艾芙隆海灣社區公司 (AVB) 2013 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the AvalonBay Communities third quarter 2013 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.

(Operator Instructions)

I'd now like to introduce your host for today's conference call, Mr. Jason Reilly, Director of Investor Relations. Mr. Reilly, you may begin your conference.

Thank you, Kyle, and welcome to AvalonBay Communities third quarter 2013 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 this 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 also 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. And with that I'll turn the call over to Tim Naughton, Chairman and CEO of AvalonBay Communities for his remarks. Tim?

Thanks, Jason, and good afternoon everyone and welcome to our third quarter call. Joining me today are Sean Breslin, EVP of Investments and Asset Management and Tom Sargeant, our Chief Financial Officer. Sean and I have some prepared remarks then the three of us will be available for questions.

I'll begin by summarizing our results for the quarter and the underlying fundamentals and then share some comments on our development activity and financial position. Sean will follow and provide an update on our operating performance including current trends in the portfolio and offer a brief update on our transaction activity.

Starting with our results for the quarter, last night we reported FFO per share of $1.18. Adjusting for non-routine items, FFO increased 15.6% over the prior year period marking the ninth consecutive quarter of adjusted FFO per share growth of greater than 15%. These results were driven by healthy performance from our stabilized and development portfolios.

Last night we also adjusted our full year FFO outlook to a range of $5.09 to $5.15 per share. This is well ahead of our original outlook in January and $0.03 less than our interim outlook in July. This reduction is comprised of a number of items including about $0.02 for the same store portfolio, $0.02 from the timing of capital market and transactional activity and $0.01 from other community operations including the Archstone portfolio, offset by $0.02 of projected savings in Archstone related acquisitions costs.

For the full year we're now projecting operating FFO per share growth of almost 14% and over 16% when the dilutive impact of the late 2012 equity raise related to the Archstone acquisition is taken into account. Over the last 14 quarters since the trough in Q1 of 2010, quarterly operating FFO per share has risen by 68% driven in part by strong internal growth with cumulative same-store revenue up almost 19% during that time. As we stated over the last couple years, we believe this cycle is shaping up to be more like the '90s rather than the short cycle of the 2000's.

During the '90s cycle we experienced cumulative effective rent growth of 55% and cumulative FFO per share growth well over 200% for the full cycle or roughly three times what we've experienced so far this cycle. As a result, given compelling apartment and housing fundamentals, we believe that we have plenty of runway for growth in the current cycle, particularly as we deliver new product from our growing development pipeline over the next few years at a very attractive cost basis.

Let's take a minute to drill down on fundamentals, which we believe will continue to support above trend growth and occupancy. Despite some moderation in recent performance over the last couple months, we believe the broader housing market is now under-supplied and not that well positioned to meet growing demand coming from an improving private sector economy combined with pent up demand from previously unformed or consolidated households.

According to Witten Advisors, Q2 marked the first quarter in which a national housing excess became a housing shortage. This drawdown of excess inventory has occurred despite tepid economic and household growth over the last few years. Witten estimates that we still have pent up demand of over 1.2 million households with 750,000 of those occurring in households 35 years old or younger, our prime renter demographic. And broader demographic patterns will continue to provide a strong tailwind for the sector. We have about 4.5 million individuals turning 20 this year and just under 4 million turning 35 representing a net gain of about 0.5 million in this age cohort just this year before considering any favorable impact from pent up demands.

The story is equally compelling on the supply side. Multi-family permits and starts have leveled off and begun to decline modestly over the last 12 months to 18 months. Since then, new apartment deliveries should peak nationally in Q1 or Q2 of next year.

In addition, recently starts have begun to shift from coastal to sunbelt markets and Witten is projecting that seven of the eight top performing markets in the 2013 to 2016 time frame will be in AVB's footprint. This leveling off of production is being driven by a combination of rising land and construction prices and capital discipline. In fact, MNHD reports that Q2 marked the first quarter that equity flows into apartments decreased since the recession.

It appears that capital markets continue to impose discipline on the multi-family rental housing market much like they've done over the course of the modern REIT era, the last 20 years. The supply story is even more pronounced on the single family side where single family starts are running around 650,000 units per year or roughly one half normalized levels. While larger public builders have access to capital, credit to smaller builders remains constrained.

Limited investment and entitlements and infrastructure over the last several years has resulted in reduced lot inventory particularly in attractive infill locations where many first time home buyers want to live. With total housing production running at under one million units per year currently, it is likely that the broader housing market will continue to perform above long term trend as long as the economy continues to grow at even just a modest pace of 2% to 2.5%. These housing and apartment market fundamentals give us confidence in the potential of this apartment cycle and provide a strong foundation for us to continue to grow our business.

Speaking of growth, let's turn to our primary growth platform, new development, where we remain very active. During the quarter we started four new communities including what will be the largest project in the company's history, the dual branded Avalon Willoughby Square AVA DoBro community in downtown Brooklyn.

We also completed two new communities this quarter for a total capital cost of about $95 million. These communities were completed ahead of schedule and are projected to produce a weighted average initial stabilized yield of about 7%. Year to date we've completed over $415 million in new development. Collectively, we project these completions will produce an initial return on costs of about 7.5%, well ahead of prevailing cap rates. Based on our internal projections, these completions would carry a market value of over $600 million representing spot value creation over costs of around 50%.

We now have $2.7 billion under construction, which is higher than the prior peak on an absolute basis for the company. However, at just 12% of enterprise value, well below our prior peak of over 20% in late 2007. Looking ahead to 2014, we're projecting about $1.2 billion in completions. This activity should prove to be an important source of NAV creation and earnings growth over the next few years.

We've also been active replenishing the development rights pipeline this year adding over 20 new development rights representing about 6,500 apartment homes and just under $2 billion in total projected capital costs. About two-thirds of these opportunities are located in suburban locations and are roughly split between East and West Coast.

Today the development right pipeline stands at about $3.7 billion with about three-quarters located in suburban sub-markets compared to about half those communities under construction. As we stated over the last year and a half, we've seen better value in suburban markets of late, particularly given the rigorous entitlement process that often exists in our suburban markets. The projected economics of development right pipeline are similar to those under construction with initial projected yields in the mid to high 6's.

While we've added significantly to our development right pipeline we've been able to do it in a risk measured way through the use of option contracts. We're currently carrying just $280 million of land for development on the balance sheet representing under 8% of the pipeline's total projected capital costs. In addition, our own land inventory is largely entitled for its intended use as we pursue final building permits.

Turning now to the right-hand side of the balance sheet, we continue to enjoy excellent financial flexibility which allows us to finance our investment activity with attractively priced capital. At quarter end, debt to total market cap stood at about 26%, the lowest in the sector. Net debt to projected annualized fourth quarter EBITDA is 5.7 times and interest coverage for the third quarter was 4.3 times. We closed the quarter with over $210 million of cash on the balance sheet and nothing outstanding under our $1.3 billion line of credit.

Of our $2.7 billion of active construction, $1.5 billion has been incurred and funded to date. Including cash in the balance sheet and dispositions under contract and in marketing, only about $400 million of additional permanent capital is required to complete these communities. Our balance sheet has ample capacity to support our level development and the flexibility to finance it in a way that optimizes financial performance.

With that I'll turn the call over to Sean for his remarks. Sean?

Thanks, Tim. As Tim mentioned I will comment on operating performance during the quarter, current portfolio trends and our disposition activity. Starting with operating performance same store year-over-year NOI increased 4.2%. Revenues increased just under 4% driven by a 4.4% increase in rate and a 50 basis point decline in occupancy.

Sequentially total rental revenue increased 1.4% which was comprised of a 2.2% increase in rates, up 30 basis points from last year and 80 basis points from last quarter and an 80 basis point decline in occupancy from 96.6% to 95.8%. Through three quarters of 2013 we've increased rental revenue 4.7% and expenses are up just 2.9% generating an NOI increase of 5.5%.

As I indicated during last quarter's call, we took advantage of the strong occupancy platform we built during the second quarter and pushed hard on renewals during the third quarter which is when the greatest percentage of our leases expire. We achieved average renewal increases of 6.1% during the quarter, 100 basis points above the prior year period and total rent change of 4.6%, about 70 basis points above last year. We did, however, experience greater turnover during the quarter which increased 5% on a year-over-year basis to 70%.

The increased turnover was partly due to more aggressive rent increases as move-outs due to rent increase were up 200 basis points sequentially to 17% but also resulted from a roughly 15% increase in unplanned move-outs due to lease breaks which is generally either people buying a home, which increased about 100 basis points year over year to 16% or relocating for a new job.

While we gave up 50 basis points of occupancy relative to the same quarter last year, we expect that occupancy to fall given our aggressive renewal increases. On a year-to-date basis, average occupancy is still 20 basis points above last year and we believe the rent roll is better positioned as we move forward to 2014.

Switching to the Archstone portfolio, while we have had some noise in our operating expense trends over the past couple quarters, the full year NOI from the portfolio is basically in line with our original underwriting even though it is performing slightly below our midyear re-forecast. The stabilized Archstone assets produced sequential rental revenue growth of about 1% and occupancy for the quarter was 95.1%.

Regionally, the Pacific Northwest and northern California continue to outperform the remainder of the portfolio. The Pacific Northwest has produced rental revenue gains of 6.4% on a year-over-year basis and nearly 8% year to date. Although job growth is beginning to slow from the torrid pace we experienced the past couple of years, the Seattle area continues to produce well above national average job growth and steady demand for apartments.

Google is planning to hire 1,000 associates at its local campus over the next few years and Amazon is investing in enough office space to double the size of its workforce in the area. These high wage Internet and software publishing employment gains should continue to benefit the local economy and produce healthy apartment demand as new supply continues to come online.

In northern California tech and construction related employment growth remains robust. Year-to-date rental revenue is up nearly 8.5% in the region. The tech sector continues to grow and the region tops Jones Lang LaSalle's outlook of the top US tech centered office markets for the next 12 months. The East Bay is leading the northern California region in terms of revenue performance delivering 9% revenue growth and almost 10% rate growth during the third quarter.

San Francisco continues to produce north of 8% revenue growth on a year-over-year basis and is supported by steady job growth and the fact that supply is relatively limited until the beginning of 2014. San Jose produced north of 1% job growth over the past six months and greater than 6% year-over-year revenue growth during the third quarter. The growth is starting to moderate in certain pockets of the metro area as supply continues to come online.

Moving down the coast to southern California, year-to-date rental revenue is up 4.2%. The region's employment gains have broadened to the financial services and tech industries. However, the content for our mobile devices is produced in the southern California region and many of the more active tech firms in northern California are investing in the Silicon Beach tech district of Los Angeles. Orange County has produced the best job growth in the region over the past six months and is leading the region with 4.6% revenue growth on a year-to-date basis as compared to 4.3% in San Diego and 3.9% in Los Angeles.

Shifting to the East Coast, New England and the metro New York, New Jersey area produced year-to-date rental revenue increases of 3.2% and 4.7% respectively. In Boston construction and health and education services employment gains are running well above trend. Our primarily suburban portfolio in Boston is benefiting from steady job growth and limited supply. Rent changed to average almost 7% for the quarter reflecting 5.25% for move-ins and almost 8% for renewals. While we gave up 60 basis points of occupancy in Boston as compared to the second quarter we were quite pleased with the rent growth we realized during the quarter.

In the New York, New Jersey metro area hiring and professional business services continues to support healthy demand while Wall Street layoffs have slowed. Our New York City portfolios produced north of 6% revenue growth on our year-to-date basis, about 200 basis points above what we have achieved in Westchester County and on Long Island. We expect revenue growth in the city to moderate a bit as more supply comes online over the next few quarters. To date we have experienced some softening in Long Island City given the recent deliveries, but other pockets of supply have had minimal impact on our same-store portfolio.

And lastly, revenue growth from our DC metro portfolio is up about 1% year-to-date but turned flat on a year-over-year basis. Sequestration and a volume of new supply were already creating a headwind in the market so the threat of a government shutdown and debt ceiling debate didn't help our third quarter results. Rent change in the region was 1% for the quarter and reflected renewal rate growth of 3.8% and new move-ins down 2%. We expect the DC market to continue to be challenged for the next few quarters given the uncertainty in the mind of both direct and indirect government workers and the continued impact of new supply.

Turning to expenses, same-store expenses are up 2.9% year to date. About three quarters of this growth is coming from property taxes and insurance related expenses. We're feeling the most pressure on taxes in the metro New York, New Jersey and New England regions.

Looking forward, October's committed renewals are 5.25%, 25 basis points above last year. Renewal offers for November and December in the mid to high 5's, about 75 basis points ahead of last year and current occupancy for the same-store portfolio is in the high 95's.

Turning last to our transaction activity, on paper the third quarter was quiet. However, several transactions were in process that required approval from the local jurisdiction which can be a lengthy process. We did complete the disposition of Archstone Vanoni Ranch located in Ventura, California, for $82 million last week.

Guesstimated cap rate on this disposition was about 5%. In addition, we have another $350 million under contract with at-risk deposits scheduled to close before Thanksgiving. We also have two deals in the marketing process which represents about $200 million that will likely close in late December or early next year. Dispositions continue to represent an attractive source of capital to fuel development and redevelopment.

Cnd with that I'll turn the call back to Tim for some closing remarks. Tim?

Thanks, Sean. In summary, 2013 is shaping up to be another great year for the company. Apartment markets continue to support strong internal growth and the portfolio is well positioned headed into the winter leasing season. In addition, we believe fundamentals are likely to remain healthy over the next few years which bodes well for 2014 and beyond as we deliver an increasing number of development communities into the market.

This level of development is supported by strong liquidity and the balance sheet position to fund this activity in a cost effective manner helping to facilitate earnings and NAV growth over the next few years from this important growth platform. And with that, operator, we're now prepared to open the call for questions.

Thank you, Mr. Naughton.

(Operator Instructions)

Derek Bower from ISI Group. Your line is open.

Thanks, good afternoon. Did I miss it or did you provide what the new same-store guidance is for '14 with the $0.02 reduction at the core?

Derek, I think you're going to 2013. We didn't mention it, but the $0.02 reduction in same store outlook would essentially bring you towards the low end of the range of 5% to 5 3/4% for the same store NOI for the full year 2013.

Where do you plan to end occupancy for the year? Should we just assume it remains flat?

Derek, this is Sean Breslin. In terms of occupancy, in terms of where we're running right now, as I mentioned we're in the high 95%s. So on a current basis we're basically trending about where we trended during the third quarter. In terms of November and December we haven't provided specific guidance on that, but to give you some sense of where we're trending right now.

Okay, great and can you just talk a little bit more about Seattle and how it's doing in the CBD versus the east side and which region may be contributing to more of the occupancy loss there? And, is there any impact from short term leases from contract workers that we should think about in that market during the second half of the year?

Sure, Derek, be happy to. In terms of the different sub markets within Seattle, our portfolio is basically Bellevue, Redmond, a little bit in the north end and then really very little in same-store downtown. So if you look at the distribution, there's basically one asset for us downtown, which has performed well on a year-over-year basis but sequentially was the softest of the sub markets within Seattle.

So it's a sample of one, so keep that in mind. But that's what we're seeing there. And then, we also saw more softening in Redmond during the third quarter, if you look at it sequentially. We are hearing some feedback, really just anecdotal for the most part, in terms of some of the contract workers from Microsoft, some of those projects either being paused or delayed for certain reasons that we can't put a specific finger on.

Obviously, you've got a CEO transition going on in Microsoft, and I'm sure they're reevaluating certain strategic priorities they're considering. And as I understand it based on what we know there's been some contract workers that have left the area. So, it did have an impact on Redmond.

You know, Bellevue has been pretty healthy, and then in the north end it's actually been relatively healthy for us. There's some noise around Boeing in terms of layoffs and things like that, but if you look at it on a sequential basis, the north end was fine in the third quarter, and held up better than Redmond did during the third quarter. Hopefully that helps.

Yes. Thanks for the color. And then just lastly, do you think 150 new jobs per month is enough to see that acceleration in 2014, if that's what we average over the next 12 months or so?

Yes. 150,000 jobs a month, Derek, this is Tim. I think that would be consistent with probably the, you know, the lower end of that range of 2%, 2 1/2% GDP growth. It's our sense somewhere in the 150,000 to 200,000 jobs per month would support the kind of supply that we're seeing both in the multi-family side of the market, as well as the single family side. If not still result in a growing shortage. Operator, I think we're probably ready for the next question.

Your next question comes from the line of David Toddy from Cantor Fitzgerald. Your line is open.

Hi, guys, good afternoon. I just had one or two questions on development in the quarter. I know you touched on this a little bit in the prepared remarks, but is there anything to read in the rights contracting on a sequential basis? Is there a signal that you guys aren't feeling the pressure to refill the pipeline as much at this point in the cycle, or is it just really a sequential blip?

David, this is Tim. Probably a little bit of both. Obviously, you had $600 million move from the development pipeline into development community basket driven largely by the Willoughby deal in Brooklyn. And as I mentioned in my prepared remarks we go out on $2 billion in new development rights this year, $700 million or so of those were from Archstone and about $1 billion, $2 billion, $3 billion were AVB legacy deals.

To your second point, based upon our view of the markets, I'd be surprised if we continued that kind of run rate in replenishing the pipeline next year, just based upon the opportunity set and where we would likely be in the cycle by the time you actually took those deals through the entitlement process and actually got them built and stabilized. So, I guess I would say yes, we're not feeling quite the same sense of urgency to fill the pipeline as we have certainly in the 2010, 2011 to mid-2013 period.

Okay. And then on the aggregate yield at about 6.4%, that's down 40 or 50 basis points from a year ago, where do you expect that to sort of trough in terms of the kind of compression in yields? Is it really just dependent on the capital environment or is it more related to your rent forecast for the aggregate pipeline?

Well, in terms of the projected yield, assuming a relatively decent economy, I think we're around there today. A lot of it's being driven by the Willoughby deal, the Brooklyn deal, which was a legacy deal. Plus New York assets tends to be on the lower end of the yield spectrum. To give you a sense, that would be a high 5%s yield.

So, it's being driven as much by the introduction of Willoughby into the pipeline as anything else. In fact, the drop from 6.6% to 6.4% this past quarter is almost entirely due to the combination of Willoughby and Hayes Valley, which is a phenomenally located community in downtown San Francisco, which are both in the high 5%s to 6% range in terms of development yields.

Okay. Great. And then my last question has to deal with expenses, and, again, I apologize if I missed it. The notable decline in Northern California related to tax reversal, I believe, did you touch on that, details on that particular expense decline? And is it possible for you guys to state what your aggregate expense growth would have been minus that?

David, this is Sean. I can touch on the specific issue that came up during the quarter, which is a property tax refund that we received as a result of an appeal on the Mission Bay asset in San Francisco just in round numbers to give you a sense. You can run the math. It was about $1.2 million number that flowed through. So that should give you some sense of what it did to overall expense growth during the quarter.

Okay. Thanks for the detail today.

Sure.

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

Hi, good afternoon. My first question just want to follow up on David Toddy's question on your development program. Just given where, with the stocks trading off as they had, and obviously it increases the cost of your capital and development yields coming down as construction cost goes up and interest rates go up, do you see yourself ramping up the disposition activity to fund more of your -- of the capital side with the disposition? It sounds like you guys are actively dialing back on future external investment, but just curious, as you look to funding that should we anticipate you guys selling more?

Alex, this is Tim and certainly Tom can jump in. I did comment on our financial flexibility, and one of the reasons we want to have flexibility is to be able to avail ourselves of whatever capital product makes the most sense at any particular time. When you're trading at -- if you're trading at an applied cap rate or at a discount to NAV, obviously it's going to make a little bit more sense on a net -- at the margin, anyway, to be a net seller of assets rather than a net buyer. But as it relates to 2014, I suspect our capital rate will be from a variety of different sources, whether that be net dispositions, debt, or equity.

Okay. And then the next question is just on turnover, maybe I missed in your opening comments, but in your July call you guys were pretty bullish and said things were pretty good. Turnover is up 500 points versus what it was a year ago in the third quarter. So just more color on what's going on with turnover.

Is that the result of, maybe it's the Archstone properties, they're higher end? Maybe that's what drove the increase in turnover or maybe this was regional? Was it Seattle? Just sort of more color on that? And also where you expect it to go? Do you expect it to stay elevated or do you think it's going to come down?

Yes, Alex, this is Sean. As it relates to turnover, a few comments. First is, it obviously did run up in the third quarter, as compared to the first two quarters. We pushed the hardest during the third quarter, in terms of rental rate increases. So we were expecting turnover to come up some, probably came up a little bit more than we thought.

The one piece that we had not anticipated is out of that 500 basis point increase in turnover, about 40% of that was what we call unplanned move-outs, or in common terms lease breaks. And so, you can sort of project what you think that's going to be, based on history. But that activity was up more than we expected, and generally what that ties back to is either home purchases or job relocations is where you see it show up in those different categories.

So you start having a trend you expect that was unexpected, so that's one piece of it. In terms of the reasons like, you know, home purchase, rent increase, et cetera it's actually pretty steady if you looked at it on a year-over-year basis. There wasn't a lot of change. On a sequential basis, as I mentioned, rent increases did move up by about 200 basis points, which was not necessarily too surprising given how hard we were pushing on the gas in terms of renewals.

And then as it relates to the regional distribution, I think you mentioned, we did see the greatest year-over-year change in the Pacific Northwest, which is up about 14% and then Northern California and Southern California were up 7% and 6% respectively. The markets that were more moderate, you know, New England was up about 3%, the Mid-Atlantic was about flat. So that's the distribution of it. But I think there's just more activity overall than what we expected and the reason didn't change dramatically on a year-over-year basis when you really look at it. Home purchases are up a little bit, but not dramatically.

Do you anticipate these trends -- I mean it sounds like these trends will continue?

I mean over time certainly turnover is going to move back to longer term averages you would expect. How long it takes to get there is something that we don't know. You would expect it to be more correlated with overall improvement in economic activity, though, to free up job relocations, more home purchase activity, things of that sort as new homes get built.

The piece that's a little less predictable, to be honest, is the unplanned piece which as I mentioned is about 40% of that 500 basis points. So, you know, our expectations for the year, where that turnover would be up about 200 basis points relative to last year's 53%. We're probably not going to be that far off when you smooth it out in the fourth quarter, which is typically is a lower volume quarter to begin with.

Okay, thank you.

Yes.

Your next question comes from the line of Ross Nussbaum from UBS. Your line is open

Hi. It's Nick Yulico here. I just want to follow up on that turnover issue. You said, as far as the increases from the lease breaks, job relocations or home buying, did you say that that actually, the biggest impact from those was in the Pacific Northwest and California?

Yes. What I was quoting was the year-over-year change in turnover for each one of the regions and in the Pacific Northwest turnover was up 14% and then Northern and Southern California were 7% and 6%. That's the year-over-year change.

In terms of the lease breaks that I mentioned, that was a portfolio-wide quote, that of the 500 basis point increase from 65% to 70%, 40% of that resulted from an increase in lease break activity that's somewhat volatile and hard to forecast. We have a baseline of what we think that's going to be in terms of how we manage revenue, based on historical trends. It just happened to be up in the third quarter.

Okay. But it sounds like the lease break issue, you're saying was a national issue, then, right?

Overall, yes. It does vary by market, which I don't have in front of me right at the moment, but generally lease breaks are about 20% to 30% of our total turnover activity. It just happened to spike during the third quarter. So, we're taking a look at that in terms of what that might be related to, some of the things that you would hope it might be related to in terms of economic activity, job relocations and things like that, did move up a little bit. We just haven't correlated all those back to unplanned move-outs yet.

Okay. And Ross has a question. Yes. Hi, guys, just a couple here. On your new lease rent growth, was that somewhere around 3% during the quarter?

For move-ins for the whole portfolio?

Well, you said it was 6.1% on the renewals and I think you said the total rent change --

Yes. Move-ins. It was around 3% for new move-ins, 6.1% on the renewals, correct blended into the mid 4's.

Okay. So, I guess it's fair to say that the occupancy number came in a little below, perhaps, what you were thinking because of the turnover. Were those unplanned lease breaks, do you think those were going to happen anyway, or do you think you pushed too hard on the rent growth?

You know, probably depends by market, I'd say, Ross. Probably the market where -- I mean you're always kind of testing. In the second quarter if you think back, we were at 96.6% for the quarter in terms of economic occupancy and to be honest, that was probably a little bit higher than we would have liked, and we would have pushed a little bit harder if we'd known that we were heading towards 96.6%.

So as we started pushing harder later in the second quarter going into the third quarter, my anticipation is yes, when you look at the move-outs due to rent increase or financial reasons, and sometimes it's hard to parse what was really a rent increase versus someone lost a job and it's a financial reason. But there are a couple of markets where that category went up more than others, and therefore you could correlate our push on rents to the increased turnover.

So, for example, in Seattle the percentage of our move-outs that related to a rent increase went up and turnover went up most significantly in that market. So we do believe there is a correlation there that we pushed pretty hard in Seattle. Maybe a little bit harder than we should have at that point in the cycle, but overall on a net basis we still had positive rent change through the quarter in that market.

I think Tom wants to make a comment as well. Tom, you want to add something?

Ross, one thing, an unplanned lease break wouldn't be caused by us pushing too hard on rents, because by definition it's unplanned. So, just keep that in mind as you're thinking about that question.

Yes. I appreciate that. Was it the same trend inside of Archstone do you think?

Across all the baskets turnover was up and it did vary. So they weren't all 500 basis points, so it did move around, but yes, Archstone was also up.

Okay. Last question for me. You had mentioned capital flows easing a bit, and as I think about that and we've seen the same kind of numbers in the third quarter from the RCA statistics. If capital flows are starting to back off in terms of transaction activity, what do you think that means in terms of the direction of cap rates as we look ahead over the next 12 months, particularly when you factor in the easing that we've had in NOI growth across the sector?

This is Sean. I'll mention a couple of things, and Tim can comment if he'd like. In terms of the transaction volume, which you see in RCA, obviously transaction volume if you look at the US overall actually is up about 17% through three quarters relative to last year. Our markets, it's actually down a little bit when you look at it. But there's been a number of portfolio trades this year that has made up some of that activity.

So on a one off basis if you exclude the portfolio trades, activity is down across the US about 10%. Part of that is just a function of what's available for sale and prior to the end of 2012, there was a fair bit of activity from people that were concerned about tax law changes. So, I know from a lot of discussions we have with major owners there was a -- probably some of that activity has pulled forward into '12, and you're seeing some of the softening as a result in the volume in '13.

As it relates -- so that's sort of the volume picture. In terms of cap rates, certainly you would expect to the extent that we're seeing a fundamental slow as we move forward in terms of NOI growth and people are dialing in the same returns. At comparable costs of capital, you would expect cap rates to come up a little bit. I think the question for everybody is what is going to happen with cost of capital and total returns as a result of that since those two are intertwined.

And obviously we saw a run-up in the 10-year, but it's starting to ease back off. The pricing we're seeing on the transaction market is holding up pretty well. There's a little bit of softening in certain markets, as you might expect, but we've not seen a dramatic run-up in cap rates at this point and Tim can comment on the future if you'd like.

My comment and my prepared remarks was really directed as much about new start activity and equity flows starting to abate as relates to new development. But that can certainly be extrapolated to the entire space. And it's all related, right, in terms of -- if there's less development activity that's likely to support asset values. To the extent there's less equity flows to support transactions, that might suppress them a little bit, as well. So I think you ought to look at it fairly holistically.

Appreciate it. Thanks guys.

Your next question comes from the line of Jeff Spector from Bank of America. Your line is open

Thank you. This is Jana for Jeff. Tim, maybe following up on those comments, I think previously you've mentioned your portfolio would experience peaks, deliveries in mid-2014. Is that still the anticipated time frame, or do you think that due to some delays you could see additional supply coming online in bulk to your portfolio in '15, as well?

Yes. Jana, this is Tim. I think you asked about portfolio, but did you mean markets? Our markets or our portfolio specifically?

The markets, your portfolio specifically.

Yes. We still anticipate that the peak level, in terms of deliveries, will be in 2014 in our markets. Originally we thought that it might have been as early as late 2013, but there were some starts that got pushed back later into 2013 than we originally had anticipated. The peak volume started to really crest more in Q1, Q2 of 2014.

I think we're starting to see that same trend for national markets, as well. And I think it somewhat stands to reason. In our market sometimes the permitting process just takes longer than you think it's going to take. Whereas, obviously, in some of the sunbelt markets you can get into the ground a little bit quicker, and therefore sometimes accelerate a start.

And then maybe on a DC, specifically, where we've already seen some negative new lease or rate growth, but the bulk of supply will really come online early '14. I was curious if you're thinking of managing that market any differently in terms of revenue management, or maybe trying to sign renewals much earlier than that three months out.

Yes, Jana, this is Sean.

As it relates to the DC metro yes, we do try to optimize, you know, revenue growth for each of the markets independently. It's done at the asset level and even done at the unit level and so there's not a blanket statement for -- it applies to every asset, but just in terms of general tactics for the mid-Atlantic, some of the things you mentioned, yes, trying to get lease renewals earlier.

So, for example, we were -- back in August and September we were approaching people that had November and December lease expirations trying to get them to renew early. Looking more closely at lease expiration matrix and adjusting that a little bit in terms of the natural bell curve that we have to try and shift some stuff out. So there are a number of different things that we do in terms of trying to manage our risk in a market as it starts to soften, but it really is done at the sub-market and the asset level.

Thank you.

Your next question comes from the line of Vincent Chao from Deutsche Bank. Your line is open.

Hi, guys. Just wanted to go back to the same-store commentary, tracking towards the lower end of the range for same store NOI growth. If we apply the simple math, the same store revenues that suggest maybe a 3% growth in the fourth quarter, is that how we should be thinking about the fourth quarter?

Then, given that supply, I think you expect that to peak in the first or second quarter of 2014, just wondering what that same-store revenue growth could get to? Does it get to flat, or is it something better than that when the peak supply hits?

Vincent, this is Tim. Obviously we haven't given any guidance or outlook for 2014 yet, so can't really comment on that. In terms of the math, as it relates to Q4, I said towards the low end of the range, I don't think I said the low end of the range but towards the low end of the range.

Yes, Vincent, I think Tim quoted the lower end of the NOI growth range that we provided in our midyear outlook. Is that what you're referring to?

Revenue, yes.

Yes. I think Tim's comment was that we would be at the lower end of the NOI range. We didn't specifically get into the revenue or OpEx targets other than that we're within the guidance that we gave midyear.

Okay. So -- okay. Okay. And then just to clarify on the -- I think I heard in terms of the FFO as adjusted, I think a $0.02 impact from same-store, $0.02 from timing, $0.02 from some other stuff and offset by $0.02 of savings. So should we think about the midpoint of $6.30 was the old midpoint and now that should be more like $6.26, I guess? Is that the right way to think about it?

$6.25, Vincent.

$6.25, okay. And last question, in terms of DC flat revenue growth there for the quarter. Was the Archstone portfolio, was that a similar trend or can you comment on that?

Sure, be happy to, Vincent. This is Sean. In terms of the Archstone portfolio relative to the AvalonBay same-store portfolio, the AvalonBay same-store portfolio actually outperformed the Archstone portfolio on a sequential basis, and really that's a function of the distribution of the assets. So, for example, there was some larger high rise assets here in the RBC corridor of DC metro and those tended to under perform in the past quarter when you look at it sequentially, which led to the Archstone basket underperforming the AvalonBay basket during the quarter.

Okay. Thank you, guys.

Sure.

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

Thanks. Good afternoon. So, you talked about slowing the process of replenishing the development pipeline. What would you say the percentage of development will be of assets if it's 11% today? What will that number be two years from now?

Rich, this is Tim. You know, I don't know. I don't know where our equity price will be.

If you hold everything else flat.

I would hesitate to give you a percentage, but I'd expect it to be less. I would expect this year, next year likely to be sort of the peak levels for us and in part that's because of the Archstone transaction as well. Remember, we did inherit about $1 billion of new development from Archstone - $300 million of it under construction, about $700 million in development rights.

So it's driven as much by that, and in combination with my earlier remarks in terms of the relative attractiveness at this point in the cycle versus two, three years ago. And the way I've described it, internally, if we had to dial it at 9 or 10 in terms of new development opportunities in 2010, 2011 maybe it was more like 7 or 8 over the last couple years and maybe it's dialed back down to, you know, 5 or 6 given where we are in the cycle today. So, we're still active, still chasing deals, but looking for -- still looking for value which is a bit more of a challenge just given where land prices and construction costs have gone.

Okay. Next question is, I know the last question you fought it off, not giving 2014 guidance, but I do want to ask -- at the beginning of the call you mentioned that this cycle is behaving more like the cycle of the '90s than other -- than the more recent and speaking to the longevity of the cycle or longer duration of the up-cycle.

Using those words or that paraphrase, what does that mean? Does that mean positive growth, but decelerating throughout the process? Or or do you think of the picture over the next couple years as same-store behaving in a similar way in terms of mid-single digit type growth, not talking about next year. I'm just talking generally over the course of the cycle.

A couple things, Rich. We have said we do expect it to be above trend for the next two, three years, just based upon fundamentals as we see it today. But I think we talked about this last quarter as well. If you look back at the 1990s versus the 2000's. The 2000's was -- it was accelerating until it stopped and then it decelerated.

The 1990s were very different, where you had supply being relatively constant, which is what we're seeing today, we've seen over the last 12 months or 18 months. Job growth may have been stronger one year a little bit weaker the next year but still in a positive growth economy. We saw same-store performance move up and down by 100 to 200 basis points from one year to the next. When we talk about this being more like the 1990s, that's what we're talking about. We don't see it being just a straight up acceleration followed by deceleration over the course of four years, which is what the 2000 cycle gave us.

Understood, thanks. Question for Tom. If we factor in the recent disposition, $82 million, and then what's on the docket, the $350 million, where does that get us in terms of secured debt percentage at the end of the year?

Let me speak to it in terms of unencumbered NOI. I think you're going to still be in the high 60%s range.

High 60%s by the end of the year?

Yes. We're in the high 60%s now. It's not going to move much.

Okay. Another quick question here, some chatter about condominium conversions starting to make waves again. Are you seeing that as being a factor at all in your disposition outreach? How? And if so, do you think that we could actually see cap rates plateau or even go back down if and when the condo conversion element of the disposition story takes shape?

Yes, Rich this is Sean. As it relates to condo conversion activity, we've not had bidders show up for our assets that are condo converters just yet. You know, if you looked at a window of time and said when would it be ripe for that to occur? It probably is in the near future when you look at the level of housing production, overall, that Tim was talking about relative to historical trends and the fact that multi-family construction is well ahead of the single family and/or the condo purpose built segments.

We've heard about a couple of small deals that have occurred in DC where they've done condo conversions and I think part of it is, there's obviously increasing demand for housing overall including condominiums. One thing that probably needs to heal a little bit more is just the financing in the condominium market. Single family market has been difficult, but is easing in terms of being able to secure home financing.

Condominium financing for retail buyers is still relatively challenged, and there's a pretty high hurdle to not only get the individual customer approved but to get the building approved. So, that probably needs to soften up a little bit more to see that activity. But we would not be surprised to see some of the deals that were converted to rental converted back to apartments sometime over the next year or two. We've seen some of that, but not a lot and then Tim can add if you'd like.

Yes. Rich, I just had something to add. I think just broadly, housing prices and values just aren't there yet to support a lot of activity. You just think about where affordability is versus where it was in 2005 and 2006. That's what drove a lot of conversions. Just go back over the last 15 years and you look at the trend in apartment values versus the trend in housing prices, it's just not going to support much condo conversion activity at this point with the exception of a few markets, maybe Manhattan, south Florida, San Francisco.

Okay. At it what point does it start to make sense to buy back stock with disposition proceeds? I mean do you need to be at 10% discount or are you just not there yet? What are your thoughts on buyback?

Rich, we don't talk about buybacks. So, we decline to talk about buybacks.

Okay. And then just last question, can you give any color on turnover and breaks? Were they similar across the different product types, the different brands and what have you, or was there any differences?

Rich, this is Sean. I don't have the turnover data by product type in front of me to be able to give you that information, but I'm sure we can get it separately and get it to you.

That would be great. Okay. Thank you very much.

Hey, Rich, let me respond to your question about buybacks. It's a capital allocation decision, and right now development is a compelling use of capital, and that's where we feel like we should be allocating our capital. We'll always look at stock buybacks, or we'll look at debt buybacks, or we'll look at acquisitions of new existing assets, but right now where it stands, the compelling use of our capital today is for development.

I knew I could eke it out of you, Tom. You got it. I wanted to make sure you didn't leave empty. Thank you. Thanks, guys.

Your next question comes from the line of Nick Joseph from Citigroup. Your line is open.

Thanks. Just sticking with the stock buyback for one second. Have you had any conversations with the Lehman estate board? Have they approached you or have you approached them on their position?

We have not had any conversations. We have not been approached and they have not approached us.

You mentioned the Brooklyn project being the largest in the company's history. What are you doing to mitigate risk and ensure that high 5% return, and what are you assuming for current rents?

Nick, this is Tim. I don't know exactly what we have assumed for rents, but the biggest thing we're doing from a risk mitigation standpoint is match funding. We raised about, coincidentally, between the bond deal and free cash flow and net disposition proceeds we've raised about what we started this past quarter.

So it's one of the reasons why we have as much liquidity, as much cash on the balance sheet as we have right now. It's a reflection of more making commitments. We're taking more of that risk off the table, taking less capital markets risk with respect to big investments like Willoughby. We can certainly get you the -- I think the rents are -- the average rent is actually in the press release and we can get you the average square footage for sure.

Nick, this is Sean, just to add onto that. One thing to keep in mind is to how we underwrite rents. We do underwrite rents in place to the extent that the building was constructed sitting there at the time that we start construction. Some companies trend rents based on expected rent growth over a couple year construction period. We don't do that. So we do expect rent levels would climb over that period of time that we're under construction, but we certainly don't underwrite that component of it.

Tim, it's Michael Bilerman. Are you doing anything from a construction mitigation perspective, and how confident are you in that construction cost? I recognize raising capital is an important risk mitigation mechanism, but just managing a large construction budget of that size and what is it, 57 [million], 58 [million] for a tower? Maybe talk a little bit about the project overall in that scope.

Yes. Well, it's not our first high rise or, you know, development deal in New York. We've done Manhattan, done Long Island City, been involved in, done others in Brooklyn. So we have a lot of the same styles we worked with at Fort Green, Michael. We buy it all out up front, so costs committed. Costs have come back a bit, so these are contractors that are making money again.

We're not talking about guys that are doing business underneath costs which you had a little bit going on in 2009 and 2010. So I think in some ways the risk is less, perhaps, than what we've seen, but maybe could have seen a couple years ago as costs started to rise and you started to see some subs start to walk from jobs. We haven't seen that. I haven't seen that in New York. I really never had that experience. I just point back to the buildings that we've built over the last 10 years. Our cost record has been excellent, generally within about plus or minus 1% of projected capital budget.

And how much retail or other use is there outside of just pure multi-family in the budget?

In that case, very little and the land seller actually has a right to buy back whatever retail is there. So, I mean it is almost exclusively residential in terms of the exposure to the rent roll.

Okay. Thank you.

Your next question comes from the line of Jeff Donnelly from Wells Fargo. Your line is open.

Good afternoon, guys. Tim, you opened your remarks reiterating your view that we're early in a long term rent growth cycle. How do you think about the investment proposition for rental housing in an environment where long term rates are rising? I'm specifically thinking about the interplay between the growth and demand versus the change in cap rates?

Well, it's an issue that any financial asset has, right? It's not just confined to rental housing. To answer that you'd have to answer that question with respect to all real estate and financial assets. I do think we have a bit of a buffer as it relates to fundamentals as rates move up. You would expect homeownership rates to be a bit constrained as affordability becomes a little bit tougher from a homeownership perspective. So my comments, to be clear, were really about the operating fundamentals and not the capital market fundamentals.

When you get to actual valuation it's always going to be a function of both and not just rising capital costs, but what's the source of the rising capital costs? Is it real rates or is it nominal rates? I think the recent backup we saw and repricing was really a reflection of real rate movement, as opposed to nominal movement which obviously real estate provides a bit of a hedge from that, as well. So I think if you would have to take into account all those things. Operating fundamentals, the source of inflation, in terms of the impact, ultimately, of capital costs on valuation.

Do you think that you'll have new ground in terms of the sensitivity to changes in interest rates and in terms of -- because purchase housing or homeownership will be a little more challenging in the future? It's going to affect the relationship you have and not only the demand for rental housing, but also I'd say the appeal of investing in rental housing might not be quite as a diversion where it was in the past?

As a result of rising interest rates? I'm sorry. I missed the --

I'm wondering if the appeal of rental housing, just because it's more challenging to buy a home than it has been in past periods, even though interest rates might be rising, might effectively make rental rates, in your eyes, more appealing because it's going to be somewhat more insensitive, if you will, to rising rates.

Yes, perhaps. I think homeownership rates is probably as much as anything is driven by the ability to generate a down payment, when you look historically at homeownership rate patterns. Our view on the future is that we're going to have much more balanced housing demand, much like we did from the early 1970s to the mid-1990s.

It was really only in the 2000s where you have this distortion of first for sale housing and then rental housing. And we're back in that norm level of around 65% homeownership rate. And, in fact, that's our expectation going forward, that we'll continue to have more balanced rental, more balanced housing demand between rental and for sale.

Can you talk a little bit about what's been happening with land prices, where you see them heading, given that on the one hand you have robust construction activity that's probably been driving pricing, but potentially softening capital flows into the sector?

Well, as I mentioned in remarks, our focus on suburban as of late was in part due to the run-up we saw in land pricing on urban deals, particularly deals that weren't entitled. A lot of the urban deals that have been purchased and have been started were already entitled and those traded -- some might trade a little bit more commodity-like in terms of a valuation perspective. As demand moved, pricing moved pretty quickly in response, but I suspect land cost pressures will start to abate somewhat if capital costs move up and required returns follow and I think that's probably a little bit why you're seeing the equity pull back a little bit as of late.

And just one last question. On your current development rights, I think you have about $3.7 billion at cost. What portion of that pipeline is in the money, if you will, where near term construction starts would economically make sense, irrespective of whether or not you're actually starting versus projects that may be a few years in penciling out?

Well, we look at everything on a current economics basis. So if you could start it today, it would all pencil out in a sense. Now having said that, it's going to take two or three years to get through the entitlement process. That's one of the reasons why you want to use option contracts. You're making somewhat of a bet that rental fundamentals will not be too disconnected from construction market fundamentals, right?

Having that said your land costs are fixed, so you got your bid hedge with respect to the capital costs, but ultimately if -- you are betting that they don't become too unhinged with one another and if they do, that's why you option the land. Potentially you have an opportunity to renegotiate or to walk away if it doesn't make economic sense.

Thanks, guys.

Your next question come from line of Rob Stevenson from Macquarie. Your line is open.

Thanks. Just one last question, guys. The $1.63 you guys did normalize in the third quarter, your guidance for the fourth quarter is $1.54 to $1.60. Is there any nonrecurring or other abnormal items in the fourth quarter guidance, or is it just basically dispositions in a weaker sequential operating result is pulling the sequential FFO down?

I think the operating FFO, which would exclude the non routine is actually at $1.64 to get to the $6.25 for the full year.

Okay, so but I mean --

Which includes the adjustments for the non routine items that you're asking and any non routine items that you're asking about.

Okay. So there's somewhere between about $0.05 and $0.12 of non routine items in the quarter?

I'd have to take a look at it. I don't have it in front of me, Rob.

Is all the non routine for the fourth quarter Archstone stuff? Or is it debt repayment? What's the non routine in the fourth quarter?

It's primarily Archstone, Rob.

Okay, all right. Thanks, guys.

Your next question comes from the line of Andrew Rosivach from Goldman Sachs. Your line is open.

Hi, guys. Sorry for the question so late. On the 6.4% development pipeline yield, have you marked a high line to current rents yet? Obviously it's 10% of your pipeline, so are you going to move the number?

Great question, Andrew. We haven't marked any deals that have not yet started leasing to market where we don't have at least about 20% of the leases in place. So the answer is no, we haven't marked debt to market.

Got it. That's a hot market so I'm presuming the bias would be up on that yield.

Correct.

And then just one other one. I'm sorry about multiple cap rate questions. Obviously, you guys are doing a lot in the fourth quarter. What's the range of cap rates that you're closing on in the deals that you're doing?

Yes, Andrew, this is Sean. You know, it really depends on the market. I'll give you some general observations based on what we're seeing, which is on the West Coast cap rates are still pretty aggressive. I'd describe it anywhere from low 4%s to low 5%s depending on, core urban versus second tier suburban locations.

And as you move to the East Coast it's probably 4.75% to 5.75% for most markets, but that would exclude New York which is substantially below that as you might know. And then even here in the core of DC in the urban markets we're hearing some stuff that's maybe in the mid-4%s, but hopefully that gives you a range of activity based on what we're seeing not just our own but others as well.

Is that West Coast cap rate, is that a buyer cap rate or seller cap rate in terms of prop 13? It's a buyer, right?

Yes. That's not reset taxes, correct.

Great. Thanks a lot, guys.

Yes.

Your next question comes from line of Paula Poskon from Robert Baird. Your line is open.

Thanks. I just have a follow-up question on Jana's question on renewal rate trends. Given the focus on the early renewals, what was the spread between what you sent the initial renewal notices out at and what you effectively captured? Did that spread vary much across your markets?

Yes, Paula, this is Sean. In terms of -- let me quote average spread first. Typically it runs anywhere from 60 to 80 basis points. At times it can get as wide as 100 basis points depending on the posture that you're taking and how aggressive you're being on both the initial offer, as well as how much you might negotiate off of that. It does vary a fair amount by market depending on the strength of that market.

So, for example, we've pushed pretty darn hard on Seattle, but as we started to see a little bit of softening in places I mentioned like Redmond or at Bell town, we probably backed off a little more quickly versus say L.A. or East Bay is a good example, where you don't back off hardly at all, just because you know you can replace that resident with someone else who is willing to pay more. In the case of the East Bay during this quarter, move-in rent change actually exceeded renewal rent-change in East Bay. I don't have all the market by market spread in front of me, but it does vary by market.

Thanks very much.

Sure.

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

Good afternoon. Just a follow-up question for Sean. Can you just talk about what the trends were through the quarter? It sounds like from your commentary that rent and turnover perhaps both deteriorated at the end of the quarter. Is that correct?

Yes, Karin, this is Sean. That is a fair assessment. July and August were pretty healthy, but we did start to see the August lease expirations and September lease expirations start to weaken a bit. So if you looked at rent change through the quarter, it did soften, and the turnover rate peaked in September, as well. So if you look at a combination of those different indicators, it did soften through the quarter. That is a correct statement.

Okay, that's helpful. Are you concerned at all about being at 95% occupancy with those trends and sort of heading into the slower winter months? Do you wish occupancy was a little bit higher?

Yes. I think what I indicated in my prepared remarks is that we're in the high 95%s, not 95%. So as we move through the winter relative to last year we're going to give up a little bit of occupancy, most likely, given where we're starting October. It's really a function trying to optimize, you know, revenue as best we can.

So in some markets, I mentioned, like Boston, in my prepared remarks where we're getting somewhere in the neighborhood of 7% renewal increases and pretty healthy move-in rent increases as well. We're positioning the rent roll in the right way. We're comfortable doing that. So where we're starting from, high 95%s, 96%, I think is an okay place in terms of October, and we'll see how it unfolds as we move through the quarter, but I think it's a fine place to there be.

Just last question -- did you give us what rent to income was this quarter?

It's about 20%. It hasn't really changed on a year-over-year basis or really at all this year.

Okay, thank you.

Sure.

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

Hi, Sean, going back to that last question. Can you talk a little bit about the leasing strategy for the fourth quarter, first quarter, given where the occupancy levels are. Would you expect to dial back, maybe even push, go flat in terms of new leases to try to pick that occupancy back up and position yourself for the second quarter, third quarter of next year? Or is there a sense that 95%, 95.8% is a pretty good run rate from here?

Yes, Mike. The way we think about it, as I mentioned, is trying to optimize the revenue growth for each market which does dictate maybe a slightly different strategy, but in terms of just global comments, what I'd say is as you move through the fourth quarter, you don't want to give up too much on pricing, just given demand patterns in the fourth quarter are typically slower.

So, you're not necessarily going to move price a lot to gain a lot of occupancy, because you're not going to gain quite as much during the fourth quarter as you might in some of the other quarters where demand patterns just represent more activity. In terms of overall strategy, if we're in the high 95%s, 96% range for the quarter that wouldn't be surprising.

We wouldn't be trying to reduce rents significantly to try to get to 96.1% or 96.2% as an example. Typically what you give up in rent, what you're baked with for 6 months to 12 months wouldn't compensate for a couple of months of an extra 5, 10 basis points as an example, if that makes sense. Does that make sense in terms of how we're thinking about that?

Yes. That makes sense. Did you give where renewal notices went out for November, December, and January at this point? What's your thinking on that?

I did. In terms of October, what is in hand in terms of committed renewals is about 5.25% and as you look forward to November and December which is what's out right now, those offers are out in the mid-5%s.

Okay. As you look at the portfolio mix between the Avalon and the Eaves brand, was there any noticeable pricing difference in terms of rent growth during the quarter?

In terms of the two brands, what it might relate it to is sometimes people are asking about A's versus B's, which is sort of a proxy for that, as well. In terms of our portfolio the A's continue to outperform the B's, following a [wreath] or axiometrics definition and they have over the last four quarters.

If you're reading through some of the axiometrics data, that gap has narrowed. In their view, B's have started to outperform over the last couple quarters, but it is a market by market analysis that you need to do in terms of which segment is outperforming better. You know, for example, in Seattle B's seem to be outperforming right now and in DC that's the case, as well. But if you look at northern California the A's continue to perform pretty darn well relative to the B's, based on our portfolio mix.

That's helpful. Then finally, Tom, the last couple quarters you've talked about deliveries and how those yields have trended relative to underwriting. Just could you give us the sense to deliveries in the quarter. I know they're small but how did that compare to underwriting?

Yes, Mike. This is Tim. I think I've talked with that in the past. The deals that just -- the couple deals that just stabilize right around 7% are up maybe 20 basis points or so from the original underwriting. The deals year to date are stabilized at around 7.5% and that's probably closer to 40 or 50 basis points above original underwriting.

Okay. Appreciate the color, guys. Thank you.

Your next question come from the line of from Tayo Okusanya from Jefferies. Your line is open.

Yes. Good afternoon. My question has actually been answered. Thank you.

Your final question today will come from the line of Dave Bragg from Green Street Advisors. Your line is open.

Hi. Good afternoon. Thanks for the color on the transaction market. Since you have a similar amount of assets under contract three months ago as you do today, can you talk about what you're specifically seeing in your disposition efforts? Have you seen some deals get retraded?

Yes, Dave. This is Sean. When there was the peak run-up in interest rates where we're talking about a 10-year that was in the 2.9%s and stuff like that, there was some saber rattling about price reductions and things like that. The deals that we were working on, one of them we dropped a buyer and the other one we picked up someone else.

But really the two big deals, the reason they're still there is the fact that they require local jurisdiction approval for certain things. One was a ground lease or is a ground lease and the other one is subject to a county [ROFER] provision. Both of those just take time to work through the process to actually get the jurisdiction's approval. So, that's why the volume hasn't really shifted a lot and a lot has closed. But there is dimension, a fair amount that will be closing here before Thanksgiving.

So is there a quantifiable difference in your cap rate expectations for that pool now versus three months ago, or is it the same?

No. It's the same.

Okay, thank you.

There are no further questions at this time.

Okay, operator. Well, thank you and thanks everybody for being on the call, and we look forward to seeing many of you in a few weeks in San Francisco. Take care.

This concludes today's conference call. You may now disconnect.