艾芙隆海灣社區公司 (AVB) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to AvalonBay Communities Fourth 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 conference call, Mr. John Christie, Director of Investor Relations. Mr. Christie, you may begin your conference.

Thank you, Amanda, and welcome to AvalonBay Communities fourth quarter 2011 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 your review of our operating results and financial performance. With that I'll turn the call over to Tim Naughton, CEO and President of AvalonBay Communities. Tim?

Thanks, John. Welcome to our fourth quarter call. Joining me today are Tom Sargeant, our Chief Financial Officer, and Leo Horey, EVP of Property Operations. Tom and I have some prepared remarks and then the three of us will be available for Q&A afterwards.

I'll start by touching on some of the operating and investment highlights from last quarter and an overview of 2011. In addition I'll provide a few comments about our outlook for the economy and apartment markets for the coming year. Tom will then discuss some of the financial highlights for the quarter and review our financial outlook for 2012.

Lastly, I'll come back to provide some color on the press release we issued in December in which we announced the launch of two new apartment brands. Last night, we reported FFO per share of $1.19, which was up 18% over the prior year. In addition, we announced an increase in the quarterly dividend of 9% for 2012 based upon this continued strong performance and our outlook for 2012.

Results in Q4 were driven primarily by strong same-store NOI growth, atop 10% for the quarter driven by same-store revenue growth of 6.2% and a decline in same-store expenses of 1.8%. Same-store NOI growth was particularly strong in California, which posted growth greater than 15% in both Northern and Southern California.

Northern California continues to be our strongest region, while Southern California is still relatively early in its recovery with Orange County and Los Angeles leading the way in that region. In Q4 we continued to be very active across-the-board in the area of investments.

We started four new developments totaling almost $500 million and now have $1.5 billion underway. Two of the new starts were AVA communities, which is one of the two brands we formally launched last quarter. This brand, which is targeted at a youthful urban minded demographic that crazed the energy of the neighborhood, is ideally suited for the two neighborhoods where we began construction this past quarter, West Chelsea in Manhattan and the Eighth Street Corridor in Northeast D.C.

We also continue to replenish the pipeline in Q4, adding another seven deals totaling $500 million in new development rights. Most of these deals are located on the West Coast, where fundamentals are showing the most momentum.

We expect that we will continue to add to the pipeline over the next couple of quarters, as we have another $200 million worth of development rights under contract and in due diligence.

The economics of development remain attractive, as the average projected yield for the $1.5 billion under construction is close to 7% or around 200 basis points over prevailing cap rates.

In addition, the deals in our development rights pipeline, as well as those currently in due diligence, have projected yields consistent with those under construction, in the 6.5% to 7% range based upon current rents and current construction costs. As a result, we expect that development will continue to be an important driver of growth and value creation over the next few years.

We continue to shape and reposition the portfolio in Q4 through transaction activity and redevelopment. Last quarter, we sold five assets, three that were wholly owned and two that were owned by our First Investment Management Fund. Two of the wholly owned assets that were sold, Cameron Court and Rock Spring, are in the D.C. market and were sold for $220 million and an economic gain of over $120 million.

Given the growing permitting activity and the uncertain impact of potential fiscal reform on the D.C. area over the next two to three years, we thought it was a good time to harvest value. Despite our recent actions, D.C. remains an important target market for us and over the long term we expect to increase our exposure in this market.

Finally, during the quarter, we started the redevelopment of six existing stabilized communities, including two under the AVA brands and one under the Eaves by Avalon brand, which is a brand targeted to a more value oriented and cost conscience consumer. We currently have 12 communities under redevelopment that represent a broad mix of assets containing all three brands, including five Avalon, three AVA, and four Eaves communities.

For the year, FFO per share was up over 14% and adjusting for non-routine items was up by around 16.5%. This was the strongest growth in FFO per share since 2000. We enjoyed this strong growth despite an economy that didn't live up to expectations as the year began.

The corporate sector, flush with cash and restored balance sheets, was expected to lead the economy to recovery in 2011, but failed to do so, as companies became reluctant to expand their businesses as confidence faltered. As a result, growth in GDP of under 2% came in below expectations.

The economy created only 1.5 million jobs or about half of what was expected at the beginning of the year and not enough to make a meaningful impact on the unemployment rate. Given this environment, consumers reacted in a predictable manner, reluctant to spend and focused on restoring their own balance sheets, as consumer debt fell to the lowest level since 1993.

Offsetting this tepid job growth and lack of business and consumer confidence, though, were a number of dynamics that benefited the apartment industry. Home ownership rates continue to fall, another 50 basis points for the year, and three times that rate for younger adults, age 34 or under. In addition, while job growth was quite modest, it was pretty good for this young adult cohort, up around 2% or about twice the rate for the overall economy.

As a result, rental household growth was much stronger among this important group of apartment renters, which contributed to strong apartment absorption in 2011. On the supply side, the apartment industry benefited from the lingering effect of the credit crisis of '08 and '09, as new apartment completions of 80,000 for the year were less than 40% of the average experience over the last 15 years.

The combination of strong absorption and reduced deliveries worked in the apartment industry's favor in 2011 and helped fuel solid earnings growth in spite of the weak economy. With the favorable fundamentals that emerge for apartments in 2011, rents and valuations largely recovered to their pre-downturn levels.

For AvalonBay, growth in FFO per share for the year was driven in large part by same-store NOI growth of 8.5%. While every region posted healthy growth, markets with greater exposure to technology outperformed, including San Francisco, San Jose, Seattle and Boston. We made significant progress towards some of our portfolio management objectives through more than 1 billion of transaction activity.

We added eight communities in Southern California, trimmed our position in D.C., and recycled capital out of Boston, where we have a robust development pipeline. We took advantage of strong fundamentals and cyclically low construction costs by starting almost $900 million in new development and close to another $100 million in redevelopment.

We pre-funded most of these new capital commitments through a well-timed $750 million discrete equity offering in August and by year-end, had ample liquidity to fund all outstanding commitments. Our balance sheet is the strongest in the sector and is very well positioned to support new external growth opportunities, particularly as we build out our development pipeline of $4 billion plus.

So, now that 2011 is in the books, sitting here in early 2012, what are our expectations for the coming year. After the mid-year slump in 2011, the economy started to regain its footing by year-end, as GDP growth approached 3% in Q4. Improved job growth in December of around 200,000 combined with positive revisions in prior months surprised to the upside.

Business sentiment appears to slowly be improving, as Moody's business confidence survey and small business sentiment have increased over the last few months. In addition, the consumer's in better shape than this time last year, having improved their balance sheets and confidence, while still fragile, has improved in recent months.

While some elements seem to be in place to unstick what has been a stalled recovery, there remains some headwinds that will continue to temper overall economic output. In particular, the public sector, given its own fiscal constraints, has limited ability to provide any further stimulus and the housing sector, where production levels should continue to run well below historical norms, will continue to be a drag on economic growth. And of course as we saw last year, confidence can erode quickly, particularly in light of lingering global debt concerns.

Overall, we're expecting still slow to moderate economic growth on the order of 2% to 3% and total US job growth of around 1.5%, or just under 2 million jobs in 2012. In terms of industry fundamentals, apartments should begin to benefit or should benefit once again in 2012 from a combination of gradually improving labor market, a weak for sale market, favorable demographics and modest levels of new supply.

Based upon the current level of starts, which has averaged an annual pace of under 170,000 for the last three months, new completions shouldn't pose a threat in most markets for at least a couple of years. In our markets, D.C. will be the exception in 2012, as new deliveries are expected to pick up in the second half of the year.

Overall, we expect that demand will outpace supply again this year, which should propel operating performance and result in another strong year for AvalonBay. I'll now turn the call over to Tom, who will provide some financial highlights for the quarter, as well as an overview of how our expectations for the economy and apartment markets shape our business plan and financial outlook for 2012.

Thanks, Tim. Let me start with an overview of the topics that I'll cover this afternoon and then we'll go into some detail. First, I'd like to discuss the earnings and capital activity for 2011. Then I'll provide more color on the 2012 financial outlook that we provided last evening. And then finally, I'd like to talk a little bit about the dividend increase and our general dividend policy.

Tim covered earnings highlights, but in the context of capital activity, earnings growth really stands out. We issued $1 billion of equity capital in 2011 that de-leveraged the balance sheet and helps insure we have the appropriate mix of capital as the investment cycle progresses.

And you can see this in the reduction of average leverage as measured by debt to EBITDA, which fell from an average of 7.2 times during 2010 to a quarterly average of 5.8 in 2011 and then expected to average between 5 and 5.5 across the quarters in 2012. So, a pretty dramatic reduction in leverage paired with pretty robust earnings growth.

We also retired secured debt in 2011 and in early 2012, some at our discretion and some related to pending sales. Charges for early termination of debt were incurred, but were absorbed by strong overall earnings from operating assets and new development. Reducing secured debt will also allow us to increase our unencumbered NOI from 68% in 2010 to about 73% in 2012.

Importantly when you look at earnings, floating rate debt did not contribute to earnings growth, as variable rate debt is less than 15% of all of our debt at the end of the year. With about $690 million of cash on hand and $750 million available under our line of credit, and a full range of capital market options, our capital plan and liquidity for 2012 is strong.

Turning to the financial outlook that we provided last evening, you will find more detail on these sources and uses of capital, as well as expected operating trends on attachments 15 & 16. Our overall outlook for NOI growth at a mid point of 7% is comprised of about 5.75% revenue growth and approximately 3% expense growth.

Northern California will lead revenue growth in 2012, while Washington D.C. will lag the rest of our markets. Operating momentum headed into the New Year is solid, with high occupancy that allows us to push rents earlier in the year for both renewals and new move-ins and we're already seeing this as renewals and move-in offers are ahead of this time last year.

Cost containment remains a key focus for the Company in 2012, but will be a challenge coming off a year where expenses actually declined. We will see less benefit from reduced bad debt in 2012 as the economy recovers compared to '11 and some expense pressure on property taxes due to tougher comps.

Insurance markets are more difficult this year and we're likely to see upward pressure there as well. But we do have a good track record in constraining expense growth and for those expense categories, such as insurance and taxes, that have an outsized risk of growth, we have a seasoned, dedicated teams in both our tax department and Risk Management Group to help mitigate that risk.

Turning to investment activity for 2012, it includes new development starts totaling about $1.2 billion and redevelopment spend of about $125 million. We expect to be net positive in acquisitions over dispositions by approximately $100 million in 2012. In terms of liquidity and the related sources and uses of capital, all of our investment and refinancing capital needs can be met from internal or committed capital sources, but we do plan to raise about $800 million of external capital in '12.

The composition of that capital activity depends on capital market conditions at the time we go to market, but will likely be a combination of unsecured debt and common stock. We don't have any plans for secured debt financing in 2012, but to give you a reference point on the various debt pricing options, I wanted to cover a few data points.

Unsecured 10 year debt today would price between 3.5% and 3.75% and as we sit here today, these are historic lows. Secured insurance source debt would likely be in the 4% to 4.5% range and GSC, or agency financing, would probably be in the 3.5% to 3.75% range as well, right on top of unsecured debt.

Finally, Tim noted that our Board approved a 9% dividend increase for 2012 and this level of increase is supported by earnings growth, while allowing us to retain a cost effective source of liquidity at a time where access to liquidity remains important to us. This level of dividend suggests that retained capital from operations will approximate $100 million in 2012, providing an FFO payout ratio of around 72%, which underscores the overall safety of our dividend at these levels.

Excluding this announced increase, we've increased the dividend by 40% over the last 10 years, while the weighted average dividend increase for the multi-family sector is actually a decline of 15%.

Finally, we've never cut our dividend, so we're increasing the dividend, not restoring a previously cut dividend, and we have always covered our dividend from recurring cash flow. In terms of dividend policy, our general policy is to present dividend recommendations to the Board once each year with earnings growth prospects and FFO coverage being the principal drivers in terms of how much of a dividend increase we recommend.

These metrics help us determine the margin of safety we have in the dividend and contribute to a sustainable dividend while providing room for growth. Accordingly, this dividend increase is appropriate given our earnings growth last year and the prospects for even higher earnings growth in 2012. So just to recap my comments. While the capital markets are strong today, we're well prepared for change with a balance sheet that offers financial flexibility with access to secured and unsecured debt with both fixed and floating rates.

We have clear visibility into our sources and uses of capital for the year, balancing new debt with equity, asset sales and retained cash to fund new development, redevelopment and acquisitions, as well as debt retirements, exercising our financial flexibility to optimize earnings growth and value creation.

And finally, our financial outlook provides strong earnings growth, which supports our dividend increase of 9%, while providing one of the lowest payout ratios in this sector and one of the lowest of all [REITs]. Tim, that concludes my comments and I'll turn the call back to you.

Thanks, Tom. As I mentioned in the introduction, I'd like to take a couple of minutes now to provide a little color regarding the press release we issued in December in which we announced the launch of two new apartment brands, AVA and Eaves by Avalon.

AVA is a brand designed to attract the increasing number of people, particularly the younger Gen Y segment, who want to live in or near high energy, transit oriented urban neighborhoods. AVA communities will generally have smaller apartments, many designed for roommate living and feature modern design, a technology focus and amenities that maximize the social experience of residents.

The AVA brand will grow through new development and redevelopment. Over the next two years, we anticipate having approximately 20 AVA communities in service or under construction. Eaves by Avalon is targeted to the cost conscience value segment seeking good quality apartment living with practical and functional amenities and service. Eaves by Avalon communities will tend to be older assets located in suburban areas with the brand growing through acquisitions and redevelopment.

By the end of 2013, we plan to reflag or redevelop over 40 existing communities to the Eaves brand. Avalon remains our core offering, focused on upscale apartment living and high-end amenities and services in leading urban and suburban submarkets. The Avalon brand will continue to grow, primarily through new development. These three brands compliment one another in terms of target customer segment, submarket focus, and method of deployment.

This brand framework is a natural extension of a disciplined and time tested strategy that builds upon and leverages a set of well established capabilities. During our history as a public Company, we've discussed the structural advantages of our chosen markets, including supply constraints, high incomes, and low housing affordability. During this time we've been highly disciplined in market selection and portfolio allocation.

By investing extensively in local franchises, we've enjoyed a privileged position in these markets that comes with an integrated set of capabilities in the areas of development, construction, and operation, as well as the market expertise, business relationships, and reputation resulting from a constant presence and track record of 25 plus years. And its paid off for investors in the form of strong earnings growth and total shareholder return over an extended period of time.

Over the last couple of years we've shared with you our desire to expand our concentration of B product as a means of diversification and further penetration of our markets. In addition we've talked about the importance of submarket selection as a driver of portfolio performance. If markets matter, so do submarkets.

Lastly, we've highlighted the importance of positioning our communities within their respective submarkets to optimize performance, as no single strategy delivers consistent out performance across all markets or submarkets. To support this sharpened focus in our markets, we've invested significantly in key capabilities, including market research, consumer insight, redevelopment, and asset management.

The establishment of a brand framework of distinct offerings targeting unique customer segments further builds upon our existing capabilities and we believe further extends our competitive advantage across our market footprint. It allows us to further penetrate these advantaged markets by segmenting them according to consumer preference and attitude, as well as by location and price.

AVA and Eaves by Avalon will help us reach new customers and better serve our existing customers, all while staying within our established geography. So in essence, our recent announcement is really a refinement and an extension of a strategy that's designed to penetrate and deliver sector leading performance and what we believe are the best apartment markets in the country. And with that, Amanda, we're ready to open up the call for questions.

(Operator Instructions) Rob Stevenson of Macquarie.

Tom, you were talking about the same-store guidance before. In the supplemental there's like 6500 units that you guys have classified as other stabilized. How many of those are rolling into the same-store portfolio this year and what's the relative impact of that versus the existing same-store portfolio for 2012 guidance?

Rob, in terms of how many of those are rolling in the same-store, you can look at the attachment that talks about the number of communities in each basket. We had 37,470 in the basket in 2011 and I think that number is going up to -- .

About 37,000, Rob, this is Leo, into the same-store's bucket.

But how many in total were increasing going into the same-store bucket from 37,470 in 2011. My guess is it's 2000 units, but we can get back to you on the detail for that.

Would you expect that those are going to have stronger same-store NOI growth in the existing this year or is it going to be relatively stable between the two?

Rob, this is Leo. It depends on the submarkets that they're in and they tend to perform pretty consistent with the other same-store assets in those submarkets.

And then Leo, did I miss -- did you guys talk about the first quarter, the January you were sending out January and February renewals at?

We didn't comment on that yet, Rob, but I'll give you the information. In the fourth quarter we made a conscience effort to focus on getting availability down and occupancy up. And as you probably saw, occupancy ran about 96% for the fourth quarter. That's put us in a pretty good position entering 2012. And for the first three months of 2012, in essence the first quarter, we've been sending out renewals between 6% and 7%. To give you some perspective, last year at the same time we sent them out between 5% and 5.5%. So, we're pretty encouraged and it's part of the positioning that we did in the fourth quarter as we entered into2012.

What are you seeing these days in terms, as you hit the first part of the year, in terms of foot traffic? Are you seeing this sort of normal pick up in foot traffic or is it still slow, et cetera?

Well, I mean, foot traffic in the fourth quarter was up about 10% over the previous year, Rob, and we're seeing it maintain those patterns in January.

And then lastly, Tim, you guys added a bunch to the development pipeline. Nothing is falling out, although there's going to be some falling out on completions here in early 12. What's your sort of tolerance at this point given what you see from an economy for the upper end of the portfolio of development size? Would you go up to $2 billion at this point?

Rob, yes. Certainly we would go up to $2 billion. In fact we expect the year to end with around $2 billion. I think as I mentioned on previous calls, we're geared to do about $1 billion a year right now. Tom had mentioned we expect to start upwards of $1.2 billion this year on top of around $900 million last year.

The average community has a production cycle of around eight or nine quarters, so that just by math it gets you to $2 billion, maybe a little bit north of that. And to put in perspective, that's close to what it was at the peak in 2007. However, then it was about 20% of total market cap. At the end of this year just based upon current market cap that $2 billion would only represents about 13% of total more cap, so about two-thirds of what it was before.

Ultimately, our tolerance is going to be gauged by a number of things. One, just the obvious around just balance sheet in terms of how much in unfunded commitments we want to tolerate and the more that we put in the pipeline, the more conservative we'll be about liquidity and how we're positioning that balance sheet, but then also just in terms of the economics.

As I mentioned in my prepared remarks, the stuff that is currently in due diligence or in the development portfolio continues to look attractive to us and so that's probably as big of a driver as anything else, just the relative economics of that business relative to what you can buy at. So. Tom, did you have something you want to add?

Yes. Rob, I just want to follow-up. We have 37,470 apartments in the total stabilized basket, which includes same-store and other stabilized. You mentioned the 6,000 or 7,000 units in other stabilized. We don't expect any change in the same-store basket, any meaningful change between years because of asset sales, but also just the normal things that come out of the same-store basket when you redevelop an asset.

Okay.

So virtually no change.

And my thanks to you and John for getting the earnings out at 4.01 yesterday. Much appreciated.

You're welcome.

[Vienna Gullian] from Banc of America Merrill Lynch.

You mentioned that you're at a higher occupancy starting out this year. How are you thinking about turnover and are there any of your markets where you think that it will trend up and maybe do more towards home ownership?

With respect to general turnover for the year, I expect it to go back to more normalized levels. So, for instance, in 2010 it was about 52%. I believe one of the attachments indicated that in 2011 it was 53%. We budgeted between 54% and 55%. So, that's what we're expecting for turnover.

As far as the reasons for move out go, the areas that we've been discussing a lot and focusing our time on is, especially as we're pushing renewal rents so aggressively, what percentage or people of our turnovers related to financial or rent increase. For the quarter, the fourth quarter, that ran about 16%, which is above the historical average., but is actually come down from about 19% in the third quarter.

We've also been watching pretty carefully what's going on with move out to home purchase. Last quarter that was about 13% and I believe it moved up to about 15%. Still well below the historical average that has run in excess of 20%.

I was just curious whether any of the apartment communities in Fund 1 could be potential Eaves candidates?

This is Tim Naughton. It's not our expectation that they would be converted to Eaves just given the limited hold period of most of those assets. Only have two or three years left on the whole period on Fund 1.

Thank you.

David Bragg of Zelman & Associates.

Leo, you alluded to this as it relates to 4Q, but could you tell us specifically what did you achieve in terms of increases on renewals and new move-ins in the quarter?

Sure. Across the portfolio in the fourth quarter, renewals were about 5% and new move-in rents were up about 1.5% to 2%.

And then that just brings out the tactic of looking back to the second half of 2011 in the hopes of better understanding your outlook for 2012. Thinking back to June, you updated your revenue growth guidance to 5.0% to 5.75% range for the full year.

At the time you essentially had the first half of the year in the books and now that you're coming in at the low end of that range for the year, can you just talk in general about how the second half of the year played out as compared to your expectations back in June for the mid point or the high end of that range. Seems as though pricing power was meaningfully less, but want to understand if that would be attributed to new move-ins or renewals or specific markets?

Dave, this is Tim. Maybe I can jump in there. We did, as you recall, we did increase our guidance last year to about 5.3, 5.4 at the mid point in terms of revenue. It came in a bit less than that. I think at that time I had indicated we expected the fourth quarter to be up close to 7% same-store revenue on a year-over-year basis and it came in around 6.2%. So the delta there was around 75 basis points.

I wouldn't attribute it to either new move-ins or renewals. Obviously, new move-ins had been a little weaker. I think it's just a, really a function of what happened in the economy in the summer and as we talked about, we thought, on prior calls, we thought the slowdown we saw at the year-end was not just seasonal, but we did think there was a macroeconomic aspect to it as well that we started to see some improvement here at the end of the year going into the beginning of the year, as Tom mentioned in some of his prepared comments and Leo referenced in what we're seeing in the renewals in the first three months of the year.

So then therefore sounds like your view is that that pricing power has been deferred into 2012?

It's our view that the fundamentals have improved again, not just in terms of a seasonal basis, but also some of what we're expecting just from a pure macroeconomic demand and supply standpoint.

And last question, specific to your transaction activity plans. Can you talk about the expected spread between acquisition and disposition cap rates, especially in light of the fact that you do have the heightened focus on Class B?

Sure, Dave. As Tom mentioned, we're expect to be close to net neutral, maybe net positive by about $100 million. We have identified most of the assets that we intend to sell next year. Some of them are some of the higher cap rate assets, to be honest. They're strategic sales. They are sales -- they're assets that either we're looking to trim a position in a market or we think their growth potential isn't as great as the balance of the portfolio.

So, even though we may be buying more B assets, they are likely to be -- it's like going to be weighted a little bit more on the West Coast and dispositions are likely to be weighted a little bit more on the East Coast. So we're actually anticipating a bit of dilution through acquisitions and dispositions on the order of 25 to 40 basis points.

Thank you.

Eric Wolfe at Citigroup.

Obviously, with it being pretty early in the year you're giving your guidance now without having the benefit of knowing what your peak leasing is going to shape up as and so, I guess I'm curious about how aggressive are your assumptions thinking about going into those summer months. Are you expecting growth to accelerate into those summer months or would you expect it to hold flat or potentially decelerate?

Eric, this is Leo. Obviously, we expect improvement in both new move-in and renewal rents. What we've seen in the past two years is from basically January through August, we've gotten some pretty substantial increases in both new move-in and renewal rents. And then toward the back half of the year, as we've gone into the slower leasing season, we've given some of that back.

To give you some perspective, over the past couple years new move-in rents, the absolute rents, have moved 10% to 12% to 13% from January through August and then in that -- from that period to the end of the year, we've given back typically about 5%.

And then Tim, I think the last time we talked at NAREIT, you mentioned that in 50% of your markets it was more expensive to rent than own. In what markets in particular are you seeing those affordability numbers become a little bit stretched and I guess how long do you think you can continue to push rents in those particular markets before people just finally make that purchase decision.

Well, Eric, I think the answer to that second question is probably somewhat unknowable, just given the inner play of confidence and where we're at in terms of the mortgage business right now in terms of the discipline that it continues to impose on the market in terms of the kind of down payments it's requiring.

In terms of the markets where we've started to see a little heightened increase in move-outs related to home purchases, its been mostly in the North East, actually. Boston, Long Island we've seen it start to creep back up towards longer term trends even though for the portfolio overall it's quite a bit below. And the markets where it appears to be most affordable are Mid-Atlantic, Midwest, which has generally always been the case, but increasingly in some of the other northeastern markets, Boston and Long Island and Fairfield.

I guess as you think about what's actually best for the apartment business for the next couple years, so what you're hoping to happen, are you rooting for the housing industry to recover or are you thinking that it's actually better if home ownership rates continue to drop?

Well, I think what we would take 5% to 6% revenue growth for as long as the eye can see, but that can't last forever based upon the dynamics under which its happened, right. It's our sense that if the housing market recovers, the for sale housing market recovers, the factors that would have to be in place for that to happen are going to be good for the entire economy, including rental housing.

It's hard to imagine it's going to happen without a decent increase in consumer confidence, without a decent increase in job growth, without just general just household growth in general. And so we think those factors are likely to be good for rental housing as well and just remember we went from the mid 90s to the mid 2000s where home ownership rates went from 64% to 69% and the industry did pretty well, particularly in the 90s where you had -- we had a sustained period of economic growth.

So, that's not a scenario we would necessarily fear, particularly for the apartment industry, particularly when you consider we think the impact is going to largely be absorbed by the single family rental business, not necessarily multi-family rental.

That's helpful, thank you.

[Derek Barr] at UBS.

I just wanted to get back to the 6% to 7% range on renewals. Was that asking or what you're achieving for February and March?

Derek, this is Leo. That's what we have sent out, the offers that we've sent out. And obviously, they move in a pretty broad range where they could be well above that or they could be below it. The ultimate number is going to depend on the level, what leases are renewed.

We've seen it range from -- I mean, last year I threw out 5 to 5.5 and that's what it actually came in at. But it could range anywhere from no decline, like we saw last year in the first quarter, to up to 100 basis points less depending on whether people took the less aggressive offers and didn't take the more aggressive offers that we put out. So, if I had to give you a range, I'd say 50 basis points is the erosion that you might see off that, but it could range anywhere from 0 to 100 basis points.

And I guess with occupancy now at the 96% mark, what are your expectations for new rents to trend in 1Q and could we see new rents cross new renewals by the end of the year -- sorry by mid year.

Derek, to give you some perspective, absolutely we will push new move-in rents aggressively. Generally what you find is new move-in rents move much more -- have much more volatility in them. By the middle of 2011, new move in rents were right on top of renewal rents and they can certainly go past, as long as the market dynamics stay favorable.

And just lastly, could you just provide a little bit more color on the timing of the acquisitions later for this year? Is that just a function of having something that you're currently underwriting, but you think may take a little longer to get or are you just not seeing anything overly attractive today, but with the expectation that maybe a deal may come to market later in the year?

Derek, Tim Naughton here. Yes, transactions generally are back-loaded in the second half of the year anyway, as companies oftentimes start to put kind of their plans together in the first quarter and you start to pick up a closing in the second quarter. It's not back-loaded because we have deals under contract that we think are going to take several months to get closed. It's really that's sort of the placeholder and the budget is just more in the back half of the year based upon what we're seeing right now in terms of activity.

We're starting to see -- we're just starting to see the pick up in listing activity. We do think transaction volume will be up significantly again this year and '11 was up about 35% over '10, still below long term trends, but just based upon chatter in the brokerage community, most brokers are expecting to see 30% to 35% growth again this year just based upon their discussions with their clients, but with a lot of it coming in the, call it the last seven, eight months of the year.

Okay, great, that helps. Thanks a lot guys.

Karin Ford of KeyBanc Capital Markets.

Just a question for Leo. The fact that the renewal notices are going out at a higher level than they were this time last year, as you're thinking about this sort of January to August time frame, does that give you some level of confidence that rent growth towards sort of the peak leasing season could reach or exceed where you guys were at that time last year or does the comparison issue start to come into play at that point?

I think both factors are at play, Karin. Clearly, we're going to bump up against some more difficult comparables, but certainly the results that we're seeing early in the year are very encouraging and I can assure you that we will continue to push as aggressively as possible in order to maximize that revenue stream.

And second question is can you remind us what percentage of your residents are employed directly in financial services and have you seen any sign either in New York or San Francisco or any markets seeing any indication that residents are seeing some weakness in that and layoffs in the banking industry and that's affecting their ability to pay rent?

Karen, this is Leo. Across the entire portfolio, it runs about 9% to 10%. More specifically, in the New York area it runs about 30%. It can vary anywhere from 10% to almost 50% at various communities. We have not seen any major change. Certainly we're watching for it because of all the press, but we haven't seen any change. One of the things that has been encouraging is in the New York metropolitan area certainly the technology sector seems to be taking on or moving into that area in a way that can certainly benefit us.

And then last question just on the expense side. Is the relatively mild winter and snowless winter, particularly in the Northeast, having a positive benefit on your operating expenses so far in the first quarter?

Well, we haven't gotten any results for January yet, but I can tell you that I am rooting for 65 degrees straight throughout the year and certainly the early indications are that this winter should help our operating expenses.

Thank you very much.

Michael Salinsky of RBC Capital Markets.

You gave the renewal statistics for January, February, and March. Just curious as to the guidance that you guys provided, what is the scenario you guys are sending for the full year renewal growth, as well as new lease rate growth in there. And then also, if you look at where the portfolio today compares, be it on a loss to lease basis, how far off or in place rents versus market?

Mike, this is Leo. We don't have that disaggregated for the entire year and frankly, since we went on to LRO because market rents move in such a volatile way, loss lease isn't something that we focus on. We focus more on what is the direction of absolute rents and what is the year-over-year percent change that we're seeing in both new move-ins and renewals as we've been discussing.

Can you give us that statistic then for new leases then through year-to-date so far?

Right now, through January, new leases are running about 2% and so that you know, both new move-in and renewal rents on an absolute basis turned positive in December and started moving forward in a positive trend, which is ahead of what occurred last year. That took until February for that really to start to occur last year.

Second, Tom, you walked a little bit through the expense guidance for 2012. Can you give us a sense for what you're budgeting for real estate taxes and a couple of the areas there?

Leo is going to take the real estate tax expense question.

Sure. What's driving our expense forecast is really insurance and taxes and to give you a perspective, real estate taxes is kind of in the 5.5% and 6% range and insurance is closer to 13%. In both of those cases, we had a lot of -- there's a denominator effect there in that we were very successful, obviously, with tax appeals, which is why 2011 came in favorable and then we had some success with insurance claims. All other categories, payroll, all those other categories really are going to be somewhere between zero and 1%. So, it's really being driven by the two categories of insurance and taxes.

Third and final question. Can you talk a little bit about your growth expectations for the Northeast and Mid-Atlantic versus the West Coast in 2012?

Sure. This is Leo again. I would kind of bracket our growth expectations in three different areas. First, I'd put Northern California in a 7% to 8% range. And then on the other end of the spectrum, while still healthy and positive, I'd put D.C. around 4% and then the remainder of our regions are around our average, call it 5.5% to 6%.

That's helpful. Thanks guys.

Andrew McCulloch from Green Street Advisors.

A question on the branding initiative. Do you expect the new brands to have any positive impact on rent at all or are the benefits you're seeing mostly going to be internal given that it helps define your operating and external growth strategies.

Andy, I think it's our hope over time that we'll be able to drive rents by providing a very differentiated product to the marketplace, but as much as anything there's an internal benefit, as you alluded to in your question, in terms of not just what you put in the product, but what you don't. And we are finding increasingly with the Avalon brand that it's still, as I mentioned, the core brand and we try to have it appeal to a broader base of customers that in a sense we're asking it to do too much and you're starting to get a little bit feature creep that gets built in over time where that marginal customer may not be valuing the set of features and amenities you may be providing and therefore you may be over specing it.

So, we think there's going to be a benefit in terms of hopefully skewing it over indexing towards a target segment that will value appropriately what you're bringing to the market, but then also that you're not over specing what you are bringing to the market.

And then on the acquisition environment, I'm sure you're following the Archstone saga very closely. After the current bidding process plays itself out, do you expect to get a shot at some of those assets at some point in the near future as whoever the eventual owner is begins to right size that portfolio?

I have no idea. I have no idea.

All right.

It ultimately depends on who the eventual owner is I suppose.

One last question. Can you give us an update on the market for land and whether your recent purchases there are entitled or unentitled?

Sure. I'm not sure about the ones we just closed on. I think that those are pretty much all entitled. I think those are all entitled, but in general, I think we've talked about the last few quarters, the land markets have gotten a bit more competitive, particularly on the entitled deals, as institutional capital was sort of anxious to put capital to work in new developments just given the fundamentals that were playing out in 2011 and '12.

What we're starting to see is those entitled deals have largely cleared the market, in our markets anyway, and our focus I think has really been paying off and focusing increasingly in 2011 on deals that required some pursuit cost investment. In fact, we increased our development right pipeline by about $1.2 billion worth of new development in 2011 over 18 deals and I would say of those 18 deals, 11 of them required fairly significant entitlement work, seven of which were largely entitled.

Great, thank you.

Jeffrey Donnelly of Wells Fargo.

Actually if I could build on that last question. I'm curious are land holders willing to let you guys cost effectively option land today or are they getting more stringent on trying to get you to buy it out right.

We aren't seeing really any pressure to buy it on an unentitled basis yet. The one region it's always been a bit of a struggle with that, tug of war with that, is in Southern California where land historically has traded more frequently on an unentitled basis, but virtually in all of our other markets we're getting the requisite time we need to get through the entitlement period during the option period.

And is it a fairly deep, I guess, call it market of opportunity, but also -- you touched on it, but how deep is the competition you face at the same time?

Well, in terms of the offerings that have been brought to the market, that has expanded, I would say, in the last six to nine months, because eventually we put over $1 billion of new development rights on the Board here over the last year. I'll tell you, we were focused on that 2010, as well, and there just weren't that many opportunities and there were even fewer people out there looking for them.

So, the markets have started to open up a bit and there's definitely more competition, but our sense is it's not -- we're talking about two or three guys we're often competing with on these deals that require some pursuit cost capital and the land owners are still putting a big premium on sponsorship and track record and particularly for somebody they are going to give two or three years to go out and get the entitlements.

I know we still have rents growing, but do you have a sense or do you have a feeling for what the signals are that you'd look for, for when you might pull back from acquiring land or do you think that's a ways off?

Yes, it's something we have talked a fair bit about. One is just price, right? How much is land recovered. And on the entitled deals we had seen a pretty full recovery, again something where you could get in the ground in three to six months on deals that are two to three years to entitle, we aren't seeing it.

We're really not seeing values anywhere close to peak for the most part. So, that's still a good sign. And then the normal metrics we look at in terms of the economics and total cost to actually develop the deal, how we feel about that basis relative to where assets are trading, as well as what the yields look like relative to acquisition cap rates. The signals there are still generally positive, I'd say, as it relates to land.

Just a last question or so is, now that you're developing and redeveloping around the AVA and the Eaves brands, can you talk a little bit about the tangible differences that exist between those products and maybe even differences in the return profiles that you guys underwrite for them?

Sure. I'm not sure that there's a big difference in return profile, because we don't necessarily see one being riskier than the other. But other than Eaves is largely through -- likely to be largely through acquisition, which is going to be just subject to the acquisition cap rates in the market. But in terms of the product, the Avalon, I think people are generally familiar with upscale high end manage, et cetera.

But AVA really gear towards that younger age cohort, willing to accept more sort of transitioning neighborhoods. They want urban, they want active, they want transit, but they will take something that's a little edgier. In terms of service, they are looking for staff that's knowledgeable, that's "sort of of the neighborhood", but looking for sort of casual and the fact that dress that associates that work on the property, at least at the office level, it's more of kind of an urban casual dress code as opposed to the pressed and polished you might expect to see at an Avalon community.

Conversely, at Eaves the service model there is more sort of friendly, welcoming, respectful, if you will. Dress there is probably a bit more like business casual as opposed to urban casual, the pressed and polished, likely to be more in suburban bedroom communities. As I mentioned, sort of older assets where residents are looking for sort of mature locations, safe neighborhoods, but where they put a big emphasis on value or generally looking for something that works that's practical, a fitness room is fine. It doesn't need to be a spa-like exercise facility, but they do expect it to work. They do expect it to be neat and they do expect it to be treated with respect.

Is it fair to say that the launch of the AVA brand kind of increased your development opportunity set then, because obviously those markets probably couldn't have sustained a follow on Avalon product in the past?

Yes, I think that's absolutely a fair statement. We already have several in the pipeline that I'm not sure we would have positioned as an Avalon community and I guess the other part of it, we think it can strengthen Avalon. We have at least four communities we've identified that will be some combination of Avalon and AVA, where there are two very different consumer experiences, different lobbies, different offices, in some cases different amenities, but very different unit plans, et cetera, and it allows us to go after maybe say a larger deal than we otherwise might have been comfortable with just under one brand. An example of that is the West Chelsea deal, which is roughly evenly split between the Avalon and the AVA brands both in the 350 unit neighborhood if you will, as opposed to just doing one large 700 unit Avalon or AVA deal.

Great. Thank you.

Sure.

[Jay Teng with Real Estate Buyers].

I'd like to find out how much capital the Company used for acquisitions during 2011.

I'm not sure we have that right in front of us here, but most of it was through our second Investment Management Fund and I want to say it was on the order of what we did this year or what we're anticipating doing this coming year, around $300 million in pure acquisitions and then we also had an asset exchange with another REIT that represented about another $250 million in volume. So, it ends up being in the, I want to say in the $500 million to $550 million range, which is about what we're expecting in 2012, just expecting to capitalize it differently given the end of the investment period for our second fund having occurred in 2011.

And also I'd like to find out as far as a current value-added fund, is that in the works or something to be expected?

This is Tom Sargeant. We are currently not in the market for a third fund. We have certain portfolio objectives that we want to execute on and it's a lot easier to execute those portfolio reshaping efforts without a partner and a joint venture partner. Having said that, we do like the fund business. We've had a good experience with it and we've made money for our investors and it's something we wouldn't rule out, but we have no current plans to market a third fund.

And finally my last question for you concerns the Eaves brand and also the drilling into the suburban and veteran communities. I'm wondering which regions the Company would be most interested in, because of what you stated about the growth, it seems like Northern California would comprise of the prime markets, but could you tell me where you're looking for that?

Yes, I think I got most of that. You're breaking up there right at the end, but in terms of markets where we're most interested in, at least initially as it relates to converting some of our existing assets, there will be more actually in California, both Northern and Southern California. As I mentioned they are likely, they are more likely to be sort of older vintage assets, if you will, which our portfolio is just older in both Northern and Southern California.

So, initially in terms of what we're redeveloping and reflagging, be weighted towards the West Coast, in particular the California markets. Over time we expect to have a mix, a broad mix across really all of our regions. Maybe a little less so as it relates to the Northeast just given the depth of our development pipeline there and our heritage and our ability to -- and track record to create a lot of value through new development, particularly in that region. So, that region may be a little bit more weighted towards Avalon and AVA over time.

If I mean in terms, thank you for that, but I mean in terms of new acquisitions, the Class B product, which regions would the Company be most interested in?

Well, I think again, probably all of our regions, but maybe weighted more towards the West. I think as we grow the portfolio on the West Coast it's going to be somewhat balanced between development and acquisitions, which sets up nicely for some additional Eaves product there. On the East Coast it will be probably a little bit more weighted towards new development, which bodes for a stronger growth in Avalon and AVA, but we still intend to grow through acquisitions as well as converting some of our existing portfolio on the East Coast to Eaves as well.

Great. Thank you.

(Operator Instructions) Paula Poskon of Robert W. Baird.

Are you seeing any increase in move-outs in response to rental rate increases and are you still able to backfill with higher income or better credit quality tenants? And also, as you think about rent to income ratios, do you think the ceilings of those could be different between the two tenant bases that you're targeting and the two branding initiatives?

Paula, this is Leo. With respect to reasons for move-out related to rent increase or financial, for the fourth quarter it ran about 16% and that was down about 3% from the third quarter where it was 19%. But to put it in perspective, that is above the long term average, which is more in the 8% to 10% range.

With respect to income, the average income for new move-ins in the fourth quarter was about $112,000. That's up about 6% from the same period of the previous year, so we feel pretty good about that. And with respect to rent to income, our rent to income ratio remains around 19.5.

I will tell you that in the '08 period it peaked more, 21%, 22%, so there's still room there. Plus we do expect -- the information that we're getting would suggests that incomes will continue to rise in 2012 giving us room in both areas, both in the percentage of income designated to rent, as well as the growth in incomes, which should be positive for us. With respect to a split between A's and B's, I don't see any big issue there.

Paula, maybe just to add to that. I guess we would expect that maybe Eaves would maybe be a little bit higher than the average in terms of the percentage of income that they're spending on rent and that they are generally going to be lower, more moderate income and they are going to be spending a greater percentage of their income on necessities, whether it's housing or healthcare or school.

Whereas in the Avalon communities where you have just more discretionary renters, they have more discretionary income and they are going to be spending their income on a broader mix of types of consumption. So, there's not a big difference up and down the income scale, as Leo alluded to, but it's 100, 200 basis points here and there from higher to more moderate income typically is what we see.

And on redevelopment investment, what average rental rate pop are you expecting?

It really varies. What's typical is around $150, but what we focus on really is the return on enhancements and return on total capital. A typical deal of say may have $30,000 in total improvements, of that 50% or 60% of that may be in enhancements and 40% to 50% of that may be on end of useful life type components and we'll typically see a return on enhancements 12%, 13%, 14% and a return on total capital that may be 7% or 8%.

And on the development side, are you seeing any delays anywhere in your ability to just get through the municipality process because the staffs were overloaded like we've been reading about here in Fairfax County?

Yes, that's a good question. It's one we're a bit concerned about. We've had one or two deals where permitting has been delayed. I'm not sure that its been a result of staffing as much as just unique aspects of those deals or maybe a little bit of turnover in the building department office, but it hasn't become acute by any means. But it's something we're keeping an eye out because it is a concern looking forward.

And then just finally, what drove the cost savings on the development projects in 2011 that you mentioned in your press release? Was that mostly labor or something else relative to the initial budgets, I mean.

I think, well one, typically we've been able to get buyout savings and we generally let that flush through contingency and we've been able to save more contingency and get more buyout savings than we have in the past.

And what we were seeing in 2010 and really 2010 when we were starting those deals, we're getting a lot of bid coverage around a certain number and that's where we set our budget to and then when you actually went out to actually buy it, you could extract even a bigger price concession than we typically have been able to see in the past and kind of that last pricing discussion that you have with the subcontractor.

So, it's really been a combination of that, being able -- just having more leverage with the subs in terms of how we've been able to managed change orders and contingency and just the fine work of our construction group.

Thanks very much. I appreciate that. That's all I have.

Jason Ren of Morningstar Research.

I was wondering if you could give us a little bit more color on how rental income has grown across your various geographies. I understand it is up 6%, but is there a difference between how many difference from one geography to another. And I was also wondering if you could give us a little bit more granularity as to where the rent to income ratios are stacking up in your various markets as opposed to the consolidated figure.

Just to give you, Jason, this is Leo. It doesn't vary too dramatically from market to market is the truth. I mean, the high might be in the low 20.2, 20.3. With respect to incomes, the incomes vary from Southern California in the low $90,000s to the Northeast, the New York Metro area where it might be as much as $130K. So, that's kind of how it ranges. But as my previous comment indicated, it kind of ties back to the rent levels, so that the percentages remain fairly constant and fairly consistent from region to region.

Obviously, to go from Southern California being in the low $90,000 range to the metro New York area, which is about $130,000, there is a fairly large range there. To give you some indication of where there's been more significant changes, and this is looking at fourth quarter of 2011 to fourth quarter of 2010, in the New England area, which is Boston and Connecticut, incomes were up 10%. Similar in Southern California. Whereas, in the Pacific Northwest for that one quarter it was just slightly down, a couple percentage points down on a year-over-year basis. So hopefully that gives you some perspective from region to region and also answers your question about rent to income ratios.

Yes it does, thank you very much.

Rich Anderson of BMO Capital Markets.

I tried to get off, so my questions were answered. Thanks.

[Andrew Schafer] of Sandler O'Neill.

Going back to real estate taxes, I was trying to get a better feel of what percent of this is going to be attributable to the 421A burn-off in New York.

I don't think any of it is attributable to the 421a. To give you perspective, because I have looked at it, the place where we're seeing the most pressure on property taxes is in the Washington D.C. metropolitan area and that's occurring both in rate and assessments. Obviously, California is constrained, so that works to our benefit and the rest of the markets are more in the 5% range, kind of in the averages.

Andrew, just to add a little color to that. Most of our assets we built in New York and are still within their abatement period. So, we're not in that, during the phase out, if you will, of the burn-off of that abatement yet.

And then I was wondering in what markets specifically you got the successful appeals in terms of the refunds?

Give me just a second. I'll tell you where we've had success. In the fourth quarter, they came in Massachusetts and Southern and Northern California and in year-to-date you'd add New Jersey and Maryland were the places where we had success in the appeals.

And maybe just to add to that, just briefly. Where we've seen success is on some of the lease-ups that we had and during the downturn, 2009, 2010, where assessors hit you up with something based maybe on cost, but values were, actually, may have been less than cost in certain cases and it just takes a while, a year or two oftentimes, for those appeals to resolve themselves and that's where we benefited a lot in 2011.

And finally I just want to make sure that for your same-store 2012 guidance kind of basing off of 2011, yet you're moving the full year effect of Rock Springs, so the guided number is kind of a pure comp?

This is Tom, Andrew. We only had three quarters of the negative drag from Rock Spring in 2011, so you don't see the full benefit on Rock Spring in 2012. Roughly if you were to just think about it, we had three quarters of excess expense over lease payments, which was about -- it's $10 million a year full year, it is $7.5 million for those three quarters, so that goes away. What also goes away, though, is the NOI from that asset, which was cash flowing nicely.

On a cash flow basis, we had a pretty good yield. So, we do lose that NOI and until we reinvest that capital, that somewhat is a drag. So, we're going to pick up $7.5 million or $0.075 per share between years, but once you factor out the NOI loss, it's more like a $0.04 pick up between years. And so I think it's a lease that we're happy to go away, but we're not really picking up as much as you might think given the magnitude of the excess expense over lease payments.

So, when you're projecting out for your guidance just in '12, you're keeping that in your base 2011 assumption full year numbers?

I'm sorry I don't understand that last question?

Well, looking at forward, so the full -- three quarter effect in your 2011 NOI, so you're not removing that and then -- ?

Oh, yes, correct. We're not removing that. It's just you don't get a full year impact in '12 because you only had three quarters of 2011 dragging you.

Oh, okay, thank you very much. That's it for me.

Thank you, Andrew.

I would now like to turn the call back over to Mr. Naughton.

Well, thank you, Amanda. We appreciate you being on our call today. We look forward to the Citigroup conference, so we'll see many of you and we'll have a chance to update you on our business at that time in March. Have a great day. Thank you.

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