住宅地產 (EQR) 2016 Q2 法說會逐字稿

Good day, and welcome to the Equity Residential Q2 2016 earnings conference call. This call is being recorded. Now at this time I will turn the call to your host, Marty McKenna. Please go ahead, sir.

Thanks, Jake. Good morning, and thank you for joining us to discuss Equity Residential's second quarter 2016 results and outlook for the year. Our featured speakers today are David Nethercutt, our President and CEO; David Santee, our Chief Operating Officer; and Mark Parrell, our CFO.

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 risks and uncertainties. The Company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.

I will now turn it over to David Nethercutt.

Thank you, Marty, and good morning, everybody. Thanks for joining us.

Clearly, 2016 will not turn out to be the year that we had originally expected, due to deteriorating market conditions in San Francisco and New York City, which, combined, made up 50% of our initial growth forecast for the year. As David Santee will discuss in greater detail just a moment, at the time of our first quarter earnings call, nearly all indicators suggested that while the top end of our original expectations was off the table, another year of solid upper-4% growth in same-store revenue was most likely, as strong demand continued to absorb new supply with little impact to existing inventory.

The month of May, however, brought sudden and material changes to the fundamental picture, particularly in San Francisco, in a 50 basis-point reduction in the Company's expected revenue growth for the year. In the last 60 days, fundamentals have continued to weaken in these markets, causing us to yet again reduce our expectations for full year revenue growth, which, for the first time in many years, is now expected to have a free handle; and as a result after five years of extraordinarily strong fundamentals, revenue growth this year will now be more in line with the historical trends.

Like many of the participants on today's call, we too would prefer revenue growth with a 4% or even a 5% handle, but markets do reset from time to time either due to new supply or changes in the demand side of the equation. Unfortunately at the present time we are experiencing both factors in two of our most important markets. The weakness we are experiencing in San Francisco and New York City is driving the reductions in our revenue growth expectations for the year.

With that said, I'll let David Santee go into more detail about what's occurred over the last 60 to 90 days, how it's impacted [dust] during the primary leasing season, and our expected results for the year.

Thank you, David. Good morning, everyone.

This morning I will address or revise same-store revenue guidance and give you some color on the overall operations. As Boston, DC, Seattle, and Southern California are all generally performing in line with our expectations, I'll focus my commentary on San Francisco and New York. I'll welcome any questions you have on our other markets in the Q&A.

Today Mark will address our same-store expenses in his remarks. As David said in his comments, we will not meet revenue expectations that we announced in June. And that is due in large part to the continued volatility that we are seeing in San Francisco and to a lesser extent New York, as these markets work to absorb new supply. Together these two markets accounted for approximately 50% of our expected revenue growth in 2016. And the deterioration in both markets is driving more volatility than we have experienced in our portfolio over the last half-dozen years.

Now that markets are less stable as result of elevated supply and pressure on the highly compensated job sector, optimizing occupancy comes at a cost for rate growth. And when we gave revised guidance in June, San Francisco new lease rents had gone from being up 5% in Q1, down to flat in a matter of weeks. We assumed that as a result of some of the irrational pricing we saw on new lease-ups, that we would see rates deteriorate further into negative territory, but that we could still achieve similar occupancy as we moved through peak leasing season. We felt comfortable about occupancy because the last week of May, occupancy was 20 basis points higher than the same week last year, and exposure was 20 basis points lower.

We thought certainly if Seattle could absorb elevated supply with minimal disruption, San Fran could do the same. Our forecast for San Francisco new lease rents to go negative proved to be true very quickly, as new lease rents are now negative 3% versus same week last year. Unfortunately, over the next four weeks, our occupancy assumptions for San Francisco missed the mark, and today we sit at 95.8% occupied, 110 basis points lower than the same week last year. The deterioration of both metrics and the knowledge that new supply continues to be delivered through the rest of this year and heavily in the first half of next has led us to lower our full-year growth expectation for San Francisco to be around 6.5%, down from our expected 7.75% in June and the original 9.5% growth we expected when we gave you our original guidance in Q4 of last year.

San Francisco accounted for about 1/3 of our same-store revenue growth in 2016, and so this decline, along with New York City, accounts for the 100 basis points off of the entire portfolio. In San Francisco, we have seen a sizable amount of new supply, over 8,000 units, being delivered in 2016, and it is all at the high end of the market. This supply has hit the market at the same time that job growth in the tech sector has hit the pause button. We still see good demand for units, as evidenced by how well our newly completed developments are leasing up, but we are feeling the impact of our target demographic having more choices than before.

In the second quarter, our lease over lease delta was up 2.1%. In July, it was up 95 basis points, while renewals were up 8.6%. Occupancy was 96.2%, and turnover, excluding same property transfers, increased 30 basis points from same quarter last year. Through Q2, turnover excluding transfers was down 30 basis points from 25% to 24.7%. Looking forward, new lease rents are expected to remain in the minus 3% range for July and August. Our renewals achieved for July are 8%, and currently 6.9% for August. Again, occupancy is 98.5% but is on the expected seasonal upswing as students return to school.

Now switching to New York: when we gave guidance in June, it was clear that New York was going to deteriorate further, and we were comfortable that we had forecasted the appropriate mix of rate and occupancy for the balance of the year. New York job growth expectations were at the time stable. While the economy there appears to be on solid footing and the overall job growth is at expected levels, the bulk of jobs added to date are mid-level compensation price jobs, dominated by hospitality/leisure, followed by health care. Professional services, our demographic, typically the higher-paying jobs held by our target demographic, was a close third.

The New York market continues to work to absorb approximately nearly 9,000 units this year. And with the great majority of that supply at the high end, absorption has not been as robust as we would expect. As a result, it's possible that 2016 deliveries will carry over into 2017 lease-ups. We are already expecting a more elevated pipeline of new product scheduled for delivery in both 2017 and 2018. The concern in New York is that these elevated levels of supply may lead private and fee managers to elevate upfront move-in concessions beginning in the fourth quarter of 2016.

In our shop, as we immediately take a [test] charge in our same-store revenue of the full concession in the month of move-in, our revenue stream would be more impacted this year than if we amortized those concessions over the term of the lease. For example, year to date we would have reported a 4.5% if we had straight-line concessions versus the 4.4% that we reported. As a result, sequential quarter-over-quarter and full-year revenue growth will be more impacted this year.

Much of the new supply delivered in 2016 has been focused on the West Side, Jersey City, and Brooklyn -- all very competitive to our same-store portfolio in the market. 2017 will see deliveries across a number of sub-markets, especially Long Island City and Brooklyn, but the West Side will see continued deliveries as well. Our current expectation for full year same-store revenue growth for New York is now around 1.5%, which is down from the 2.25% growth expectation we had at the beginning of June and the 3.75% growth expectation we had to start the year.

New York accounted for about 15% of our expected 2016 same-store revenue growth. In the second quarter, our lease over lease delta was minus 80 basis points. And July is minus 95 basis points. Renewal rates achieved were 4.3% for the quarter, with July at 3.3%. Renewals achieved thus far for August and September are 3.4% and 2.8% respectively. Turnover excluding same-store same property transfers increased 100 basis points quarter over quarter to 10.1%, and 100 basis points year to date to 17.4%. Today occupancy is 96.2%, with new lease rates slightly negative.

Before I close I want to assure you that no one is more disappointed about having to lower our guidance again, more than the entire team here at EQR as well as myself. I can also say that each stop along the way we worked diligently to give us the best estimate at the time, based our collective experience. As David said, at the end of April, occupancy, exposure, turnover, renewal rents, new lease rents -- all indicated another good year in San Francisco. Unfortunately, as we continued to increase rents in May, the market decided to get conservative, and we had to react accordingly. We are obviously experiencing extremely volatile markets, and this volatility is very difficult to predict. Perhaps in hindsight we were initially over-optimistic on San Francisco, given the levels of new supply. Bottom line this year, but based on our dashboards at the end of April, and later in early June, we would never have predicted the fall-off in new lease rent and occupancy that we experienced to date.

David?

Okay, thank you, David.

As noted in last night's earnings release, we have also made some changes to our expected transaction activity for the year. Dispositions have now been reduced to $6.9 billion, down from $7.4 billion. This $500 million reduction is a result of three factors. First, about $150 million of the non-Boston [winwood] assets that are in various stages of the disposition process will not likely close this year, and will carry over into the first quarter of 2017. Second, the original disposition guidance included a $200 million portfolio of assets we have decided to hold for the present time as we see continued upside on both operations and valuations there, and think a sale at this time would be premature. And lastly, as noted in last night's release, we did not acquire any assets in the second quarter and have reduced our acquisition expectations for the year by $150 million. Since any incremental acquisitions will be funded by sales proceeds, we have reduced dispositions by a similar amount.

During the second quarter we did sell three non-core assets for $112.5 million at a 5.7% disposition yield and a 9.3% unleveraged IRR. In addition to selling these assets in Arizona, Massachusetts, and Connecticut last quarter, we also sold our entire interest in the military housing at Joint Base Lewis and McChord in Tacoma, Washington, and realizing a gain of $52.4 million. And we've been involved with Lewis and McChord since 2002, during which time we renovated over 2,200 homes and built more than 800 new homes for men and women who called the joint base home while serving our country. We're very proud of our work at Lewis and McChord in the last 14 years, and it was really our honor and privilege to be involved there.

With regard to our development business we commenced construction on one small development project in the second quarter in Washington, DC, where we are building 222 units for $88 million or $396,000 per unit at an expected yield on costs at today's rents in the mid-5%s. The deal is in the NoMa market and will be delivered in late 2018 and is expected to stabilize in late 2019. We are also currently working on two small projects totaling $90 million that could start construction yet this year with a weighted average cost at today's rents in the mid to high 5%s.

During the second quarter we also completed construction in our lease-up of 3 new development deals all in the San Francisco market, two downtown and one in North San Jose. These assets are leasing extremely well and are experiencing monthly absorption rates in excess of original expectations. From a pricing standpoint, like our same-store portfolio, we are not achieving the rents we hoped at the beginning of the year, but the rents we are achieving are well in excess of those underwritten at the time that these sites were acquired and construction was commenced. As a result, these assets will provide stabilized yields from the high 5%s to high 7%s, which are well in excess of our original expectations.

I'll turn the call now over to Mark Parnell.

Thank you, David.

Today I will be giving some color behind our same-store expense guidance and the change to our normalized FFO guidance. I will then discuss how the change to our normalized FFO guidance impacted the remaining special dividend payment and our debt issuance guidance. In all these cases I'm comparing the guidance numbers we gave you in late April 2016 as part of our first quarter earnings call, to the revised guidance we provided last night. As you might recall, the June 1 press release only revised our same-store revenue and NOI ranges.

Moving on to the same sort expense side, we have left our annual same-store expense range at an increase of 2.5% to 3%, and this is notwithstanding the fact that same- store expenses year to date have only grown by 0.9%. This implies that we expect second-half same-store expenses to grow at a considerably higher rate of about 4.6%. As usual, our Big Three expense categories of real estate taxes, utilities, and payroll, will drive these numbers. We now expect property taxes to increase at a rate of about 6% versus our previous expectation, and our year-to-date number of 5.5%. This increase is due to a recent adverse legal decision regarding the calculation of property taxes for several of our properties in Jersey City.

We also previously forecast payroll growth of 2.5% to 3%, and we still believe that forecast to be accurate. Year-to-date payroll has only increased 0.3%, so we see most of the expected increase in payroll as back-end loaded. For the year we expect utilities expense to decline by approximately 3%. Year-to-date utilities expense is down 8.1%. Most of the expected growth in the second half on the utility side is due to our expectation of somewhat higher commodity prices later in this year as compared to the historically low commodity prices we had in the third and fourth quarters of 2015.

Moving on to normalized FFO, the reduction in the same-store NOI from a midpoint back in April of 5.5% to a midpoint now of 4% causes a normalized FFO reduction of about $23 million or about $0.06 per share. Going the other way and increasing our normalized FFO estimate, we now expect an additional $4 million in NOI or about $0.01 per share to the positive due to the reduction in dispositions combined with these asset sales being pushed back further into the year. David Nethercutt previously discussed the reasons for this reduction in our disposition activity.

Our reduction in acquisition guidance from $600 million to $350 million and disposition guidance from $7.4 billion to $6.9 billion has only had a very modest impact on the amount of taxable gain that we will incur in 2016 and need the special dividend. And this is because the specific assets that we removed from our disposition guidance just specifically add relatively little tax gain, and because we have already paid with the $8 per share March 2016 special dividend, the preponderance of the tax gain that we will incur in 2016. We therefore locked our guidance for the annual special dividend in the range of $2 to $4 per share, with the thought that the ultimate amount that we will pay is likely to be at or slightly lower than that midpoint. Our guidance assumes that this payment will be made in the fourth quarter of 2016. All dividend payments are subject still to the approval of our Board of Trustees.

Moving on to the debt side, because our net disposition activity is about $250 million lower than we expected back in April, our projected line balance at December 31, 2016, is anticipated to now be about $430 million versus the $130 million we previously estimated. For now we have left our debt issuance guidance at about $225 million, but if our disposition process goes as expected, we may do a larger offering than is now included in our guidance in either the secured or unsecured markets later in 2016.

I will now turn the call back over to the operator for the question and answer period.

(Operator Instructions)

We will here first from Nick Joseph, from Citigroup. Please go ahead.

It is Michael Bilerman here with Nick. Santee, thanks for the color surrounding some the guidance moves, and we can certainly appreciate you're in a short-term business. Your portfolio is more concentrated and two of the biggest markets are in have some more volatility. I don't want to get into this specifics of the numbers, but I want to focus on your processes and procedures in terms of forecasting and the results.

Note many of us have been to your offices, we've seen all the reams of data, we've seen all the pricing systems, and you have now reduced guidance three times. So were trying to figure out sort of what are the issues in terms of is your asset forecasting system not driving the right rates and so are the inputs not right or the outputs not right?

Is in operations issue, or is it an SP&A issue that is causing this, because you can have one strike, two strikes, but doing it three times, one could imagine that there are other issues at play here than just the markets in terms of how the data is coming in relative to your expectations and also what you put out to the street. And on the supply side, I don't think a 500 unit building sort of pops up overnight.

It would be an input that you would know. So maybe either, Neithercut, I don't know if you want to take that, but sort of give some color around some of the processes and procedures that are going on.

Well, I guess I would say that our process is very collaborative. These decisions are not made in a vacuum. There's probably six of us that run our models from different perspectives. But at the end of the day, we all kind of wind up in the same place.

I think a lot of the volatility has been very quick and at very inopportune times. One of the things that makes it very difficult to forecast is when we look at the precipitous drop in new lease rents in San Francisco, and look -- we've had Boston, DC, all these other markets have delivered outside of supply but have relatively strong occupancy. And as I said in my prepared remarks, we will prepared for rents to go down.

When you look at the new lease ups, if -- new lease ups are giving one month free basically you can move into a brand new building at 2015 rents. If a new lease up is giving two months free, you can move into a brand-new building at 2014 rents.

I think to some extent, we're a victim of our own success on the renewal side. When you look at San Francisco, 35% of our expirations are almost 5% above current street rents. And with volatility ranging from plus 2% to as much as down 10%, at certain properties in San Francisco, it really comes down to who moves out and at what property do they move out of?

I mean with rents down 10%, a person could be 6% above current market rents. A 16% decline on a $4000 a month rent times a couple hundred, a couple $300 each month for a couple of months, winds down your revenue stream pretty quickly. So I hope that gives you a little more granular explanation of why it is very difficult to predict -- at the rate of decline, that we can expect especially in the peak season, where you have 15% of your leases expiring --, in June, July and August each month.

So extreme volatility, with the highest number of transactions in the year, with job growth really coming to a halt at the high end of the market is just making it very difficult to forecast forward. New York is kind of in the same boat. 45% of our expirations --

You don't think it's -- you don't think it's an input issue or how you are managing your business in terms of that you are just sort of rolling with market? I think that -- I think the market has come to expect that you have little bit better insight into the day-to-day incident -- especially at a time where you had already lowered guidance twice, one would imagine the second time you did it, one would hope you built in enough conservatism.

I guess what I'm really asking, is the whole processes that you have in place off? Is it not producing what you want it to produce? The market's going to do what the market's going to do. You've built some tools, and you seem to be disproportionately having to play catch up a little bit. That's what I'm more curious is about the process and procedures you have rather than what's happening in the marketplace.

Well I guess I would say that our processes that we have in place, especially at the top level -- the Company level, certainly worked with the law of big numbers. Certainly I don't think with fixed markets today, that you would expect us to give -- or see us give guidance in October. I think that some of the -- I mean basically I think that we were overly optimistic about San Francisco and really just kind of mirrored -- at some point in time judgment has to come into play.

What's different also about California, is that California is a 30 day market. All of our other markets are 60 day market so you have -- you have a longer run way to see who is giving notice. You have a longer run way to react to pricing and what have you. And so this is, the San Francisco in the 30 day market with these dramatic changes within 30 days, is just very hard to forecast and very hard to react as quickly to -- to adjust.

Let me just add one thing there Michael to just general sort of philosophy we have with respect to this. Our intent every time is to give our investors our best guess as to how we see our business performing going forward, not 90% of that best guess or 80% of that best guess, or 75% of that best guess, but rather our best guess based on the tools we have at our disposal, the boots we have on the ground and the judgment of people who have been doing this for an awful long time.

It's not intended to give you the range of all possible outcomes, but those outcomes we think are most probable based on the tools we have in the judgment we use. And as David said, these markets have turned and become quite volatile, it's become far more difficult to do that, but each step of the way we try to give your best guess and again, as David said, we are as disappointed as anyone about where we are relative to where we ended up but, that's -- we believe we have an obligation to be as transparent with the street as we can and give them our absolute best guess, and not build in all sorts of cushion but to tell it like we see it.

We think we have done that every step of the way, and it is just difficult to do so and things are moving and moving very quickly in markets that were budgeted to deliver 50% of our growth or the year.

Yes, okay. Thanks for the time.

You're very welcome.

Now moving to our next question, David Bragg, Green Street Advisors. Go ahead please.

Thank you. Good morning.

Good morning.

Putting aside [comps] for a minute, you have built a reputation as an operator that can outperform or perform in-line with your comp set in your markets. What can you share regarding how your portfolio is performing relative to your comps in your markets?

Well when you -- if you want to talk, markets and sub-market, I think if you look at San Francisco, we've delivered a 9.9% CAGR over the last four or five years. I think if you look back over the last five years, I think all but one we had the highest revenue growth especially in San Francisco.

We -- after every quarter, we kind of take our portfolio -- because a lot of this is just about location, location, location, location. One of our competitors in Boston, they have fewer properties. We have many properties.

We go through an exercise where we take, our properties that are in -- the two or three properties that are in the suburbs and the other two or three properties that are up North, and be look at our -- we create a similar portfolio to our competitors. And I would say that, every time we are very comfortable with our performance when we create similar portfolios to our competitors.

Thanks, David. So I think your investors are trying to discern the degree to which you are having forecasting versus execution challenges, and you're saying that, as far as you can tell, there's no difference in the execution relative to that of your peers this year, than and in the past. Is that fair?

That is fair. And I would add a comment. In the case of San Francisco, I don't think it's, any surprise or secret, that some of our competitors, have agreed or self-imposed renewal limits where we have -- we had not been that.

That has also been a key driver of our leading the market in San Francisco for the last four or five years. But at the same time, when you reach an inflection point, and the market comes down very quickly, we're going to come down just as quick and we're going to come down much harder than our competitors.

So -- again, I -- we will go through this exercise again after everyone reports. And we will matchup our head to head properties with theirs. And like previous years, I expect that our execution will prove to be very good.

Okay. Thank you for that. And a question for David Neithercut, what are your thoughts -- how does this experience so far this year inform your thinking on your strategy? Are the markets and sub-markets that you're in truly as high barrier as you believed? And they're clearly priced in the private market for superior NOI growth, which at least over the near-term is not what was expected. To what extent is the transaction market for these assets weakening along with the fundamentals?

Well I think they might be priced for superior total return over an extended time period not just simply NOI growth in the short-term. I'd say the assets in these markets continue to trade at very low cap rates, Dave, with three handles. In some instances even through a three handle.

There continues to be not as much demand, but certainly sufficient demand for these hard assets in these Gateway cities that we've not seen any change in value at least at the present time. Now there may be, because there might be fewer tours and potential fewer buyers, maybe some bid ask spreads widen in certain instances, but the transaction we're seeing getting done in the market in which we operate, continue to support the valuations that we've been talking about.

Just with respect to strategy, I think we've gone and with our eyes wide open, but by operating in the fewer markets we're likely to have more volatility. But again, we think these are the markets that are going to create jobs and these are the markets where people are going to want to live, work and play, and they'll perform best over the long-term. And as David noted, we've had 10% compounded growth rate in San Francisco over the past five years.

If it was flat jobs -- flat revenue growth for the next five, over 10 years it would still be 4.5% which is very strong revenue growth. So we remain very committed to the markets we're in. We think that again these are the place where you the economy going forward will drive and that it will see better overall risk adjudged in total returns in these markets.

You've seen construction costs continue to go up in these markets and replacement costs going up. But I guess I'd also say that in these markets, while there is elevated or more supply than we've seen in the past as a percentage of existing inventory, these aren't troubling amounts of new supply, and in the historical context, unprecedented levels of new supply. So it's more than we've seen, it's disrupting us somewhat, but as evidenced just by our lease ups particularly in San Francisco which have gone extraordinarily well, demand is there.

And we couldn't be happier with the product we're delivering. It will outperform our original expectations, and we think we are in the right place for a long-term perspective.

Okay. Thank you for that. One last one if I may, in light of the underperformance of the stock and the fact that it's discounted on an absolute basis and cheaper than its peer set or cheaper than it's ever been, versus its peer set, can you update us on what you can do proactively to attempt to narrow the discount between the private and public market values? What are you evaluating or thinking about doing in terms of asset sales or joint ventures?

Well I guess, we're selling almost $7 billion of product this year and returning a significant amount of that back to our shareholders in the leverage neutral basis. So I'm not sure there's anybody that's done more this year than we have in that regard.

But I guess as I've said to many of our investors at NAREIT and have said repeatedly, everything is on the table. We are today painfully aware of where the stock price trades relative to those values. And we'll pursue and consider everything. I just would reiterate what I think I've said on our last call and certainly as evidenced by the gains, that we've realized on those assets that we've sold as part of this larger process.

We've got significant gains in almost everything we've own. I think we been very good capital allocators, and we made a lot of money. As result of that, by the time after one looks at the gains of assets and one does things on a balance sheet neutral basis, it takes an awful lot of asset sales to have any real impact on stock buybacks.

So, it's just been more challenging than what I think many investors might think. But everything is always on the table, and we will look at everything between now and the end of the year.

Thank you.

You're welcome, David.

(Operator Instructions)

We are now moving to Rich Hightower with Evercore ISI. Please go ahead.

Good morning guys. Thanks for taking --

Morning, Rich.

I wanted to hit on David Neithercut's comment earlier on the probable outcome versus the range of outcomes with respect to guidance. So specifically on the topic at the range of outcomes, how bad you think San Francisco and/or New York could actually get?

Then, I don't believe this is actually answered earlier, but does the guidance as it currently stands build in some cushion against current trends as you described them or is simply extrapolate what you are seeing in the market currently?

Well, this is David Santee. Someone asked me at NAREIT could New York be negative? It is certainly possible. We are focused more on this year. We certainly as I noted in my comments, we are already seeing a lot of the marketing ploys in New York, one private company is offering a $1000 gift card on any rental.

So we are just kind of playing off that. Knowing that we were -- we were kind of forced to use upfront concessions in Q1 in New York knowing that the level of supply that's still in lease up, knowing what's coming next year -- we have built-in what we think our necessary levels of concessions or commissions or what have you to get us through the end of the year.

Okay. And the same thing would apply in San Francisco?

Yes, we really haven't seen -- we really haven't seen a lot of the marketing items or move-in concessions, for that matter, in the legacy portfolio. I mean the only concessions that we have seen thus far, are on the new lease ups.

I think people are rushing to get these buildings filled whether it's because they have occupancy requirements by their lender or a variety of other reasons. But we really haven't seen anything out of the ordinary other than rapidly declining new lease rents and less demand on the older type property.

Okay. Thanks David. And one quick question on the demand side of the equation, and it's not something unique to what EQR is saying this quarter. But it does seem that there has been a shift in tone or a shift in the data perhaps with respect to tech sector job growth or wage growth or both.

Would you say that is a material shift and what we're seeing in your tenant base or perspective tenant base, versus three or six months ago?

Absolutely. I mean if you look at the data first it was DC funding. Then your tech jobs, the high-paying tech jobs peaked in Q1 of 2016. I just read the other day, DC spending was down another 20% in Q2. So certainly, the tech jobs are not growing at the pace that they were last year if they are growing at all.

But -- and at the same time folks that live in a 30-year-old, two-story walk-up paying $3000 for a one bedroom, can move uptown into a brand-new, highly amenitized, glass tower with gorgeous views of the San Francisco Bay for about the same money. So, the people that can afford it are moving into the better properties, but then there's less demand for the older properties as a result the further you get down the peninsula as a result of lower job growth in the tech sector.

All right. Thanks, David.

Thank you, Rich.

And now, Nick Filippo with UBS. Please go ahead.

Thanks, everyone. Going back to the visibility question. I'm wondering as we are now almost through seven months of the year and a lot of the prime leasing season, can you quantify how much of the year's revenue results are sort of baked in and not at risk, assuming you don't have a meaningful occupancy problem?

I mean is it 60% or is it something higher? You do have some visibility into August and September at this point. So I'm trying to figure out, with all the debate about, maybe what happens in 2017. How much debate is there really left about what could happen in 2016 versus your guidance?

Well on that's a great question. Because over the last, six or seven years we've kind of all we said once you get to August or September that your gear is really baked. And if we look back at the last six or seven years, all the markets really had the same momentum. Right?

I mean all the markets went down in the great recession. And then all the markets kind of came up together. During those years, you really had virtually no new supply to speak of. So it was very easy to forecast just based on momentum.

Certainly when you get to August, the rate portion that drives revenue growth in the current year is baked. I mean, those there's just not enough transactions remaining in the year to meaningfully impact the full year revenue. But what can meaningfully change your revenue September, October, November, December is certainly occupancy and more importantly concessions.

Because I mentioned in my are paired remarks if we give a full month concession, that's an 8% discount that we take a full charge on in that month. So, so if concessions -- upfront concessions really ramp up, which we are not a fan of. We try to be a net effective rent shop. Then that will seriously impact your revenue stream in that month and for the next that couple of months.

And --

(multiple speakers) Go ahead.

Sorry -- I was just going to say it I don't know if you gave this or not, I think you may have given it for New York and San Francisco. But where is overall occupancy in the portfolio as of today?

Overall occupancy today, I think is 95.9%. And some of these markets, like Boston is a lower because Boston is a heavy student oriented market. But occupancies in SoCal are great, probably a little bit better than we expected.

Washington DC's occupancy is right where we thought it would be. Seattle is doing great and accelerating. So again, physical occupancy is not necessarily the driver of revenue. A dollar -- assuming occupancy is worth a dollar, occupancy in San Francisco is worth $1.50, right? Versus a point of occupancy in inland Empire might be worth $0.75. Physical occupancy does not necessarily translate into economic occupancy.

Okay. That's helpful. I guess, David, another kind of market problem, how much room is sort of left to do more asset sales this year from a tax standpoint, special dividend standpoint, if you wanted to do a stock buyback -- I mean, at what point does the board start thinking about doing some more strategic about a stock buyback and is it a period of several quarters for the stock to really trade at a discount of 1080, or how should we sort of think about that from a timing standpoint?

I guess I just have you -- I've already mention this, Nick. Everything is always on the table. We've consider these things. And will be very thoughtful about what it is and what our options are to deal with the disconnect between the stock price and true NAV.

Again, as I sort of response to some of the prior questions, it's challenging with the gains that we had that we realized and having been pretty good capital allocators over the past dozen years to be able to really move the meter in a huge way. But there's no -- there's no timing thing, it's just something that we will consider and we believe it's on the table all the time.

Okay. Thanks everyone.

You're welcome, Nick.

And now we will hear from Jeff [Ell] from Goldman Sachs.

Good morning.

Good morning.

Just a follow-up on a question on performance, how do you think A assets performing versus B assets? Are there any markets where B assets are outperforming As?

I've always said it's kind of location. I mean we own A assets. We own B assets. B assets in DC are doing the same as A assets. We don't see any difference. I mean if you look at our portfolio in San Francisco or New York, you run the gamut of As and Bs and they are all performing differently depending it on where the new supply is and the impact that new supply has on the demand for that -- that product in the location that they set.

Okay thanks. And just another quick one, can you provide an update on the amount of new move outs to purchase a home?

Yes, it's really negligible. So bought homes, move outs to buy homes this year is actually year-to-date, is down 20 basis points. It's at 12.1% of move outs.

Okay. Thanks for the color.

You're welcome.

[Bob Stevenson] with [Ginny]. Go ahead please.

Morning guys. You previously talked about the deliveries in Manhattan being Westside heavy this year along with some of the other submarkets, but then when we got to 2017, it was mostly Long Island City and Brooklyn.

It sounded like today, you threw the Westside in there again. Is that a change are seeing now when you are looking at those likely 2017 deliveries? Are you seeing more in Manhattan especially on the Westside been you would have seen three or six months ago?

I think what -- well, first of all, we are now kind of combining the upper West side with Midtown West when we -- when we talk about new supply. So Midtown West, and upper West side are going to be delivering probably 2400 units next year which relative to the overall supply is what -- 15%?

I think the concern is, is that we do have some very large deliveries that occurred early in the year in the upper West side, 1100 unit property that is still only 50% leased. That's going to start running into renewals before they are least up.

While at the same time adding a little more supply will kind of compound the rate challenges that we see in Midtown West and the upper West side. But the upper West side, specifically as a neighborhood is only expected to deliver 2000 -- I'm sorry 214 units in 2017.

Okay so it's really Midtown West that still going to see this supply within Manhattan in 2017?

Yes.

As well as continued lease up in 2017 and product delivery in 2016.

Yes.

Okay. And then one for Mark, the difference -- the $0.07 gap between the third quarter guidance between NAREIT FFO and core FFO or normalized FFO. What is that?

So -- I'm sorry you're talking about the difference in our guidance change or the difference between --

So you have an $0.82 to $0.86 range for NAREIT FFO and a $0.75 to $0.79 for normalized FFO. What is the difference between $0.82 to $0.75 and $0.86 to $0.79?

So we have some land sale gains that we really have there at Fort Lewis. And in the third quarter that $0.07 is going to be some land sale gain.

Okay so Fort Lewis and land sale gains makes up that $0.07 differential?

I want to correct that. $0.14 to the left two columns is Fort Lewis. To the right the $0.07 you reference are the land sale gain.

Okay so there's $0.07 of land sale gains in the third quarter?

That are projected. Those sales haven't all occurred. They may not. But that's what we would expect based on what we have under contract now.

Okay, perfect. Thanks, guys.

Now will move to Tayo Okusanya. Please go ahead. With Jefferies.

Yes good morning. I'm just trying to reconcile the new guidance versus the old. The midpoint of guidance when it comes down to cents, but just from the comments are you waiting to talk about the $0.06 lost from NOI and then the $0.01 gain from the delay in the asset sales. That's about $0.05 of downside. So the I'm wondering why the midpoint of guidance really went down $0.02.

Hey, this is Mark Parrell. Yes. The issue here is that we sort of started from a point that's higher than our midpoint. So when we talked back in February about our guidance we put out a wider -- you might recall normalized FFO range than usual. We had a $0.20 range.

We told you we had more variability in our numbers because we had all of this position activity, and we didn't know when it would occur and obviously the later it occurred, the higher FFO would be and the earlier more would derisk the special dividend. We really didn't have all of that much certainty. We also didn't know when we were paying the special.

What debt we'd pay off. There's a lot of moving pieces. So when we put our range together, and we spoke to in February, we spoke to you in April, we saw our range a way in which we could get modestly above the midpoint of our range and into the upper half of our old range if we sold our assets relatively slowly. And so we gave ourselves a little flexibility.

As our operating conditions deteriorated, as we became more certain about what debt we are paying off and when we were going to pay the specials and what assets were going to be sold, that's what caused the whole thing to gravitate down. So the math is absolutely right, $0.06 down on same store, $0.01 up on transactions. But I'm starting from a higher point than $3.10 you are.

Got it. That makes sense. Thank you.

You're welcome.

Alexander Goldfarb with Sandler O'Neill. Please go ahead.

Good morning. Just some quick questions here. David Santee, you had mentioned in New York that you expect supply to extend through 2018, just in general, looking across all your markets including San Francisco, when do you think -- do you see the current supply wave continuing to be an issue through 2018? Or do think that maybe by mid-2017, based on what you're seeing most of the market should have everything absorbed?

Well, for New York, I guess it's kind of good news, bad news. There's still not a 421 A program in place. So nothing is being really considered today. But we're looking at roughly 14,000 units being [delivered] in New York for 2017. And I believe another 14,000 again in 2018.

Okay. And what about the other markets. You have San Francisco. What are the other markets?

San Francisco is going to deliver 7000 units next year. Next year's going to be a very similar delivery cycle as we saw this year. Let's see -- Washington DC 10,000 this year, 9000 in 2017. Seattle, 7280 this year, about 7000 next year. Los Angeles, 9000 this year, 8800 next year. Orange county, 3900 this year, 5400 next year. San Diego, 1600 this year, 2700 next year.

I think it's important to note, that as an example Orange County a lot of the deliveries that are occurring this year are in North Orange, Anaheim, where we have no product versus last year all of the deliveries were centered in Irvine where the bulk of our properties sit, and we were greatly impacted.

So, we're seeing great results in Orange County as the result of the supply, the deliveries being in a totally different submarket and far away from our existing portfolio.

I'd say beyond that Alex our expectation is for deliveries to come down. Build to yields that we see in the markets today are extremely low. And we certainly understand that the lending community is becoming much more conservative with respect to advance rates and who they are willing sponsor.

I hear more and more transaction teams are seeing more and more inquiries about capital needs for developers who might have land tied up to complete the capital stack et cetera. Our expectation is given where our build to yields are today and what we're seeing understanding of things happening in the construction loan market with respect to deliveries to come down from 2016 and 2017 levels.

Right but what you guys have just outlined, it sounds like collectively we've got another sort of full year through end of 2017 to get through the supply before will get to the benefit of the tighter lending standards. Is that seems to be the gateway

Yes I think that's right. If you look FDAs unit counts are as a percentage of the additional stock, these are again not unprecedented levels. We believe our levels at light with these markets for some period of time or delete -- equilibrium after they have been made equilibrium for the past half a dozen years.

Then for Mark Parrell, if you look at the San Francisco rent growth second quarter versus first quarter, there's still positive growth for San Francisco and the physical rental rate and in the revenue growth. Should we -- based on the comments, should we expect these numbers to go negative in the back half of the year?

Or just because how much you have already locked in for the year, these numbers will actually still stay positive despite the commentary you discussed?

I want to ask a clarifying question. Do you mean quarter-over-quarter do we expect to have a negative NOI number in the third or fourth-quarter, or do you mean our sequential revenue numbers?

The sequential so on a linked quarter basis not on a year-over-year basis.

I think it will be slightly positive the whole way through. You probably would see it. It wouldn't be unexpected to see declines in the fourth quarter to the first just as you sort of see the normal seasonal pattern. But you're talking about this year, I guess at this point we don't see that. (multiple speakers)

So really next year we're going to see the bulk of this softness in next year's numbers?

WIthout giving 2017 guidance, but yes it's probably likely.

Awesome. Listen, thanks a lot, guys.

You're welcome.

And now John Kim with BMO Capital Markets. Please go ahead.

Thank you. Given your portfolio quality you're underweight affordable product in your portfolio, is that something you needs to be addressed? Not necessarily different markets, but maybe different product or different submarket.

I guess I'm not sure by affordable you're saying lesser priced or more workforce type pricing, or you actually mean product that has requirements to meet certain income restriction or requirements of residence? I will tell you that, David Santee already said we do operate in A product quality B product quality across our portfolio and we do have various price points across every market and submarket in which we operate.

Okay. And then David Neithercut, you mentioned the challenge of moving the needle with by buy backs, but so far you've gotten no credit from the market on your special dividend and your asset value gain. Going forward on dispositions, would you consider joint venture asset build with my provide some more flexibility?

That's certainly something that we've considered and have on the table as well.

Is there a difference in pricing on joint ventures versus complete asset sales?

Different in pricing? Yes I think that, I think there's sufficient price discovery in these markets that whether it's an outright right sale or for a joint venture type transaction, I think similar pricing can be achieved.

Great. Thank you.

You're welcome.

And [Wads Nabrio] with Bank of America. Please go ahead.

Hi, thanks for the time. I was hoping you could clarify some comments you made about San Francisco concessions. Were you saying that there's no concessions on your existing product and relates only at the new sort of lease up developments, and is that true outside of EQR?

I would say that I know that there are some people that are giving modest concessions. But it's -- they are not widespread. I mean, the -- all of the new developments for the most part are giving at a minimum one, if not two months free on every lease. But we have -- we have not seen widespread upfront move-in concessions across existing product. In San Francisco.

Okay. Great. Thank you. And just a question on your redevelopment CapEx rehab work you're doing, I think you're targeting $50 million. Is there any -- I'm not sure what returns you're targeting there, but is there any risk you may not get the returns given the supply competition in the markets where that money is maybe being spent? And how should we think about that?

Well, expectations and underwriting those $11,000 or so per door that we put into kitchen and bath rehabs, we're getting solid double-digit returns. I mean our returns on that -- on that expenditure. And should we fail to get that reasonable sort of spread to a rehab, we have ability to stop the program.

So we do monitor that closely. Consistently looking at the returns we're getting on rehab units and if for whatever reason at any time, if we're not getting sufficient premium we can stop that program on a dime.

Is there a geographic skew to where that spend is going?

No. I mean where doing it in the knee property in any market that we believe can get that sale appropriate for mid-teen return.

Thank you.

You're welcome.

And next we'll hear from Ivy Zelman with Zelman Associates.

Good morning and thank you for taking my questions.

Good morning.

With regard -- good morning with the turnover if I'm correct there was unrealized turnover of 59.2 which was up about 280 basis points I guess versus our expectations for 150. So with little more than we had expected and recognizing turnover has been pretty low throughout the last few years.

With respect to understanding expenses, as turnover accelerates, how much are you factoring into our guidance for turnover to be sustained at current levels and how much variability does that have on NOI with respect to turnover accelerating more? And maybe -- maybe the case it has been the last several quarters or last few years?

Well I guess I would say a large portion of the increase in the physical turnover is a direct result of more people relocating in the same property for a variety of reasons. They either need more space, less space, lost a roommate -- so in those cases, I mean, the frictional cost our roughly $234 to clean, paint and shampoo an apartment.

You're not -- you're not giving up any vacancy costs for that portion of your physical move out so to speak. So, like anything -- the largest cost of turnover is vacancy. And when you net out the turnover it's not really that material. We have seen an elevated --

(multiple speakers)

Go ahead.

I'm sorry. I thought that would be very helpful. I was trying to say in a go forward basis though you are assuming sort of the same level turnover kind of holding where we are to extrapolate no change in guidance on turnover. Or in your embedded assumptions for your guidance.

No. No change

Secondly I think everyone has drilled a lot into San Francisco and New York city and you guys have done a great job in helping us to understand the variability and respective volatility you have seen in the highest peak leasing season. And I'm kind of just thinking about looking at the ratio of 2014 and 2015 urban multifamily permits as a percentage of stock and Boston is screening the high second-highest after New York in, you obviously have exposure there as well as Seattle and LA.

Just thinking about how do you today extrapolate in, especially Seattle you said is accelerating and recognizing that you've seen thing improvement and you really haven't seen the same type of volatility in DC even if also screening not as badly as New York let's say our Boston. When you're giving us but guidance, are extrapolating the current trends like you had been in the guidance earlier in the year and unfortunately so that volatility?

Or are you being more conservative because the supply hasn't become dramatic or created volatility in the downside, have learned from that understanding will be more cautious unit those markets are extrapolating, we could extrapolate positively?

Yes. So, there's a lot of questions there.

Sorry.

Well, let me just use Boston as an example. So we know that, 2016 as an example we're delivering 2300 units in Boston. The good news is, is that a lot of those units are now in the suburbs. I think on our last call we said that we have, this 12 to 18 month window where 2017 deliveries kind of moved back into the urban core, the Seaport, what have you -- so that's why were seeing better revenue growth in Boston.

Even though we delivered 5000 units, in 2015 in the urban core we were still able to hold occupancy at 96% new lease rates were flat. And we were still able to get renewal increases. And that's kind of the -- what we've experienced, over the years is that, even though these -- the markets that we're in today, you can still deliver product, hold the occupancy, but feel the rate pressure.

Then when -- the new deliveries move away from you, you start to get pricing power back. And I think,, that's -- I think were just kind of in the middle or the beginning stages of getting to that -- that point in San Francisco and New York. But again, it's kind of the mix of jobs and where the deliveries are. So you mentioned Seattle, I mean Seattle is delivering -- I think they delivered 6000, 5000 units last year.

Significant deliveries in 2014. The occupancy continues to hold. We've continued to be able to push rents. We expected in Seattle that we would see, pricing pressure in Belltown, central business district, Capitol Hill, but now we're seeing, revenue actually accelerate in those markets as we begin to absorb. So it's just the combination of jobs, level of absorption, and the relative location of the new supply.

That's extremely helpful. I guess just to summarize if I may respectfully, so then with the current footprint with the exception of New York and San Francisco, you would argue that you are still optimistic with respect to the go forward deliveries and utilizing what you see today currently in the guidance you've given us. You haven't cut those markets despite them being much better even than you had been modeling. So you're utilizing the similar pattern to expect that those markets will continue to be where they are today?

Right. And I think we've said to previously, that, all these markets are generally on track. They are either a tick below or a tick above. But there's nothing material in these other markets that would cause us to be overly optimistic or overly pessimistic. They are what they are. They are right on track, and we've kind of left them there for the rest of the year.

That's very helpful. If I could sneak in one more and again thank you for taking my questions. The last one relates to where cap rates are, and I think David Neithercut you talked about the tightness of the transaction market despite the fundamentals that might be in the margin starting to moderate.

If you think about where I guess directionally you think cap rates are going to go, assuming rates are holding constant, do you expect the fundamental to start widen out, seeing more opportunities especially at the capital markets may not be as -- or the banks are pulling back and being more stringent. What's your thought and outlook on cap rates?

Well it's not just cap rates but it's also evaluations, too, right? It all runs into the ultimate valuation. One of the things we've done as we've seen this new supply coming is to reduce our loan construction upstarts. What where delivering a lot of product now but we've got very little if anything kind of behind that. And is very possible it's might -- we might see all use the term loosely, opportunities to acquire assets in these markets.

We think valuations are pretty solid. Depending on what happens to interest rates and global interest rates and demand for yield. Who knows where cap rates might go on extremely good quality, well located assets in the kind of Gateway cities that we're in.

We -- one reason we reduced our development business because we saw yields going in we saw new supply we thought it may be a better deal for us to maybe buy completed assets rather than building our own knowing supply was coming. It remains to be seen where cap rates in certain where value rates are headed.

Great. Good luck, guys. Thank you.

Thank you very much.

And now we'll hear from Vincent Chao, Deutsche Bank.

Hey, everyone. Just going back to San Francisco and New York for a second. We've talked a lot about them obviously. As far as the decline in the outlook for those two markets, we talked about the rate after August not being as bigger factor of occupancy and concessions bigger. But I guess San Francisco not seeing concessions today, are you building any increase or is that just the assumption that concession levels will stay similar and then in New York, the same thing your seeing concessions there, but are you projecting any change in the level of concessions over the back half back

We're not forecasting any concessions in the back half. I guess what I would say is that we, we've accounted in San Francisco, we've accounted for that with 100 basis point spread in occupancy. So if occupancy comes down far enough, then we would-- or if we see occupancy going in the wrong direction, we would use concessions to boost occupancy up.

That higher occupancy kind of would offset any concessions that we would -- that we would need to offer. But we've really just factored in net effective new lease pricing for the balance of the year.

In San Francisco.

And that net effective would be similar to what you are seeing in July and August I guess?

If not a little lower.

If not a little lower, okay, thanks.

You're welcome.

And now we'll take a question from Tom Lesnick with Capital One Securities.

Thanks for taking my questions. First on development it appears that you guys moved up the stabilization dates on a lot of your developments this [Vissen] 99 in particular over last quarter. Is that due to the concessions are offering right now. It feels kind of counterintuitive to wither the narrative that the Bay Area development leasing is slowing.

I'm actually, nothing close to lease up in development slowing. Our absorption in our transactions in San Francisco have exceeded our expectations, and we have significantly moved up a stabilization gain the and North San Jose, because our production there has almost double what our original expectations were. We were looking at, at 20 or so a month and we been doing almost 46 amount.

So, no one thought that would necessarily continue, which is why took us along to change that stabilization date. But we're moving right along, and then we've been doing that with concessions two weeks to one month. And again at rents that are above our pro forma expectations but maybe modestly below what we may have hope we'd do at the beginning of this year.

So the absorption of our San Francisco transactions have been strong and the lease rates have in -- exceeded our original expectations and so the deals were stabilized at yields ahead of what we had originally underwritten.

Okay. Thanks for the insight. And then getting away from San Francisco and New York for a moment.

Thank you.

(Laughter) What makes you feel like right now is the right time for 100 K Street? There's been a lot of development in NoMa lately. Why do you feel like right now's the time to strike?

Well because we'll deliver in 2018 and stabilize in 2019. We're seeing improvements in that market. That product has been absorbed. David talked about it may be modestly performing better than about than what we had hoped. And we think, who knows what 18 and 19 will bring? That we think there's not a lot starting out and that will be a fine time in the market place to deliver new product.

All right. Thanks guys.

Then again that $88 million is not can move the meter one way or the other frankly.

Make sense makes sense.

You bet.

And now we'll hear from Wes Golladay with RBC Capital Markets.

Good morning, guys. When we talk about Northern California what do you see in the various submarket there? I imagine Soma and Mission Bay are probably the hardest hit. Give your high level of every where in the region. Anything hanging in there?

Yes. Let's see -- so I'll just kind of go major submarket in San Francisco. And talk about kind of where rents are today relative to same week last year. Berkeley, which is more student driven is only down 0.5%. Obviously San Francisco, proper is down 5.4%.

Which is actually bolstered by one property when you look at Geary Courtyard, Soma, those are kind of Ground Zero where the new deliveries are. Those are down 11.5%, 8% on rent. East Bay is still flat. East Bay continues to hold up relatively well.

The peninsula, we have some new deliveries there that are more attractive to millennials. Those rents are down about 5% and then South Bay, which has really put a lot of new deliveries behind it, is down 2%.

Okay. Thanks a lot for that excellent color. And then looking at the fast lacing pace for your San Francisco development, how does that -- you mentioned [jobs were postponed]. Are just pulling from other communities based on what you're seeing on the applications from new renters?

Yes, I think that's what David commented earlier. You got the ability people move from sort of older -- this is the first wave of new supply that's been delivered in San Francisco in years. And people have had the ability to move across into newer product, that if not modestly more around the same that they were paying for lesser quality products.

So we to sort of the not. Our tenant base have had more options than we been seeing them move more properties from elsewhere in the area.

Okay and would you characterize that as coming from maybe the other cities or the East Bay, or is it mainly within the 5 mile radius you're getting most of the move ins from?

Do know the answer to that question David? I would certainly have that in the system, but we don't have our system at our fingertips.

All right a follow-up with you. Thanks a lot for taking the question.

And now we'll take some follow up questions one from Dave Bragg of Green street. Go ahead please.

Thanks again. Just to review your market level, revenue growth expectations. It would be helpful to hear about the other markets. I think you said you're currently expecting 6.5% same-store revenue growth in San Francisco, 1.5% in New York.

I assume that these figures underpin the midpoint of your revenue growth guidance, and if that's correct if you could just run through the other markets.

Yes. Boston, 2.8% New York, we said 1.5%. Washington DC, 1.2%. Seattle, 6.1%. Orange County, 5.8%. San Diego, 5.7%.

Thank you for that. And then next, in the second quarter for the entire portfolio, what were the gains on renewals? And what were the gains on new move ins, ideally lease-over-lease?

Okay. Lease-over-lease renewal pricing, for Q2, was 5.9%. Lease-over-lease on new move ins was 1.5%. And then combined, was 3.7%.

Okay. Then can you tell us what you're expecting for the portfolio on those two metrics for Q3 and Q4?

Yes I would have to give you ranges. But I see -- I see renewals moderating down to call it, 4% to 5%. And the new lease -- new move ins, I mean obviously new move ins, because of the seasonality they just automatically compress.

So as an example, Q1 of 2015, we did 40 basis points. So I would imagine in Q4 of 2015, we did minus 40 basis points. It's just the natural cycle, I would expect them to, to fall off the balance of the year. To what degree is really just a function of, again going back to the which resident moves out and at what property.

Okay so no specific range on new move ins. But the renewal is a 4% to 5% range. And that compares to what looks like about 6.5% on renewals of the second half of last year? Is that correct?

Renewals -- yes. 2015 renewals were 6.8% and Q4 renewals were 6.4%.

Okay. One last one for you David Santee, on this topic, you've experienced a dramatic widening in the spread between new move ins and renewals in San Francisco, how long can that persist especially in this day and age when there's such great visibility on where new units are being priced in the market?

Let me answer your question this way. San Francisco, in July we achieved an 8%. We are issuing new renewals kind of in the October range at a 5.8%. So we issued in July an 11.1%. In October we are issuing a 5.8%. If that gives you what you need.

And we achieved 9% in the first half of the year.

So the renewal gains are declining or decelerating in lock step more or less with new move ins. The spread is remaining somewhat the same sounds like?

Well I guess what I would say is that, obviously, we are at a juncture where we need to -- it's in our best interest to retain every resident possible, because we have a 40% chance that we could take a 15% drop on the new rent every time one of those residents move out. So we're -- we are consciously being conservative on our issuance of renewal increases from this point forward.

So hopefully -- the spread has gone from, the typical 180 up to 350, 400 basis points. Hopefully, as we issue more market friendly renewal increases, that the spreads will compress back down to 180 if not lower.

Thank you again.

You bet, Dave.

Nick Joseph, Citigroup. Go ahead please.

Thanks, just one last quick one. Given your experience this year and the more uncertain operating environment that we've been talking about, are you providing preliminary 2017 same-store revenue guidance with Q3 results?

Well we haven't made any decision about that, Nick. My guess is the experience we've had this past year, I'm sure most people here would not like to do that just given the volatility. If we feel like we could give a number that we believe is valid and helpful, we will certainly consider it. I think given the level of volatility we're seeing, we're not sure that would be in anyone's best interest at the present time, but no decision has been made.

Thanks.

Now will take a question from Richard Hill, Morgan Stanley. And hearing no response from the line, I will turn the call back over to your host for any closing or additional remarks.

Thank you. Thank you all for your time today. I hope you all have a great remaining part of the summer, and we look forward to seeing many of you in September.

And without ladies and gentlemen, this does conclude your call for today. We do thank you for your participation. You may now disconnect.