住宅地產 (EQR) 2016 Q4 法說會逐字稿

Good day and welcome to the Equity Residential Q4 2016 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Marty McKenna. Please go ahead.

Thank you, Ashley. Good morning and thank you for joining us to discuss Equity Residential's fourth-quarter 2016 results, and outlook for 2017. Our featured speakers today are David 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 risks and uncertainties. The Company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. And now I'll turn the call over to David Neithercut.

Thank you, Marty, and good morning, everybody. Thank you for joining us for today's call. 2016 represented the culmination of a very important multi-year process for Equity Residential, as we completed the transformation of the Company's portfolio. With the sale of nearly 30,000 apartment units and the return of $4 billion to our shareholders in special dividends, in what has been noted by many as one of the most investor-friendly transactions seen in years.

Unfortunately, 2016 also brought about an abrupt downturn, slowdown in apartment fundamentals, as new supply into the market at a time of slowing job growth, particularly in the growth of higher-paying jobs. And as a result, after five years of extraordinarily strong fundamentals, our same-store revenue growth in 2016 came in at 3.7%, down from the 5.1% growth delivered in 2015, and more in line with long-term historical trends. As noted in last night's press release, we expect revenue growth to continue to weaken in 2017, with nearly all of our markets expected to deliver same-store revenue growth this year below 2016 actual performance, with Washington, DC being the lone exception.

Weakness in fundamentals is not the result of much if any change in the underlying demand for rental housing across our portfolio. On the contrary, occupancy remains strong today, and is expected to moderate only slightly through the year. Turnover across all markets, when excluding same-property movement, actually improved last year, dropping to 48%, a 100-basis-point improvement over 2015, and consistent with our expectations for 2017. And moveouts to buy single-family homes remains a non-factor in our high-cost-of-housing markets.

Furthermore, while our markets have experienced a slowdown in the growth of high-income jobs, the absolute number of new, high-income jobs remains relatively strong. Perhaps more importantly, for the first time since the recovery began, there are abundant signs of wage growth occurring in all industries across the country, which obviously is a very good sign for the apartment business.

So as we look ahead to what we see as peak deliveries in many of our markets this year, our teams across the country have worked very hard, delighting our existing residents and extending their stay with us, while welcoming prospects and turning them into new residents. And we remain extraordinarily excited about the long-term outlook for our business, portfolio, and the Company. So with that said, I'll let David Santee go into more detail about our outlook for 2017.

Okay, thank you, David. Good morning, everyone. Before I jump into the numbers, I'd like to first acknowledge the commitment and efforts of all of our employees over the past year. While results were certainly bumpy, it only strengthened our resolve to do better. I know our teams are keenly aware of the challenges before us, and I am 100% confident that they will go above and beyond to deliver in 2017.

While markets have now returned to pre-2014/2015 seasonality, there continues to be strong demand for high-quality apartments in great locations, and occupancy remains above historic norms. Today, I will focus my comments on the assumptions that make up our full-year forecast on a market-by-market basis. I'll provide you with lease-over-lease growth rates, expected renewal rates achieved, any material changes in occupancy, and the percent of contribution to same-store revenue growth, that together get you to the mid-point of our full-year guidance.

I will also discuss what we see in the markets today, and provide color on the new deliveries and how much or little we expect them to impact us based on our geographic footprint. I can address any 2016 questions in the Q&A session afterwards.

So, I will start with the markets that we expect to have the most positive impact on our 2017 revenue growth, and finish with New York, which will have a negative impact on our performance this year. Los Angeles will contribute around 40% of our growth this year. With job growth remaining steady, we are forecasting lease-over-lease growth of 1.8%, renewal rate growth of 5.4%, and a 20 bps decline from 2016 occupancy. These assumptions would deliver 3.6% total revenue growth in 2017.

As you know, Los Angeles is the collection of several large submarkets. About half of the new supply in 2017 will be focused in downtown LA, as we witness the creation of a 24/7 downtown for the first time in the city's history. And we'll pressure our footprint there, which represents 16% of LA's same-store revenue. The remaining new units are spread across the valley and specifically Pasadena, which represent 24% of our revenue. There are virtually no new deliveries in West LA where we have 25% of our revenue, or in the Santa Clarita or other suburban markets, which account for 35% of revenue.

On to DC -- DC continues to show acceleration and will contribute 21% of our total same-store revenue growth in 2017. Lease-over-lease growth is forecast at plus 80 basis points, renewal growth of 4.4%, with occupancy essentially unchanged. Full-year revenue growth would be 1.8%.

While news of a federal hiring freeze causes us to take pause, history tells us that frozen federal jobs are simply replaced with outside contractors at higher wages. However, the actual order says that the hiring of contractors to circumvent the order is not allowed. Like other initiatives the administration has put forth, there remains more questions than answers on the potential impact to our markets, our industry, both at the city and national level. But we still remain confident that demographics will continue to drive strong demand for apartments.

In the DC Metro, 2017 new supply will be slightly elevated from 2016, and approximately a third of those new units will be competing head to head with the majority of our entire DC footprint, with the largest concentrations in the RBC corridor and Arlington. The Navy Yard in Southwest DC will continue to deliver units, but neighborhood amenities and services are not following at the same pace, creating a less desirable but more affordable location. The remaining deliveries are dispersed across many popular suburban locations like Tysons Corner, Reston, around the Beltway to Rockford, Gaithersburg and Prince George's Counties, which all should bode well for continuing improvement in the district.

Seattle will contribute about 20% of full-year same-store portfolio revenue growth. Lease-over-lease growth is forecast at 3%, renewal rate at 6.2%; with no change in occupancy, our most likely revenue growth for 2017 is 4.25%. With deliveries in 2017 basically the same as 2016, we have yet to see any price pressures, as strong demand for rental housing continues to be driven by employers like Amazon and Microsoft, which continue to produce strong results while expanding their footprint into new business lines or next-generation technologies. The tech stalwarts are also expanding their employment base in the greater metropolitan area to better compete for talent, and Seattle continues to have the lowest absolute rents and taxes of any other market in which we operate.

No different than the past three years, most 2017 deliveries in Seattle will go head to head with our portfolio. Our 4.25% revenue growth reflects our expectation of moderation as a result of increasing competition.

Additionally, prohibitions on upfront non-refundable move-in fees that were recently enacted by the Seattle City Council will negatively impact our 2017 revenue growth by 30 basis points. There is still uncertainty around the new ordinance regarding pet rent that could have a negative impact of an additional 20 basis points that is not captured in our forecast.

Contributing 10% each of full-year revenue growth are San Francisco, Orange County, San Diego, and Boston. San Francisco finished the year by returning to the seasonal pattern that we experienced through 2013 versus the power years of 2014 and 2015. Currently, San Francisco is best described as stable, with minimal pricing power on new leases as a result of tech stagnation and new supply. Lease-over-lease rate is expected to be negative 1.5%, as expiring leases continue to roll down from market highs, and we forecast a 40-basis-point decline in occupancy to 95.7%. Renewal rates of 2.9% will offset the negative new lease rate to deliver full-year positive revenue growth of 1%.

With deliveries in 2017 up from last year, the South Bay will feel the greatest impact, where almost half of the deliveries are concentrated, and we have 30% of total revenue in San Francisco. The CBD will see 25% of the deliveries, and will impact 18% of our revenue.

We would expect our Peninsula and East Bay assets to deliver better results, as only about 20% of the new supply will be delivered in these two large submarkets that, combined, make up 53% of our total MSA revenue. Orange County continues to have strong demand as a result of solid job growth, but we'll see a significant increase in new deliveries in 2017. More than half will be concentrated in Irvine, where we have 30% of revenue. The balance of new deliveries, primarily Anaheim and far North Orange, should have little impact on the remaining revenue percent of our Orange County revenue, which is South and Southeast. As a result, lease-over-lease is forecast at 2.5%, renewal rates at 6%, and little change in occupancy that would deliver full-year revenue growth of 4.25%.

Like Orange County, San Diego will see increased new supply in 2017, with half concentrated in downtown where we have 25% of our revenue. With steady job growth and an expected increase in military spending, we would expect the balance of our portfolio to be modestly impacted by the remaining new supply in the near term. Lease-over-lease growth is expected to be 1.8%, while renewal growth remains strong at 5%. New supply causes us to reduce occupancy by 30 basis points, off a strong comp of 96.2% that we achieved in 2016. All in, we expect revenue growth of 3.75%.

Moving on to Boston, over the last 18 months, Boston and its urban core have experienced respectable gains since the elevated deliveries in 2015, and a significant drop in 2016. However, in 2017 we'll see more new units delivered, with 50% in the urban core in Cambridge, followed by 30% far North of downtown, with the remaining 20% West and South. 75% of our total Boston revenue will compete with these new deliveries.

Job growth has been steady, and high profile corporate relocations like GE and Reebok are encouraging signs that this round of supply will produce results similar to 2014 and 2015, where demand kept occupancy strong, with no pricing power on new leases, but respectable renewals kept growth positive. For those reasons, we forecast lease-over-lease growth to be dilutive by 70 basis points, but strong renewal rate growth of 3.9%. With a modest pickup in occupancy, full-year revenue growth would then be 1.5%.

Finally, New York City is expected to have a negative impact on our 2017 performance. We also see New York as a market that has the highest potential for volatility to the downside, with an increased amount of high-end units being delivered into an environment where job growth is relatively mediocre, and the biggest gains are in the lower paying sectors of education, leisure, and hospitality. Financial services are contracting, and tech job expansion has stalled. Our expectation of 150-basis-point decline in revenues assumes a decline of 3.5% in lease-over-lease rate, a 2.1% increase on a renewal rate, and a 40-basis-point decline in occupancy. Unlike all of our other markets, our expectations for this market has substantial move-in concessions built in.

In summary, there continues to be strong demand for high-quality apartments in great locations, occupancy remains above historic norms; however, near-term supply will create geographic pockets that will lose pricing power on new leases in the short term. David?

Thank you, David. Following a year in which we sold nearly $7 billion of assets, 2017 will look quite tame on the capital allocation front, but the investment teams will be working very hard seeking to maximize total return on invested capital in their respective markets. 2017 guidance assumes $500 million of acquisition activity, funded by a like amount of disposition activity, and a negative spread of 75 basis points.

Now, I want to make it clear that, after having backed up the truck last year as we sold non-core assets, there is very little that we believe needs to be sold in 2017. So we'll transact if and when we find an opportunity to redeploy that capital into a higher total return asset.

The investment team will also be focused on our rehab activity in 2017, where we expect to spend $50 million this year covering approximately 4,500 units. I would expect our past returns on this capital of 12% to 14% to be achievable again this year.

Last year, Equity Residential completed the highest dollar volume of new developments in our history, in five assets totaling $1.1 billion of project costs. And in 2017, we'll also complete nearly $900 million of additional new developments. And this will contrast sharply with 2018 when we will complete just one development project, that being what would be the last remaining project under way, our $88 million, 220-unit project at 100 K Street in Washington, DC.

Clearly, we have throttled back our development activity in the face of rising land and construction costs, and declining yields. At the present time, we have two potential development starts this year, totaling only $100 million. Beyond that, we will continue to work on several existing operating assets where we hope to upsize our density in order to build additional units, and have just two remaining land sites in inventory that were acquired and are currently held for future development with a carrying value of less than $60 million.

Now, this does not suggest that we won't continue to look for opportunities to develop more projects, and create new long-term streams of income for the Company, because our teams continue to look for those opportunities every day. But, after a terrific long-term run of realizing development yields well in excess of current cap rates, and creating meaningful, long-term value for our shareholders, in the face of elevated new supply and slowing revenue growth, we've opted to take a more cautious approach to development at this time. So I will now turn the call over to Mark Parrell.

Thank you, David. I want to take a few minutes this morning to talk about our expense and our normalized FFO guidance for 2017, as well as our capital expenditure plans, and then I'll close with a few comments on our balance sheet activity, and our sources and uses.

First, on the same-store expenses, we have provided a range of 3% to 4% for our 2017 same-store expense growth. I'm going to go through a few of the main drivers of that at the moment. On the real estate tax side, we expect an increase of between 4% and 5%, with 1.8 percentage points of the increase coming from the 421a burn-off in New York. Markets with the largest increases in property taxes are Boston, New York, and Washington, DC.

For payroll expense, we expect an increase of between 4% and 5%, as we face pressure to retain our property-level employees in a very competitive market. We have also added staff in some markets to provide even better service to our residents and to support tenant retention.

Switching over to utilities, which is our third-largest expense category, we anticipate an increase of approximately 2%. In each of the last two years, our annual utility expense has declined, so this is a bit of a normalization year.

Also, we are seeing some pressure on our repair and maintenance line item. This is due to increases in the minimum wage that impact our outside cleaning and landscaping vendors. We estimate that in 2017 we will incur approximately $1.5 million in additional costs due to minimum wage pressure. And that's going to add about 20 basis points to total expense growth from these increases in minimum wage.

For the leasing and advertising expense line item, after a big increase of 19% in 2016 versus 2015, we have budgeted leasing and advertising expense to be flat in 2017 versus 2016. The increase in 2016 was driven by increased promotional spending, and that included gift cards and owner payment of broker fees, and approximated about $1.6 million, and was spent predominantly in New York, with the lesser increase across the portfolio in Internet advertising costs. We expect a lot of competition in markets with significant supply, and we feel that maintaining spending levels in this category is necessary for the time being.

I'm going to switch over to our normalized FFO guidance. Our range for normalized FFO for 2017 is $3.05 to $3.15 per share. Comparing our 2016 normalized FFO of $3.09 per share to the $3.10 per share mid-point of our guidance for 2017, I want to hit on a few of the main drivers.

First, our portfolio of 15 properties totaling about 5,300 units that are in various stages of lease-up, should create a total of $85 million to $95 million of NOI. As compared to 2016, this is an incremental contribution to our results of $41 million or about $0.11 per share. We are excited about the current cash flow and about the long-term value creation that these assets will bring Equity Residential, but caution that cash flow during lease-ups can be volatile, due to lease-up timing, and changes in rental rate and concession estimates. We expect an additional contribution to normalized FFO of about $4 million or about $0.01 per share from other non-same-store properties. So adding that all up, you get a total positive contribution in the non-same-store category of about $45 million or about $0.12 per share.

Second, we expect to have a positive impact of about $0.04 per share from same-store NOI growth in 2017, and offsetting these positive items will be a reduction in NOI of about $48 million or $0.12 per share from our extensive 2016 sale activity, including the Starwood sale. Also on the negative side, we estimate an impact of approximately $0.02 per share from higher total interest expense. We will benefit from the sizable paydowns of high coupon debt we made in the first quarter of 2016, but we will feel a larger negative impact from significantly lower capitalized interest this year, as most of our development projects have now been placed into service.

We will also have a negative impact of about $0.01 per share from other items. This includes lower fee and asset management income. Remember we did sell Fort Lewis during 2016, and lower amounts of expected interest income. Remember we expect to have considerable lower cash balances in 2017 than 2016.

In another item of note, we expect lower overhead costs, which we define as G&A combined with property management in 2017 versus 2016 by about $3 million. We have mostly completed rightsizing our overhead platform to our smaller property footprint.

As you can see, the robust growth in lease-up NOI that we anticipate in 2017, as well as the more modest NOI growth of the same-store portfolio, is being obscured by the lost NOI from our substantial 2016 dispositions. If you adjust prior periods for these sales and for the related debt paydowns, our average rate of normalized FFO growth from 2014 to 2017 would be a very strong rate of about 7% per year.

Now, on to the CapEx area, in 2017, we expect to spend $2,600 per same-store unit in capitalized expenditures, as compared to $2,235 per same-store unit that we spent in 2016. Included in this is approximately $17 million of additional spend, for customer-facing renovation projects. Examples include common areas, leasing offices, and exercise rooms.

As you know, much of the new product that is being delivered into our market is targeted at the higher-end renter. We are making sure that our incredibly well-located assets are able to continue to compete with this new product. This increased spend will be reflected in the line, building improvements, on page 23 of our supplement. We expect this spend to normalize back down over time.

Continuing on CapEx and continuing our commitment to sustainability in all we do, we are planning to increase our spending on projects in the sustainability area by about $8 million in 2017. These projects tend to have very high rates of return on invested capital. Also, the $50 million kitchen and bath rehab program that David Neithercut just discussed should generate strong returns on invested capital. The spending on this program is included in the $2,600 per same-store unit guidance number that I previously quoted.

Now, a bit on sources and uses in the balance sheet, the fourth quarter was certainly a busy one for our finance and legal teams. We replaced our $2.5 billion revolving line of credit, which was scheduled to mature in about a year, with a new, cheaper $2 billion unsecured revolving line of credit that matures on January 2022.

We made our line of credit smaller to reflect the reduction in the size of the Company and the pre-payment of a significant amount of debt during the first quarter of 2016. We had strong interest from our bank group in renewing the facility and were able to obtain market-leading terms. We also issued $500 million of 10-year unsecured notes at a coupon of 2.85%, and an all-in effective rate of 3.1%. This is the lowest 10-year issuance we have ever done.

We also paid $1.1 billion or $3 per share in a cash special dividend in the fourth quarter. These actions have left the Company's balance sheet and liquidity position in an excellent place going into what appears to be a more volatile period.

Currently we have approximately $60 million in cash and have about $200 million in outstanding commercial paper, leaving availability of about $1.8 billion under our new $2 billion revolving line of credit. At the end of 2017, we expect the line of credit, or the commercial paper program, to have about a $550 million balance.

I'm going to give you a quick summary of some of the cash inflows and outflows. Our guidance includes a $400 million debt issuance in the second half of the year. We expect to pay off $630 million in debt as it matures during 2017, and to call about $340 million of debt that matures in later years, so a total of $970 million of debt repayments during 2017.

We will spend about $300 million in 2017 completing our development projects, leaving us with costs of only about $40 million in 2018 to complete our current development starts. Acquisition and disposition activity is anticipated to be about equal an amount and our guidance assumes the dispositions are slightly frontloaded for the year, versus acquisitions occurring ratably over the course of the year. Now, I'm going to turn the call back over to the operator for the Q&A session.

Thank you.

(Operator Instructions)

Juan Sanabria, Bank of America.

Hello, good morning. I was just hoping you could speak to the 2017 guidance on the core business of same store revenue and NOI, and just give us a sense of the main variance items between the low and the high-end?

Whether it is macro assumptions or supply/concessions or whatever color you can provide?

By that, do you mean how do we set the guidance range for normalized FFO?

For same store revenue and NOI, what is the main variance between the low in the high-end, what assumptions change?

Well is primarily revenue driven. I would say that in places like Los Angeles, where we have the largest contribution to growth for the same-store portfolio, we are just assuming more volatility or providing a range for more volatility.

New York, same story. New York is probably one of the most undisciplined markets when it comes to pricing and concessions and what have you. We've assumed a certain level of concessions and roll down in pricing, but there is more volatility that can happen there then we expect.

Okay, thanks. And on the supply side, any skew across the top markets between the first half and the second half of 2017? How are you thinking about the trends and results from over the course of the year in 2017?

I would say that as we built up the budgets from the ground up, we understood when the bulk of the units were coming, whether it's front loaded, spread across equally across the four quarters or if it was more back end loaded. So the pace of those deliveries are embedded in our revenue assumptions.

But could you provide any color on any Northern California specifically how you expect supply to play out over 2017?

I don't have that level of detail.

Just suffice it to understand why -- we are certainly aware of the deliveries and with completions being so defined as when the property is finally completed and delivered we're understanding when first units will be available, and that 60 to 90 days in advance of that we will start marketing very strenuously and so we take all that into account as we pull our numbers together.

Okay, thank you.

Nick Joseph, Citi.

Thanks. David you mentioned New York City had the most variability in terms of potential outcomes and I think you mentioned at the midpoint you're assuming down 1.5%. But can you talk about the low end and where the downside could be for that market?

Well, I think it all comes down to level of concessions. We have certainly prepared for a certain level of concessions. But you're already hearing some crazy stuff like three and four months free on12-month leases.

Certainly if that becomes widespread across the entire MSA, then you can get to negative 3% pretty quick. So, that's our worst-case scenario on New York City.

And how do you think about the use of concessions within your portfolio for New York versus using gift cards? Does the same store revenue guidance at 1.5% assume any use of gift cards? Maybe that is being run to the expense line item there?

Yes. So let me just explain our overarching strategy for the Company and then specifically New York. We have always thought to be a net effective rent shop.

The only market that we have budgeted significant concessions, and it's $4 million, is New York City. We budgeted the same level of gift cards that we spent last year, but everyone is very clear that, that is a tool that we will only use if absolutely necessary. So, our first line of defense is rate, second concessions, and last gift cards.

Thanks. And just one other question, potential for same store revenue growth there's been a deceleration on a year-over-year basis every quarter since third quarter of 2015. But when you look out to 2017 guidance, do you expect that to stabilize at some point in the back half of 2017, or could there be a reacceleration?

Our guidance assumption now assumes a gradual decline in same store revenue quarterly numbers throughout the year. Certainly it would be great if there was some sort of reacceleration, but that's not what is presumed in our numbers.

Thanks.

Nick Yulico, UBS.

Thanks. Appreciate all the market level detail on the guidance. I guess going back to New York and San Francisco, the assumptions you gave on new lease growth for each market, how does that compare to where new lease growth is, was in the fourth quarter and so far in January?

Well, let me say this. This is why -- I can give you an example of the fourth quarter numbers. But, we know from tracking this for the last ten years that if a market is even stable, the likelihood of having negative lease-over-lease growth in Q4 is a likely outcome.

Because you have a disproportionate of people breaking their leases in Q4 versus regular lease expirations. So, just to give you an extreme example, New York in Q4 was a minus 5.3% but almost every market is negative. So basically you're re-letting units that were at premiums and now you're re-letting them at lower rents.

However, you have very few transactions. So you can't extrapolate the direction of the market from those numbers. So in Q1 it becomes less negative and then in Q2 and Q3 it's very positive. And that's just how the cycle works pretty much every year.

Okay, what I'm trying to get at is whether or not the guidance for New York and San Francisco is, at the midpoint, is assuming that both markets get tougher versus what you're actually been seeing on the ground of late. So whether you're actually building -- how much conservatism you are building in for these markets this year would be help to understand.

Well, I guess we look at the quarterly numbers historically. We have to assume some level of rent growth. What are leases doing.

In San Francisco for 2017, we assumed that new lease rents will be flat over last year, right? So rents will be basically the same as they were last year, but people who have lived with us for two years, 18 months are paying above market rent. So those will roll down. So we have incorporated all of that into our guidance on a quarter by quarter basis.

Okay, that's helpful. Mark, just going back to development starts this year, I didn't catch that number on a dollar basis? What are the new starts likely to be?

Let me just put two get things together, Nick, for you. We have no starts assumed in guidance, so no spend on new starts. We have $300 million that we will spend completing things that have already started that you already see on our development page.

David Neithercut reviewed to two deals we may start. If we do start them, they will have an immaterial impact on guidance. There will be draws on the revolver in slightly higher capitalized interest and it just won't make a great deal of difference to the FFO numbers for the year.

Right, okay. But for the two developments that could start, what is the dollar amount of total cost for those projects?

$100 million on those two deals, Nick.

$100 million total?

Correct.

Okay, total cost $100 million for two projects.

That's correct.

Okay, that's helpful. My follow-up question here then is, if you think about it you are essentially voraciously shutting down a development pipeline which means you are going to have a lot more use potential for your free cash flow as you get out to next year.

What are the thoughts about where that goes? Are you going to increase your payout ratio on the dividend? Are you going to do more share repurchases? You're not going to have much in the way of future capital needs.

I think after -- we'll see at the time, but those two things are certainly, would be part of the things that we would strongly consider.

Thanks.

Conor Wagner, Green Street Advisors.

Good morning. You mentioned that disposition activity could be front end-loaded. What are you seeing on demand and pricing for the assets that you are looking to sell and without giving away too much, could you tell us how those assets how they fit in your overall portfolio?

You mentioned, David that you had sold largely all of your non-core assets. So I assume these are assets that are in your main markets and closer to the average of your existing portfolio?

Yes and as I also noted, Conor, many of which would not be sold if there is not a redeployment opportunity also on the horizon. So I would think about them as more paired trades if you will. We have $100 million or so a product that we had hoped to sell last year as part of the larger non-core disposition program. It did leak into this year.

Beyond that, as I said during our prepared remarks, we have very little identified that we feel like we need to sell, but we do have product identified that we would sell if we could find the right reinvestment opportunity. Just with respect generally to valuations, I can tell you that of all of that we've sold a year ago or during 2017, we sold that for about a 3% premium to what we had told our board that we thought we could realize on that product.

And I think that it's a real at testament to Alan George's team for their ability to attract the market. Those guys are telling us today that values generally are holding in there, that deals with some story or some structure or hair might be off a little bit on a year-over-year basis, but a great deal of our assets would be right in there, same valuation of the year ago and in some markets may be even up slightly from there.

And then on that acquisition disposition strategy, do you have any desire to use that to shift your allocation between markets at all? Again it's obviously a fair trade strategy. But is there any portfolio refinement strategy baked into that?

I don't think so, Conor. Certainly we may sell an asset in one market, by another in another, but it's not nearly going to change in any material way, NOI concentration.

So that won't be conducted with a specific desire to reduce one market and increase another market, but more just in response to whatever opportunities we may see.

And David in the last night's release you noted at the beginning just in the opening just the strong demand that you are seeing and the potential for great returns in future years. What's your outlook for employment growth and supply growth in 2018 in 2019, and what's underpinning that confident outlook that you have for your portfolio?

Well, look, it's hard to guess on where we think 2018 supply is going to be, but we do think with land prices up and construction costs up in a lot of more traditional construction lending sources may be winding down a little bit but there are lots of reasons to think that 2018 deliveries will be below 2017. And then with respect to demand, we think that the demographic picture remains very favorable.

The job picture remains very favorable. Rising wages as you know operate in markets which costs for single-family housing is very expensive, so we believe that we have a lot of residence that will stay with us and the demographic picture will bring more to the market.

So we remain -- we think we have peak deliveries in 2017 and as we've already discussed in great detail, we have to work our way through that. But on the back side of that we remain very optimistic for our multifamily business in general and certainly very optimistic for the multifamily business in our core markets.

Thank you very much.

Rob Stevenson, Janney.

Good morning. Can you talk about what the current expectation in terms of stabilized yield is for the $960 million in the development pipeline?

Sure. Of the completions that we delivered last year, so that's about the $1.1 billion, we think these things will stabilize, high five's, low six's. And the product that we believe that we will certainly complete yet this year will stabilize also in the high five's, low six's.

Okay, so the five projects you have completed in California, the three in San Francisco, the one in San Jose and the one in LA that are already on your schedule as completed, that already is high five's, low six's?

No. We're not saying it's already, because they are is still in various stages of lease-up but we believe that when they do stabilize, they will stabilize in that ballpark.

Okay. And where is that relative to what you expected at underwrite?

Generally better. I will tell you that in most of the product we delivered the -- we were able to price these, it is land and price construction costs on a different point in the cycle so our costs were very attractive and we've seen, as you know, very strong revenue growth rental rate growth during that time period.

So while even our deals in San Francisco might be exceeding our original expectations they might be a little off of what we had thought they might be at the beginning of 2016, but they are still going to deliver at our modestly above our original expectations.

Okay. And then you talked about $50 million of redevelopment this year. What's the overall redevelopment opportunity in the portfolio?

And is there any ability to bring some of that more forward and accelerate that over the next couple of years to $75 million or $100 million? Or is it really $50 million is about all you really can do out of that on an annual basis?

Well, I think that is a very good question, one that we have asked ourselves. There is an capacity requirement, capacity of limitations not just of the number of trades you can do. One of the biggest things driving construction costs out there today is cost of labor.

And it's just -- I'm not sure that we have the ability to find the vendors that would allow us in these markets to do more than what we're doing. So I guess I'd say that I think we're probably doing about all we can in any given year. We've had about a $50 million or so run rate for the past four or five years probably, and I think that's a pretty good run rate for us just given what we think the limitations are on labor out there in the market place.

Okay. Thanks.

Rich Hightower, Evercore.

Hello, good morning. So I've got a couple questions here. I'm going to go back to David Santee's comments earlier in the prepared remarks about first New York City being the only market where I think quote unquote substantial concessions were built in to the forecast for year. Are there other markets where concessions are built in but they are less substantial? And if so, can you give a little color around what those markets are at this point?

I guess I would say there is nothing, there are no markets that come close to what we've budgeted in New York. Seattle, we put in probably $80,000 to really just -- because of the concentration within a couple block area on some deliveries. We did a little bit, maybe $90,000 in DC, just because of some concentrations in a specific neighborhood. Other than that, there are no significant concessions budgeted.

Okay. And so would you also say that the concessionary environment in San Francisco has abated pretty significantly? I guess that's inferred from the statement.

Look, the lease-up's are still giving concessions that's just standard operating procedure on the lease-up's. But we're, like I said, the market seems stable. Some people are offering concessions, but it's few and far between and we think that now that the market has repriced in 2016 that there's not really a need for concessions.

I guess what we've seen, Rich, is the ability to maintain net effective lease pricing across most markets, even when they soften. And maybe DC is a perfect example. A lot of new supply in DC in 2013 and 2014 and we remained a -- there was discipline in the marketplace and we could continue to operate successfully at a net effective rate.

New York is something where the marketplace as David said, originally is less disciplined, and one in which concessions can become problematic and we would have to respond. But away from York we found the ability to operate on a net effective basis fairly successful.

Okay, great, that's helpful. Second question here, going to Mark's comments about the balance sheet and how well positioned EQR is in the current environment with respect to liquidity and all the other financing needs that you've taken care of recently and he talked about anticipating volatility in the upcoming environment.

Does that imply you see better opportunities for capital allocation may be as the 2018, 2019 type of timeframe? I would also maybe compare and contrast that against the statements earlier about 2018, 2019 being better fundamentally. So where is the source of that volatility and what should we expect in terms of what EQR does about it?

Well I guess I'd say that the volatility with respect to the fundamentals, not necessarily with respect to assets or valuations. Again, we have for the last 12, 18 months I think taken a fairly, if not two years, taken a fairly cautious approach to investment.

Certainly I think as indicated by the large transaction we did last year with Starwood and the other subsequent dispositions and the big special dividend that we did. So, look, we've seen a lot of new product coming out of these markets. We think there may be opportunities, should it makes sense for the capital allocation standpoint, to buy new product.

It might make more sense to buy some of that product rather than develop and take development risk construction risk, lease-up risk, et cetera. So we've just taken a cautious approach given all the new supply with respect to capital deployment. And as noted earlier, by having reduced the development up to this point and not having any meaningful spend in 2018 we do create net cap well we could use for some other purposes and we would not be afraid to use it for those other purposes.

All right. Thanks, David.

Ivy Zelman, Zelman & Associates.

Thank you for taking my question and really excellent color on the markets and appreciate you not going to the 2016 results, because I think everybody wants to talk about 2017 and how you are getting to your forecast. One question I had for you is respect to turn over. Realizing I think you said you expect flat turn over and you went through with respect to occupancy by markets, so some occupancy flat, some down 20, 40 bps here and there.

One of the questions I had is with respect to appreciating the fragmentation in your business is pretty significant and there's a lot of arguably players that are not as well capitalized or may not be as the tenure of being in this business that are in fact telling us they are cutting prices in New York, for example, not concessions, cutting prices.

And some one of the things I think about is on a renewal basis if you are a tenant and with the Internet and all the transparency on pricing, what's the risk that you will see turnover increasing as people recognize there's better opportunities? And then if so, what does that do to NOI with higher expenses on the turn? So that's my first question.

I just want to know what you built in and why you're assuming flat in an overall basis?

So, I guess I would say that first of all, regardless of rate or renewal increases or lack thereof, we are going to try and retain any resident where it makes economic sense. Frankly, the hard costs associated with turnover are very minimal.

Do you look at a lot of hardwood floors? So really you are paying a couple hundred dollars to paint the apartment and may be $100 to clean it. So the real cost is in the vacancy. So our goal is to kind of minimize that vacancy.

And I would say that when you look at our forecasted numbers, and I gave you the breakdown, we forecasted basically 80 basis points lower in occupancy. Assuming that there could be people that choose to move in other locations because of the lack of neighborhood loyalty. One of the things we talk about is really what it used to be in New York City that people were very loyal to the neighborhoods, their neighborhoods are very desirable.

You've got a big slug of new deliveries in Long Island City, what is the elasticity of our customer and their desire to go further out or one more train stop to achieve a lower rent. For all those reasons we've accounted for that with 80 basis points lower in occupancy for the full year.

And therefore assumingly the volatility may be that you'll need to meet whatever the pricing may be at that time and then retaining that customer as a strategy?

Yes. The volatility would not be in rate. Rate would not immediately impact us. It would be in additional up front concessions or significantly lower occupancy.

Got it. Thank you. And separately on transaction side, I think David you mentioned that the overall success that you've had in recycling older assets and bringing in newer assets and I think you commend to the team that has done so.

When you think about the transactions that you would have liked to have done or just understanding what's going on in the transaction market, there seems to be a bid ask spread widening and that's probably more Class A urban. And their has been some disappointment in the market that transactions that just didn't get done that they were hopeful that done or when they saw deals were retraded and they were traded 1% to 10% depending on the asset lower, you are saying you're not seeing that, or maybe you can comment further on that because definitely a lot of people saying in the industry that they are seeing the same thing?

I certainly would suggest that we are seeing bid ask spreads widening. But I will tell you that the deals that are getting done, we think are getting done at valuations that are not showing that kind of delta.

Now maybe deals are being pulled back in the market place, with sellers unwilling to sell at that kind of discount. But I'll also say in support of that is we're still seeing land prices very strong, we're still seeing construction costs going up and seeing no abatement in replacement costs, which are also going to be, I think be a driver of the underlying value of the existing stabilized asset.

Right. Very true.

Lastly, can you talk about the sensitivity of your rising rates and recognizing you're extremely well capitalized, generating strong free cash flow. But just appreciate what can that you do to your competitors? Because some people are really not as well capitalized and again it's highly fragmented.

So how does that impact the competitive nature of the market for new move-in's and renewals from the way you've modeled 2017 guidance? And what are you assuming for where rates are going to go in your modeling?

Ivy, it's Mark Parrell, I may need to disassemble, we may not have understood your question, is that a question about balance sheet sensitivity of us and anothers to changes in interest rates or our customers renewal? I didn't understand that second part?

I guess what I'm saying is, there is a connection as rates rise, clearly on the transaction side and what the impact is on underwriting assets and whether it is trading or new development et cetera. But then it also has impact to the competitive markets and how it may be bet players act.

So there is a connectivity and I'm trying to understand when you think about it broadly in your forecasting 2017, your rent growth, revenue growth AFFO, everything that you are providing to us, how do you think that the rising rate environment impacts the competitive nature of the market as there is some changes in how people act when I think about a good player versus a bad player. Do you have that incorporated in your forecast for 2017?

Well, I guess what I will tell you what we have incorporated is the LIBOR, the curve says they will be two bet hikes. So we assumed LIBOR to be higher and we put that into our forecast for our own floating rate debt. The third increase would be so late in your it would be impactful to us. So we've thought about that.

We will comment and say that many of our private, most of our private market competitors, are much more highly leveraged than we are and carry much more floating-rate than we do in debt. So to the extent you're suggesting the competitive landscape changes, if rates go up suddenly and significantly more than people expect, and by that I mean short-term rates, that impact will be profound, I would guess as it relates to our private competitors and considerably less significant to guys like us that run with 10% to 20% floating-rate debt. As it relates to our tenants actions specifically, I don't think we've factored that into our thoughts.

I think what she is asking is will -- like we saw in the South Bay in San Francisco early in 2016, the rational pricing to fill the building up to convert from construction to permanent financing. So, I think we have, that's why we've created a much wider range in New York on the concession front because if people do start operating two, three, four months free to get their building occupied so that they can then go for permanent financing, I think we have that factored into our assumptions, or our ranges.

Got it. Well good luck. Thank you for taking my questions. Appreciate it.

Alexander Goldfarb, Sandler O'Neill.

Thank you and good morning out there. Two questions for you, maybe they are both for David Santee. Going back to LA, you said that, that's about 40% of your growth for 2017.

And then in your commentary, it sounded -- I was trying to do the math quickly, like maybe half or so, or little over half of your portfolio are in some markets away from supply, is that correct? And if not, if you could just break it down how much of your LA exposure is in submarket spacing supply like downtown versus submarkets away from supply?

So, in downtown, which would include call it Koreatown, mid-Wilshire, Hollywood, that is where half of the supply is. We only have 16% of our total LA MSA across those submarkets. 25% of our revenue sits, let's just call it in the Marina or West LA.

Over the past year or so there's been significant new deliveries in Playa, which has pressured West LA and the Marina. Those submarkets are just beginning to recover and we would expect little pressure from new supply in 2017. Other than that, the last major chunk is really Pasadena where we only have three or four properties, but we have properties in far east of Downtown LA.

We have considerable portion of our revenue up in Santa Clarita, up in the San Fernando Valley. I think we're good in LA as far as feeling the brunt of the concentration of deliveries and loss of pricing power in the urban core.

Okay then switching coasts to DC, you mentioned the hiring freeze and how that also covers contractors, but there's also -- hold on a second. So I did see you mentioned that hiring is also impacted on the contractor side. But if we see -- defense clearly seems to be getting favored nation status.

So if we do see more defense spending do you think that's enough to offset the hiring freeze and then, two, how much of your portfolio is Northern Virginia-focused out of your DC portfolio?

What I would say is, is when you look at the makeup of all of the defense employees in DC a lot of them are contractors already. A lot of defense employees are contract employees.

So we look at that as an offset to not hiring at the EPA or what have you. But we certainly feel that an increased focus on defense spending, which is just the biggest piece of the pie in DC will be an overall net benefit.

Okay. Thank you.

Vincent Cho, Deutsche Bank.

Hi, everyone, I just want to go back to the commentary about the trajectory of same-store performance over the course of the year continuing to decelerate, it sounded like if I heard you correctly. If we think about -- I know that's a bottom-up analysis of the markets and whatnot. But if we think about just supply and I think most there's a lot of different estimates out there, but most see the first half being worse than the second half. And then also think about the demand-side in terms of job growth which has slow down a bit here, but could potentially could reaccelerate toward the back half of the year

I guess if I think about your trajectory, does that suggest that you don't expect any change in the job environment or job growth environment I should say towards the end of the year and that you are building in steady supply deliveries?

I would say that we are not forecasting any material change to job growth either to the upside or the downside. A lot of the administration's initiatives are probably more construction type jobs what have you.

Everything else remains to be seen. And that's how we are looking at jobs. The unemployment rate is low, (multiple speakers), the unemployment rate and college-educated is 2.5%. So I'm not how much more you could improve in the next 12 months. I think it's just another yet to be seen thing.

Okay. So that's the one half and then the supply would be the other so it does seem like supply should theoretically be easing towards the end but maybe there's a delay in that benefit as those deliveries lease-up.

But I guess maybe another question on the liquidity side or the sources and uses. I thought I heard just under $1 billion of debt repayments planned for the year and then another $300 million of development CapEx. But I thought there was about $400 million of debt planned for issuance? And then is the remaining delta at the CP program that you talked about?

So some of that will go on the line. Remember we do have $250 million to $300 million of free cash flow a year and we will have that again this year after all CapEx. So some of that is offset by that.

And then the remainder will be a higher line balance at the end of the year or CP depending on what's more efficient. So I do expect us to be more like 500 or 550 on the revolver of CP program towards the end of the year compared to where we are now at a couple hundred.

Okay. Thanks.

(Inaudible), Robert W. Baird.

Good morning. Quick question. You had mentioned before some leases where rents are probably rolling down to market we have some legacy leases that are above market.

Could you quantify that in terms of the loss to lease for the whole portfolio and more specifically New York and San Fran if you can?

I guess I would say we don't really focus on loss to lease in a yield management environment. That number can change dramatically from Q1 to Q2 or Q3.

But it's more about the momentum in a market. So certainly anyone that moved in prior to let's just say June of last year in San Francisco, is probably 5% to 7% above market today. So that's where you get the roll down until you reach equilibrium on that.

Okay. And secondly some of the supply data that is out their suggests that while supply growth looks like it's coming down a little bit in 2018 it's still elevated relative to 2016 in New York. I was hoping -- I know not all of that likely gets built, I was hoping you'd give some color on your read on how much of that ultimately gets built and when, at what point during this year might those numbers become a little more firm?

Well I think our 2017 numbers our firm. In most of our markets that is in our geographic footprint this is vertical high-rise, midrise product that started two years ago. So, again, we reconcile our delivery numbers with axiometric data with our folks in the field, boots on the ground, so I believe we have a very firm handle on what will be delivered in each of our submarkets in 2017.

I'm sorry if I said 2017, I actually meant 2018.

2018's got to be pretty firm today. In order to deliver anything in 2018 you've got to generally be pretty much underway in New York.

You have to be moving dirt today.

So we do see from a completion standpoint, a defined completion, we do see 2018 in New York a little more than 2017. But as part of our budgeting process we recognize that a good amount of that 2018 will be available for lease, perhaps even in 2017, and we've accounted for that in our budgeting process.

Okay that's helpful. Thank you very much.

Tayo Okusanya, Jefferies.

Hi, good afternoon, everyone. Again thanks a lot for the details for most of the markets. I just have two quick ones.

The first one the $500 million guidance for acquisitions and dispositions again, granted it's not a big acquisition disposition year, but could you talk specifically about if all that is opportunistic or if there's anything targeted in any of those numbers?

Very little. There is almost nothing targeted in that. For some time we have had just a very, very short list on the acquisition side but it covers is a little better there at the present time, just given where we see valuations are at the present time relative to wanting, the stuff that we sell.

That is all I think speculative at this time. If and when we find good trade opportunities to buy and asset with proceeds from the sale we will go ahead and do that, but that's generally been the way we've thought about most of that activity even in last year. We had started with an expectation of perhaps selling some to redeploy that would be in addition and away from the large disposition processing we did last year, but there ended up being very little of that action taking place.

We continue to look for product, if we can finance it, do we think it makes sense, at a price it makes sense, and we believe we can pair that up with an appropriate sale we will go ahead and do that, but we don't see a lot of that -- we are not working a lot of that at the present time.

Got you, that's helpful and on the development pipeline I noticed with the Irvine, California development project the stabilization date was pushed out a couple of quarters. Any particular reason for that?

Yes, well that was finally pushed out in response to having pushed out the completion of that some time ago. We had a particularly difficult problem with the general contractor there and nearly may be suffering from the same labor problems that contractors are suffering with across most of our markets.

So the construction, the delivery of that was delayed. There was always a hope that there might not necessarily because it's building two different phases, might not necessarily require us to actually change the stabilization date. But now we have done so. So that was really response to a several quarter delay during the construction process as a result of general contractor issues.

Great. Thank you.

Rich Hill, Morgan Stanley.

I know we are past our hour by a lot of time, I do want to keep my question short. But going back to your comments that you don't really have anything to sell, I'm sure in putting words in your mouth, but if the right opportunities came about you would sell and maybe rotate into something else.

Could you give us some color just what you would find attractive in the current market? Is it, would you find New York City attractive if cap rates widened enough? Are looking for markets with less supply? I'm curious what you would consider to be an attractive acquisition in the current market if it was favorable enough?

Again it's attractive relative to that which we want to sell. So I can't tell you exactly what it might be. We may find in a market that a reason why we might want to sell one submarket and redeploy into another submarket or to sell in A and buy a B or sell a B -- if this is a market by market, submarket by submarket exercise that is a function of what we can sell and what we can redeploy that capital in and does that make sense relative to one another.

Understood. But in an ideal theoretical world, you have some assets that you would potentially sell. What sort of markets do you -- are there any markets that you would specifically be targeting and view more favorably or is it really as dynamic as it seems?

I would not describe that as market as much as perhaps specific assets in a market. So there may be assets that we believe might be an opportune time to roll out of today and not market-driven, but more asset driven. So older assets, assets requiring capital perhaps that we don't think -- that we want to put into it, reasons why, again as we said earlier move from reduce exposure in a certain submarket and redeploy in another submarket.

Just to make it clear, anything that we had really recognized or identified last year as an asset that we knew that was not a long-term hold for us was rolled up into the large transaction we executed as part of the $6.8 billion in dispositions last year. So anything that we identified, anything we did not want to own, we tried to and we were successful in putting that in and disposing a bit a year ago.

So anything now, again as assets we've seen, we would be willing to sell not necessarily something that has to be a long-term, but we would be willing to sell this if we could find an appropriate acquisition into which we would redeploy that capital. So again it's just an asset here, and asset there that we would be willing to sell if we could find the right thing to buy and again that's just a trade so that's all a function of the relationship between what we're selling and what you're buying.

Got it that's very helpful so I think about that in terms of just portfolio optimization. You like the markets that you're in. You believe in them long term, but from to time there might be an opportunity to sell one asset and by another asset and you would take advantage of that if you could?

I wish I had said it so clearly the first time (laughter)

(Laughter), Thank you. That's all I have.

John Kim, BMO Capital Markets.

Thanks, good morning. You discussed spending additional CapEx as a response to new supply and I'm wondering if this is market specific or throughout your portfolio? And also is the $2,600 annual CapEx per unit is that the new norm for the future, or just for 2017?

Hi, it is Mark Parrell. The $2,600 that amount is just really spread throughout the portfolio. There are some larger projects here and there but it isn't very overrated in one market or another.

I did mention in my remarks we think of the $2,600 as an exceptional number and we would expect it to normalize back down to $2,300 or so. So $2,300 a unit is about 7% of our revenue and that's a number we think is about right and shows very well relative to a lot of our competitors. This year we will go up to about 8% of revenue and that's again, I think a response to competitive pressures and because we've got a few low hanging fruit and some of the sustainability stuff that we would like to get done.

And is that going to be more weighted towards revenue enhancing this year versus last year?

No, I don't see it as materially different. I think a lot of this stuff that we call rehabs is revenue enhancing. It has a return associated with it, of course some of the replacements are just that; replacements of worn out equipment and maybe doesn't have a specific ROI. But certainly the rehabs of $50 million was all approved at investment committee. Those are all deals that have to meet rigorous hurdles.

And then in New York we have seen a couple of micro apartment buildings emerge and I'm wondering if you had any views on this? If you see this as an opportunity, a threat, or no impact to your business.

Well I guess I'd say that supply is supply. Rental supply is rental supply and it competes with us. We own some micro apartments in San Francisco and in Seattle and so have experience with that and understand how it fits into the market place but I don't look at it as a specific threat. New supply is new supply and it competes with us.

Is that a part of your portfolio that you may be willing to grow?

Again, if it makes sense. It's a very high turnover product and so it does require a little bit different sort of management. But we wouldn't steer clear of it, but we're not -- it's not part of a specific strategy to grow at the present time.

Great, thank you.

Wes Golladay, RBC Capital Markets.

Good morning. Looking at your base case for demand in New York, are you assuming more of the same: financial service jobs contracting flattish, information jobs?

Yes.

Okay. And then you mentioned rising wages to limit employee turnover. Are you seeing an uptick in turnover? And is there any property level impact when this happens?

You know we do our best to retain our employees and there's many levers, benefits, enhanced department discounts, what have you. There are a lot of the e-managers out there that don't necessarily have skin in the game when it comes to offering wages and we have seen some, I would call them outrageous offers to some people.

For the most part I think a lot of our people that work at Equity Residential are very loyal and what we do see are people leaving for simply more opportunity. The good performers that when your adding 30,000 units over a couple of years in New York City, that creates a lot of new property manager jobs, regional manager jobs, and what have you. But we don't see people leaving for lateral opportunities.

Okay and then last one have you mentioned where new and renewal leases are going at, at? For January and for the next few months on renewals?

No. I have not, but I can. For January, we achieved 4.2% on renewals. February, which is almost closed out, 85% are closed, we achieved a 4.2%. And then March 60%, we still have 50% to be worked and we are at a 3.9%.

Okay, thanks a lot.

Tom Lesnick, Capital One.

Hello, thanks for taking my questions. I'll keep it short since we are pretty late in the call here.

Bigger picture, and I know it's early into the new administration and everything, but given immigration policy and everything have you looked at migration trends and how that sensitivity applies to your various markets? Is there some demand elasticity that is sharper in some of your markets more than others? Just wondering if you could comment on San Francisco, LA, and New York specifically?

So, we have begun to dig into our database. We don't identify people on visas specifically, but there are other ways that we can query. Folks with no social security numbers are an obvious first run.

I would tell you that we're not ready to commit to any numbers, but I think what we've seen so far plays out, matches up with our thinking in that Boston and San Francisco are very similar for different reasons. So San Francisco is more H-1 B visa, Boston is more international students.

New York is probably in between those two places. Once we validate what we're seeing, we will be in a better position to talk about that next quarter.

Okay. Thanks for the color. Appreciate it.

Nick Joseph, Citi.

Hey, it is Michael Bilerman with Nick. So, we spent a lot of time talking about the outputs of your guidance. I'm curious into the methodology, the process, the inputs that you use to come up with it and after last year's guidance cuts, part of it was you were going to delay a quarter, which you did, and I think you earmarked a little bit that you were going to come up with a larger range.

So how did the process, how did the methodology, how should we think about the guidance you've put out, relative to your guidance that you had done last year?

Well, I think when you look at 2016, we went into the woods unprepared. We thought we assumed 2016 was going to be a repeat of 2015 and we didn't allocate the appropriate tools for a significant market downturn like we had in San Francisco.

Also, San Francisco made up a very large percentage of our growth. So the biggest market that contributed to growth had the most significant downturn, in a very short period of time. And I think looking back that whether it is axiometrics or any other shop, I think people acknowledged that San Francisco went south much quicker and much harder than even those folks expected.

So, this year we have given our sales a bigger range. 2017 is going to be elevated supply, unlike 2015 that had tremendous job growth and packed in a year and a half worth of growth into one year.

So, I think we started from the ground up. Looked at our trends on new lease or lease-over-lease growth, made our assumptions on rental rate increases in each of the markets relative to supply and job growth and how those flow through the year quarter by quarter. And I think we've developed reasonable ranges that cover some potential upside, as well as looking where the volatility, most of the volatility is like New York, and covering our sales in the downside.

Okay. Was there any pop -- once you get all your bottoms-up analysis and additional conservatism baked in top down in your model? I'm trying to really grasp how conservative you've put out this guidance knowing what happened last year. I just didn't know if there was any methodology changes or data input changes that would lead to a different outcome?

No. We did a sensitivity analysis market by market. We know there's a 50 basis point increase or decrease in revenue, what that does to the whole Company, and I think we've created the appropriate ranges given the expected activity in the market, that gets you to our midpoint.

The street has got your NAV at $70, the stock is hovering around $60, so call it 14%,15% discount, double the discount of to where your apartment peers trade. You have a $13 million share authorization, call it $800 million or so. Why wouldn't you be buying your stock today?

We've been using our free cash flow, Michael, as you know to complete what has been a very successful development work. We are bringing that down. That creates capacity to perhaps do as you suggest, as we get through the development that needs to be completed this year.

Like, I have said repeatedly on these calls, that share repurchases are certainly part of what we will consider. We have bought stock back in the past and we will not be afraid to buy stock back in the future. We have limited bites at the apple and when you do, you need to make it count and we'll make sure that if and when we do it, it's at the right time.

But I guess your stock is hovering around the levels, the low levels of the last number of months. I'm try to get a sense of whether -- you know your capital needs are you can certainly lever up knowing that you are going to have the free cash flow next year, whether this is an attractive enough entry point or do you not see the same discount that the street is seeing?

We see the same discount as the street's seeing. Nobody is more aware of that then we are; this Management Team and our Board. And when we'll react we will let you know. But no need I think to say anything in advance of that activity.

Right. Okay. Thank you, gentlemen.

And that concludes our question-and-answer session. I would like to turn the conference back over to our speakers for any additional or closing remarks.

Bye. Thank you all for your time. We appreciate it. We went long today and we appreciate your powers with us today. We will see all around the circuit. Thank you very much.

And that concludes today's presentation. We thank you all for your participation and you may now disconnect.