住宅地產 (EQR) 2009 Q1 法說會逐字稿

Good morning, my name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Equity Residential third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will a question-and-answer session. (Operator Instructions). Thank you.

I will now turn the call over to Martin McKenna.

Thanks, Sylvia. Good morning and thank you for joining us to discuss Equity Residential's first quarter 2009 results. Our featured speakers today are David Neithercut, our President and CEO, Mark Parrell our Chief Financial Officer and Fred Tuomi our EVP of Property Management. David Santee our EVP of Property Operations is also here with us for the Q&A. Certain matters discussed during this conference call may constitute forward-looking statements within the means 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 mature because of subsequent events.

Now, I'll turn it over to Dave.

Thanks, Martin. Good morning everyone. Thank you for joining us for our first quarter earnings call. As noted in last night's press release, we delivered quarterly operating results that were pretty much right in line with the expectations that we provide you on our earnings call in early February, and I want to thank our teams across the country for continuing their hard work during this tough time. We know it's not easy, and we really do appreciate what they're doing for us each and every day, take caring of our properties, keeping our residents satisfied, and helping deliver solid operating results for Equity, so thank you to all of them.

Well, the details of our first quarter performance are described in the press release, and Mark will discuss them in a little more detail in a few minutes, but I know what you really want no know is where things are going from here, and while it's impossible to say with any degree of certainty, I'll try to provide some color for you on at least what we're seeing through today. Last week in Atlanta, at ULI I was on a panel, and our moderator Leonard Wood, asked the following question, is this the worst that you've ever seen, and it was an interesting question, because it could be answered in several ways. The first is, is this the worst economic climate that we've ever seen, and I think without question, the answer to that is absolutely. Who can really deny that what we've seen and are seeing in the financial system, the extent of government intervention and involvement, the rapid deceleration of economic activity, the rate of job loss, et cetera, who can deny that what we're experiencing now is anything than the worst economic condition we've all seen in our career.

The second way to address the situation is this the worst we've ever seen in real estate. I guess my answer to that is perhaps, but the late 80s and early 90s was certainly a challenging time as well, and lastly, how one can answer that --- address that question is this the worst we've seen in the multifamily space? And really, the answer to that is absolutely not. We are far far cry from that period really in the late 80s and the early 90s when the savings and loan industry imploded, when we had years and years of new supply being delivered in very challenging times, and some markets had occupancies in the 70s back in that time. Many assets had insufficient rental income to operating expenses let alone to service their debt. So, no, this is certainly not the worst that it has been we are far from it. We're 94% occupied today.

We have a couple of large capital sources providing billions of dollars of debt capital to our space, demographics couldn't be better and we all believe they'll be good for many years to come, and we don't have an oversupply situation. So in effect many experts think we'll actually have a recently housing deficit in the very near-term. So things are pretty good in the multifamily space. All that said, on a year-over-year basis, same store revenues are decreasing, and will decrease crease throughout the year. Revenues will also decreasing sequentially and continue to do that through without the year. That's the bad news as we deal with the impact of such severe job loss the economy has been experiencing.

The good news is that our renewal rents on average are holding flat across the portfolio, and that really is good news. And there is perhaps more good news, but only time will tell if it is in fact newsworthy, that has to do with what we call our net effective new lease rent. And I want to define that as the rate that we are achieving today on our new leases on a net effective basis. So on a net effective basis, what ware realizing on our new leases today, as I note in last night's press release, this effective new lease rent has fallen from 2008, that's sort of stating the obvious, but it has remained stable since the beginning of the year. And that's notable because it means rents are not continuing to decline at least not yet. So we're not essentially sort of chasing the ball down to Hill, so to speak.

So I will continue to report negative same store revenue numbers, period over period and sequentially, it's because we're marking older leases to a new market level, a market level that is at least for now not showing any further deteriorate. As we enter our primary leasing season 94% occupied, we think we're positioned as well as we can be, and in fact, we've even got some markets where we are currently increasing our net effective new lease rents heading into the leasing season, again increasing that from the levels in January. So obviously, we continue to be concerned about the job picture, and it can certainly worsen, which could negatively impact these rental rates, so I want to make something perfectly clear. We are not calling a bottom. There is way too much uncertainty out there today, we're just trying to let you know how we're seeing things in the field, on the ground today.

Now, that's a very high level discuss of what's going on in the portfolio. We know that there are a lot of questions about some of our key markets, so as part of today's call, Fred Tuomi, who runs our property management team will give a little color as part of our prepared remarks, and Fred will, of course, with David Santee, our head of property operations will participate in the Q & A following. On the transaction side during the quarter we did continue to sell assets and much of the info about those sales is contained in the press release and supplemental information.

As I have said for several quarters our strategy is to continue to sell our older noncore assets while there continues to be a bid, and as long as the GSE's are providing financings, which is certainly positively impacting that bid, we're keenly aware of the dilution that results from this activity, but we're not sure we will realize better pricing down the road, so we want to take advantage of the opportunity while we can, and we think that the cash from these sales is far more valuable to us in our pocket today than in these assets. So during the quarter we sold 7 assets in central Connecticut, we sold asset each in Dallas, Nashville, Minneapolis, and Tampa.

Now, there continues to be insufficient transaction activity across all markets, and, particularly all quality and size of assets to have a definitive picture of asset values, but I'll tell you what I can. You've heard me mention over the last several calls that during 2008, we sold our assets at about 100% of how we had valued them in the first quarter of 2007. And that's important, because we think about first quarter 2007 as somewhat of a high-water mark for asset valuations, so through '08, at about 100% of that high water valuation. Well, that began to change in late 2008, and our fourth quarter '08 sales were at about 85% of that level, and that's of consistent discount that we say with our first quarter '09 sales, as well, so I about 15% off, or 85% of how we had valued those in the first quarter of 2007. On the development side, as we've discussed on recent calls, we have no plans to start any new projects at the present time, and our focus is on completing, leasing, and stabilizing our existing deals.

During the quarter, we were pleased to complete construction on a couple of projects, our Third Square project in Cambridge, Massachusetts, as well as the Mosaic at Metro in , Maryland, which was a deal that we acquired in the middle of construction, and we also began preleasing -- the preleasing process on Red Road Commons, which is across from the University of Miami, and our 77 Green property in Jersey City, New Jersey. So we now have five properties in lease up, like everywhere, rents are below our original expectations, that shouldn't come at any surprise. We have great product. I'm please to tell you the leasing velocity is very good, and I want to acknowledge the fantastic job the leasing teams doing on these lease up deals as well as the assets that we recently stabilized which are Key Isle in Orlando and Alta Pacific in Irvine, California . Now, the team has really done an outstanding job on these lease ups, generating traffic, building great momentum, closing deals and achieving strong leasing velocity.

Now from a return perspective, development yields will initially underperform our original expectations, and likely stabilize on average in the mid-5 yields rather than the underwritten yields in the mid-6s. This is for all of the obviously reasons I've already talked about, but they're all great assets, we are delighted we own them they will do very well for us over time, and by the end of the year, our development pipeline will have reduced to about 5 projects with less than about $200 million less to fund. So with that, I'll turn the call over

Thanks, David, good morning, everyone. Thank you for joining us on today's call. Our focus continues to be on operating our existing portfolio as efficiently as possible in this tough economy and on maintaining substantial liquidity. I have a couple of topics I'll hit this morning. I'm going to talk about our first quarter results, do some accounting housekeeping, give you a bit of color on our second quarter and full year guidance, and end with a belief recap of the Company's liquidity position and funding requirements.

Our same-store NOI decline 2% in the quarter compared to the first quarter of the last year, is right in line with the expectations we had for the first quarter when we gave you our original guidance for the year in early February '09. For the quarter, our same-store total revenues decreased 0.2% or 20 basis points, over the first quarter of 2008. Driven by a slight increase in average rental rate, which was offset by a 50 basis points, or 0.5% decline in occupancy. Revenues were positively affected by an increase in (inaudible) income and negatively affect by an increase in concessions. Same store move in concessions in the first quarter of 2009 did increase to $3 million, from $800,000 in the first quarter of 2008. That is a $2.2 million increase. However, move in concessions were still only about 70 basis points, or 0.7%, of total same-store revenue in the first quarter of 2009.

So that is up from the 20 basis points, or 0.2% of total same store revenue than that these concessions totaled in the first quarter of 2008. We did see move in concessions levels moderate a bit in March and April, and renewal concessions are nonexistent. We are trying to be a leader in our markets and stick to net effective pricing. It is difficult in some markets when small owners rush to offer concessions the second they see a dip in occupancy. Our same-store expenses were up 2.8% on a quarter-over-quarter basis. Payroll and utilities were each up a bit over 3%, and property taxes were up 4.2%, all as we expected. These increases were offset by decreases in leasing and advertising, grounds, and turnover expenses. We feel that these are particularly good results on top of a tough comparative period expense number of 1.6%. Sequential, from the fourth quarter of 2008, to the first quarter of 2009, same store NOI declined 5.9%, for that period, same store revenues were down 2%, driven primarily by a 1.5% decrease in rental rate, and 50 basis point or 0.5 decline in occupancy. Same-store expenses for the sequential period were up 5%.

Sequential increases in expenses between the fourth and the first quarter are common. As utility expenses and ground costs are impacted by cold winter weather and snow removal, we also do reset our property tax and real estate tax accrual levels. However, this past winter was exceptionally rough. On the real estate tax side we also set our accruals up 4.3% or $ 2 million. Unfavorable expense trends in property taxes and utilities will continue in to 2009, though the sequential impact will flatten or decline.

We continue to show good discipline on the G&A side, as our G&A spend for the quarter was approximately 16% or $2 million lower than the first quarter of 2008. Spending each dollar of G&A wisely will continue to be a priority at equity residential. We also had a good contribution in the quarter from our lease up properties. David has spoke any bout the terrific work of our field personnel and leasing up our development, other nonsame-store properties. We anticipate that these properties will contribute an incremental $19 million to our FFO results this year, and they exceeded our expectations for the quarter.

Let's take about some accounting house keeping, we adopted APB14-1 on January 1, 2009, and as a result, we must restate our 2008 FFO results going forward on a comparative basis. The adoption of this new rule resulted in a reduction to FFO of $0.01 per share in the first quarters of both 2008 and 2009. We also added a new line to our income statement titled other expenses. This line will primarily be used to expense transaction costs on successful acquisition and pursuit costs on unsuccessful acquisition and development transactions. New accounting guidance requires that transaction costs on successful acquisitions be expensed. Previously these cost would have been capitalized.

Want to make sure that everyone understands we are not using this new line item to shift any costs into or out of G&A. If we had not created this new line, transactions costs, like environmental diligence, legal and title costs from successful acquisitions would have been expensed in the impairment line and would have affected FFO all the same.

On the guidance end, I would like to address our second quarter '09 guidance, on page 23 of the release you will find the assumptions underlining our annual FFO guidance. Our second quarter FFO guidance of $0.53 to $0.58 per share is based on three main assumptions that lot get you to the mid-point of the guidance range from our first quarter 2009 actual number. First, property NOIs is assumed to be down $0.02 per share due to continuing deteriorate in same store revenue, though it will be at a some what slower sequential rate of decline than exhibited between the fourth quarter of '08 and the first quarter of '09.

Second, interest expense will be lower as we will have the benefit of an entire quarter's worth of lower debt balances from senior note repurchases, and as we use cash on hand to pay off maturing debt.

Third, we have not budgeted any gains from debt repurchases. Remember, we had 2 million of these gains in the first. As David just discussed, we expect quarter over quart of sequential revenue to decline throughout 2009 as we write new leases at lower net effective new lease rents than last year, bringing our full year results for revenue and NOI with in our previously guided ranges.

On liquidity, I want to highlight our recent capital markets activities and discuss our sources and uses of capital for the next few years. Being proactive in addressing our debt maturities and development funding needs has been a priority, and we are very pleased with what we have accomplished. In late December 2008, we closed on the $543 million secured loan from Fannie May, some of the proceeds of which were used to successfully tender for our 2009 and our 2011 unsecured notes and the purchase portions of our convertible notes the the private market.

In January, we purchased at par $105.2 million, of the $227.4 million outstanding, of our 4.75% notes due 2009, and 185.2 million of the $300 million outstanding of our 6.95% notes due 2011. Also during the first quarter, we opportunistically purchased 17.5 million of our convertible notes for a price of 15.5 million, or a 9.3% yield. We are especially pleased to have purchased $119 million of our convertible debt for a cost of only 99 million, ruts in $20 million of economic gain to the Company since the third quarter of 2008. More detail on these activities are available on page 15 of the release.

Now just briefly on the GSEs. Freddie Mac and Fannie May continue to provide well priced and plentiful debt cap to the multifamily market. Rates for 10 year debt today would be between 5% and 5.5%. No underwriting standards particularly on valuation have tightened and processing times have lengthened as they intense their underwriting. On the unsecured public debt side, we have seen recent substantial improvements in issuance levels and investor sentiment. However, the substantial premium to GSE loan rates to access this market continues to be prohibitive, at least to us. We will continue monitoring this market and hope for continued improvements here.

As I have done the past fewer quarters, I will now go into our cash position and our funding needs for the next few years. This is going to be a pretty familiar to any of you as not much as changed last quarter, bit we feel the added transparency here remains beneficial. Let's start with sources and uses of capital for the remainder of 2009.

At April 1, 2009, we had $611 million, which includes 1031 balances in FDIC guaranteed notes with maturities longer than three months. I'll note these items are not shown in cash and cash equivalent, they are shown in other places on our balance sheet. We also had line availability of 1.31 billion and giving us total liquidity of $1.92 billion today. We expect over course of 2009 to receive another $315 million in net disposition proceeds as well. On the use side, we'll spend about 1.05 billion during the remainder of 2009, about 868 million we'll spend on debt payoffs, including development loan payoffs, about 183 million on existing development projects, and other funding requirements. And I note in this discussion I'm assume no additional debt repurchases in 2009. As a result, our cash balance at December 31, 2009, will be about $50 million, and our line availability will be approximately 1.135 billion. This will give us total liquidity of approximately 1.185 billion, and I note that this is a conservatively estimated number as it is before any additional financing activity the Company might undertake.

On to 2010 we expect to spend 635 million in that year, 363 million of which will be spent on debt payoffs, including development loans yet to be fully drawn, 272 million in development fundings and other fundings, and I would like to tell you that of the 500 million term loan that initially comes due in October 2010, we would expect to extend that loan into 2012 pursuant to an extension option the Company has. So it is not included in our refinancing needs for 2010. So therefore at December 31, 2010 we'll have cash on hand of 50 million. Line availability of about 500 million, and this is all before dispossession proceeds in 2010 and before any financing activity in either 2009 or 2010.

As we look towards addressing 2011 and 2012 funding needs. Equity Residential is fortunate to have many sources of liquidity. As we have proven, we have the ability to borrow from the GSEs at low rates and large amounts. Our enormous pool of unencumbered assets. About $12 billion in undepreciated book value provides us with a ready pool of assets that could be leveraged. With other productivity discussions with other traditional nonGSE lenders to our space who have money available at good rates, but at much lower leverage levels that the GSEs.

As one of the best rated companies in the REIT space we have access to an unsecured public debt market that, as I mentioned earlier, is improving. We also have a ready source of funds available from the sale of noncore assets and will be paying down debt with the sizable amount of cash we have on hand from prior debt issuances. Finally, our undrawn $1.31 billion line of credit is available to meet maturing debt obligations and funding needs. As we have prove over the past 18 months we will continue to be proactive in prefunding ourselves and hope to access all of these sources.

Also, as David mentioned, development in process, which is a big user of cash, will decline substantially by year end as we plan to start no no wholly-owned projects and as existing projects are completed. I also wanted to point out that we have through our varies debt tender and open market repurchase activities already meaningfully reduced the amount of debt that we have maturing between now and 2012. You can bet that the management team will continue it's focus on aggressively addressing debt maturities and other funding needs.

Fred Tuomi will next give an overview of some of our key markets, but before I turn it over to Fred, I want to provide clarity on the difference between the rent numbers Fred will provide and the actual revenue numbers that we report and the projected revenue numbers that are contained in our guidance. The term that Fred will use and that David has used is net effective new lease rents. Meaning rates achieved on new leases today on a full net effective basis. The current reductions in net effective new lease rents are materially different from our guidance revenue numbers in several respects. First, the impact of lower net effective new lease rents will be spread over the remainder of 2009 and 2010, as we roll through our current rent roll. Until leases roll, existing leases will pay us rent at the higher historical rent levels.

Second, as David noted, those residents that renew with us are doing so on average at no change in net effective rent. Since this represents 40% of our residents, that helps negate the impact of lower net effective lease rents from our new residents. Third, changes in occupancy and in levels of nonrental income can also impact the revenues we ultimately receive, and thus report and are not encompassed in our net effective new lease concept. So with that general understanding in mind, now let me turn the call over to Fred.

Thank you, Mark. Most of our markets are performing as expected, and as David mentioned earlier, rent levels have declined from 2008, we've seen -- I'm sorry, as David mentioned, although rent levels have declined from 2008, we have seen steady demand and fairly steady rents since January. New York is obviously of interest, it is encouraging that we are 95% occupied across this market and still see new meaningful evidence of move outs due to job loss. So far the renter's chief concern seems to be a lower level of personal income through bonus or salary reductions versus the actual loss of a job. Therefore what is occurs throughout the market is the rotation. People are moving around to secure a place that is lower in cost, higher in quality, or in some cases a little of both. People in Manhattan are transferring within our buildings, moving across neighborhood boundaries, and some are now returning from the Burroughs,, and this is actually creating a new source of demand from Manhattan apartments. In fact, our Manhattan occupancy has, running one 1 to 1.5 points above last year.

Focusing on Manhattan only, the net effective new lease rents are down about 20% from a year ago. This is primarily driven by market concessions and the loss of premiums on choice floor plans. Moderate priced units in great locations are faring much better. As expecting, renewal negotiations are tough, but the good news is April renewals were completed at an average of 5.6% below to the prior in place rent. I would like to provide a little more detail around our Q1 results for the New York market. We reported quarter over quarter revenue growth of plus 0.5% for the New York market. Now, more Manhattan only, the first quarter revenue growth was approximately plus 2.1%. However, in Manhattan, we are under the process of renovating 958 apartment units, and these rehabs are going extremely well in terms of leasing and rate increases. In fact, our year-over-year revenues on these projects are between 35 and 50% up over last year. So excluding these units, the remains Manhattan properties saw a decline of 3.9% in revenue for the first quarter, and the overall New York market was a decline of 2.7%.

Another market worthy of note is Seattle. Seattle is clearly going there a reversal of fortunes. One of the best performers of late, Seattle has recently succumbed to pressures from job losses. These losses have caused a sudden drop in rent and occupancy, especially in the downtown CBB market. Our net effective new lease rents have declined 11% year-over-year, and occupancy is down 2 points to 93%. Now, the good news is our April renewal rents are down only 1.3%, and the recent leasing velocity is very encouraging. Another market in swift transition that of San Francisco. With a forecasted job losses there are substantially, and simular to Seattle our net affective new lease rents in the Bay Area have fallen 12% year-over-year, and occupancy is down 2 points to 93.6. Again, as in Seattle the good news is April renewals are holding only down 1%.Moving to Southern California. We're doing about what we expected so far. However, in Los Angeles, we've slipped a little bit more due to large job loss numbers and some pockets of new supply which are causing steep concessions.

Net effective new lease rents are down 8% in Los Angeles, and the good news is the supply pipeline is now almost empty. San Diego, San Diego is a bright spot. After a sluggish fourth quarter in 2008, the trend has been positive. Our newly effective new lease rents are down only 4.5% year-over-year, but it's great to see San Diego rents are actually growing now. They've grown 1% sense January, and our April renewal revenues are up also by 1%. Other markets are showing positive trends as well, Boston, Maryland, DC and Virginia are all performing ahead of our expectations and are maintaining positive growth trends through the first quarter. Net affective new release rents are up in all three of this markets. There up 4% in Boston, up 4% in Maryland, and April renewal are up 2% in the DC, Virginia market.

So overall, the first quarter was in line with our expectations, and while net effective lease rents drop across all markets last last year, since January 2009, they have been steady. We have been able to improve our retention rates while achieving flat or better renewals through April. So we feel good about our occupancy being at 94%, and very solid leasing velocity over the last few weeks. This does position us well as we enter this critical leasing season. David?

Thank you, Fred. Before we open the call to questions, would like to briefly address the concept of [re- equitizing] of REITS that we have seen take place over the last several months. We have paid and we continue to pay close attention to this activity, to understand how these deals are getting done, for what reasons, as well as a dilution involved and the benefits to the companies that are raising the equity. As Mark just noted, we're very mindful of our maturity schedule and our debt coverage metrics.

We have aggressively raised capital for the agencies in advance of our need, and you can expect us to continue to do so. We will also closely monitor the senior unsecured market place and will continue to sell noncore assets to raise capital as well. And we will not hesitate to do what we believe is in the best interests of our shareholder long-term interest. So not saying we will raise equity capital, and not saying we won't. What I'm saying is like everything we'll keep our options open and review the situation on a regular base. So with with that Sylvia, we will open the call for questions.

(Operator Instructions). Your first question comes from Rob Stevenson from Fox-Pitt Kelton.

Can you talk a little bit about where bad debt in the portfolio has been trending over the quarter, versus the fourth quarter and what you've been seeing more recently?

Rob, this is David Santee. Bad debt has run about 1.1% historically. It's in the 70% basis point range, and bad debt really has two key drivers. It's obviously right off of rent, but it's also damages. And we have implemented a pretty, let's say, consistent but firm program across the country that really focuses on charges relative to quality of the apartment once we guest it back from the resident. So this one reason for the increase. The second increase is what we call accelerated rent. Those folks who choose to roll the dice and wait until that apartment is rented on the early termination, and the increase in the early termination part of bad debt is really a result of our increase in average vacant days. So all in all, bad debt is, for the most part, on track as we expect.

Okay. And then have you guys made any changes in the last few months on your resident underwriting criteria, and how you score different things, given the way that the market has been changing?

This is David Santee again. We have a credit model that we've had in place for two years, and simply put, it puts people into four categories. We haven't changed the model that defines these categories, but we will change how we treat residents that fall into those categories. So a person that falls into that third bucket that has very questionable credit, previously we may require two to three months additional rent in security. Today we may be willing to take a little more risk and only ask one to one and a half months rent in security.

Okay. And then last question for Mark. Based on recent conversations with the rating agencies, what's the capacity to continue to access secured debt before you're at risk of a ratings agency down grade?

Two points to make. First on the covenant side, we have about $2.9 billion of covenant room before we hit the secured debt limit. Your question related to the rating agencies, I think we would probably target to get rating agency pressure if we did call up 500 to a 1 billion more of secured debt and didn't pay offer a similar amount of secured dent. the fortunate thing we have is that this year it's pretty much all secured debt, there's one small unsecured maturity in June, Rob. So I think if we can keep our unsecured or unencumbered NOI near and around $750 million, which is our expectation, I I don't think I'll have a problem on that, but I do think we could get pressured if we move much beyond that.

Okay, thanks, guys. Appreciate it.

Your next question comes from David Toti from Citigroup.

Good morning, guys. One think you didn't mention in your discussions were your appetite for acquisitions and where you might see opportunity, and how that might fit into your sources and uses agenda.

We did not acquire anything in the quarter, and we have acquired very little in the last 18 months, and that is because we've -- really, the focus has been on liquidity and on dealing with the pending debt maturities. And I say two things that have to happen for us to, I think, really start getting back into the acquisition game. Number one, we have to feel like values or prices have dropped to where we believe they'll stabilize, and we have to believe that those represent good values. And the second thing that has to happen is we have to have confidence in our ability to finance ourselves on a regular going forward basis. Mark and his team have done a terrific job of positioning the Company until 2011, 2012 and if we were to start taking capital be it cash on the balance sheet disposition proceeds that are coming in or going in the line of credit to start buying today we are essentially moving back from 2011, 2012 to 2010, 2011. Until we have more confidence that we can deal with pending maturities, I think you can see us out of the acquisition business and continuing to sell assets and keep the cash and really, brown, keep cash on hand to deal with pending maturities.

Great, and then based on your comments, it also seems like you are likely most interested in potentially tapping the unsecured market? Would you say that was a valid --

Well, we -- I'll tell you this, it's just a constant trade off in mix between the secured and unsecured market. The unsecured market for us is an important source of liquidity. We would love to be in that market, but it just has to present value to us. And just to be clear, we've always issued unsecured debt at a spread to GSE debt. It's just the spread right now is pretty substantial and doesn't maybe sense to us, put there's been so really promising signs in that market, and I'm encouraged and hopeful, but I don't know yet that it's time to strike, so worry going continue talking to the GSEs. We're going to continue to have a dialogue with them. We're going to continue to borrow from them as appropriate.

David, it's Mike Bilerman speaking, a follow up on that point. You talk a little bit about not closing in the door to equity, but not -- but not putting it complete by -- probably not doing it either, and then the unsecured markets getting better but not -- I'm just trying to put it all together in terms you think about all of your various capital sources, you've been priming the pump on one of them really hard, as you think about the -- the equity market doesn't seem that great pricing. How do you sort of put it all together in sort of keeping a full menu of capital within your stack?

Well, we -- when we talk about it all everywhere day, I mean, how do we keep it altogether in we're constantly monitoring what's going on out there in the capital markets, understanding what our on the secured side be, unsecured, effect side, looking at our credit statistics, debt matures, coverage ratio, somebody also looking at just what our existing liquidity is, and how far that can take us out into, you know, years into the future. And as we sit here today, we're comfortable that we've got everything under control to 2011, if not 2012, and that has given us, I think, some time to assess the situation and get further into this year, and start to think about 2010 before we have to make any decisions one way or the other. I note that a lot of companies that have raised equity to this date have done so to get them to a place where we have been for quite some time. So we think that we're obviously keeping our eye on everything, and we'll make the appropriate decisions when we believe that the time is right.

Great. And then this is David Toti. David, just one last question. Relative to the affordable gap in most of your markets, which appear to be closing, some of the government stimulus obviously taking effect, do you see that as a growing threat, or something that's still pretty far out on the horizon relative to your near-term projection?

Well, that's a great question, and it really has two separate answers, I think, David. One is what's it going take for people to start buying even if they do see homes really cheap What kind of confidence do they need to have in the economy, and what kind of confidence do they have in their job to kind of hit that bid? And I think people are going to be cautious, and they'll be cautious for a while, just because of the uncertainty in the marketplace. The other thing is that one has to be very careful in looking at what home affordability is nationally, as compared to what home afford account is in our core markets. It's still, even though it has come down, it's still fairly wide in places like New York and in Orange County and in San Francisco and in Seattle and and of our other markets. So we do look at that. We do acknowledge that while we've benefited from a move out to buy single family homes level is down significantly from what one would suggest would be a historical sort of run rate within our portfolio, so we recognize there's likely to be some pin up demand, bit we just -- we they're in that people will need to feel a little better about their jobs, better about the economy before they step out and satisfy that demand, as well as let's not forget that for the first time in a while one needs real equity to actually buy a single family home. So we certainly watch it, be and they will impact us in some markets, and we'll have to be thoughtful about it, bit I don't think that wire having the impact today that that some people might have expected.

Great. Thanks for the detail.

You're next question comes from William Atkinson from benchmark.

Thank you, good afternoon, guys.

Hi, Bill.

Hey, listening to are your commentary, I would have to say you sound not optimistic because but partly not to pessimistic and when I look at your same-store NOI guidance, the mid-point, you would have to average negative 8% for the rest of the year to get to the mid-point of 6.5, and I'm kind of assuming some of the poster child markets, Phoenix, Florida, Inland, Empire, are going to start getting better year-over-year comps, so the question is where do you expect NOI is going to be down the most?

Well, it's Mark Parrell. I'm going to address your first comments. Europe implication is right. What's going to go on for the rest of the year is bout that number. It's going to happen, the NOI reduction is going to happen differently. It's not going to average negative 80 for the next three quarters, it will ramp up. Remember during '08 our revenues went up every quarter We're on a quarter over quarter basis chasing a larger number for the whole year. You asked then, and I don't know, David, do would want to take that part of it, but you asked what markets may improve here during the course of the year, or whether Phoenix will hit a bottom. I'll just tell you that rolled up, our numbers, we still fool very confident inside of our guidance range.

And then real quickly on the development portfolio. And concessions there -- I mean, your pro forma rent rates, how much have they come down from, say, expectations a year ago?

Well, concessions have been pretty consistent with what our underwriting, sort enough the one-month range, Bill, and then just with respect to the rents, if you think about what Fred's comments were about what's happened to our net effective new lease rent in some of these markets, you can expect that we're seeing recently levels that are low double-digit down from what our expectations might have been.

Okay. And then lastly on Cambridge, that looks like a property that's doing really great guns here, and I'm just assuming that is because it has less of a gain on financial jobs and you have little bit more biotech and healthcare providers in that market. Would that be accurate?

And education.

And and education.

Yes. I mean, that market has done very well for us, and not just that property, but the expansion of our property on the other side of the river, at the west end, has also done exceptionally well. The lease ups there have really exceeded our expectations for all the reasons you mentioned

Okay. Thank you very much.

Your next question comes from Sloan Bowen from Goldman Sachs.

Good morning, I'm on with Jay, as well. Just a quick question about transactions. It looks like first quarter was a bit light. You would you maybe given us an update on how deep you think the sales market is, or how far apart you think buyers and sellers are right now?

Well, I guess, round, we've continued to maintain our guidance about what we expect to do for the year, and our guys continue to be confident that we can do that, and I'll tell company that we is plenty in the pipeline today, either out marketing, or under letter of intent or under contract to lead us to believe that we can still get there, but it's all subject to different things happen. I'll tell you, on the property that we've been selling, so again these lower price point deals, Mark had mentioned Fannie and Freddy financing being 5 to 5.5, so there's good financing available to the buyers of these assets, and we've been managing to schedule meet our expectations on our dispositions of those asset. Again, these are very small price points and assets in our markets. The big spread any larger properties, more core properties and higher absolute ticket properties is a much larger bid spread.

Could you just give us an update on the what the current yield is on the 680 million of completed development that's not yet stabilized and where that ranks?

Well, I did say that of our -- all of our developments, of our development pipeline in the bids and the things that are under, we're expects that on average to about a mid-5 yield. Down from blast we had originally underwritten in mid-6s.

Okay. Great, thank you.

You're very welcome.

Your next question comes from Alexander Goldfarb from Sandler O'Neal.

Good morning.

Hi Alexander.

Just a question first for Mark on the debt side. As you guys and a number of the other REIT have been either tendering or buying back your unsecured debt in the market, what do you think that has done? What do you think the effect has been to the unsecured debt market do you think that has caused like lack of liquidity or pricing to not be maybe what the existing holders of it would like, and what do you think the longer term impact of the recenter tendering of buy backs will be?

Sure. Except for some of the distressed REITs most of those tenders will be at par. I they were it is bringing end rates. I think it is supportive of the improve independent the market that we've seen of late. I would also frankly -- people still have money to put to work, and as and we others tender for bonds, we are ,materially reducing their book and their exposure to REITs. Getting an offer at par is one of the few offers at par they have received for debt secures in the last year or so, so I guess I feel differently. I think it's helpful to the market.

Okay. And next just goes to Phoenix, just given everything that's going on out there, and some of the attributing of that market that we're seeing versus your other, your coastal markets, what are your longer-term thoughts a boat Phoenix. You exited Texas. Would we -- should we think about something similar to Phoenix?

Well, I guess you can think that we're constantly looking at our exposure everyone and thinking we're looking at what the right long-term plan ought to be. So I can't tell you anything particularly about Phoenix. Phoenix is obviously a very challenged market, and like all of the markets we're in, we'll take a look at it when we think the time is right and decide if it's a place that we think is sort of worthily of long-term capital investment or not.

And then just the final question, New York, I think you mention about 900 units under rehab, and you guys bought an upper west side portfolio a few years ago. Just want to get a sense for how the returns to that are going.

Well, I mean, I can't tell you what the absolute return is on the investment but as Fred mentioned, our rehab business in New York, of the 900 and something units, we have 35, 40% same-store revenue growth out of that entire portfolio, is that upper west side portfolio is certainly driving a lot of that.

And the acceptance has been fantastic. As soon as we can get the units vacated, we get them turned, and get them leased and occupied with revenues that are about double of the in place rents.

Okay. Thank thank you know.

You're welcome.

Your next comes from Michael Salinsky from RBC Capital Market.

Good morning.

Good morning.

David, as a follow up to David's Toti's earlier question, can you take about move outs across the portfolio are those still down on a year-over-year basis? Also, could you talk about Southern California, the massive contraction in home prices, starting to see that tick up there at all?

Yes, this is Fred Tuomi. In Southern California, I talked bite Los Angeles already. Orange County and Inland Empire are operating at about the same dynamic now. Inland Empire defied logic through the housing crisis but once the national economy kind of collapsed and you saw massive job losses on top of single family -- correction there, Inland Empire has started to (inaudible) -- so that's one of the few markets have we seen on an uptick in home purchasing because the prices have gone down significantly. You can get one now for under 250,000. So we are I see something move outs for home purchasing. WE are seeing some shadow market activity there as more units are being lowered in priced and lowered into rent there, but still 94.2% occupied, 7% left to lease, and rents are down 10% over last year, but they've absolutely rock stable since the beginning of this year, and rental increases are just slightly negative. Site doing okay, but under a lot of pressure. Now it's the job loss more than the whole situation.

Orange County is a little bit of a disappointment there, if that we've had three year running of job losses, which is unusual for Orange County, and the prediction this year is more job losses from retail, tourism, et cetera. But home prices there have come down, but they're still expensive, as David mentioned, so than it market will be okay. Right now what's kind of making it worse is a little surge of demand. Always typically have 2,500 to 3,200 units coming in per year in Orange County. This year we've getting 4,800 just at a time you don't want it. But highly concentrated in Irvine and Anaheim, but that's causing some concession pressure across the market. Rents were down 10% year over year but they been fairly stable just slightly negative so far this year.

On the operating side, looks like the rate of sequential decline in Florida seemed to slow down the quarter relative to some of the other markets. Do you feel Florida is getting close to a bottom, and as a follow up to that, there are any other markets that we're looking at that you feel are guesting closer to a bottom at this point?

Florida has a similar story in that it's had two waves. The first was the single family issue. Especially we all know about South Florida, Miami, and later on Orlando, and they were taking the normal path of a sudden write down and then some bounces along the bottom, some stability getting to the point of recovery, as you wrapped around the comp period. Last year I think we talk aid bout it for the month of June, in South Florida, we actually saw an up tick of positive rent growth, and that, pretty much the inflection point we were expecting. And then the national economy, the recession hit job losses across all sectors so we have the second wave of down turn. It's certainly not the kind of declines you see in these other markets.

Finally, on the transaction front, probably more a question for David. (inaudible) On the 11 asset sales during the quarter, that representative of where the market is going? Second, in terms of of transactions, what kind of the sweet spot sellers are looking for right now? is it distressed properties, redevelopment, properties that we won't have to put a lot of CapEx in? What are sellers generally looking for?

Well, I think sellers are looking for a positive spread to their borrowing rate, and a good cash on cash return and if you can bother from Freddy and Fannie at 5, 5.5, and buy in cap rates in the high 6s, low 7s which is generally what we are seeing in the product we are selling that can translate into a good cash on cash return. That cap rate -- our weighted average cap rate for the quarter was impacted by the portfolio that we sold in central Connecticut, which was sort of older smaller assets, whichever was at about a 720 cap rate, but I would tell you that the assets that we're selling, high 6s, low 7s was generally the sweet spot that we're seeing today is and again with Fannie and Freddy borrowing rates where they are, that works for the buyer.

When they're policing those, were they looking on forward cash flow, prior cash flow?

I gets all of the above. I mean, they're certainly looking at where past cash flow had been, but also looking at what's going on in the marketplace and trying to look at something on a forward 12 as well.

Thanks, that's very helpful in.

You bet.

Your next question comes from Scott Kirkpatrick from Teton Capital Advisors.

Yes, congratulations on a good quarter in a tough environment.

Why, thank you.

You're welcome. My question is, first, in terms of the bad debt and delinquencies, could you give us a little more color in terms of an actual dollar number on the bad debt, and maybe some sequential context by where that was in the December quarter, and kind of maybe what your thoughts there are going forward? And if you wouldn't mind doing the same with delinquencies, that without be very helpful.

Okay. This is David Santee. Bad debt in the first quarter, bad debt write-off was about $5.6 million, of which half of that is the accelerated rent that we -- that I referenced, and the other half was based upon damages after a resident moves out. On the delinquency historically, our delinquency runs in the, say, call it 2.7 range, and we do see seasonality in our delinquency in that in January and February, as people were trying to pay their Christmas expenses, what have you, we seen delinquencies always tick up 40 to 60 basis points, and that's no different than what we've seen this year, and for April, we've already reduced back down to normal levels of 2.6.

I'm sorry, so what was the delinquency percentage for the quarter?

The delinquency percentage for the quarter was 3.3.

And what was it in -- I understand the seasonality point, but what was it in the December quarter?

December quarter, it was 3.0.

And what was the bad debt if the December quarter?

The bad debt if the December quarter was 1.0.

And just in terms of that sequential change in bad debt, and is that also something you see, a function of seasonality impacting, or is that just more the tough environment?

Yes. Part of the of offset to to bad debt is the amount of money that our collection agency provides us, and no different than our residents have difficulty paying their bills over the holidays, they are less likely to pay a collection agency over the holidays as well, so we see reduced collections from our third-party collection agents over the holiday, as well.

So you're expecting the bad debt, and the delinquencies to sort of moderate back to the norm in the current quarter?

Yes As I said, you know, I -- bad debt has remained fairly constant. Delinquency was slightly higher in the quarter, but for April, it's already moderated back down to 2.6, which is well within our expectations.

What was the bad debt for the year last year?

I don't have that.

There's no reason to think that those percentage for to any prior time period should be different than the ranges that we've given.

It's just that some other of your peers had bad debt during the first quarter that was greater than the entire last year. So I can circling back on-line with that. And then you also mentioned that you're reiterating your prior guidance for '09 for the year, and I'm assuming that the FFO guidance of $2 to $2.30, and maybe you've mentioned this in the beginning of the calling, which I apologized for missing, but were there any other metrics for 2009 that you are reiterating?

Well, I guess what I can tell you is we changed a few of those guidance assumptions on page 23 of the supplemental .

Yes, weapon generally don't make adjustments in this first quarter to our guidance, unless we've off track in some substantial way. At this point, I think our message to you is all on track, but we lack full visibility until we get through the leasing season. So all the guidance remained unchanged except for increasing and other income, the range by 2 million. That's because we received $2 million in gains when we bought back our convertible debt that we just didn't budget for, and also increased income tax expense by a 1 million.

Yes, I'm not too worried about those, was the FFO range on page 23 in the supplemental, the $2 to $2.30 range?

Yes, it's the same it was in February of 2009 when we gave our original guidance.

And what was the occupancy target for the year?

93.5%. It remains 93.35%.

So you're already tracking slightly ahead of that?

There is seasonality to our occupancy. It tends to be at lower points in the winter, and maybe David you want to give some color.

There's lower points in the summer as you increase in the volatility and the impact of student property, that's typically what we see, the low point is in July.

So we're comfortable with 93.5 as an average, weighted average for their year.

And and then just lastly, and thank you for the time, the idea of the employment metrics deteriorating and that impacting your numbers, I guess is there some kind of sensitivity analysis you can give me, just kind of back of the envelope, are you looking a at certain level of unemployment this year?

No, we've -- we build our numbers up from the ground up, and really look at each individual market in which we operate, and dynamics of each how that make maybe impacting our property. It's so not as show though we dictate to our filed personnel, please assume this level of unemployment. Certainly within our ranges, we do -- you know, we can tolerate more unemployment than what we're seeing today.

So what's today, around 8.7, and maybe you're using a cushion of, say, 9, or something like that?

Well, again, I'll tell you, that's not the way we do it, but there is some cushion in unemployment within the guidance of the ranges of guidance that we provide.

Okay. Thank you.

You're very welcome.

Your next question comes from Anthony Paoli from JPMorgan.

Hi, this is Mike Lewis on Tony's line, actually. If I look at -- look across your markets and kind of rank them top to bottom over the last few quarters, Seattle and San Francisco are right at or near the top of the list, and I was just thinking, if you fast forward a year from now, given the trends there, are those still the two best markets? And if not, which ones are kind of poised to replace them, is it did DC, Virginia or Maryland?

If you're talking about just short-term current operating conditions, I would say yes, probably so. Seattle and San Francisco have had a great run. They had good supply and demand dynamics, and now they're there's been a pretty sudden reversal there primarily due to the job loss situation, and pockets of supply in Seattle. So they'll be under pressure here for another couple of quarters, and as I mentioned earlier Boston is doing just fantastic and the DC markets, both Maryland and Virginia are both solid. So we expect those to be near the top, and loot of negative in the middle, and it's -- others are going to be under some pressure.

Okay. Just one more question, and maybe I'm beating this transactions question to death now, but you maintain the 250 million of acquisitions guidance. It sounds like unless you see some price stabilization, maybe that comes in a bit low, and then if that were the case, does that also affect your choices for your -- the volume of dispositions?

It might very well. I think what we had said on the fourth quarter call in February, that if we were to get into the acquisition game again, it would likely be in the latter part of the year. So I think that you can look at sort of a net disposition volume as really constant, and in we -- if dispositions do increase, that might provide some opportunity for us to acquire some assets. We're still looking at that $450 million as sort of what the Delta is.

Okay. Great. Thank you.

You're welcome.

Your next question comes from Steve Swett from KBW.

David, can I just try to flesh out this net effect of new lease rent numbers to make sure I understand it?

Sure.

I think I understood you to say that it does not include renewals?

That's correct. This is the amount that we're getting on our new leases on a net effective basis. So new residents a on net effective basis. I mentioned in the remarks, renewals are flat on average, and what we're -- so what we've -- this focus, this discussion point earlier was only on the new leases to new residents.

And I heard -- I think I heard Fred's number for some specific markets, but you -- did you have a net effective new lease rent over the entire portfolio?

Yes, that's year-over-year through April was down 7.5%, and as David mentioned, it's pretty stable.

All right. So on -- if I combine those two for to all your leases inked in the quarter, would be somewhere between the two, negative 7.5 and flat, and then if I look at the disclosure on page 11, which has the -- the -- or is it -- let's see, this -- well, you're disclosure on the average rental rate, that takes those numbers, bit it's only for the leases that were actually rolled in the quarter.

No, that's in the existing rent roll.

Right, because you -- I would imagine you roll fewer leases in the first quarter than, say, your second quarter.

Yes, I would expect that to be the case, yes. So that is the rent roll, which includes whatever leases we've written over the -- really over the last year.

Right. Okay. And then -- and then I think you said that you expect the sequential revenue trend to moderate in the second quarter?

Right. We expect sequential revenue to decline less, but it will continue declining throughout the year.

All right. And if I assume that you are rolling more leases in the second quarter than the first quarter, then am I assuming, then, that you expect an increase in occupancy in the second quarter?

Yes. We expect -- this is David again. We expect a slight uptick in occupancy, but more importantly less move-in concessions. Last up front move in concessions.

Okay. And then if I could just ask perhaps Fred or David, can you characterize the traffic you've seen this spring in terms of your closing ratios, and how you feel about the traffic in this environment versus, say, last year, or prior years?

Let me say this, our foot traffic, those people that are recorded that walk into our office, that number is up 4.6% year-to-date. Now, attribute that to two things. Number one, we have a very focused initiative around sales. Our people are doing an excellent job of working with customers, follow up, that's drive somebody of that improvement, but essentially, I think, there's a lot of tire kickers out there. People are shopping rate, and I think that's evident in the unique visitors, the unique visitor accounts that you see on the major ILSs. Our Equity Apartments.com site our unique visitors are down somewhere around 7%. Apartments.com down about 8%, Rent.com, all of these ILSs that report their stats, they all see a reduction in monthly unique visitors. So it's clear that demand is down, but yet we are seeing more people shopping our communities and coming through the door each month.

Okay. Thanks.

You're welcome.

Your next question comes from David Harris from Royia Capital.

Guys, quick question on the dividend, if I may. And if I'm doing my math right, using your 925 budget for CapEx, looks like there's a modest shortfall on covering your dividend. Any thoughts you would like to share with us on size of the differed payment and cash stock alternatives?

Well, I think your arithmetic is pretty close. Wee look at a modest shortfall, not unlike what we saw kind of in '02, '03, and as I said on the last call, our intention is to continue to pay our dividend and pay it in cash, but as we do every quarter, David, the board will take, a long look at, it we'll have discussion asks do what we think is the right thing.

Fair enough. Thanks, guys if.

You're very welcome.

I'm showing no further questions at this time. Are there any closing remarks?

Yes, thank you all for your time today, and we look forward to seeing many of you in June at the (Inaudible) REIT meetings. Thank you so much for joining us.

Ladies and gentlemen, this concludes the Equity Residential first quarter earnings conference call. You may now disconnect.