住宅地產 (EQR) 2015 Q4 法說會逐字稿

Good day and welcome to the Equity Residential fourth-quarter 2015 earnings call. Today's conference is being recorded. At this time I'd like to turn the conference over to Mr. Marty McKenna. Please go ahead.

Thank you, Angela. Good morning and thank you for joining us to discuss Equity Residential's fourth-quarter 2015 results and outlook for 2016. Our featured speakers today are Dave Neithercut, our President and CEO; David Santee, our Chief Operating Officer; and Mark Parrell, our Chief Financial Officer.

Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities law. These forward-looking statements are subject to certain economic risk and uncertainties. The Company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.

And now I will turn the call over to David Neithercut.

Thank you, Marty. Good morning, everyone, thanks for joining us today. We've got a lot to go over today, and we will start with David Santee providing some color on operations, talk a little bit about how last year ended up, some discussion on our core markets, and our overall outlook for 2016. I'll then discuss the acquisition and disposition activity that we are planning this year that will be in addition to the recently completed $5.365 billion sale to Starwood. And, finally, Mark Parrell will take you through how our operating outlook and transactional and other assumptions impact our 2016 earnings guidance, our regular and special dividends, our recent debt repayment activities following the Starwood sale, and liquidity.

Before we get started I wanted to make a couple of general comments because we all read and listen to the same things the rest of you do, and we know that there's a lot of volatility around the globe and across the financial markets. And there are a lot of questions about how that is currently impacting or might soon impact the domestic economy in general and our business in particular, because there have also been some reports of increasing apartment vacancy and declining rental rates.

Like you we don't have a crystal ball. All we can tell you is what we're seeing real-time in our business. And what we are seeing is some markets a bit behind where we had expected at this point, and others a bit ahead. But in total, portfolio-wide, we are where we expected to be one month into the year with 30 days forward visibility.

And as in recent years renewals tell a lot of the story. Renewal increases in November, December and January were all plus 6%, and we will also achieve plus 6% growth in renewal rents in February. Portfolio occupancy today is 96.1%, very much in line with our expectations and quite strong for this time of year.

All in all, we're pretty much where right where we thought we would be when we gave our initial guidance for 2016 back in late October. With that said, I'll let David go into more detail about our markets, our current outlook for 2016, and why we think this year will be another good year for the apartment business and for Equity Residential.

Thank you, David. Good morning, everyone. During Q4 turnover continued to decline with a quarter-over-quarter reduction of 7% in gross moveouts. For the full year, turnover declined 40 basis points from 54.9% to 54.5%. And then net of intra-property transfers turnover decreased 50 basis points to 48.5% from 49%.

Our continued focus on minimizing Q4 and Q1 lease expirations continues to produce more operational stability, as occupancy once again remained stronger through the historical Q4 seasonal slowdown. Moveouts to buy homes increased only slightly across many markets for the quarter and the full year.

With rents continuing their rapid ascent across more markets, it should come as no surprise that affordability, our second-largest category for moveouts, increased from 13% to 14.1% for full year. Yet demand for quality apartments in great locations has remained steady thus far.

Similar to 2015, we again start the year from a solid foundation of occupancy, exposure and pricing levels across most of our markets. Today occupancy, as David mentioned, is 96.1%, and exposure is 20 basis points lower, with net effective new lease rents up 3% year over year versus same week last year.

While not the record-setting renewal increases we enjoyed in 2015, we achieved a 6.4% increase on our January offers, and February will deliver in the same range. These early indicators, coupled with continued favorable job growth, fewer deliveries in a core markets but, more importantly, the submarkets that we operate in, gives us the confidence to stand by our preliminary revenue guidance range of 4.5% to 5.75%. However, we are mindful of the headwinds from the headlines and the potential odds and impact of the US economy entering a recessionary environment.

Our 2016 revenue guidance is again led by the West Coast, with San Francisco leading the way, followed by Los Angeles, which continues to show momentum in both new lease and renewal gains. Our 2016 buckets of revenue growth again includes San Francisco, Los Angeles, Seattle and the remainder of Southern California all expected to exceed 5% revenue growth for the full year.

Boston and New York metro remain in the 3% to 5% bucket as concentrated new supply in each of our submarkets continue to dampen pricing power for new leases. Washington DC once again remains in a bucket of their own and we have projected revenue growth of 1% to 1.3% for full-year 2016.

Our total portfolio assumptions based on 75,123 same-store units that drive the midpoint of guidance are 2.3% embedded growth from 2015, 3.5% average new lease rent growth, and 6% average gain on renewals. Occupancy and turnover for 2016 are modeled to be flat.

Expense results of 2% for the quarter were extremely favorable versus our forecasted 4.3%. Even with our optimistic adjustments that were made prior to our last earnings release, we were unable to predict the full impact of a commodities route and record high temperatures, which allowed us to deliver full-year expense growth of 2.5% versus guidance of 3.1%.

The two drivers of the 230 basis point pickup, or approximately $4 million, in Q4 were spread almost evenly between utilities and payroll, with the unseasonably warm weather materially influencing both. The rapid price decline across all relevant commodities, combined with record warm temperatures through December, allowed us to beat our original forecasted savings almost threefold for the quarter, resulting in an additional $2 million pickup across heating oil, natural gas and electric.

Also, the warm temperatures, combined with a 7% decline in Q4 moveouts, allowed us to achieve our historical salary forecast. But the need for contract labor and overtime was virtually nonexistent. This, in addition, to favorable employee bonus and health insurance accruals, allowed us to achieve an additional $1.7 million in payroll savings for Q4, bringing our forecasted total of 4.3% down to the 2% for the quarter and 2.5% for the full year.

Expense guidance for 2016 of 2.5% to 3% is once again driven by real estate tax growth of 5.25%, with 190 basis points of that 5.25% attributable to our New York portfolio 421 tax abatement burn off. Like 2015, we would expect minimal growth, if any, across the utility accounts. Payroll should come in between 2.5% and 3%. And all other account lines will show flat to minimal growth as the impact of increased minimum wages and Affordable Care Act costs incurred by our outside vendors were already absorbed into our cost structure over the past two years.

So, going around the horn and starting with Seattle, I'll give some brief market highlights, some revenue expectations and expected deliveries that, combined, influence our thought process for our full-year 2016 revenue guidance. Seattle will see an 8% decline in new deliveries from a little over 9,000 units in 2015 to approximately 7,200. Knowing that Amazon will continue its large capital investment and delivery of almost 4 million square feet of new office space in downtown, and the continued migration of regional and corporate headquarters from the suburbs, Seattle should be able to absorb this new inventory with minimal disruption, just at it has done over the past two years, and as evidenced by the 3,100 units that have been absorbed over the past two quarters.

San Francisco will once lead all EQR markets as constraints to new development are all around. However, like any market where there is concentration of new supply, near-term pricing pressure will always follow. As a result of the new deliveries in the urban core, pricing has appeared to revert to normal seasonal patterns, with net effective new lease rents up only 4% today.

As expected, properties closest to the urban core are experiencing the most pressure, while properties further down the peninsula continue to enjoy year-over-year rental rate growth in the mid teens. With lease up velocity exceeding normalized expectations, San Francisco metro should experience rapid absorption and deliver another year of high single-digit revenue growth, as evidenced by our year-to-date billings that exceed 9.6%.

While headlines are quick to recognize the slowdown of DC tech spending, the large-cap giants continue to buy, lease or build new office space in anticipation of future growth and elevated hiring. But as we all know, trees don't grow to the sky, but our dashboard tells us that fundamentals remain strong. Renewal offers issued through March remain in double digits and, if history plays out, we would expect new lease rents to seasonally adjust up from the mid single digits we see today to higher levels as we move closer to peak leasing season.

With embedded revenue growth of 5.5%, renewal rates achieved averaging almost 10%, and new lease rents averaging 7%-plus for the full year, we would expect our portfolio to deliver full-year revenue growth in the high single digits.

Los Angeles fundamentals appear to be coming on strong. With the anticipation of a breakout year for the LA economy and the pro business city government, the rebranding of downtown as a world-class city, coupled with meaningful additions to infrastructure and transportation, cause us to be very optimistic in LA's ability to absorb the 7,600 new deliveries expected in 2016. Given the concentrated nature of deliveries in the South Park and Hollywood submarkets, we see no major hurdles to strengthening fundamentals and revenue growth as net effective new lease rents are up 7.3% with both occupancy and exposure significantly better positioned versus the same dates last year.

Orange County and San Diego should continue to see above-average growth, with 2016 deliveries of 3,600 and 2,400, respectively. These levels are on par or slightly less than 2015. With the concentration of assets delivered during 2015 being in Irvine and in close proximity to a large percentage of our assets, we would expect to see better results in 2016 as pressure on new lease pricing subsides.

Our Boston portfolio continues to face pricing pressure as 2015 backloaded deliveries remain in lease up. With only 2,200 deliveries scheduled for 2016, which is a 62% decline, and a lower concentration in the financial district in downtown, we would anticipate a window of improvement late this year and early into 2017 before an estimated 5,000 units are again delivered in 2017.

To date 19,000 units have been absorbed in the past two years without the disruption that one might expect. With GE announcing their headquarters relocation and the continued biotech-related job growth, Boston should deliver results very similar to what we achieved in 2015.

For New York metro, we expect to deliver 3% revenue growth as new supply will impact certain submarkets. After delivering average annual revenue growth of 4.9% for the last 16 quarters, the performance of our Manhattan portfolio will be greatly influenced by almost 2,000 new units on the Upper West Side, which makes up almost 30% of total revenue for our New York metro area.

Most of these projects are luxury, with unit mixes that skew towards two- and three-bedroom apartments, and of late have been more difficult to lease, and, as a result, ends up with a greater economic vacancy loss. While occupancies remain above 95%, we expect Upper West Side new lease rates to be flat or slightly positive until the majority of these new deliveries are absorbed.

We continue to see strong fundamentals in pricing in our other Manhattan submarkets -- the financial district, Gramercy, and Chelsea. Collectively these neighborhoods should deliver revenue growth in line with our historical averages that I noted earlier.

Another New York metro hot spot is Jersey City or the Hudson waterfront, where over 1,000 new units were delivered in late 2015 and another 1,500 expected in 2016, all concentrated in a one- to two-mile radius. Thus far we have not felt the full impact as year-to-date revenue growth is holding at 3%.

Brooklyn will also deliver a number of new buildings but these are north and further east of downtown, with the new supply being smaller in unit count and less desirable based on amenities and location. We would expect moderate impact in Williamsburg and less so in downtown Brooklyn, as both EQR communities in this location are delivering in excess of 4.8% revenue growth through February.

Again, as new supply comes online in concentrated areas, new lease pricing will be under pressure, and we see that in our net effective rents today. However, occupancy remains strong across the portfolio at 96.1%. Renewal rate growth should average plus 4% for the portfolio that, combined, will produce full-year revenue growth of approximately 3%.

Washington DC will experience declines in deliveries to approximately 11,000 units in 2016 after absorbing over 28,000 units in the previous two years. With positive revenue growth in Q4 and full year we are cautiously optimistic about near-term performance. Should absorption maintain its velocity, DC should begin to deliver more favorable revenue growth as new lease pricing pressures ease. With job growth in the professional services sector continuing to improve, an increase in DC business activity as a result of the election year, and more of the 2016 deliveries in the suburbs versus Arlington and DC, we continue to be optimistic about the long-term performance of our portfolio.

In summary, we continue to see favorable fundamentals across all of our markets. At this point in the apartment rental cycle it is much too early to be influenced by the negative headlines that we all read each and every day. We remain focused on what the data tells us and we will respond appropriately. Today our dashboards tell us that not much has changed and that apartment fundamentals, at least for the first quarter, remain strong, leading us to believe that 2016 will be yet another year of performance above long-term trend.

Thank you, David. We're very pleased to have recently closed our sale of 72 non-core assets totaling 23,262 apartment units to Starwood for $5.365 billion or $231,000 per unit. And particularly pleased to realize an 11.1% unleveraged IRR on these investments, inclusive of indirect management costs over an extremely long hold period.

This sale was a result of an incredible effort by a lot of folks here at EQR who worked practically around the clock to get this deal done. And I think all of them for their dedication and commitment. And I also think those who left the Company with the sale of this portfolio, some of whom have been with us for more than 20 years. We are most grateful to all these people for their service to our residents and the Company.

On our last earnings call when this transaction with Starwood was first announced we explained that this disposition accomplished several things for us. First, we realized a very good pricing on assets in markets not considered core for us, and on some assets in our core markets that didn't quite fit our long-term strategic vision.

The second thing we accomplished is that we can now focus solely on our strategy of owning, building and operating assets in higher density urban locations with close proximity to public transportation, job centers and other amenities that cities have to offer. As we have discussed with many of you since the original announcement of this sale and the sale of $700 million of additional assets in 2016, would result in a special dividend of $9 to $11 per share. And that decision was made due to the challenge we saw of trying to recycle $6 billion of capital in today's marketplace, where we continue to see strong institutional demand for core assets in gateway coastal cities and very competitive pricing as a result of that demand. We continue to believe and are grateful for the support of so many of you who agree with us that returning much of these proceeds to our investors through a special dividend in a balance sheet neutral way is the best capital allocation decision we could make on behalf of our shareholders.

Since our original announcement the Starwood transaction demand for multifamily assets in our core markets has continued unabated, and so we have considered the sale of several additional assets that, due to either operational challenges or submarket issues or pricing potential that we simply thought too good to pass up, might represent additional timely opportunities to monetize our interests in certain actress and modestly increase the size of this year's special dividend.

Last week, for instance, we sold one of three assets acquired from a Macklowe in 2010 when we paid a total of $475 million for the entire portfolio. This particular property, River Tower, was sold for $390 million, or $1.2 million per door, at a yield in the low 3s% for a five-year unleveraged IRR, inclusive of indirect management costs, of 14%. This sale was previously contemplated and was accounted for in our original special dividend guidance of $9 to $11 per share.

In addition, we've also started work on the potential disposition of another $600 million of possible sales that, if consummated, could increase the dividend by another $1 or so per share and, hence, the new range of $10 to $12 per share noted in last night's press release. I want to be perfectly clear because I'm sure many of you will have questions about this, we backed up the truck once with the sale of Starwood, we have no intention of doing so again. But, as I said, we are working on a limited number of additional sales yet this year that could bring our special dividend up to the $10 to $12 per share.

Our guidance also assumes that we will sell an additional $300 million by the end of the year, 100% of which would be redeployed for the new acquisitions. And that level of activity is accounted for in our guidance towards the back half of the year at a negative yield spread of 75 basis points. This additional $300 million of activity will only occur if we can find suitable investments for which we are willing to trade out of current assets.

So, the guidance provided in the press release is for $7.4 billion of dispositions, comprised of the $6.1 billion we announced last October, nearly $400 million for River Tower, another $600 million expected to be sold during the year, adding additional $1 per share to our special dividend, and $300 million of sales that will occur if and only if we can find suitable reinvestment opportunities. Our acquisition guidance of $600 million is roughly $300 million of 1031 reinvestments to cover some very large tax gains of certain unaffiliated limited partners as a result of the Starwood transaction, and $300 million of additional possible acquisitions in the back half of the year, and matched up with dispositions in the normal course of managing our portfolio.

I'll now turn the call over to our CFO Mark Parrell.

Thank you, David. I want to take a few minutes this morning to talk about our guidance for 2016, and that includes both the annual dividend and the special dividend, our recent debt prepayment activity, and then I'll close with a discussion of sources and uses in 2016.

Our range for normalized FFO for 2016 is $3 to $3.20 per share. This range is larger than usual due to some of the uncertainties over transaction timing. I'm going to walk you through some of the bigger highlights at this point.

The biggest reconciling item between 2015 and 2016 normalized FFO is, of course, the reduction we will experience in net operating income of about $345 million -- that's about $0.90 per share -- from our transaction activity, including Starwood. The second big item going the other way is the use of approximately $1.7 billion of those disposition proceeds to prepay debt. That creates an $80 million or $0.21 per share benefit or improvement in interest expense.

I will pause here and note that we are expecting about a $10 million decline in capitalized interest in 2016 versus 2015, and I did include that in the $0.21 per share improvement number that I just gave you. So, once you get past the transaction and debt activity our normalized FFO is driven by the usual suspects, and that includes an increase of $0.23 per share in same-store NOI and an increase of $0.12 per share from lease ups.

And the final items are just a variety of other individually less material items that reduced our normalized FFO estimate for 2016 by about $0.02 per share, and they include, among other things, lower income from unconsolidated entities, and that's due to the sales in 2015 of the last few Archstone JV operating assets. So, this brings our normalized FFO guidance midpoint for 2016 to $3.10 per share.

Now I'm going to move on to the dividends. For the annual dividend, as you know, it is our intention to pay 65% of the midpoint of our normalized FFO guidance as our annual common share dividend. Given the midpoint I just discussed of $3.10 per share we would expect to pay $2.015 per share for the year or $0.50375 per share per quarter in 2016.

Also, we expect to pay two special dividends which will total between $10 and $12 a share. The first special dividend is anticipated to be paid in the second quarter and is expected to be about $8 per share. There's less variability in our minds about the size and timing of this first special dividend, given that the Starwood sale and some of these other sales have already occurred, but of course our Board of Trustees retains discretion on all dividend matters.

The second special dividend has been modeled in our guidance at $3 per share based on our existing disposition guidance number as well as numerous assumptions we had to make about the exact timing and amount of the gain per asset, and our 2016 operating income and other tax variables. Similarly, the timing of the payment of the second special dividend is less certain in our minds and will, like the amount of that dividend, ultimately depend on when these sales close, the number of sales that close, and certain other tax variables.

Now, onto the bond tender and our other recent debt payment activities, consistent with what we said on the earnings call back in October, over the last two weeks the Company has prepaid prior to maturity a total of $1.7 billion in debt through an unsecured bond tender and early repayment of a large secured debt pool. In mid-March we also repaid using the cash we now have the $270 million of March 2016 unsecured bonds that were not tendered.

Collectively, the Company will incur approximately $112 million in prepayment penalties, and that will be recorded as additional interest expense in the first quarter and it will impact EPS and FFO but will not impact normalized funds from operations. These debt repayment activities were funded with a portion of the proceeds from the Starwood sale and our other recent sales, and are intended to maintain, and they do in fact actually slightly enhance, the Company's already strong credit profile.

We now expect net debt to EBITDA for 2016 to be about 5.8 times and fixed charge coverage to be about 3.6 times. And this compares to our already strong 2015 net debt to EBITDA ratio of 6.1 times and fixed charge coverage of 3.5 times. And I'm computing all these fixed charge coverage ratios using the more stringent rating agency methodology, which does not reduce interest expense by capitalized interest.

Also, our near-term maturities are now greatly reduced and, in fact, we currently have only approximately $330 million of debt maturing in 2016 consisting of $60 million in secured debt that matures a little later in 2016, plus the $270 million of unsecured notes due in March 2016 that were not tendered, as I discussed previously. Our 2017 maturities have now been cut in half and now total about $600 million.

The Company's liquidity position is excellent. Currently we have $3.5 billion in cash and our $2.5 billion revolving line of credit is undrawn. We also have no commercial paper outstanding.

At the end of 2016 we expect to have about $50 million in cash. And the revolving line of credit and the commercial paper program, between the two, will have about a $300 million balance. And that is certainly a lot of inflows and outflows in one year, so I'm going to take a minute and just give you a little background on that in the bigger pieces.

For the full year 2016 we expect net inflows from buys and sells of about $6.8 billion. To date we have sold approximately $5.9 billion, which is inclusive of Starwood, and we have not acquired any properties.

We have assumed paying about $4.25 billion in special dividends. As I just said, we expect to pay the first in the second quarter of 2016 in the amount of about $3 billion, and the second later in 2016 in the amount of approximately $1.25 billion.

We anticipate repaying approximately $2.1 billion in total debt during 2016. As mentioned earlier we have already retired approximately $1.7 billion. We further expect to spend about $250 million during the year. That's mostly for the prepayment penalties I referred to previously and about $40 million or $45 million of transaction costs on the dispositions.

We expect to spend about $600 million in development activities during 2016. And the final piece of the puzzle is positive cash flow from operations of about $200 million, and that $200 million number is net of our annual dividend and our capital expenditures.

In order to balance our sources and uses, we have included in guidance a $200 million to $250 million borrowing later in 2016, which we have assumed will be a secured loan. And we expect to have the revolver drawn or to have CP outstanding equal to about $300 million.

And I will now turn the call back over to Angela, our operator, for the Q&A session.

(Operator Instructions)

Nick Joseph with Citigroup.

Thanks. David, I appreciate your comments on the uncertain macro environment, but from your comments it doesn't sound like there's been a large impact to the transaction market. So, I'm wondering if we were to enter a recession, how do you think asset values would hold up in the gateway markets versus the secondary markets?

Thanks, Nick. Good question. I think that history has demonstrated that these gateway market asset values hold up better and recover more quickly. I think we experienced that certainly through the last recession. And the markets in which we're focused today we saw rents recover quickly and surpassed, established new highs, and values performed similarly. So, we are quite comfortable and confident that we are in the right markets for the long term, and think we are in the markets that will perform, and should outperform, if there is any sort of recession on the horizon.

Thanks. And with all the asset sales, the same-store pool is changing considerably in 2016. It looks like it's about 70,000 units. So I'm wondering if you can give for the 2016 same-store pool what their revenue expense and NOI growth was in 2015.

It's Mark Parrell, Nick. It was broadly similar. Revenue was slightly lower, as you might guess from losing Denver, which was a strong market, but it was within a couple tenths of a percent of the same numbers we reported for 2015 for the existing same-store set.

Okay. So, you're not expecting -- for those existing same-store, there's not much of a deceleration expected in 2016.

Correct.

Not relative to the 2015, what would be the same-store set in 2015.

Correct. So, comparing the 93,000 units in 2015 to the 70,000 we expect in 2016, there's no meaningful difference in our minds.

Okay, thanks. And then, finally, for the same-store buckets that you laid out earlier, have any of the market outlooks changed materially since you gave the preliminary guidance three months ago?

No. I would say that when we go through the budget process that we just wrapped up and Mark reviews, I would say that some started off the year a little differently than we expected but we still feel that full-year results are intact. LA is definitely much stronger than we expected. Orange County, San Diego, much stronger than we expected. San Francisco starting off a little slower than we expected primarily due to just some of the lease ups and the impact on the closer-in assets. But everything else is really right where we thought it would be.

Thanks.

Steve Sakwa with Evercore ISI.

Thanks. Maybe David Santee, could you just comment a little bit more on San Francisco? It's clearly a market that has captured everybody's attention. Just curious if you're seeing anything in terms of just the leasing activity, traffic, roommates situation, just any color that you could offer. I can appreciate the difference between the urban core and maybe the Peninsula. But just any more color you could give us around that market, what you're seeing in terms of future renewals and traffic coming in would be great.

We've spent a lot of time over the last week or so as we went through budgets. Traffic really remains identical to last year. Our level of applications, which is really the canary in the coal mine, are identical to last year. I think San Francisco, we looked at rent growth on a property by property basis.

I would tell you that some of the other developers have different philosophical approaches to lease ups and different tactics that are probably not warranted, in my opinion, relative to the strength of market, but nevertheless we'll have to deal with that. Anecdotally I can tell you that we've had a graphic design guy that's been at Equity for probably 14,15 years that took a job in San Francisco, and basically he's renting a couch in someone's apartment because there still remains a housing shortage. I think this temporary dislocation, given the seasonality of the market, will repair itself over the next 30 days.

Okay, thanks. And a follow-up question on New York, I noticed on the development page that both of your New York properties had relatively slow leasing. And I can appreciate the comments you made about the Upper West Side, and maybe the 170 Amsterdam project is falling victim to some of the oversupply on the Upper West Side. But just anything you could comment on in New York. Are the developments, were they below your expectations? And if so, what do you attribute that to?

The recent activity we attribute to a couple things, Steve. Number one is just we have less activity in the fourth quarter particularly in lease up. So, I wouldn't read too much into fourth-quarter statistics or recent statistics on lease up.

The other thing that happens is that when you get into the later stages of leasing up a building you have less inventory and so you are less able to accommodate everybody who walks through the door. You can imagine, if you'd walked through the door early on you've got all the ones, all the studios, all the twos, and can accommodate a wider price range in whatever product we have. Now you're getting to a point where you've got less inventory in particular ranges and you may not be able to accommodate everyone, so it just will naturally slow.

And on the Upper West Side, as you note, it's being impacted by other deliveries, and we have larger units with the inventory yet to lease at our Amsterdam deal, and those will just take more time. But, all in all, we've been pleased with those assets and have been thrilled with the value we've create there and they'll get it stabilized and do certainly well for us.

Okay, thanks.

Nick Yulico with UBS.

Thanks. First, Mark, on the guidance, I wanted to see if it was possible to just get a range for the total NOI in dollars for the portfolio this year?

A range total NOI in dollars?

If you don't have it immediately available I can maybe just wait on that. And then, secondly, can you talk a little bit about -- it looks like you guys may have a contract to purchase an asset in DC, which I don't think you've done for a while. Could you talk a little bit about what was behind your thinking there?

As we noted back when we announced the Starwood transaction, we had close to $300 million of 1031s we were going to have to do to cover some gains for some unaffiliated investors. A property came available for sale in DC in the U Street, 14th Street corridor, that we thought we could buy at an attractive rate, a mid 4 cap rate. We thought it was a good trade and would be a good asset to cover. We obviously have a big operation in DC and the guy thought that it represented pretty good values of walk score of 99 in that very highly desirable marketplace for the demographic that was living in the city.

Thanks.

If I could just revert back on your question, for 2016 -- and this is total NOI so this includes our projected acquisition NOI, this includes the few weeks of Starwood, this is just the totality of it -- between $1.6 billion and $1.65 billion would be a good number.

Okay, perfect. Thanks, guys.

[Garab Metta], Cantor Fitzgerald.

Thanks. Good morning. Just a couple questions on your investment activity. The additional sales, $600 million and then $300 million at the end of the year, where are those assets located?

The additional transactions that we had first announced that we would do in addition to the Starwood transaction are generally in Connecticut and Massachusetts. So, it's the residual assets that were acquired with the Grove transaction back in the late 1990s.

The other properties that, in addition to that, was the River Tower transaction, which I noted we did in New York, and a couple other properties in California that we are considering selling that are in various stages of that process. And then of the $300 million that I talked about that would be disposed if we can find appropriate trade assets, my guess is you'll see a little bit here and a little bit there. There's been nothing specifically indicated at this time.

Okay. And then the 75 basis point CapEx spread is narrower than the 100 basis points you have been doing for some time now. Is that expected to continue or is it just for this year reflecting the quality of assets that you're selling?

Yes. I can't tell you what that spread will be going forward in the normal course of our business but, yes, it should certainly narrow because the assets we will be trading in the future, in the normal process of managing our portfolio, will be assets in our core markets. And those will trade at a tighter cap rate to the assets in which we'd acquire in those trade markets as opposed to selling assets in the secondary non-core markets that we have been selling over the past half a dozen or so years. So, yes, it will be a narrower spread than historical. I don't know exactly 75 or not, but certainly much more narrow that what you've seen in the past.

Okay, thank you.

Dave Toti with BB&T Capital Markets.

Good morning, thank you. David, a quick question for you on the strategy of shrinking the Company, along the dimensions of at one point does it become a structural change? And are there any associated G&A impacts or internal management realignments as you go through the year on the dispositions?

The strategy has not been to shrink the Company, but to rather take advantage of what we thought was very strong pricing on assets that we knew we didn't want to own or did not make sense for us to own long term. In terms of any change in G&A, there will not be a big structural change. There might be some little changes that may have to occur but you won't see a big structural change as a result of selling what we have sold and what we intend to sell over the balance of the year.

Okay. And then my second question just has to do with your thoughts on the acquisition market. More specifically, what would have to change in the environment in the second half of the year to make acquisitions more attractive from your perspective? Would it just simply be pricing or change in the capital environment?

David, the investments are really a function for us of -- the acquisition market is a function of the disposition market. So, it's where we believe we can trade, and where we can acquire assets relative to the prices and the yields at which we can dispose of assets, which represent the capital for that reinvestment. We're just really working both sides of that equation. There are times in which the bid-ask spread is wide and you won't see us transact. You'll see others in which it narrows and we think it would be an advantageous time to transact. So, I think that's really the answer to your question, is it's just how we look at the value of what we want to buy relative to the value of what we want to sell.

Okay, that's helpful. Thank you.

Andrew Rosivach with Goldman Sachs.

To set this up, Mark, when you said the 5.8 times debt to EBITDA, is that assuming 16 run rate EBITDA with growth on it, and the debt is net of all the transactions that you guys are announced and planning?

Yes. The EBITDA number is what our true 2016, so it does include a little bit of Starwood income we won't have next year, it does include the growth, and the debt is the year-end number.

Got it, okay. So, it's not like a perfect run rate to run rate.

No, but I would expect 2017 not to be dissimilar to that 5.8 or to be slightly better, given what we expect on growth, and the fact that we've also effectively covered all our liabilities for a bit.

Got it. Here's what I was going to ask -- if you look at UDR today, they've got a three-year plan that actually implies their debt to EBITDA will be even lower than this, actually half of where they were in the fourth quarter of 2009. We've had your distant cousins, if you will, in student housing just recently very dramatically take down their debt to EBITDA even lower than your planned levels. Massive dilution associated with doing that but the stocks have actually behaved very well. My big picture question is, do you think that public REITs need to dramatically change their leverage relative to where they've been historically?

Every REIT's got to look at its business model and its particular volatility of its income, and we look at ours. We've got a pretty diversified portfolio. You've got debt maturities. We've got very little maturing in the near term. You've got interest expense coverage approaching 4 times. You really have outstanding metrics in every regard here.

And the unencumbered pool at our Company is the secret -- not so secret -- credit strength. We have about, even after all the sales this year, about $1.2 billion of our NOI that I quoted earlier is unencumbered, and that just gives us huge flexibility.

So, when we think here, when we talk to our Board, when we discuss this, we're always interested in making sure we are comfortable defensively, and positioned so that we can do things offensively. And, honestly, with the liquidity we have and with the access to the kind of channels of capital we have, I feel very comfortable with these numbers. Other people with different platforms and different volatilities in their income streams probably need to be lower.

We also have relatively little development. Because of that, again we can run the balance sheet in a different manner. So, I think it's a custom, no one-size-fits-all. It's just applying thoughtful principles to whatever your strategy is and whatever your income stream is.

In your back pocket you can do a $1 billion equity offering, dilute your earnings, and your stock will probably go up. Thanks for taking the question.

People did that in 2009 and it only lasted for a little while.

It feels a lot like that. Understood. Thanks a lot, guys.

Dave Bragg with Green Street Advisors.

Thank you. Good morning. Can you spend a little time talking about development? What are your thoughts on the appropriate level of development for you at this point in the cycle, and given your cost of capital? And what are your plans for development starts in 2016?

After starting an average of $1 billion in each of 2013 and 2014, we, I think, communicated pretty directly and quite early to the Street that number would come down, and it did, starting only $375 million or so in 2015. And deals that we could start if we feel the desire to do so of similar amount in 2016, Mark's guidance assumes about $350 million of starts.

As Mark noted in answer to the last question, we have seen our development exposure come down considerably. Land is very expensive, construction costs are up, yields are down. And as we look at the yields that are available in the marketplace we just don't think that they make sense for us. We are also not inclined to go further out into the suburbs in order to chase yield because our strategy is to be focused on the urban core. We think that the total returns will perform better in the urban core than in the suburbs.

There's not a function of us saying we want this amount as a percentage of our equity footings of our balance sheet or that percentage. We just look for opportunities and when we find ones we think make sense for us we will not be shy pursuing them. But they are just getting more and more difficult to find.

We did acquire some sites in San Francisco in the SoMa district last year, three properties which were assembled. We will work on those going forward and we will see. Those might be a potential 2017 start.

But we've been quite clear, I think, for quite some time that after an elevated level of starts in that $1 billion range as a result of the land sites that came to us in the Archstone transaction, that number would likely come down and, indeed, it has. We're happy where we are. If we can find opportunities that we think makes sense for more, we will be happy to do more. But I don't see us for some time ever getting close to the $1 billion start rate that we saw in 2013 and 2014.

Okay, great. Thank you for that. And the second question relates to CapEx. What are your expectations for CapEx spending in 2016?

Dave, it's Mark Parrell. I'm just going to refer you to page 23 where we have our CapEx guidance. What we've done is we've expected -- and this is on the 70,000 unit set that will be our new same-store, we think, by the end of the year -- that we expect to spend about $2,200 per unit. This year -- this year being 2015 -- we spent $1,800, effectively. That was on the 93,000 same-store unit set.

So, what we've done is we've tried to think about this as a percentage of NOI, as a percentage of revenue. And with the Company's new higher rent per unit and new higher NOI per unit, when you look at $2,200 that's about 7% of same-store revenue for the new 70,000 units, and about 10% of same-store NOI. And that's exactly, really exactly, identical to the $1,801 we spent as a percentage of lower same-store revenue per unit and lower same-store NOI per unit. So, really proportionally it's about the same. On a per-unit basis it goes up just like our per unit rents are going up.

I would say it's our contention that over time high rise and mid rise on a capital basis will cost less as a percentage of NOI than running a garden portfolio. But that contention will play out over a longer time period than just two years.

Great. Thank you, Mark.

Dan Oppenheim with Zelman & Associates.

Thanks very much. I was just wondering if you could talk, in terms of San Francisco you talked about the expectation that as we go through the spring season you're hoping that it will be better trends in terms of the new lease growth there. Wondering in terms of the guidance for the full year how much of that is based on that expectation of improvement versus being based on the embedded rent growth that you have at this point based on the strength of last year.

At, call it, a high single digit with five-and-change built in, we know renewals will deliver in the high single digits, which is roughly 50% of our revenue growth. Really, as far as contribution of new rental rate to the overall full-year revenue growth it's about 25%.

Great. Thanks very much.

Greg Van Winkle with Morgan Stanley.

Hey, guys, are you starting to see a bigger difference in pricing power between A and B quality properties in your core markets?

I'm not sure we've seen any change. I think that there's been very strong demand for the good-quality product, and that demand will push other buyers maybe to lesser quality products. I don't think there's been any real change over the last year, six months, 90 days between the two. Our teams came back from the NMHC meetings in Orlando last month quite confident that there continued to be really strong demand across all qualities in these core markets, and have really seen no let up whatsoever.

Okay. We're continuing to see a lot more supply growth in the urban cores and the suburbs. My question is, do you think the apartment industry is building the right amount of product in the right places today? And I know you guys talked about you have a view of the urban core as the place to be in the long run, and we are seeing more demand growth there than in the suburbs right now, but do you think in the near term there might be some overbuilding there relative to the suburbs in some markets?

I can only answer the question or judge that by the success we've had leasing up the properties that we've developed in the urban core, and the strength has been just incredible. Washington DC over the last several years has delivered 30,000 units and occupancy hardly budged. Now, we didn't have a lot of pricing power for several years because, as David indicated, we hope to see that change in 2016.

I think there's more product being built downtown because more people want to live downtown. And I have questions about how many people want to leave downtown to move to the suburbs to live in a structured box. We just think long term that this move to urbanization is not a short-term but a long-term phenomena. And we're very much positioned where we want to be now, particularly having sold what we sold and what we intend to sell for the balance of the year. Statistics will be quite clear with respect to the percentage of our income from the urban core, the walk scores of our properties, et cetera, will be without peer in our space.

All right, great. And then last one just quickly here, on your occupancy guidance you're expecting it to remain about flat in 2016 at 96%, I think. Do you think there's any room you have to drive occupancies higher? Or would you rather not see it climb much more if it means you're not pushing hard enough on rents?

That was our thesis back in late 2014, 2015, was that demand increased organically. We did not do anything to grow our occupancy. We are pretty much a net effective shop and we will let the rents and demand be the guide. Certainly San Francisco is a great example of where demand far outstrips supply, and we saw a 100 basis point pickup in the previous 18 months, while still increasing rents 14%, 15%. That's the job of LRO and our pricing team, is to optimize that balance with occupancy and rate each and every day.

Great. Thanks, guys.

John Kim with BMO Capital Markets.

Thank you. I had a question on right-sizing your common dividends. I realize it's prudent to maximize retained earnings and keep your CAD ratio low. But some investors unfamiliar with your Company maybe you would cut as a negative event. I'm wondering if that was factored at all into your decision-making, particularly given the new real estate GICS classification.

It's Mark Parrell. Honestly, in a year where we're planning to pay our shareholders an $11 special dividend, it didn't occur to us that the annual recurring dividend would be the topmost concern, and that going down. It needs to make sense relative to our cash flow in good and bad times. It needs to be resilient so when operations do decline we're not in a position where the dividend is immediately uncovered.

We have a policy, we think that transparency has a lot of value for people, and that predictability has a lot of value. We didn't think about freezing the annual dividend in order to just preserve those optics. We think people in the long run will see through that.

Okay. And then are you doing anything different this year as far as marketing to non-REIT investors or maybe something you may change in your reporting? There are some beneficial items such as asset sale gains that are not reflected in earnings and may not be as apparent to equity investors.

Sure. This is a very important year for REITs. I think it's a terrific opportunity for us to market to a wider set of people whose eyes are open to the benefits of owning real estate in a public format. So, we do intend to be pretty aggressive this year in reaching out to generalists, to people who don't own. And we are trying to think about things in a more general way instead of getting into specific statistical information that some of our more longer-term investors are more focused on.

I think some of these generalists are more focused on broader demographic trends, broader population usage, people being more interested in the urban core and maybe not owning cars. Those are facts that of more interest to some of the generalist investors than per square foot rent numbers or per square foot build number.

So, yes, we do have a big focus this year on that, and we do intend to discuss both earnings and the way they think about it and IRRs and the way we think about getting the most you can get out of a portfolio. And a lot of our activity this year, as you point out, was about maximizing the IRR on some of these assets and returning capital, which we think is good for all shareholders generally and our dedicateds.

So, are you contemplating an alternate to FFO or core FFO?

No.

Okay. Thank you.

Tom Lesnick, Capital One Securities.

Thanks for taking my questions. First, I think earlier in the call you mentioned some softness in some of the larger units, particularly in New York City. I was just wondering, is there any evidence of that being a more widespread trend? And is there any evidence of a stronger homebuying environment being attributable to that?

No. This is David Santee. There's really no change in homebuying in our core markets. I think the focus on the two and three bedrooms is limited to the Upper West Side and perhaps our new developments. But when you are 96%-plus occupied across most markets, you generally have a good mix of product.

Typically in New York the majority of our units are studios and one bedrooms. So, the fact that we have so few, and the fact that those so few are more vacant, really causes us to focus on that from a revenue perspective. I don't see any other issues in any other markets relative to demand for larger apartments.

Got it. And then my second topic was Airbnb. I was just wondering, first, if you could quantify what financial impact at all that has had on your business. And then, secondly, have you met with them, and is there any progress there on resolving some of the issues?

Let me answer your first question. The economic impact on our business, we have no way to determine that. There is no deal signed. There is no agreement in place at the moment. Should we entertain an agreement, I would say that economic benefits would be at the bottom of our priority list and it's really more about gaining transparency and control of what's going on all around us today.

So, regardless of what happens, I don't see any direct material economic benefit to our Company, perhaps more so with residents and those who choose to participate in the sharing economy. But I think we have a ways to go before anything meaningful comes with that.

All right. Thanks for taking my questions.

Michael Lewis with SunTrust.

Thank you. You've given a lot of good detail on San Francisco. I wanted to ask, more specifically, it looks like the Mission Bay development is leasing up a few quarters ahead of schedule and I was wondering if that's due to maybe getting a little bit more aggressive ahead of some competing new supply, including some other projects you guys are working on, or if it's more of an organic thing, that demand has just been that strong. And actually a similar situation for your Odin development in Seattle.

It's really the latter. You answered your own question, really, Michael. Honestly, demand is that strong in that marketplace. Now, Mission Bay has been impacted a little bit as of late because of some competing supply in Mission Bay but that's absorbing very quickly. And Ballard, our deal in Odin in Seattle is essentially the same thing. There's just that much demand for this kind of housing in these locations. Our absorption has been, in those assets, much faster than what we had thought, at rates that met or exceeded expectations. So, we're obviously very pleased with both of them.

Thanks. And then on New York, similarly, you've given some good detail on the submarkets in New York. Last week SL Green made some comments on their call about slowing job growth and retail sales that panicked office investors and maybe apartment investors, as well. I'm just wondering if you're concerned about the job growth picture there. And as you think about your markets where there's risk -- so, not necessarily the weakest performers like maybe DC but where there's risk where things could fall off the table -- is New York that market, or is San Francisco that market that might concern you a little?

This is David Santee. I think perhaps there could be some short-term dislocation in the quality of product that is being delivered in New York. The only way you can build an apartment building in New York is through a 421-a subsidy. And the rents command at top end of the market. But there are plenty of people that make considerable amounts of money that can afford those types of buildings.

So, I think what you see is what we see in every other market when we have a concentration of deliveries, is there's near-term impact. I don't see New York falling off a cliff. It's the number one place that people want to be in the world. And I think should there be any short-term dislocation it will come back even stronger than it did before, as it has every other time that it's taken a dip.

San Francisco, I just think that, even though you're delivering new apartments in the urban core, the area is still under-served as far as affordable housing. And when you look at the job projections across San Jose, San Francisco and Oakland, you are looking at 122,000 jobs in 2016, and delivering only 6,000 apartments. So, I don't see anything materially changing in San Francisco.

Thank you.

Rich Anderson with Mizuho Securities.

Thanks. Mark Parrell, you mentioned the $2,200 of CapEx. How much of that would you put in the revenue versus nonrevenue buckets?

Of that we have about $725 per unit which equates to about that $40 million rehab number. It's hard for me to put a precise percentage. Certainly there is a percentage of that's more or less deferred maintenance but a great deal of it is optional. We talk about it at investment committee.

And, in fact, we would probably also add that there is some sustainability stuff in those numbers that has a pretty good ROI on it. So, Rich, I can't give you a precise number. I think it's probably more revenue enhancing than it is just necessary capital in that rehab category, but I don't have some specific number for you.

Okay. Thanks. David Neithercut, can you qualify the nature of your buying public here? I know with the $700 million you are expected to sell, that was supposed to be individually or small portfolios. Is that changing at all? And is the audience of potential buyers with FIRPTA and the changes in the nontraded REIT world changing along with it?

Certainly nothing's changed with respect to those assets that are in Connecticut and Massachusetts that we talk about as the Grove assets, which were the additional dispositions that we announced that we would sell when we announced the original Starwood transaction. Those are small assets, local and regional players. We have got some of those under contract today. In our last investment committee discussion, the team running that told us that they were saying those bids come in just pretty much as they had expected, with the same cast of characters that they had expected. So, really no change there.

With respect to any other change as a result of FIRPTA, I think that many of those investors are still trying to figure that out. They've been operating under one set of guidelines for a long time and now they're trying to figure out with the new set exactly how they might want to move forward. So, I wouldn't say that we've seen any change at the present time.

With the $600 million that are contemplated in addition to the $700 million, would that be more like a large portfolio all at once or also in piecemeal?

No, there are some larger assets involved in that. It's fewer assets than what you might think. Just a small handful.

Okay. And then the last question is, you had a humongous deal. Number one was buying Archstone and now this humongous deal number two is selling to Starwood and other asset sales. What's the crossover there? What percentage of the Starwood sale came from the Archstone buy?

I'm not sure if any of it did. Maybe one or two assets, at most.

Okay. Interesting. Okay, thank you.

Alex Goldfarb with Sandler O'Neill.

Good morning out there. Just some quick questions. On San Francisco and then comparing it to Seattle and the Peninsula, it sounds like the rent softness in the fourth quarter was purely supply as opposed to a slowdown in jobs. But if you could just provide some perspective with what you're seeing across those three tech-oriented markets on the job front over the past three to six months.

For San Francisco versus Seattle?

Yes. And the Peninsula, as well.

Okay. Seattle continues to be in high demand. Amazon continues -- we look at the online job openings, they are still in the 4,600 to 4,800 range. A lot of the supply continues to move around. I think you'll see that supply skewed towards Bellevue in 2016. But as far as job growth in Seattle, we see that very strong in 2016. 2.3%, almost 44,000 jobs expected in Seattle.

In San Francisco, I would say we didn't see any softness in the fourth quarter. I think that's what you asked me. I think that the softness more appeared right around the holidays and as we came into the new year. When you look back over the past two years in San Francisco, rents in January were up 15% over the previous year, and in January 2014 rents were up 13% over the previous year. You're just starting at a different point.

And when you look at the makeup of pricing both in San Francisco and the Peninsula, the urban core is being affected by what's being delivered down there today. But the job growth outlooks down the Peninsula I think are very favorable. Every day we are reading about, whether it's Oracle, whether it's Apple, whether it's Airbnb in the City, all these large companies continue to lock up office space or land or have already started building other office headquarters. So, I don't see any slowdown in the jobs in San Francisco. And I think the softness on the rate that we see today is very concentrated as a result of new supply.

And, Alex, I'll just add, we're doing a lease up in San Jose today in which we actually saw acceleration in activity in December from what the averages had been from the prior month starting in September. Seattle, someone mentioned about our property in Odin -- leasing up extraordinarily well. Our Vista 99 leasing up externally well. And then, as we talked about in Mission Bay, we're leasing up against some competition. That slowed down a little bit but that's not going to be an issue. Those units will absorb quickly.

Okay. And then the second question is for Mark. Mark, a two-parter. One, have you now repaid all the associated Archstone secured debt? And then, two, I think in your comments you said that you guys are contemplating a secured issuance at year end. If that's the case, just a little more color, maybe the joint venture asset or there's some particulars with that why you're going secured versus your normal unsecured route.

Thanks, Alex. On the first question on the Archstone secured debt, except for the tax-exempt debt that we inherited -- we inherited several hundred million dollars of floating-rate, very inexpensive Archstone tax-exempt debt -- we have repaid all the secured debt that we inherited from that transaction, after repayment of the pool that we mentioned in the press release.

On the second question, again it's just an assumption. We haven't done a large secured debt pool in a while. It's also a fairly small borrowing. The unsecured market really has a strong preference now for larger borrowings and larger borrowers like us.

So, I wouldn't go to market on a non-index eligible $200 million unsecured deal. I'd go with something larger like $500 million. So, given our relatively modest needs, my sense is we do a secured deals. We haven't done one in a couple of years, a large pool, so it would probably be good to feel that market out and see what all the terms exactly are, as well. But that's really more a function of just the size being relatively small.

Okay. Appreciate that perspective. Thanks, Mark.

Wes Golladay with RBC Capital Markets.

A quick question on your pro forma exposure. Do you have that by market, assuming the Starwood transaction and the contemplated $2 billion of dispositions?

Yes, and we've actually added that Wes, those properties that we have under construction, on a stabilized basis. And it roughly breaks down where, on the East Coast, Boston is about 10%, New York is 19% or 20% or so, and DC about 18%. So, a little bit under half on the East Coast.

And then around 9% or so in Seattle, about 20% in San Francisco, and 25% throughout the three markets in Southern California -- so, LA, Orange County and San Diego. So, a little bit more than half on the West Coast. And, again, that's after the Starwood sale, after everything else we're contemplating selling and putting online and stabilizing all that is currently under development.

Okay. And then for the first quarter do you guys have the NOI expectations for the quarter, excluding the NOI earned from dispositions, so a core NOI expectation for the quarter?

That's a pretty heavy level of detail. We will give it a whirl. I think we would suggest that same-store NOI for the first quarter of 2016 would be approximately $400 million. And that goes into the $1.6 billion I quoted earlier.

That number goes up throughout the year so it's a little below $400 million in the first quarter and ends up being above it, obviously. And then you've got lease-up income, which, in the first quarter, might be $10 million to $15 million and by the end of the year is more like $20 million. But, again, I think we are getting into a great deal of precision at this and there will certainly be variability.

Okay, thanks for taking a stab at that. Last one, when you look at DC, how do you see that market playing out throughout the year? Do you plan to get more aggressive during peak leasing season this year versus last year off for the renewals?

I would say that you've seen our renewals gradually increase over the last two or three years. I think two years ago we did a three. Last year we did a four. This year we are tracking at a five. But, really, what will be the catalyst for DC is removing the pricing pressure on new leases.

I think once people get to a place that they are comfortable with, that's close proximity to where they work, and the amenities that they enjoy outside, they tend to stay. So, it's just a matter of getting the new people in the door at a higher rate. And when you look at the distribution of new deliveries this year, you're going to deliver far more units outside of what we call close in Arlington and the District itself. So, I think the stars are aligned to start seeing better performance come from our DC portfolio.

Okay, thanks a lot.

Tayo Okusanya with Jefferies.

Good afternoon, everyone. Just a quick two-parter around guidance. On the lower end of guidance and the assumptions behind it, is it safe to say that scenario is strictly based on the outlook of there's a recession in the US? Or is there more behind that lower end of guidance?

And then on the other side of the equation, is there any scenario you can think about where you could actually end up doing better than guidance, similar to what happened in 2015?

When we put guidance together it isn't that different this year. What we do here, Tayo, is we think about what the NOI range would give us, how many cents on either side, and then we think about our acquisitions and dispositions, which are usually -- we know them within a certain fairly close tolerance.

The lower end of that range is only accessible if dispositions were accelerated. We do not get there from our NOI numbers. And as David Santee has indicated, we have no reason to believe we'd be certainly anywhere below our NOI guidance range.

So, I tell you we only get to $3 if we announce next quarter that we have sold a lot of what is in process now very quickly. So, that really is the way you get to the bottom of that range. It isn't because we contemplate a recession in our numbers.

And I'll just take this opportunity to go a little bit further and talk about the trend of FFO by quarter. Because we are going to give you -- we've given you a guidance midpoint of $0.75 for the first quarter. And that will go up, we think, modestly every quarter, and will be slightly over $0.80 by the time you get to the fourth quarter.

As you look forward, it isn't the same sharp increase you're used to seeing from us because there is some dilution, but I think at the end you'll still see a number $0.80 or so by the fourth quarter and probably a little bit higher.

Okay. And then on the other end of the spectrum, when you think about opportunities to outperform guidance?

That would come from dispositions being delayed and NOI either from lease ups or from same-store doing considerably better than our current expectations.

Got it. Okay. Thank you.

Nick Joseph with Citigroup.

It's Michael Bilerman. Mark, that's exactly what I wanted to ask you in terms of the run rate. So, effectively you're going to end the year, let's call it, 325 -- 320, 325 on an annualized basis. When you take out the special dividend your multiple will have contracted relative to when you announced the Starwood deal. So, there clearly is some uncertainty in the marketplace when people see a headline relative to what the underlying valuation really is. And while your dividend is going down, you're actually increasing your yield on a post-dividend basis, as well, by 20, 25 basis points. So, hopefully when people sift through it and start thinking about where your multiple is on a post-dividend basis it would clear itself up, right?

Agreed in every respect.

And then the second question I was going to ask was just related to New York and the Upper West Side and the Trump buildings. Clearly there's a lot of Trump news over the last number of months. I'm just curious whether that has had any effect, both positive and negative, potentially, as he supports New York values, on your buildings and any leasing activity there.

Who? (laughter) Michael, it is what it is. It will be what it is for a while, would be my guess. It's interesting to watch. And I will tell you I don't think anybody who lives in our properties particularly cares. It just is what it is.

Okay, thanks.

There are no other questions at this time.

Great. Thank you all for your time today. I look forward to visiting with you all as the year progresses.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation.