underwrite or execute the transaction.

Paula Poskon from Robert W. Baird.

Just to follow up on the average income discussion. So the average for the portfolio is up again. Are you seeing that in most or all of your markets, or is there a bigger disparity across your markets, where some are really strong but some are not?

Paula, this is Leo. It actually applies pretty consistently across all the major regions in which we do business.

And how much, if at all, are you adhering to or overriding what revenue management is suggesting as you head into the next quarter?

I'll tell you, Paula, we adhere to revenue management, I would say, 90% of the time. But just to be clear, what occurs is on a weekly basis, we have the people on the ground meeting with the revenue management team, making sure that we're getting the benefit of the science and the algorithms, combined with the expertise of the local players who may know more specifically what's going on.

And then finally, can you shed a little more color on your expected change in the impact of the ground lease associated asset sale from hitting FFO to being included in gains?

Paula, this is Tom. I'm not sure what additional information I can provide. We've laid it out in the press release. Do you have a specific question that you have about what we said previously? I just wondered, what prompted the change in the way that you were going to account for it? Was it something you decided or did your auditors come back to you? This is an area -- lease accounting is an area that has some gray in it. And for those that are not aware of the issue, we do have a land lease that is required that we straight line the fixed escalations in that land lease over the lease term. That results in excess lease expense over actual payments. To give you a sense of the magnitude, there's $10 million of lease expense going through the P&L, and there's $1 million of cash. These are rough numbers. There's $9 million of excess expense over cash. If you look at what happens this year with the current year excess lease expense over cash, that is a reduction in the lease line item, or it's an increase in expenses. And when we sell that asset this year, if we sell that asset, we had expected that that would reverse against lease payments and impact NOI and therefore benefit FFO.

A strict interpretation of GAAP where there is GAAP to go to is unclear in this area. So in an abundance of caution, we are, we are going to treat that asset, or the extra payments this year, or the extra expense overpayments this year, not as a reduction in the NOI, or pickup in the NOI. But it's going to be captured as an incremental gain on the sale of that asset. It's a little nonsensical that you would have a current year item like this that would be captured as a gain. But GAAP doesn't always provide the most economical answer. It is GAAP. So in an abundance of caution, we treat it this way.

In terms of adding that back to FFO, the FFO definition does not speak to this. So in a strict interpretation of the definition of FFO, we would exclude that one-time pickup from FFO and it would not benefit FFO this year, to the extent that this prior leased expenses exceeded cash. Now, we sell that asset in the fourth quarter, those excess payments go away and we would have a benefit during the fourth quarter.

Eric Wolfe from Citi.

It's actually Michael Bilerman. Tom, just a clarification on guidance for a second in terms of the changes to the full year. The $0.08 from the equity offering that you reference in terms of the outlook coming down, you obviously had $0.03 of that in the third quarter, which leaves $0.05 for the fourth quarter. Embedded in that number, is that just the full effect, assuming no reinvestment? Or are you assuming that the bonds that came due in the fourth quarter are repaid with those proceeds? Or is that in the $0.02 that's below?

That's in the $0.02 that's below. Really, what we're trying to do is isolate the effect of the equity offering, which was an incremental capital raise over what we had already planned for the year, and the impact that that has on dilution for this year. Any benefit in terms of interest income on the cash on the balance sheet, which is very nominal given current interest rates, or debt repayments, is already embedded in our outlook. Because we had already provided for paying down that debt in September. There is some benefit for the early prepayment of one secured asset in October that will accrue to that $0.02 line item, that interest line item. Nothing major. The $0.05 you're talking about incrementally is purely related to the equity offering and the dilution from it.

I think that was our math also. There was effectively and $0.08 dilution, effectively earning buckus on the cash. And then whatever you do going forward would then be accretive, assuming that you either fund development and you get the capitalized effect on the interest, or you buy something, that's all additive growth from here.

Or if we pay down debt.

And then I think you mentioned that you thought you would spend another $250 million by the end of the year potentially. Half of that's earmarked for the current development and redevelopment pipeline. And is the balance -- are we to assume that's acquisitions, or is that something else you're referring to?

It's primarily development.

Because in the schedules in the supplemental, so on attachment 11, it doesn't have a page number. You're only listing remaining to invest in the fourth quarter, $114 million for the development and another $13 million for the redevs. You're saying that you would spend another $125 million on development in the fourth quarter potentially?

Michael, I think on that schedule, it just captures the deals that have already started. We're obviously going to be starting some deals in the fourth quarter, as well. Our internal estimate's closer to about $190 million in Q4. That actually going to be spent on development activity, putting it into perspective. And another $34 million or so in land purchases.

And in addition to that, we have a debt that we prepaid in October. We also have our share of the final deal that we think we're going to buy under the fund, which is a substantial amount. So there's some other items in that in addition to development.

I think Tom had mentioned that we've added about $500 million or in the balance sheet at the end the year.

Roughly $500 million, yes.

And the extra money on the development, that's for projects that you are going to start in the fourth quarter that you'll expend capital for those?

Yes, as I mentioned, we're expecting to start $600 million, so it's a big quarter for us. So that will get spent in the quarter.

And Bryce, with two months left, what's left on your to-do list as CEO?

Certainly it still remains a busy time of the year for Avalonbay, whether I'm planning to leave at year end or not. So a lot of work in terms of the budgeting, board meetings, next week actually. So we've got a fairly busy quarter, as we always do. Hopefully it's clear I'm not vaporizing as of January 1. I'll still remain in a half-time capacity next year. So while this is my last call, it's certainly not the end of my involvement with Avalonbay.

I didn't know if you had any big accomplishments that you wanted to get done between now and year end that we should think about or look out for.

One of them is happening right now.

[Du Tangarg], Credit Suisse.

This is [Daubem]. So going back to expenses, you've had a negative expense growth year to date. As specific line items are concerned, stuff like property insurance and advertisement and marketing expenses, do you expect any significant savings over the next few months? Or on the other hand, do you expect any of them becoming more expensive?

This is Leo. With respect to the expense line items, major expense line items, in Q3 we did receive a lot of property tax refunds. Those will not recur in Q4. On the office line, it's been driven by bad debt. Bad debt has been very favorable. In the most recent quarter, it ran about 0.75%. For the year, it's about 28%. That's about a 40-basis point benefit over the previous year's results. On the utility side, we expect some of that to come back in the fourth quarter. But we have had success on the consumption side with certain things that we've been doing, whether it's lighting retrofits or co-generation systems, et cetera. As well as just being aggressive in our collection, because we do pass a lot of that through to our residents. And then finally, on the marketing that you suggested, I expect a lot of that to be recurring. Some will get used because we're coming into a more difficult period of the year. But really, it's the change in business practices, where we've gone from paper click to paper lease, where we've gone to using an electronic brochure instead of printing brochures. So, as Tom mentioned, in the fourth quarter, you can expect year-over-year growth to be in the 2% to 3%, but still very favorable for the full year.

And the second question, it's actually based on a very dated article back in July. There was a Wall Street Journal story about the Obama administration considering renting out some of the foreclosed properties where the Fannie Mae and Freddie Mac actually end up becoming the landlords. And there might have been a discussion about this on the second quarter call, but have you heard anything about it of late, or if at all any impact it could potentially have?

Jonathan, this is Leo again. In general, we haven't heard of any impact. What we tend to find is that people that rent apartments choose professionally managed or not professionally managed. And the people that would move towards foreclosed or even just gray markets are typically not the people that would, in most of our markets, that would be renting our apartment homes.

Michael Salinsky from RBC Capital Markets.

Just had two quick follow-ups. You touched upon land prices back to peak. Can you talk about soft and hard construction costs as well, how those are trending?

Sure, Mike. When I was talking about land price back to peak, it generally had to do with the deals that were in title and ready to go, in some of the stronger markets. And some of the deals we're looking at that, again, require a lot of pursuit dollars, dollars and entitlement work, we're not necessarily seeing that yet. But in terms of construction costs, not seeing much movement. Commodities bumps up and down, but labor costs continue to stay at pretty much cyclically low levels. So we're still, depending upon the market and the product type, maybe 15%, 25% off of peak levels. In terms of soft costs, they're not as big of a driver. I don't know that we've seen much movement on the permit side. I think there's probably a few jurisdictions that have been trying to figure out how to get more money out of the development that has moved forward. But it hasn't been a big driver in terms of the economics of the deals that we've seen. And then as you get into A&E, the architectural engineering costs, we haven't seen much movement there either.

And second of all for Tom, can you talk a little bit about pricing in the markets right now? Obviously, we've had some volatility over the last couple weeks here. Just curious where spreads are, where you could issue five, ten-year money on the unsecured front. And also what you're hearing from the GSEs.

Yes, it's interesting. A year ago we were talking about how much underneath the unsecured market was below the secured markets. And that's now reversed. We're now in a situation where secured debt is actually cheaper than unsecured debt by about 40 basis points. So I'm just going to talk about secured debt. Whether it's GSE or insurance money, right now a 10-year deal could be done between 4% and 4.25%. And a 10-year unsecured debt could be done by Avalonbay at 4.25% to 4.5%. So there's about 25, 40 basis points difference between the secured and unsecured, which is generally what the trend has been over a long period of time, about 40 basis points. When you consider which one of those you might execute if you were in the market, you would have to consider the inflexibility of secured debt and the potential for prepayment penalties, if you wanted to sell that asset early. And we're seeing that this year in our numbers. So we have a bias towards unsecured for lots of reasons, primarily financial flexibility. But also, you really don't know what your total costs on a secured debt deal is until that asset is sold or somehow disposed of. So we like the unsecured markets and at 4.25% to 4.5%, it's still pretty good money.

There are no further questions in queue.

Okay, just a couple of closing comments. While this is my last earnings call, it's not the last time I'll see many of you in that we do have a NAREIT investor conference coming up in Dallas in a few weeks. So I look forward to seeing many of you there. For those who I may not see, just a shoutout to the analyst community. Over the many years in the business I've gotten to know many of you very well and gotten a greater appreciation for the hard job you guys do, and you do it well. And to the investment community, similarly spent a lot of time together over the years and gotten to know many of you well, and really appreciate the support and the sound advice you've given me and the management team. And the confidence you've shown in Avalonbay. And I know that Tim and the team will continue to earn that trust. So look forward to seeing many of you in Dallas. That's it, Operator.

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