艾芙隆海灣社區公司 (AVB) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to AvalonBay Communities' fourth-quarter 2016 earnings conference call. (Operator Instructions). As a reminder, today's call is being recorded. Your host for today's conference call is Mr. Jason Reilley, Senior Director of Investor Relations. Mr. Reilley, you may begin your conference.

Thank you, Noah, and welcome to AvalonBay Communities' fourth-quarter 2016 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 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, 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. This attachment is also available on our website at

www.AvalonBay.com/earnings, and we encourage you to refer to this information during the review of our operating results and financial performance.

And with that I will turn the call over to Tim Naughton, Chairman and CEO of AvalonBay Communities, for his remarks. Tim.

Yes, thanks, Jason, and welcome to our Q4 call. With me today are Kevin O'Shea, Sean Breslin and Matt Birenbaum. I will be providing management commentary on the slides that we posted last night and then all of us will be available for Q&A afterwards.

My comments will focus on providing a summary of Q4 and full-year results and discussion of our outlook for 2017. My remarks will be a bit longer than usual this quarter, but we think it is an important time in the cycle to provide our perspective on fundamentals and how we are positioning the Company in response.

So let's get started, starting on slide 4. Highlights for the quarter and the year include core FFO growth of 6.5% for Q4 and 8.5% for the year. Same-store revenue growth came in at 3.3% in Q4 or 3.5% when you include redevelopment. And for the full year about 100 basis points higher, 4.3% and 4.5% when you include redevelopment.

We completed $500 million in new development this year and started another $1.6 billion, most of it occurring in Q4. And lastly, we raised about $1.4 billion in external capital through debt and asset sales at an average initial cost of approximately 4%.

Turning now to slide 5. Development drove strong external growth in 2016 both from recent completions and communities still in lease up. The $500 million of new development completed this year are projected to stabilize at an average initial yield of 6.7%, about 50 basis points above original pro forma and more than 250 basis points above the initial cost of external capital raised in 2016. Yields on existing lease ups of $1.2 billion of development are currently 20 basis points above pro forma.

Turning now to slide 6. You can see so far this cycle we have completed about $4.5 billion in new development and it has created approximately $2 billion in net asset value upon completion, or roughly $17 per share of NAV upon completion. And currently we have another $4 billion under construction including the $1.3 billion started this past quarter across five projects shown on the next slide, slide 7.

The five projects started in Q4 included three communities on the West Coast and two on the East Coast. A couple are worth noting due to their size. The first is West 61st Street, or Columbus Circle as we've referred to it in the past, which is a $600 million mixed use project on the upper West Side at the corner of 61st and Broadway.

And the second project is AVA Hollywood, a $360 million project, on 6 acres in one of the more vibrant submarkets in LA and located across Santa Monica from many of the studios. Both of these projects represent extremely unique opportunities in excellent submarkets and locations.

Now given the diversity and wide range of product and submarkets of our current development pipeline, you will note this quarter on attachment nine that we divided the development portfolio into three distinct buckets based upon product type: high-rise, midrise and garden. These buckets roughly sync up with how we think about submarkets as well being urban or infill or suburban. Given that valuation and cap rates are often a function of product type and submarket, we thought this breakdown would be helpful in evaluating the development portfolio.

Lastly, one note on Columbus Circle. As we have discussed in the past, we did explore different strategies to venture this investment with either a retail or capital partner. But for a variety of reasons, including control and current market sentiment, we have concluded that owning 100% of this investment is the best approach to optimizing value.

Moving to slide 8 now, our accretive development platform along with healthy contributions from our stabilized portfolio has driven strong earnings growth this cycle as we have outperformed the peer group on core FFO growth per share by 350 basis points on a compounded annual basis over the last six years. And on a cumulative basis that translates into 3,400 basis points of outperformance in core FFO growth during that time.

Let's now turn to slide 9 and our outlook for 2017. Highlights for our outlook include core FFO growth of 5.5% driven by same store NOI growth of 2.75% at the midpoint of the range and from stabilization of new investment activity. In addition, we plan to start $900 million in new development and complete $1.7 billion in 2017.

Turning to slide 10, you can see that the lower growth projected in 2017 versus 2016 for core FFO is entirely the result of deceleration in the stabilized portfolio. In 2016 the stabilized portfolio contributed 5.7% of the 8.5% growth that we achieved, while in 2017 we are expecting a contribution of 2.7% or 300 basis points less from the stabilized portfolio.

The projected contribution from the external growth platform in 2017 is essentially the same as 2016, right around 4% when you net out the impact of incremental capital costs in both years. In both 2016 and 2017 this growth is offset or expected to be offset by about 110 basis points of drag from increased overhead and the loss of fees from the liquidation of investment management funds. The reduction of fund-related fees results in a headwind to core FFO growth by roughly 50 basis points in both years.

Turning to slide 11, given our outlook for 2017 we did announce a dividend increase this year of 5.2%. The dividend is now up by almost 60% over the last six years or since the beginning of the cycle, and has grown by almost 5.5% on a compounded basis over the last 23 years.

I want to turn it now to some of the basic -- to some of the key assumptions and drivers for outlook this year.

Starting on slide 12, I'm certainly not going to go into detail on this slide, but the overall picture is a continuation of modest economic and job growth with perhaps a little more upside relative to 2016 given the improved outlook for the consumer and a recent pickup in the business sector. But also with more unknowns with a new administration in place and the potential economic impact that could arise from any fiscal stimulus, tax, trade or immigration reform.

Slide 13 to 17 drills down a bit more on some of these themes. First looking at slide 13, wage growth is accelerating in a tightening labor market and is most pronounced for our target customer, that being young professionals, who are seeing healthy wage gains in the mid- to high-single-digit range, as you can see in the bottom right chart.

Moving to slide 14, this in turn is helping to propel consumer confidence, which is now at a cyclical high. And then when you combine that with healthy balance sheets, the consumer -- it has resulted in the consumer purchasing more autos and homes and also resulting in higher rates of household formation.

On slide 15 you see the corporate sector has started to show some improvement as well as business profits and confidence are on the rise. Although investment remains mixed still with equipment declining and investment in [knowledge assets], or IP, still growing at a healthy clip. It is hard to say whether this is a cyclical or secular trend, as the US moves towards a more knowledge-based economy. But we think for our market this is generally a positive trend.

On slide 16 demographics should continue to support apartment demand really over the next few years and into 2017 for sure. The young adult cohort or that under 35 is expected to increase by 600,000 in 2017 alone and are now experiencing job growth close to 4%. Really the highest rate we have seen this cycle. The rates of family formation, as we have discussed in quarters past, are continuing to decline, which in turn is extending the rental tenures of this segment and helping to grow primary renter demand.

Moving to slide 17, while rental demand should continue to remain healthy, we are seeing an overall housing picture where overall housing demand is becoming more balanced between single-family and multi-family, for-sale and rental -- just about more than any time over the last 15 years.

It does appear that the for-sale recovery is taking hold after a long period of decline and/or stagnation. And supply is responding with single-family driving virtually all the housing supply growth while multi-family starts have flattened over recent quarters.

Recently we have seen starts and permits returning to historical patterns where roughly two-thirds are single-family and one-third multi-family. This trend has been further supported by capital market behavior as financing has cooled for multi-family investment over the last year or so.

And the next two slides, slides 18 and 19, provide a demand and supply picture for our regions.

On slide 18 you can see that the job growth is expected to be flat or moderately down across most of our footprint, whereas wage growth is expected to rise on the order of 150 basis points over 2016. And importantly, much of that is already occurring. Personal income overall is projected to be up by about 100 basis points which should provide the consumer more purchasing power and should help support rent growth, all things remaining equal.

And turning to slide 19, we know that all things don't necessarily remain static and we see that on the supply side of the equation. Apartment deliveries are expected to be up by about 50 basis points in our regions to 2% of stock, which is about a third higher than we saw in 2016. New England, particularly Boston, is the only region where we expect deliveries actually to be down on a year-over-year basis. And once again new supply should be concentrated in urban submarkets which should see almost twice the deliveries that the suburban submarkets in our markets will see in 2017.

So how are these fundamentals impacting our portfolio outlook? We show this on slide 20. Overall we are expecting 2% to 3% same-store revenue growth in 2017. On the East Coast expecting growth generally on the lower end of that range of around 2% with DC showing some year-over-year improvement.

The West Coast is coming in towards the top end of that range at around 3%, although much more variable across the regions. Northern California is expected to lag in the 1% to 2% range after years of just torrid performance. And Southern California, Seattle should lead the portfolio with same-store growth in the 4% to 5% range.

Turning to slide 21, in terms of trajectory during the year, we do expect same-store revenue growth to decline in the first half of the year before starting to stabilize in the second half of the year in the low 2% range. One thing to note from this graph, as you can see, we have already seen same-store revenue rebounds once this cycle in 2014 and 2015. Similarly we think we could see some improvement in rental rate growth in 2018 once peak deliveries are absorbed into the market.

Let's shift now and talk about investment and capital activity. As I mentioned earlier, we started over $1 billion in Q4 and now have $4 billion under construction, or did at year end. We expect to complete a record level of volume in 2017 such that by the end of the year development underway should be in the $3 billion range or roughly about 10% of enterprise value, which is in line with the average so far this cycle.

Turning to slide 23, with Q4 starts our [shadow] development pipeline is now down to $3 billion. And land inventory, which is shown here, is at a cyclical low at around $100 million. We plan to remain light on land over the balance of the cycle. This should position us well to take advantage of any dislocation that might occur during the next market correction when many of the best land buys are often made.

Turning to slide 24, another way we are managing the risk of our development pipeline we talked a lot about over the last couple of years is through our strategy to substantially match fund new development. At year end, including the starts in Q4, we stood at 80% match funded on the $4 billion underway.

In addition, we actually have $800 million in interest rate protection for planned debt issuance later this year. This further protects us from shifts in the capital markets that might impact the cost of future funding and helps us lock in investment margins on that development that is underway.

Slide 25, this is a chart we've shown you before, but it also illustrates another benefit of match funding and that is the impact on our credit profile. With most of our pipeline match funded we could actually fund the remaining portion entirely with debt without actually compromising our credit profile.

Of course some portion of the remaining cost would likely be funded with free cash flow and our asset sales, but this is a hypothetical calculation that we think it is helpful in understanding how the development pipeline may impact our balance sheet and credit metrics from time to time.

And now the last slide, slide 26. I think this shows just a final benefit of match funding and that is the impact on liquidity. We currently have $200 million of cash on hand and a $1.5 billion line of credit was undrawn at year end. With credit metrics at cyclically strong levels we have an additional margin of safety and ample balance sheet capacity to fund new commitments that may provide additional growth opportunities.

So there are clear three benefits of a disciplined match funding strategy. First, it allows us to lock in accretion on new development. Second, as we see here, it enhances current liquidity. And third, it preserves balance sheet capacity and provides financial flexibility. From a risk management perspective all three benefits become increasingly important as the cycle matures.

So in summary, 2016 was another solid year for the Company. Healthy fundamentals and our competitive position helped contribute to a sixth consecutive year of strong earnings growth. In 2017 apartment demand should remain healthy, although we do anticipate that an increase in deliveries will temper growth in our stabilized portfolio relative to what we have seen in recent years and in 2016.

Development, on the other hand, should contribute meaningfully to both earnings and NAV growth just as it has done over the last few years. And lastly, we plan to carefully manage liquidity and the balance sheet to allow us to pursue our growth strategy in a risk measured way, a strategy that has produced meaningful outperformance so far this cycle.

And with that, Noah, we would be pleased to open up the line for questions.

(Operator Instructions). Nick Yulico, UBS.

I was hoping you guys could just go talk a little bit about the Columbus Circle project. And it looks like -- I guest first off, how we should think about the retail value there so we can get an understanding for what the cost per unit would be for the multi-family piece.

Yes, Nick, this is Tim. I will take that. As I mentioned in my prepared remarks, we did explore partners there both in terms of a capital partner and a retail partner. And at the end we decided control was important here for a few reasons I may get into. But the economics of that deal are roughly a mid-four in terms of yield.

And I guess the way to think about it the residential component is around a four, the retail component we think is a mid-five. And if you looked at -- if you try to separate the cost of the retail and the residential, essentially residential is right around $2,000 a foot -- on very large units, by the way, something maybe we could talk a little bit about.

But we are positioning -- we are trying to position this asset pretty uniquely towards larger units. We think there is a family market there. This is not a 421 -- 421-a deal, there are no affordable units. There is no pilot and so this does reflect full taxes. I think that is something else to keep in mind when we quote the yields.

The retail is about $3,000 a foot in terms of basis. And in terms of projected rents, we think the market for this deal is about in the $180 range on the -- $180 a foot range on the retail and that is blended across the basement, the subbasement, the main floor and the second level and about $115 a foot on the residential component.

That is a rough outline in terms of the economics. Obviously this is a location and asset that we think is going to be absolutely at the top of the market. And while the economics are thin, or thinner than we had anticipated just given what has happened kind of in the direction of rents and construction costs over the last couple of years.

We did think just maintaining control really enhanced our flexibility -- to maximize an optimal time, just given that what you often see obviously in Manhattan and in some of the best locations in Manhattan, valuations could be more volatile and spikier.

So we think it is important to maintain that flexibility so that we might have the opportunity to monetize at some point down the road and not have to worry about partner consents or secured debt being in place that might create additional friction cost to making the right capital allocation decision.

That is helpful, Tim. And then the 100 -- and I think you said $150 rents on the residential side --.

$115, 1-1-5.

Oh, $115, sorry. Where -- are there already competing buildings in the market at that price point? And how do you guys feel about getting that type of rent in a market where it seems like the high end is maybe under a little bit of pressure in New York?

Yes, I am going to go turn to Sean. There are a few comps that are I think probably particularly relevant.

Yes, Nick, it is Sean. As Tim pointed out, one thing to keep in mind here is the average unit size is a little bit bigger, it is about 1,100 feet for this deal, spread across studios all the way up to three bedroom units and above. So in terms of current comps though, I mean the assets that probably come to mind most frequently for people and for our teams, what we have looked at are spread around.

But probably three that I would mention most specifically are like Grand Tier, which is at Broadway and 64th; The Corner, which is Broadway and 71st; and then the Brewster, which is 86th between Columbus and Central Park West. If you go look at those on a unit-by-unit basis, and to just sort of reflect our mix, they are basically at rents that we are expecting to achieve for Columbus Circle and obviously we have a better location in our view and for product that will be brand-new 2.5 years from now.

So, we feel pretty good about the rent based on what we see today. And to be honest, when you look at Central Park West, sort of that kind of location, there is not a lot a product in the pipeline as compared to other submarkets within Manhattan, like Midtown West as an example or going over to Brooklyn even. So feel pretty good about the rents based on what we are seeing.

Okay, and then sticking in New York, Brooklyn and Long Island City, what are your thoughts about performance of those submarkets for your portfolio this year given some of the supply underway right now?

Yes, so, for Brooklyn there is certainly more supply coming in 2017 versus 2016, it is about doubling. We really have one stabilized asset in Brooklyn in Fort Greene, which has been performing fine. Most of the supply that's come into Brooklyn didn't come in until basically the third quarter. So we do expect 2017 to be softer than 2016.

That being said, it hasn't impacted performance much at our lease up there at Willoughby. We probably accelerated our lease up a bit at Willoughby just in anticipation of the supply that is coming online. But we had 29 leases a month there in the fourth quarter, which is pretty healthy, and expect that to continue, January looks pretty solid.

So in terms of Brooklyn I would say we expect it to be softer. Wouldn't see a lot of impact in terms of our same-store portfolio given it is one asset.

Long Island City, there is more supply coming in there in 2017 as well. It is starting to become a little more concentrated in downtown as opposed to on the water, which is where we are positioned. So the Riverview assets we have there, the two towers, have been some of the better performing assets over the last few years in our overall New York portfolio. And I would expect as the supply comes online they will probably become more middle of the pack is our expectation for 2017.

Thanks, everyone.

Nick Joseph, Citi.

Just actually continuing on New York. What are your expectations for the more suburban New York portfolio and New Jersey?

Yes, Nick, it is Sean. Happy to chat about that a little bit. As you might expect with what is happening, we do expect New York City to be the weakest performing market of our broader New York, New Jersey portfolio in 2017. For New York City the expectation is for revenue growth around 1%.

And one thing to keep in mind is that represents assets that we have spread kind of all throughout the city, we have Morningside Heights, the Bowery, Brooklyn, Long Island City, Midtown West, etc. So assets anywhere from $50 a foot up to $80 a foot across those different submarkets as opposed to being all concentrated in one submarket where there is a lot of supply.

But then as you get into the suburban markets, Westchester is closer to 2%, Long Island around 2%, and then Northern and Central New Jersey around 2.5%. So certainly the more suburban markets outside the core of New York are expected to perform better in 2017 relative to New York City as an example.

Thanks, that is helpful. And then, Kevin, in the past sometimes you have included a heat map in terms of cost of capital -- or desirability of capital between equity, debt and asset sales. So putting equity aside given where the stock is trading relative to NAV, what is the desirability or value of debt versus asset sales today?

While, I think from a standpoint of relative attractiveness both are -- both forms of capital, asset sales and unsecured debt are still pretty attractively priced today. Even though certainly on the unsecured debt side borrowing costs have increased a bit in the last three or four months here by about 40, 50 basis points. Bear in mind on that front unsecured debt costs are still today roughly where they have been sort of the previous year or two in 2014 and 2015.

So just to give you a sense of it, if we were to do 10-year debt today we'd probably be able to execute a 10-year bond offering somewhere in the 3.5% range on fresh capital. As Tim alluded to on the call, we do have $800 million of hedges in place, 10-year forward starting swaps that we would expect to apply to a like amount of bond issuings on the 10-year front over the course of the year here.

And essentially the treasury rate on that basket of hedges is at 2.28% overall, so favorably priced relative to spot values today. And our borrowing spread -- our borrowing spreads on top of that, which of course are not hedged, historically have been about 135 basis points. Today they are about 110 basis points.

So we think from the standpoint of the unsecured debt market capital costs are generally still pretty attractive. Given our hedges we think they will be attractive as well with respect to the 10-year issuance which we have got planned for this year. And then Matt can certainly speak to the asset sale market. But we still think it is an attractive source of funds today particularly relative to the returns on development that we would be redeploying some of that capital to fund.

Thanks. Matt, maybe just on that. Have you seen any movement in terms of cap rates or the amount of buyers showing up to bid for assets or the spread between the bid and ask on specific deals?

I think it is probably too early to tell. Certainly we -- some of us were out at the NMHC conference last week and there was a lot of talk about that. So I don't think we have seen evidence yet of any material movement in cap rates. We did sell two assets in the fourth quarter, one wholly-owned asset which closed in October, so kind of before the election and then there was the fund asset we sold in mid-November.

We have a couple of assets that are in marketing now. So we may have more information by the end of the quarter -- by next quarter's call. But I think it is probably too early to say.

Thanks.

Rich Hightower, Evercore.

Just want to go back to one of Tim comments in the prepared remarks about winding down the land portfolio as we kind of get into the mature stage of the cycle. It is a broad-based question. How do you sort of foresee the next few years playing out in terms of new opportunities arising? And are you seeing imprudent behavior among different developers, different investors in your markets and submarkets that would lead you to believe that those opportunities will be there a little farther down the road?

Yes, Rich, you don't know. I would tell you capital has been pretty disciplined. So the level of the stress is -- probably would be somewhat a function of what is happening in the capital markets and the depth of any perhaps economic correction that might occur. Generally you are seeing 2% or 1.5%, 2% supply growth as we have been seeing that is roughly in line with the kind of job growth that we have been seeing.

So it doesn't -- absent an economic correction it doesn't seem that that things are getting distorted yet. But we are at the point in the cycle, given that capital has cooled a bit on multi-family there is less of a need to -- there is less transactions that are closing say on an unentitled basis.

We historically have tried to make use of land options as much as we can. We oftentimes have to buy land may be one to three quarters before we actually put it into production but with all of the entitlements in place. And maybe the other half we are able to close within say a quarter of -- a quarter to the start.

But you are not seeing -- it doesn't seem like you are seeing a lot of people sort of get stuck with a lot of land on their balance sheets yet. So we just want to be in a position where we have got the liquidity in the balance sheet to kind of be first in line when the market turns. We don't think at this point any opportunities where we can buy land, using our liquidity to buy unentitled land, that there is enough of a benefit to do that. And until there is distress, as I said, we are going to try to stay light on land.

I think where you typically get in trouble in the development game is being long on land at the wrong point in the cycle where you have an illiquid asset that doesn't cash flow; you may have to sit on it for a few years until the cycle returns. I mean that is one of the lessons learned I think particularly from the private side of the business. But it is hard to say in terms of what kind of opportunities will be there. But we are obviously just trying to position ourselves to take advantage of it once it is -- once there are any opportunities.

That is helpful color, thanks. And then final question here. In terms of expense growth in 2017, it looks like you guys are having a lot of good luck on -- within many sort of types of expenses in terms of segmentation, but I think payroll is one that is starting to accelerate maybe to the more worrisome side. Can you talk about how you envision that growing over the next couple years perhaps? And can you talk about the impact of new supply and its impact on wages and payroll and that sort of thing?

Yes, Rich, it is Sean. Why don't I give you just a couple comments about expense growth for 2017 overall and then address the specific question about payroll? But in terms of 2017 OpEx growth, for us about 60% of the year-over-year increase is really going to be taxes, which we are expecting to grow at about 3.5% in 2017 for our same-store basket.

We are also expecting some growth in utilities and payroll, both of those in the 2.5% to 3% range. But we are going to see some offsetting reductions in a couple of areas. One is we are expecting insurance to come down a little bit. But probably more importantly is we are expecting some reductions in marketing and maintenance due to various sort of cost reduction initiatives we have had underway, maybe just mention a couple of those for you.

First, as it relates to our prospect portal. We introduced some new functionality late last year to allow our prospects to book tours online. And we went from basically zero booked online to about a third of them booked online in the last quarter of the year. And so, we are taking out a significant chunk of cost for call-center costs.

So as opposed to booking online someone may have sent an email or made a phone call that cost anywhere from $1 to $6 depending on the channel versus essentially marginal cost of zero on the portal. Same thing as it relates to our resident portal, we are up to about 80% of maintenance requests booked on line, that takes call-center costs down.

So we are going to take probably more than $0.5 million out of call-center costs in 2017 both on the marketing side and on the maintenance side. And then we are starting to see some benefit from investments we've made over the last two or three years in resilient flooring with less carpet replacement and things like that. So we are getting some tailwinds from some of those investments that we have made in the past.

As it relates to payroll specifically, certainly seeing a more competitive market. We have been able to hold our own in terms of voluntary turnover below NMHC averages and things of that sort that we watch. But certainly seeing some pressure there particularly in the more competitive urban submarkets where there is heavy lease up activity and the potential for community consultants that are leasing apartment homes to jump from one property to the next to make another $1 or 2 an hour.

Fortunately we have some pretty tenured staff in some of these locations where they have been with us a long time, they have seen this -- had this play before so to speak. And we've been able to hold turnover rates down. And then also, as you may know, we don't have as many urban projects in lease up as maybe some others, so probably getting a little bit of relief there being in the suburbs.

But it is certainly an area that we're going to have to keep an eye on and stay competitive. But with other things we have underway in terms of how we are trying to be as efficient as we can, trying to contain payroll growth as much as possible.

All right, thanks, Sean.

Jordan Sadler, KeyBanc.

Good morning, it is Austin Wurschmidt here. Good afternoon, rather. In the same-store revenue guidance, the slides that you provided on page 20 and 21, you talked about a stabilization in the second half of the year, perhaps a little bit of an inflection. Can you just talk about what markets you expect will drive the inflection and how you expect that could trend into 2018?

Yes, Austin, this is Sean. I can talk a little bit about that. It really is sort of an inflection point for certain markets in terms of supply starting to fall off as you get into the back half of the year, and then certainly as you get into the first half of 2018. To give you some examples, you start to see some softening in deliveries in Boston, Northern Virginia, LA and San Jose as you get into the third and fourth quarter of 2017, and then it is more meaningful as you get into 2018.

And just one thing to keep in mind is Tim did mention sort of stabilization as opposed to reacceleration. So, part of that is a function of how we see supply delivering in certain submarkets that are basically our neighborhoods and how it impacts our portfolio, but it's also a function of comps in the third and fourth quarter of 2016 and what is going to happen with occupancy and things like that.

So, there is a handful of markets, like I mentioned, and you start to see an abatement of deliveries to a certain degree that we think will start to translate to some stabilization.

Great, thanks for the detail there. And then just wanted to focus on occupancy for a minute. You guys have been running at the mid -- low- to mid-95% range now for the last several quarters and many of your peers are in that 96% plus range. And you guys had kind of been in that range in years past. So just wondering how you are thinking about occupancy as a lever today and then maybe anything that you are doing different you think from your peers?

Yes, sure, happy to chat about that. Yes, I think -- I mean every portfolio is a little bit different depending on whether you are heavily urban, heavily suburban, different geographies. So, for example New York City tends to run higher typically than Southern California. So I think you have to look at sort of market occupancy across the footprint to determine if you want to be at the higher end, the lower end, etc.

What we have found for our portfolio is that being sort of in the mid-95% range really does optimize rate growth, occupancy such that we are delivering the best rental revenue growth. And the one thing that you also have to keep in mind is that we are putting an economic occupancy, which includes various factors, it is not just physical. So physical and economic are a little bit different. Just something to keep in mind there.

But we are comfortable operating sort of in the mid-95% range. As you may have noticed in the fourth quarter we picked up about 30 bps on a sequential basis from the third quarter in occupancy. And we probably gave up a little bit of rate doing that, but that was our expectation going into the fourth quarter. Particularly in certain markets where we saw supply starting to ramp up a little bit more in Q4 and going into Q1 of 2017. But mid-95% is sort of a range we are comfortable with.

Thanks for taking the questions.

Vincent Chao, Deutsche Bank.

I just want to go back to the development side for a second here. Thanks for the color on Columbus Circle, sounds like that is about 4.5 expected yield. But just trying to get a sense for the other $700 million or so that was started in the quarter. What the expectations on yields are for those assets, just given the fairly large decline in the overall pools expected yield from 6.4% to 5.9% would suggest that the other starts are sort of sub 5%. But just trying to see if there is anything else in there.

Sure, Vince, this is Matt. I can speak to that one. It is about obviously what comes into the bucket and what goes out of the bucket in any particular quarter. And this quarter we didn't have any completions, we have the five starts, as you noted.

The other four, Belltown Towers is a new high-rise in Seattle; that is kind of a high 5%s yields, basis around $515 a unit after you allocate something for the retail. So we think that is a phenomenal location and a great long-term asset. And a strong spread there relative to what that cap rate would be.

We also started a wood frame deal in Emeryville called Public Market which is a mixed use project where we will own the residential and we have a retail partner there. That deal is about a 6% yield on today's rents. And that is a deal that -- both of those are land deals that were struck probably two to three years ago when the land market was not necessarily reflective of where rents went kind of over the intervening two years.

The AVA Hollywood deal that is a low 5%s yield, basis around $500 a unit there and that is a market where we think there is strong rent growth in front of it. And then the fifth start was Teaneck, that is kind of a low to mid-6%s mid rise in suburban North New Jersey. So the basket as a whole did pull it down, but Columbus Circle would be kind of the outlier.

Okay, yes, yes, when I do the backwards math it seems like the starts would have to be a little bit lower than we just quoted, unless the existing projects -- did the yields change on those? It seemed like some of the rent per homes did come in for a couple of the projects.

Yes. No, I think -- I mean rents were down just a very small amount on the existing lease ups, so the yields might have ticked down a couple basis points there but nothing material. It is more about the basket.

Got it. Okay, okay, and appreciate the breakout between mid-rise, high-rise and garden. But I guess if you think about just the suburban urban definitions that you kind of outlined, how would that break up -- or how would the pipeline break up right now -- along those lines.

In terms of what is currently under construction?

Yes, right.

I think it is about -- almost half and half.

It is about half and half between suburban and urban in terms of what is currently under construction -- dollar value perspective.

We talked about how the starts for this year, they are all planned to be suburban. So it's a very different characteristic. Just to go back, I'm sorry, to the prior question. The other reason why the yield basket would have changed was in last quarter's number we also included some deals that completed in Q3 that fell off in Q4 and those deals had higher yields.

Got it, got it. Thanks. Okay, and then just in terms of the trajectory that you mentioned, you specifically called out Boston, Northern Virginia, San Jose as seeing some slow down in deliveries to year end. But just broadly speaking I guess, is your demand outlook shifting at all over the course of the year and should we think about the heaviest supply sort of being behind us by the middle of the year broadly speaking?

Yes, Vincent, this is Sean. In terms of I guess the broader way to think about it across our footprint at least is that the supply as a percentage of stock -- the footprint is relatively static through the first three quarters, starts to fall off in the fourth quarter and it really starts to fall off in a more meaningful way in mid-2018.

The composition among the markets does shift from quarter to quarter. So while you might see a modest deceleration in Q3 and Q4, some are up, some are down. The ones that I mentioned previously are the ones that are down in such a way that it starts to impact our portfolio more in the second half of the year, that is why I highlighted that.

Got it. Okay and the demand side we should be thinking about is relatively stable?

I think so, yes. I mean if you look at it, job growth, Tim talked about we are expecting job growth to be similar to 2016 levels. And depending on which market you are thinking about, there is a lot of different perspective in terms of the potential for upside or downside. There is a lot of discussion about deregulation and the potential impact on financial services in New York.

But people are also concerned about how long can Microsoft and Amazon be the anchors in Seattle. So each market -- there's probably commentary for each one in terms of the pros and cons on that job growth outlook.

Okay, thanks, guys.

And maybe just one thing to add, I mean demand of course tends to be seasonal as well. So you would generally expect demand to be stronger in the middle of the year relative to the beginning of the year and that generally gets reflected in average rent growth.

Okay, thank you.

Wes Golladay, RBC Capital Markets.

Sticking with the job picture, it looks like you guys are forecasting that 20 bps decline and your forecast for business is quite strong. So are you seeing any structural issue, just not enough high -- college educated employees to take those jobs? Or is it election uncertainty that is causing you to taper back your forecast this year?

Yes, this is Tim here. I think it is really a function of availability of labor when you are looking at unemployment starting to march towards the low 4% and then, as you know, for college grads it is probably more in the 2.5% range, which is the majority of our portfolio. And our market is going to be more college educated in general. So I think it is as much as -- it is probably being driven more by that just the availability of labor than anything else.

Okay. Now looking at 11 West, you guys looked at that as a JV. Do you expect maybe at some point this year to revisit that? Or is the bid/ask too wide, you just want to de-risk the project some more?

No, unless sentiment changed a lot so that it started to impact the market's view of value. I think right now there is just -- when you're looking at high-end residential and the street retail the market sentiment has been as chilly as it has been in probably anytime this cycle. So I just don't anticipate -- we don't anticipate that turning around, we just think that is sort of the wrong environment to capitalize or sell a part of a project.

So it is one of the benefits of having a great balance sheet and plenty of liquidity that you're not forced to sort of capitalize or sell into the face of potentially a declining market or poor market sentiment or declining market sentiment. So I suspect we will -- it is probably something -- it will be revisited when we see maybe, as I mentioned in our prepared remarks, maybe a little bit more spikier kind of valuations and we will just see it as a more opportunistic time to transact.

Okay, great. Thanks for taking the questions.

Juan Sanabria, Bank of America.

Just curious what changed with regards to your outlook on supply now being more comfortable saying 2017 would be the peak versus kind of comments at NAREIT in November. What kind of -- what did you get your head around where you feel comfortable making that statement at this point?

Yes, Juan, this is Sean. I can take that one and then Tim or others can speak to it as well. I mean we refresh our pipeline essentially every quarter and it gets a good scrub at year end as we take a look at what has been capitalized, what hasn't, etc.

So what we have experienced in the past is that -- and this is maybe what we alluded to at NAREIT -- is the construction duration on what has been built this cycle particularly in some of the markets like San Francisco and New York. It is urban, it is high-rise, it is a different construction cycle. There is more risk involved in an execution.

What we have seen is typically that a number of those deals end up getting delayed into the subsequent year for a variety of reasons. So what we try to do is estimate as best we can given the data that we have from third-party sources, from our internal teams, both operations and development, permit data, etc., and then handicap it.

So based on what we see today our expectation is as I alluded to earlier. But certainly there is still some risk that given the nature of the product being developed that some of it slips into 2018, similar to what we saw in terms of some of the 2016 completions slipping into 2017. Our initial expectation for 2016 deliveries was higher than where we actually ended up. And that may be the case for 2017 as well, it is just too early to tell.

Okay, great, thanks. And then just wanted to circle back on sort of the cap rate questions that have been asked around New York specifically. It seems like the part of the reason you decided not to JV the Columbus Circle was just a widening of the spreads there. Can you help us quantify kind of what that delta has been or could potentially be given the bid/ask spread or for high-end apartment core assets?

You know, Juan, to be clear I don't know that we have seen movement in cap rates, we just -- there hasn't been much in the way of trade. I think there is a different view around -- sentiment around risk and development risk. And what that might command in terms of a risk premium.

But Columbus Circle, as I mentioned, it is not a 421-a deal, that means it doesn't have a pilot, it doesn't have -- so it has fully loaded taxes which tends to impact cap rate. It doesn't have affordables, which might impact cap rates.

So this deal, to the extent that it traded in the market, it would trade at the very, very low end. I can't think of an asset that would trade at a lower cap rate. So even in today's market if we took this to market we think it would be -- we think it would be probably in the low 3s.

And then on the retail side the other part of it was that when we took -- when we went to market we just -- there was interest at a reasonable value, but the kind of commitment that people -- that organizations were able or willing to make against the forward obligation to take out the retail upon completion we didn't think sort of just justified that risk.

For instance we -- the market was telling us that maybe we could get a $10 million to $15 million, $20 million deposit against what might be a couple hundred million dollar obligation. And so at the end of the day just we felt sort of the risk/reward of that from the seller standpoint just didn't justify sort of stepping into that kind of transaction. And felt we would be better off owning it through construction ourselves and then ultimately start to capture some of the development profit maybe at some point down the road.

Okay, and just lastly if I could ask about San Francisco, about your view on rent growth in 2017 across the different submarkets and at what point do those markets trough if at all in 2017?

Yes, Juan, this is Sean. In terms of Northern California and San Francisco specifically, we are expecting it to be pretty weak in San Francisco all year, the weakest of the three markets within Northern California when you consider performance in San Jose, Oakland and San Francisco.

In terms of our revenue outlook, we are expecting the East Bay to be the strongest at roughly 3%, San Jose probably around 2% and San Francisco lagging considerably probably between 25 and 50 basis points in terms of revenue performance. And we are really not expecting much rate growth there at all in San Francisco, sub 1% certainly as you get into -- get through 2017 based on the supply that is pretty level throughout 2017. It doesn't really trail off until you get into 2018.

Thank you.

John Kim, BMO Capital Markets.

So on Columbus Circle the development is not branded as an Avalon product, is that by design?

(Multiple speakers) yes, Matt, go ahead, go ahead.

This is Matt. We haven't made a final decision on that; we are still a couple years away from leasing it. But given the rent levels and frankly the service level, while Avalon is our flagship brand and kind of highest level product and service experience, we do expect this to be a level above anything that you would find in a typical Avalon.

And so, there is brand equity in the Avalon name I think, particularly in New York. But it is a pretty unique and special product offering and it may be that it merits kind of its own brand identity.

And so, the yield you are expecting on a stabilized basis is not going to be as earnings accretive as your other developments. But you did mention the cap rate would be lower in the market. So are you basically saying that you are planning to sell the asset or joint venture the asset once it is complete?

John, not necessarily. I think what I was saying, this kind of location, this kind of asset, it just -- there can be opportunities to take advantage of sometimes a market where somebody else has a very low cost of capital, maybe it is a sovereign that just has to own the best asset in the market. And we have to be responsive to that if those opportunities arise. And I think particularly when you are looking at a trophy asset like this.

So I think it is just the recognition that by controlling it, it just gives us a lot of flexibility, we have two pieces here. Residential could potentially be converted to condominium at $2,000 a foot, it's a pretty good basis for that location. And it is going to be at I think a pretty high level finish, or talking about 10 foot ceilings for instance, which is unusual in a rental offering. And retail floor plates that are around 20,000 square feet, again pretty unusual in that part of the city.

And so, they just recognize by having control it just gives us optionality. And the best option at some point may be selling a piece of it or all of it at some point. So it is really about -- unlike a lot of our portfolio which you think about just kind of long-term kind of core hold that the sort of asset valuation doesn't necessarily fluctuate as much as it might at the very high end.

On your development pipeline and the breakdown between high-rise and mid- to low-rise, can you provide that same breakdown on your development rights?

It is mostly -- it is very little high-rise, in fact I am not sure there is any high-rise. I think at this point high-rise has pretty much been cleared. It is almost entire -- it is mostly in-fill mid-rise with some suburban garden. Matt, I think you actually have a more detailed breakdown.

Yes, as of the end of the year here our development rights, 10% were garden, 70% were mid-rise and 20% were high-rise. But that is really almost completely, maybe just the East 96th Street deal which is public/private partnership, which as we have talked about in the past is still a few years away from starting.

So it is heavily weighted towards that mid-rise kind of in-fill suburban. And again, that is kind of all of our starts in 2017 are either gardens or mid-rises. And actually our projected yield on today's underwriting on our 2017 starts is actually in the high 6s. So it will start to pull that average back up.

So, if you include East 96 it seems like your urban/suburban mix on the development rights is about the same as your current development pipeline?

No. No, the current development rights are about one-third urban whereas the current under construction is actually 60% urban.

All right, okay. And then on page 18 of your presentation you discuss how the Pacific Northwest and Northern California are expected to have the highest amount of personal income growth next year or this year. How much does this impact your ability to push rents if that somehow drops off a little bit?

It impacts purchasing power, I mean when there is more income in a catchment area and housing is one of the biggest expenses of any consumer, the more income they have they tend to allocate a reasonably sort of stable level percentage of their income to housing.

So it is -- at the end of the day, as long as demand and supply are roughly in line, what drives our business is really -- it's really income growth. And it is one of the reasons why places like Seattle and Northern California in particularly this cycle have dramatically outperformed. When you look at sort of the quality of jobs and the level of wage growth that we have seen and the kind of innovation knowledge base centers.

Thank you.

Rob Stevenson, Janney.

Sean, on page 20 of the slide deck where you have got your same-store growth, most of those candlesticks look all to be the same size to me. I mean when you think about it which markets have the greatest potential variability operations wise this year -- between the possible range of outcomes?

Yes, Rob, I mean I'd say it is probably the markets where you are seeing more significant supply combined with a job base that tends to be slightly more volatile just based on its history. So certainly San Francisco, we have dialed that in where we think it should be based on all of our history. But it's the tech sector, it can be volatile. We have got a baseline, but we know what the supply is and if the demand doesn't show up the way we expected you can see more deterioration there.

But on the other side of the coin, some people are calling for potential reacceleration of job growth there later this year, it could go the other way. I would say probably there and New York are the two places -- New York City specifically -- where you could see that to have the most significant impact on our portfolio given our allocation.

You could also say the same thing about Seattle and my comments earlier related to Microsoft and Amazon, but it is only about 6% of the portfolio, so it is not going to move the needle in a material weight given how much we have allocated there.

Okay. How close are you guys to signing an anchor tenant on the retail or anchor tenants at Columbus Circle?

This is Matt. We have not really started marketing it in earnest yet. I think we will be at ICSC in May. So we're really just now at the point where we are ready to start engaging in those discussions and we have brokers on board. So more to come over time.

Okay. And then just lastly, either Kevin or Sean, what do you guys think is the appropriate level in 2017 for recurring but non-revenue producing CapEx per unit?

Yes, Rob, it is Sean. In terms of CapEx, we came in around $900 per unit in 2016. And for CapEx in 2017 we are expecting it to tick up some to maybe about $1,000 a unit, about 5% of NOI.

Okay, thanks, guys, appreciate it.

Alexander Goldfarb, Sandler O'Neil.

Just two really quick ones. You mentioned New York and San Francisco I think as being your sort of most volatile markets. But just curious on the concession side from what you are seeing in the landscape, would you also say that those are the two markets where you see the most amount of concessionary competition? Or are there other markets that flag up for heavy concessions but aren't having an impact on your operations?

Yes, Alex, it is Sean. The Northern Cal market is the majority of the concession activity for us on a stabilized basis. It is about -- in Q4, as an example, it was about 60% of that cash concessions we issued. In New York where you are going to see that is all the lease ups. There is not a lot of concessioning on the stabilized assets at this point.

You will see a little bit here and there certainly depending on which submarkets you are in. But for the most part it is rampant across all the lease up assets regardless of which submarket that you are falling in just given the nature of the rent regulations and the policies there in New York City. But for the most part from a market perspective on stabilized assets you are seeing it in Northern California.

Okay. And then the second question is, as you guys morph towards more of your starts being in the suburbs are you seeing more competitor developers coming back into the suburbs? Or is that still pretty muted for all of the aforementioned reasons whether it is the difficulty in labor, land or getting construction financing?

Alex, it is Tim. I mean you have seen a pickup probably over the last two or three years. Bit as I mentioned in my remarks, it is still on the order of half as much. And I think we expect that to persist at least as it relates to deliveries over the next several quarters. We are seeing roughly in our markets if we are expecting 2% of total supply growth it is maybe on the order of 1.5% in the suburbs and closer to high 2%, almost 3% in the urban submarkets.

Okay, so, Tim, as you look over the next sort of 12 to 24 months you don't see more developers coming into your suburbs? You still see it as muted?

Yes. We actually -- as we mentioned, we do expect supply -- the deliveries to fall in 2018 but pretty commensurately between -- proportionally between urban and suburban. We expect suburban supply to be on the order of 1.25% maybe in 2018 and urban from about 2.8% to about 2.3% in 2018. So a drop of about 1.5% to 1.2% on the suburban side markets and from about 2.8% to 2.3% on the urban markets, so pretty proportionate.

Okay, thanks, Tim.

Jeff Donnelly, Wells Fargo.

Tim, I know it is maybe a little early to ask this, but with just the moderation in land inventory how should we think about the potential for starts in 2018 compared to the volume you are expecting this year? I am just curious if you expect that could level out or just later into the cycle as you discussed in your management letter. Should we expect maybe further pullback in starts?

Yes, Jeff. As it relates to 2018, as I mentioned, we have about $3 billion in the development right pipeline. That tends to be kind of deals that are going to start -- with the exception of maybe East 96th, but tend to be deals that we are going to start over the next three years or so.

So I don't think you will see $1.6 billion over the next few years. I do think it is likely to be in the $800 million to $1 billion range just based upon the deals that we can identify today that are just going to take another 12 to 20 months to get going.

That's useful. And then I guess, Kevin, maybe can you just talk about some of the major variables that bring you to the top or bottom of the guidance range for 2017? I am just curious if it is capital markets activity, development stabilizations or maybe some of your same-store metrics?

Yes, I think the biggest variable there is just going to be performance in terms of same-store. That is the biggest driver obviously of our NOI and FFO. The capital side of the equation could be an issue but, as I mentioned earlier, we have got -- against the $1.7 billion of net external capital we anticipate raising this year, we have $800 million of hedges in place that are mapped against the 10-year debt issuance that we expect to have this year. So probably not as many variables overall as there otherwise would be outside of community operations.

And for the contribution that is coming from the development stabilizations, I am just curious, how have the assumptions around that changed maybe in the last three, six, nine months? Just have you guys kind of altered maybe your lease up velocity or sort of concessions? I am just curious what might have shifted in your expectations.

Yes, in terms of lease up velocity and that type of thing, it hasn't really changed materially. I think the contribution really depends on the mix of assets, which markets they are in, etc., from year to year. But as Tim indicated in his prepared remarks, it is pretty similar between 2016 and 2017 in terms of the contribution from the external growth platform.

And just maybe one last question for you, Sean. I recognize that supply is expected to be maybe higher into accelerating the Pacific Northwest for example or the mid Atlantic. But as you look across your portfolios, in which cities and submarkets do you see the greatest overlap between the product coming online and your actual assets in -- your own assets in the submarket?

Yes, that is probably a few minute discussion to go through kind of submarket by submarket. I am happy to do that with you maybe off-line so that we don't run the call too long if you would like to go through the kind of market-by-market assessment.

Happy to do it, thanks.

Okay.

Rich Hill, Morgan Stanley.

Just in terms of expenses, there has been I guess some increasing dialogue about rising construction costs primarily due to a lack of available skilled labor. I was curious how much of that is baked into your forecast and how are you thinking about that?

Rich, this is Matt. Are you talking specifically about construction costs and development costs?

Yes, primarily construction costs related to lack of availability of people that know how to do things.

Yes. I mean we have certainly seen pressure in our construction budgets as deals go through our pipeline from development right to development community. When we start a community and we report it as a development community, at that point we have what we call a Class 3 budget and that is based on bid coverage on almost all of the major trades. And usually a pretty significant amount of the total budget has already been bought out by that point.

So what you see is there is usually not a lot of variability or not a lot of risk in whether it we'll be able to deliver the project on the budget once it starts. The risk for us is probably more in the deals that haven't started yet that if we underwrote we felt the hard costs a year ago were going to be X and now they might be X plus something. And if NOI hasn't grown to cover that then we might have some erosion in the economics.

And that is a risk and that also speaks to what Tim was talking about, about how we manage our land positions. And most of the land we are controlling at this point, the vast majority of those 25 development rights, is on land that we have under longer-term purchase contracts. Very little of it do we own given the starts that we had last quarter.

So there is some exposure there. I will say what we have seen is hard cost growth -- in most of our markets it is still rising faster than rents but not by perhaps the same margin as it was a year ago. So hard cost growth is not -- and again, that is a reflection of the fact that start activity is starting to stabilize and perhaps the next leg is down. So hard costs are still rising but they are not rising as aggressively. The question is will NOIs keep up?

Got it. Got it, that is helpful, thank you. Back to your presentation on page 17 of the presentation. I always like the charts that you guys provide. I was maybe curious, maybe even a little bit surprised about the comment that housing demand is more balanced. I take that to mean housing demand itself is not relative to multi-family, right? Because I guess our thoughts are that maybe the homeownership rate has stabilized but we don't see it really going higher. So I was curious if you are seeing sort of the same things.

Yes. No, I mean I think we are saying the same thing. The home ownership rate in the 63% range is starting to stabilize. And that is what we really meant, the fact that it is stabilizing is evidence that we are seeing more balanced housing demand between for sale and rent.

So whereas obviously earlier this cycle virtually all net new household formation was rental, we saw the opposite early in the 2000s and in my remarks I mentioned it is about as balanced as we have seen since 2000-2001. And that was not -- that was the norm for the 30 years before 2000. It hasn't been the norm in the last 15 years.

But increasingly when you look at demographics and kind of look at the distortions that have sort of been wrung out of the market, we think we are just going to see a more balanced housing picture. I think a lot of people are still calling for the home ownership rates to tick down a little bit, but we are operating under the assumption that we are seeing some normalization right now.

Yes, that is consistent with our view. I am curious, are there any markets that you operate in where you might be seeing more housing demand than you were expecting. or is it pretty much the same trend nationwide?

Yes, Rich, it is Sean. I mean for the most part if you are talking about customers leaving our communities to go purchase homes, now pretty much across all the markets it is well below long-term averages. The only one that is sort of running at long-term averages is in New England, people are buying homes at a consistent rate, at least consistent with long-term averages. All the other markets is still well below long-term averages.

Thank you. I appreciate it. Nothing else for me.

Ivy Zelman, Zelman and Associates.

Maybe we can talk about the fourth quarter a little bit and tell us what, if you could, what your renewal and new lease figures were; and then maybe what so far in January in 2017. And then I have a follow-up, please.

Sure, Ivy, this is Sean. In terms of the fourth-quarter numbers, blended rent change was 1.3% which is a reflection of renewals at 4.7%, and new move-ins down 2.25%. And then as we get in January, it is around 80 basis points, move-in similar to the fourth quarter but renewals are down to about 3.5%.

And then if you look forward into renewal offers, they are running around 6% for February and March. So it's starting to accelerate relative to the last few months and more consistent with the trends we saw last year.

And just to follow on that assumption for 2017, as you recognize some of the pressure from the supply and assumingly through the first three quarters, what assumptions are you using for concessions in your forecast for renewals?

Yes, for renewal specifically?

Specifically, yes, because as consumers recognize that rents are down in places like New York and other more competitive markets, I assume that there is something baked in that there will be concessions for those renewals to keep those tenants in the occupancy rate.

Yes, typically for us and for most, we don't do really concessions for renewals. The question is what is the rate you are going to get. So, for example, if we are making renewal offers at 6% for February and March, so it is probably going to settle maybe in the high 4% as an example. So there is a spread there in terms of what you negotiate to versus the original offer. Concessions really come into play on new lease (multiple speakers).

No, actually I apologize. I apologize, I meant recognizing what you are going to give them in concession on rate. I am saying the absolute rate. So is it you pressuring it 2%, 200 basis points? I appreciate that is not an actual concession.

Yes, the range is normally around 110 basis points or so. I would expect there potentially to be a little bit wider this year. So as I mentioned, it might be 1.25%. So if we are going out at 6%, maybe it is coming in at 4.75% or so, in terms of where they would settle out. That number does move around quite a bit.

But I'd say in the long-term, it is typically a spread of about 110 bps between what your initial offer is and where it settles out and what you actually get. So that is how to think about it for renewals.

Great. And then just lastly with respect to the back half of the year and appreciating your assumptions that you are making on unemployment and wage growth; do you have any sense in variability if employment growth is not, let's say, what it has been running in 2016, and it's something less than that? Like how much of a range and/or wage growth is dependent on achieving your expectations for 2017 within the assumptions?

Yes, Ivy, it is Tim. I can't tell you the exact sensitivity to the model. But as I sort of think about it kind of simplistically, if personal income growth is growing by roughly 5% in your markets and you are adding supply of 2 to 2.1, all things being equal -- again, not all things are equal but to the extent you have a relatively balanced housing demand picture, which we do relative to recent years -- that ought to equate into somewhere in the 2.5%, 3% same-store revenue growth from our perspective.

So as people are spending -- assuming people spend around a relatively stable percentage of their income on housing. Now those trends tend to sort of follow kind of on a multi-year basis, and they might in one quarter or a couple-quarter time period.

So I don't want to sound overly precise, but that is why generally, we only see negative, really consistently negative rental rate growth when we are in a period of recession; when you are actually seeing job declines and income declines in the face of -- even in the face of no new housing deliveries.

Got it. Okay, guys, good luck. Thank you.

(Operator Instructions) Tayo Okusanya, Jefferies.

Just a couple from me. Just given the comments about supply and, again, deliveries starting to slow down in the back half of 2017 going into 2018, and some of your thoughts around demand. Could you just give us a sense of how you expect -- what kind of same-store NOI growth you are generally expecting on a quarterly basis? Is the idea it is going to be tough in the first half and improve in the second half? Is it going to be better in the first half and tough in the second half?

Yes, Tayo, I think the chart that we provided on slide 21 gives you a sense of the sort of trajectory of revenue growth throughout the year, starting a little bit stronger in the earlier part of the year and then trailing off and stabilizing as we get into the back half.

You know, expenses are pretty choppy, so we provide a full-year number. But the timing of tax appeals, insurance claims, things like that, generally results in volatility from quarter to quarter that we try not to predict too much. Because we generally will get it wrong in terms of the timing of the appeals and things like that.

So payroll maintenance, the other things we can project pretty well, but those things create the volatility from quarter to quarter that we typically try not to provide much guidance on.

Got you. That is helpful. And then in regard to some of your new development starts in -- construction starts in fourth quarter, could you talk specifically about the Seattle and New York projects? And again, what I'm kind of looking for is there are some concerns about supply in that market. I am just trying to get a sense of where these two assets are relative to where some of the supply hotspots may be in both markets.

Sure, Tayo, it is Matt. The Seattle asset is in Belltown, so it is kind of on the northern edge of downtown. That is a submarket. In general, there is a lot of supply in downtown Seattle. So unlike say our East Side development communities which are currently in lease-up, which are enjoying a little bit less competition, that is in the fray.

Having said that, it is kind of on the north side of it. So it is a little bit removed from where kind of the heart of all the supply is, and it is not going to deliver for two years. So by that time, it should be coming on the back side of that wave of supply. But certainly that is going to be a competitive sub market.

The West 61st Street by comparison, one of the things that we have loved about that place from the beginning is it is a very unique and special location. And there is not a lot of supply coming there, particularly if you look out two years. It should have almost nothing to compete with.

Now, there is going to be supply in Hudson Yards, there is going to be supply in other parts of Manhattan. And to the extent it is a kind of regional market, obviously there is competition there. But for folks that want to live in that neighborhood with access to those schools, with access to that environment, all of the amenities, cultural amenities, everything that is there, we think that actually we should be pretty well-positioned in terms of the timing of when that is going to deliver.

Got you. And then for some of the other starts during the quarter, any of them close to supply hotspots or no?

Not really. I mean you look at Public Market, there is not a whole lot in the East Bay, which again East Bay has held up better partially because of that. So we like Emeryville. Hollywood is an area that is getting a reasonable amount of supply. Obviously, we are delivering in West Hollywood, which is about a mile away this year.

So that is a market that is going to continue to be competitive, but a very, very deep market there. And that is at a more -- not at the kind of price point that, say, relative to its submarket that, say, Belltown or Columbus Circle would be.

And Teaneck, there continues to be very limited supply once you get off the Gold Coast into Jersey, once you are in land. That market continues to be very solid and steady for us, and we continue to deliver -- beat our pro formas on the New Jersey stuff partially because of that.

Got you. Thank you.

Conor Wagner, Green Street Advisors.

Matt, earlier you mentioned that you haven't seen cap rates move, and I want to be clear that was a commentary in recent months. Could you comment on the level at all that you have seen them move in the last year? And if they haven't moved, is that an indication to you that people are willing to accept lower expected returns?

Sure. I guess what I would say -- I think over the last year they have been relatively flat, and I think your numbers I think show that, in terms of CPPI. Underneath that overall bucket, I mean what you hear is that maybe they are up a little bit on kind of core stuff. They are still every bit probably as low on value-add where there is more capital chasing less assets. So the composition of it might have changed a little bit.

I think you are right in the sense that people probably are underwriting softer rent or NOI growth than they would have been a year or two ago. So if cap rates haven't moved and presumably they are accepting lower underwritten IRRs. So that is why I say it remains to be seen. Not a lot of deals have been struck since the latest move-up in interest rates.

So there is talk that there might be a little bit of a bid-ask spread on some of the core stuff, and that is why some of that stuff isn't trading as much yet. So there is a dynamic that there is still a lot of capital looking to get out, albeit underwriting is probably not as aggressive as it was. And I don't think there are sellers that really need to sell assets. So it is going to be interesting to see how that dynamic plays out.

Yes, Conor, maybe just to add to that. I know based on how we underwrite assets when we look at residual cap rates, it is really not that much of a function what is happening currently because we are looking out whatever, 10, 15, 20 years, depending upon the pro forma you run. It is really more of a function of kind of normalized levels of interest rates and cap rates.

So I think to the extent that the market -- and my sense is you are seeing more of that -- to the extent the market assumed that, you would expect maybe asset values to fluctuate a little less. And just in terms of our underwriting and how we think about the value of our assets, it hasn't changed much over the last year.

Okay, thank you. Then, Tim, a follow-up. Your presentation you give a fairly optimistic view of the economy with business confidence, consumer confidence increasing. So in that environment and if you are also forecasting for stabilization or re-acceleration of rent growth, do you think that that would once again make development more attractive?

So how long do you think that the debt side can be a constraint on development either stabilizing or re-accelerating?

Yes, that is asking me to project behavior. You know, I guess the side of it that you didn't bring up really is what is going on on the construction cost side. So the margins aren't what they have been, just mainly because of what has gone on on the construction side. So that alone plus I just think regulator behavior, that tends not to -- that tends not to change overnight. We will see whether a new administration changes that.

But you talk to banks, I mean the one thing they are definitive about is we are not making -- we are not accommodating multifamily capital requests like we were a couple of years ago. And part of that is just the regulators leaning on them. So I think there's other factors at play just in terms of just kind of the pure economics of the business.

But I think you make a fair point. I mean to the extent that it is still a profitable business, it is going to attract some capital and we don't think -- we don't see it going from 2% to 0.5%, which it happened in cycles in the past. I think it is likely to go down maybe into the 1.5% range here over the next two or three years.

But, Conor, even in our markets which tend to be a little bit more supply constrained; not as much as prior cycles because of what has happened on the urban side. But I don't anticipate seeing the same kind of dropoff that we have seen maybe in past cycles.

Great, thank you very much.

That will conclude today's question-and-answer session. I would now like to turn the call back over to the Company for any additional or closing remarks.

Yes, thank you, Noah. I think we have been on for a while. So I try to respect people's time and thank everybody for joining us today. And remarkably, I think we will see a number of you in just a few weeks. So take care. Have a good day.

And that does conclude today's conference. Thank you for your participation and you may now disconnect.