住宅地產 (EQR) 2009 Q4 法說會逐字稿

Good morning. My name is Crystal and I'll be your conference operator today. At this time, I would like to welcome everyone to the Equity Residential conference call. All lines have been placed on mute to prevent any background noise. After these speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. McKenna, you may begin your conference.

Thanks, Crystal. Good morning, and thank you for joining us to discuss Equity Residential's fourth-quarter 2009 results and our 2010 outlook. 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 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. Now I'll turn the call over to David.

Thank you, Marty. Good morning, everyone. Thank you for joining us for our fourth-quarter call. 2009 was certainly a very challenging year for the multifamily business. Really we've never navigated through such uncertainty caused by such unprecedented job loss. Yet I have got to tell you I could not be more pleased nor more proud of the way the Equity Residential team rose to the occasion, despite such challenging market conditions.

For the year, same store revenue results were down only 2.9%. That number is right on top of the midpoint of our original guidance given to you all one year ago. Our operating platform delivered same store expense growth for the year, down 0.1%. And that really is a terrific outcome when compared to the comp year, a year ago, when expenses were up only 2.2%.

Now in thinking about this great expense control, I want to make something perfectly clear that this is not the result of reducing services to our residents, and is not the result of cutting back on how we care for our assets. And we know that because our customer service scores increased again in 2009. But it's the result of doing exactly what we have always been doing, but using our scale, our concentration, and technology to do it cheaper. So as evidenced by our guidance for 2010 in last night's release, we're expecting the picture to improve a little bit as the year progresses.

Now in just a minute, Fred will go into a little bit more detail on what we're currently seeing, and how we're thinking about revenues before 2010. But before he does that, I first want to say that we're already experiencing improving occupancy across many markets, when seasonally for this time of year, we would be expecting just the opposite to be happening. And while we still have above market leases that will need to be adjusted downward, our net effective new lease rates are beginning to turn a little bit positive in many markets. And while our 2009 renewals were on average extended at flat to slightly negative levels, we're beginning to see more renewals today with a very modest upward bias.

Now this is all good news for the apartment business. But I want to make sure that everyone understands, I'm not suggesting that we're experiencing any kind of sharp inflection here. I would rather say, we think we are at the beginning of a period of slowly -- and I do mean slowly -- improving fundamentals. But when job returns, if you add job growth to that picture, we believe that will quickly turn into one of the best operating periods in our history. So with that in mind, Fred, give everybody please a little color on how we are looking at revenues for 2010.

Thank you, David. I'll give you a little more detail around our 2010 guidance for the same store revenue. And this is based on what we're seeing on the ground today, and the trends that we expect the business to follow over the coming year.

So first, as you know, rental revenue is most impacted by four key drivers. First, we have the continued rolldown of those embedded leases that are currently above market rents. Those have to roll down to net effective new lease rates. Second is the rental rates achieved on our renewals. Third is the resident turnover rate, and fourth is any change assumed in physical occupancy.

So at a starting point, if you looked at this year, assuming first -- assuming no change in occupancy for the moment, our budgets would lead us to think that same store rental revenue would decline by about negative 2.9%. That's just the mix of those first three things without an occupancy change. Then when we adjust for an expected at least 0.5 point occupancy gain and some contribution from our other income categories, then we get to the total same store revenue of down roughly 2%, which is right in the midpoint of our guidance range.

So let's go into a little bit more detail on each one of those. First, let's look at the net effective new lease rates. And if you remember, these are the current rents that we're achieving on brand new leases on a net effective basis. So new people moving in, net effective rates. And as noted in previous quarters throughout 2009, these net effective new lease rates have remained relatively stable since January of last year. So we had a big rolldown late 2008, and we weren't sure what was going to happen in '09, but we were very pleased as each quarter ticked off in '09 that those rents were pretty stable. Up a little bit and down a little bit but overall on a narrow band. That stayed up through the end of 2009, but right at the end of fourth quarter, we noticed some pretty good seasonal pricing trends begin to develop. As we turned the quarter in late December and into January, we see a slight upward movement. Slight upward movement continuing in the first quarter of 2010. So after bouncing along a year-long bottom, we're seeing a modest but definitely noticeable upward trend in rates.

Now the markets that are leading this upward trend include Boston, Washington, DC, Denver, Colorado, and now South Florida. Boston is the strongest performer in this regard, and rents are up about 3.3% from the same week a year ago. Now some markets are a little bit slower. They're lagging. Those that entered the recession later, last end of the downturn such as Seattle and San Francisco, and then also those with deeper economic problems, larger scale job losses, maybe less chance for a recovery, such as Phoenix, Arizona and the Inland Empire, it's going to take longer. They're obviously going to lag in this recovery of rents. They'll get there. It's just going to take a little while longer. Seattle is the furthest behind, and their net effective new lease rates are now about 9% below the same point a year ago.

Now let's talk about the renewal fees. Obviously, the rolldown to new pricing levels will continue through most of 2010. However, the downward trend as this process occurs, is moderated, kind of a governor is put on it by the achieved renewal rates that you can get on those that do not move out. As we mentioned through 2009, we are very pleased -- initially surprised, but very pleased that the net 12 month renewal rates on those people renewing -- we were able to do that basically flat or only slightly down. That was a great proof of consumer behavior. They're satisfied with their apartment. They're in there. They like us. They stay. They pay, and they say good things about us. So the whole renewal process, our strategy starting with our pricing, our sales and communication of it, and we tell our people throughout the chain -- communicate, motivate, but do not capitulate on those rents. So despite the reduced net effective new lease rates, as we turned into 2010, it has turned positive with an average increase of just under 1% up for our January renewals. And the February trend, we've already renewed about 39% for February -- we're not done yet, shows another significant increase on this. So as we get to the easier comp periods of the past, plus our ability to sell renewals and negotiate tough, we're seeing a good lift on these renewal basis which is a significant moderator to the rolldown of rent rolls.

So all but three of our core markets are now achieving positive renewal rate gains, led by the DC-Maryland market at up 4.4%. And that is very healthy renewal rates in any market. However in contrast, Seattle again -- sorry to pick on Seattle. But as they're rents were declining further as we noted earlier, they're averaging a 2.4% reduction in 12 month renewal rates in January. So we are seeing some writedown on the renewal-side fees as well in Seattle.

Now coupled with this is resident turnover. And as you know resident turnover has improved steadily over the past few years. We've been very happy with our resident retention movement, but for the 2010 budget, baked into this guidance, we are assuming that it will remain flat for 2009.

That brings us to the final driver of rental revenue which is that of occupancy. As David mentioned, counter to seasonal expectations, leasing remained strong through late Q4 and well into January. Our occupancy has climbed of late, and we're now at 94.6% as of yesterday. And it's the broad-based movement many markets have experienced recent up moves in occupancy, right at a time you think it might be moderating or soft. Some of these markets have made a move as great as 100 basis points, however, with stable or actually improving net effective new lease rates. These include markets like Los Angeles, which is now at 95% occupied. South Florida, 94.8%, and Atlanta, Georgia, even at 95.5%. And again, we did not buy these occupancy gains. And this is the most encouraging signal to me for the start of 2010.

So to recap our assumptions for the guidance for this year, our portfolio average net effective new lease rates have turned upward, and we believe this will continue, returning to a slight and modest growth by the year's end. Renewal rates will remain positive and grow stronger throughout the year. Resident turnover will hold steady at 61%. Put this into the rental revenue blender, and you get 2.9% decline. However, offset favorably by 0.5 point improvement in occupancy and a further contribution by other income, and again, that yields an approximate 2% decline in same store revenues. For the entire year of 2010, it represents the midpoint of our guidance.

So overall, we are very happy to see some positive signs out there in our system. But we have to remember there is still a long way to go. Our platform and our people served us extremely well in 2009, and we feel right now as we enter this year we're very well positioned to capture the opportunities of a much awaited and much welcomed recovery. Thanks.

Thanks, Fred. Turning to transactions, after sitting on the sidelines for quite a while, and not making any acquisitions due to uncertainty about property valuations, as well as the more important need to hoard cash and manage the balance sheet, we've become more active on the buy side over the last 90 days. Now as I have said for quite some time, we would begin buying again when two things happen. Number one, we needed to become confident in our ability to fund our maturing debts in the normal course of business. Number two, we said we would begin buying again when we began to see attractive pricing on good quality assets in core markets. Assets that we could acquire at discounts to replacement costs, at good IRRs, and which we thought would create good long-term value for our shareholders.

We did acquire two assets in the fourth quarter of last year. The first, we discussed a little bit on our last earnings call in early October -- or in late October, rather. And that was a high-rise tower in the Pentagon City neighborhood of Arlington, Virginia. Built in 2004, we pro forma'd a 6.1% yield on that asset in our first year. The second acquisition in the fourth quarter of 2009 was Mosaic at Largo Station. That deal was in Maryland, just east of the District near FedEx Field. That was completed in 2008 and was still in lease up when we acquired it. And we pro forma there a stabilized yield in the high 6%.

And more recently, thus far in 2010, we've acquired five additional assets. The two Maclow assets which we announced on Monday which are just extremely well located and premiere multifamily assets. But in addition to those, we acquired a mid-rise property near the beach in Del Mar, California, which was built in 1998. We're going to do a repositioning on this asset, and we projected a year two yield of 6.7%.

We've also acquired another high-rise tower in Arlington, Virginia, called Vista on Courthouse. That deal was built in 2008, and we pro forma'd a 5.9% first-year yield on that acquisition. We have also acquired just this week -- it closed on Tuesday, a mid-rise property in Seattle built in 2002. And we acquired that with a 6.6% cap rate. And of course, we're under contract to acquire the third Maclow asset which will close no later than May 1st.

We're also pursuing a couple of additional deals, each of which we think are extremely well located. They are high quality assets which we think we can acquire at attractive prices at good discounts to placement costs, double digit IRRs. And again, which we think will provide better long-term total returns than the assets we're selling.

So meanwhile, the markets remained open for the assets that we've targeted for disposition. These are assets in non-core markets or assets in less attractive submarkets with risk to valuations going forward. So we continued to sell assets through the fourth quarter. Sold three deals in North Carolina, a 37-year-old deal in Atlanta, a 48-year-old asset in Rockville, Maryland. We've also got a pretty good pipeline of potential dispositions in 2010. We're currently working on several more deals in North Carolina which will nearly complete our exit from that market. Working on a portfolio of smaller assets in our non-Boston New England markets and a property in Jacksonville, Florida, just to name a few.

But I want to just have everyone understand that our motivation to sell today has changed, as of late. Going forward, we will continue to sell if we can find attractive acquisition opportunities that makes sense to recycle that capital into. Because in 2010, we do not expect to be selling to raise capital for liquidity and debt repayment purposes that was behind much of the selling over the last couple of years. Our thinking is now back to what it was prior to the credit meltdown. That we will be a seller if we think we have a core market reinvestment opportunity that will provide a better long-term total return on our capital.

On the development front, our focus in 2009 was to complete, to lease, and to stabilize our existing deals. And we're very pleased with our progress on all fronts. During the year, we completed six assets totaling $670 million of development cost. We stabilized seven projects, totaling nearly 1,600 units. In the fourth quarter alone, we leased 375 units and had 338 new move-ins -- just in the fourth quarter of 2009. Now, like everywhere, our rents are below our expectations. They're down about 18% on average on a net effective basis from our original underwriting, but that's just a fact of what is going on out there in the marketplace today. We have four projects that remain under construction at the end of 2009. These range from 70% to 98% or so complete, with only about $140 million yet to fund to complete construction on those assets.

But as noted in last night's release, we have added a property to our development pipeline. We have acquired a leasehold interest in a land parcel in New York City. This is at the southwest corner of 10th Avenue and 23rd Street in Chelsea, right next to the High Line, which is an incredible, incredible thing for that neighborhood. Just a great amenity. This was a distressed situation, in which we acquired this interest from an investor who had completed the foundations, out of pocket, but was unable to get financing to go vertical. So the project had had little activity for nearly a year and a half. And we acquired this interest for about 50% of what the seller had into all of the site and foundation work, as well as the architectural and engineering design work. And we simultaneously entered into an amended ground lease, which didn't really change the economics any, but it did make the lease more commercially reasonable to us and was necessary for us to go forward with the transaction. So on this site, we'll build 111 apartment units beginning as early as the second quarter of 2010. That will include 9,400 square feet of prime retail at just a tremendous corner in the Chelsea neighborhood. Total cost, about $53 million. 100% of these units will be market rate. We've underwritten a 7% -- a mid-7% yield on cost, and that is at current rents today. And the deal is subject to a 421a, ten-year tax abatement which is a favorable tax treatment for that site. This was really a unique situation. I got to tell you that our development team, led by Megumi Brod, really brought to the table and just did a phenomenal job of making that happen for us, and we're real excited about it. And so with that, we'll turn the call over to Mark.

Thanks, David. Good morning, everyone, and thank you for joining us on today's call. This morning, I will focus primarily on our fourth-quarter performance and our guidance for the first quarter and full-year 2010. Same store NOI declined 6.3% in the quarter, compared to the fourth quarter of last year. Revenue was consistent with our expectations, and expenses were better than our expectations. For the quarter, our same store total revenues decreased 4.7%, over the fourth quarter of 2008, due to a 4.5% decrease in average rental rate and a 20 basis point decline in occupancy to 94%. Same store expenses were down 1.9% on a quarter-over-quarter basis, driven primarily by decreases in real estate taxes and payroll. Our expense categories are broken out in our detailed disclosure on page 14 of the press release. As most of you know, real estate taxes and payroll are two of our three biggest expense categories. Together, they constitute approximately half of our combined same store operating expenses. Real estate taxes were down because lower valuations were realized more quickly than we expected, and because of our success with appeals. Payroll was down because of adjustments to accruals, lower headcount, and less overtime. The third biggest expense category is utilities which is about 15% of our expenses. And those expenses were up only 2.7% quarter-over-quarter. Less than we expected, due primarily to lower energy costs. The next big category, repairs and maintenance costs, were down mainly because turnover was down 1.3% for the quarter. And I note that turnover was down 2.7% for the full year.

Regarding FFO, we had a terrific incremental contribution, about $6.3 million in the quarter from our lease-up properties. For the full year, lease-ups contributed an incremental $23.2 million to our FFO results in 2009. Our FFO was $0.52 per share for the quarter, down from $0.61 per share for the fourth quarter of 2008 after adjusting for one-time items, including the 2008 land impairment charge and debt extinguishment gain and a 2009 tender offer charge. This difference was primarily due to a decrease in same store NOI of about $0.06 per share and $0.06 per share of dilution from our 2008 and our 2009 net disposition activity, offset by the $0.02 per share of higher lease-up results that I just referred to. 2009 was challenging. We came through it well. So with 2009 behind us, let's take a look at 2010.

On page 25 of the release, you'll find the assumptions underlying our annual FFO guidance. We have also listed in the release the primary drivers of the difference between 2009 and 2010. Let me discuss further a few key items. On the revenue side, Fred gave some wonderful color on our numbers, and I wanted to add a few points to help put our 2010 guidance in perspective compared to our 2009 results.

During 2009, our same store quarter-over-quarter revenue numbers became progressively worse as the impact of the rolldown in net effective new lease rates went through our rent roll. In 2010, we expect our same store quarter-over-quarter revenue numbers to grow progressively better with the possibility that same store revenues for the fourth quarter of 2010, when compared to the fourth quarter of 2009, may be minimally positive. This is mostly due to the easier comparable periods we will face in later 2010, as well as the improved occupancy in 2010 that Fred discussed.

On the expense side, we set a same store guidance range of 1% to -- up 1% to up 2%. We expect utility increases of approximately 3% and real estate tax increases of approximately 2%. We believe we can manage payroll expenses effectively and continue to find ways to control other costs while keeping our properties in excellent shape. And I note, same store expenses were essentially flat in 2009 for the year, down 0.1%, after having growth of only 2.2% in 2008, and 2.1% in 2007, which again makes for a very tough comparison period for 2010. But Fred and David Santee are up to the task. The primary drivers of the difference between the midpoint of our first-quarter 2010 FFO guidance of $0.50 per share and our 2009 fourth-quarter actual FFO -- and I'm excluding the tender offer charge -- of $0.52 per share are as follows. A negative impact of $0.03 per share from lower same store NOI. As I explained earlier, our first-quarter 2010 same store revenue will be down more than the negative 2% annual guidance midpoint, but it will be better than the negative 4.7% quarter-over-quarter number we reported for the fourth quarter of 2009. And I expect a positive impact of approximately $0.01 per share from lower interest expense.

Our full year 2010 FFO guidance of $1.95 to $2.15 per share has four main moving pieces when compared to 2009. Lower same store NOI, dilution from transaction activity, accretion from lease-ups, and lower interest expense. On the NOI side, we expect lower same store NOI of about $0.16 per share. As for transaction dilution, we anticipate transaction dilution of about $0.11 per share. That consists of $0.10 of dilution from our net sales activity in 2009 and $0.01 of dilution from our 2010 transaction activity. As for lease-ups, we anticipate a positive impact of about $0.09 per share from lease-up activity. And finally, on interest expense, I expect a positive impact of about $0.03 per share from lower interest expense. And this comes from lower debt balances, caused from paying off debt both at maturity and through tenders. But this is somewhat offset by a reduction in capitalized interest due to our much smaller active development pipeline in 2010.

Now on to capital expenditures. As described in footnote 9 on page 22, in 2010, we expect to spend $825 per unit without major rehabs and about $1,075 per unit with rehabs. In 2010, we estimate that same store routine replacements will run about $350 per same store unit. We expect to spend approximately $29.3 million on major unit rehabs on about 3,900 units which is about $7,500 per unit. This will equate to approximately $250 per unit when averaged out over the entire same store portfolio. We estimate that we will spend approximately $475 per unit on building improvements in 2010.

I also want to highlight the impact on 2010 earnings and FFO of some relatively new accounting guidance that will impact us more in 2010 than it did in 2009. This rule requires us to expense survey, title, outside legal expenses, and other similar costs we incur in acquiring existing operating properties. Prior to 2009, these costs on successful acquisitions would have been capitalized. Our past history is that, on average, we spend about 50 basis points or 0.5% of a property's purchase price on acquisition costs. Therefore, based on our acquisitions guidance of $1 billion, we have budgeted about $5 million of such costs in 2010 with about $2.5 million, or $0.01 per share, of these costs being incurred in the first quarter. These expenses run through the other expenses line item on the income statement. We have added the other expenses line to our guidance assumptions on page 25.

A quick note on the funding sources for this year's transaction activity. We began 2010 with approximately $150 million of cash available for investment and approximately $250 million in disposition proceeds in our 1031 escrow account. We have budgeted funding this year's acquisition activity with a combination of this $400 million along with expected proceeds from future property disposition. We will pay off approximately $250 million of debt this year. All of it secured debt. After adjustments for net operating cash flow and some minimal development spending, we expect to have a balance on our unsecured line of credit of about $225 million at the end of 2010. Given that our line costs us about 50 basis points above LIBOR, or 75 basis points in total right now, a bit of line usage does not bother us at all. In the second half of 2009, the capital markets continued to improve substantially, causing us to be more confident in our ability to refinance our future debt maturities. As a result, the Company conducted a debt tender offer in order to put to use cash the Company had stockpiled in early 2009 to address 2010 through 2011 debt maturities. As you can see on page 17, we spent about $366 million, retiring about $344 million in 2011 and 2012 unsecured debt. Consistent with our strategy these past two years, we view the tender as a prudent cash management step and as a means to whittle away at our 2011 and 2012 debt maturities. We will remain vigilant of our liquidity disposition and debt maturity schedule. And now, I'll turn the call back over to David.

Thank you, Mark. Before we open the call to questions, I would like to reemphasize a couple of points that we've discussed already. The first as it relates to operations. We will experience a second year of negative same store revenue growth in 2010. But as Fred said, we expect fundamentals to improve ever so slightly as the year progresses because net effective new lease rates are turning a bit positive. Renewal rents have turned upward just a little bit, and we expect an incremental increase in average occupancy for the year. Though we are a long way from a recovery, these are certainly positive signs for the apartment business.

And lastly on the investment side, the Maclow purchase, as well as the land lease deal, with the result of our ability to move quickly, our ability to deal with complex structures and issues, and our ability to fund with cash on-hand, regardless of deal size. These attributes enable us to get direct looks at these terrific opportunities, and we are very hopeful we'll see more of them as the year progresses. So with that, Crystal, we will be happy to open the call to Q&A.

(Operator Instructions) Your first question comes from the line of David Toti with Citigroup.

Hello. Michael Bilerman is here with me as well.

Good morning.

My first question has to do with the acquisitions. I know you provided some detail on this, but can you just walk us through some of your underwriting outlines relative to what kind of growth you're expecting? The cap rates are pretty low on a relative basis so I'm just wondering what you're thinking about in terms of growth, exit cap rates, where the risk is -- especially with respect to the New York City acquisitions.

Well, cap rates are low on a relative basis. While cap rates are high, depending on how back one wants to go -- I will tell you, particularly as it relates to New York City, we went back over almost 12 years of history to look at where cap rates had been. And these are the highest cap rates that we've seen over that time period. And obviously, we look at cap rate. We are also looking at what our price per pound is. And we were very, very pleased with being able to acquire these assets at $470 a door and $545 or so a square foot. But we think replacement cost net market gave us probably $800 if not $900 per square foot, or perhaps more.

I will tell you in 2010, in the acquisitions we've written revenues down 3% during the year. And then we are forecasting improvements in rents going forward. And on the residuals, I can tell that you our residual prices per square foot are in the range of what we think replacement cost is on those assets today. So we're very comfortable with that. Clearly, there are risks in all of these, but I will tell you that the ability to buy assets today at the discount to replacement costs we have, particularly this Maclow portfolio, I would be very surprised if we did not wildly exceed what we think are currently the low double digit IRRs, on an unleveraged basis.

And then, just along those lines relative to replacement cost, how do you underwrite the risk to replacement cost benchmarks, given the squishiness of land prices in today's environment?

Well, I will say particularly in the instance of the deals we've acquired in Maclow, forget about the [marks]. There is just no land. The ability -- it's nearly impossible to assemble the types of land parcels or footprints needed to build these big deals today. So I will tell you that we look elsewhere around Manhattan and try and make some judgment as to whether or not it's somewhere between $200 or as much as $300 per net rentable foot. We have a great team in New York that are working on deals. They are working on the Chelsea deals, trying to make sure these things triangulate and there is symmetry about it all. But you are absolutely right. It is extremely difficult and challenging to try and determine what the replacement cost would be particularly in the land value of something that you couldn't replace. Well even more so, do we feel great about our price per pound on these acquisitions.

Great. Thanks, David. And then my last question just has to do with more of a portfolio strategy. And I think you've sent some pretty bullish signals relative to modest signs of improvement, but at the same time, occupancies continue to ratchet up. And at what point do you tack in a different direction and let occupancy begin to drop as you hold prices a little bit firmer? Or do you think that that doesn't happen simultaneously?

This is David Santee. I would say that our occupancies, probably if you look across the public space -- our occupancies have been, I would say, on the low side relative to our competitors. We do not chase occupancy. Our strategy is more about optimizing the two inputs which is rate and occupancy. So we made the decision early in the year to try not to get involved in the move-in concession games. Stick with our net effective rent strategy. And frankly, put a lot of faith and effort into using LRO as it was intended to be used.

Great. Thanks for the detail.

You're very welcome.

Your next question comes from the line of Michael Levy with Macquarie.

Hello. Good morning.

Good morning, Michael.

Can you please talk, as a follow-up to David's question, about the competitiveness against which you are purchasing assets? Are you bidding against the same number of buyers that were looking at purchasing the Pentagon Row asset?

You raise a good point. On the Pentagon Row asset which we acquired in the fourth quarter, there was a very significant, competitive bidding process. In all of the other deals that we've acquired, Michael, there has either been an absolute direct transaction, or a process by which there was a very small group of people that had been approached. You are right, that there is a lot of money out there. Coming back from the National Multi Housing Council meetings in Florida last month, I can tell you that there is a lot of money out, and a lot of people that would like to buy multifamily assets for all the reasons that we've talked about. Extremely competitive at smaller price point transactions, very competitive and stabilized assets. And fortunately, we bought some things that had come to us direct. We bought some things that we had some conversations with someone -- people months ago who might have come back to us and said, maybe I'm willing to talk to you today. And we were able to do something on a direct basis. Pentagon Row would be the only deal that I would suggest to you has been -- was one that was really fully brokered and heavily shopped.

My objective this year is to buy as much as we can outside of a large, heavily brokered process. I'm not interested in being the winning bidder out of 100 people chasing some of this stuff. And I think the size of the Maclow transaction, their desire for something to be done quickly and confidentially, enabled us to get that transaction done. And I'm hopeful we'll be able to shake some other things loose. We have got a lot of very capable, very competent acquisition people around the country that know locals. And we're trying to have conversations, trying to get as much done as we can on a direct basis.

That's helpful, thanks. Do you think, just as another follow-up to David's question, that when you give -- when you gave projections as to where you think revenues may be headed over the first couple of years post-purchase, do you think -- is that based on your market view? Or based more on the fact that you have a stronger platform, and you might be able to drive yield higher through more efficient operations from the get-go?

Well, I will tell you that I think on most properties we underwrite on the expense side, we do believe that we can have some immediate savings on expenses. And I will tell you that as we project where we expect rents could go going forward, I think it's more of a view of an individual market, of what we think the supply constraints are in that individual market, what we think growth expectations, demographic trends are in that particular market, and the input that that will have on revenue. I'm not suggesting that we're buying stuff because we think we can get a whole lot more revenue than the next guy. Perhaps we can. But we're not paying the third party for that.

One final question, and I'll get back in the queue. In the South Florida market, can you talk a little bit about the strength you're seeing? Are there tenants that are moving into the EQR assets coming from foreclosed assets? Or they are taking a quality uptick? Or are they folks that just moved down to the area? I guess I'm asking that with the oversupply of housing in the market, it strikes me as a bit odd that results are as robust as they are there.

Michael, this is Fred Tuomi. We are very pleased with the recent trends in South Florida. It seems strong with increases in occupancy really about 200 basis points over the same time last year, and rents are starting to move up. I would say in South Florida, we definitely have a liftoff. But one of the concerns there and one of the drivers of the downturn was that oversupply of single family homes, especially concentrated there in the Miami area. So the issue there with our portfolio, we have primarily a suburban portfolio. We're not in the ground zero of all this housing mess down there. We are in Broward. We're in Palm Beach. We're in the more suburban areas.

So we haven't been directly competing with some of this shadow market inventory there with these condos there. We get a little bit on the fringe of our properties nearby, but it really hasn't been a factor. Anecdotally, I have heard recently that they are seeing people who are losing their single family homes that come to rent with us. We welcome them as long as they are income qualified, but I don't think it's a massive influx. South Florida has been bouncing on the bottom for a couple of years now, and we're seeing some good signs of demand. They have got some construction, some infrastructure projects going on there. One thing I do worry about in South Florida is the continued negative growth in population and households. If that continues, that could be a slowdown for us. But so far so good.

Great. Thanks. That's really helpful.

You're welcome.

Your next question comes from the line of Dave Bragg with ISI Group.

Hello. Good morning.

Good morning, Dave.

David and Fred, your discussion earlier on revenue growth -- your outlook there -- was helpful. But could you take a top-down approach and help us think about what employment assumption underpins that forecast?

Yes. The job forecast is not a primary input to our budgeting or forecasting models. It's a macro -- secondary, just overall feeling for it. When we look at our business, we do know which markets maybe have gotten hit hard with job losses, which markets are continuing, which markets are forecasted to be improving or reaching some sort of stability next year. And we use the same economy.com statistics that others do. But we kind of leave it there. It's just sets the table. We really run our business based really from the bottom up. What are the trends of the metrics that we have available to us?

The platform we have now gives us just incredible time series of metrics, incredible visibility. And then on top of that, incredible ability to forecast, and we've been very accurate and very fortunate so far. So we're not so anxious about job number X or Y or Z. We're more anxious about -- what's the absorption rates? What's our leasing velocity? What's the traffic? What are the demand patterns? Where were we last year? What are the seasonal factors? What's the occupancy trend, the left to lease trend? What our salespeople our telling us. What our customers are telling us. I think that's a more effective way to predict a business that we can control versus assuming you are going to have an outcome based on job forecasts which are done by economists. You know what that means. And then setting a strategy that way. We would rather set a strategy based on what we can control.

Right. I understand. But ultimately, jobs will drive that demand and the absorption that you're looking for, and I would point out that a couple of your peers did provide this assumption. Therefore, it will be helpful for us. Maybe I'll try it a different way. A couple peers suggested that their forecast is based on negative job growth in 2010. If that were to play out, how would that affect your forecast? Would it still hold?

But again, we're not looking at national job forecasts. We're in an individual market, and we look at the major employers in that particular market -- looking at the employers of our residents and trying to make some judgments about what is going on in that market or in that submarket. The fact that they lose a bunch of jobs in Cleveland or whatever doesn't impact us. We're looking at the 15 or so core markets in which we are operating and trying to understand what we think is happening to the job activity in those markets as well as supply and all of the other demand characteristics. But this is not -- we do not start by saying we make this assumption about national job loss or job gain, David. It just doesn't work that way for us.

Just one last question on this point. Just drilling down to the 15 or so markets that you mentioned. Which of those markets are you seeing the most hiring activity, or are you feeling most optimistic about hiring activity, at least in the first half of this year, for example?

Okay. I can handle that. Boston has been very stable. We had some significant job losses last year, but Boston has stabilized and recovering. We have got some good education, government, healthcare, and some technology issues there that are helping us. Virginia and Maryland and basically DC metro, very good job situation the last couple of years. Minimally negative and now is going to come back more robust, positive basis. And these are great demographics. The jobs being created in DC right now, just fit us perfectly. The young digeratis. They are the lawyers, they are the first-time accountants, consultants, defense piece, government piece. It all seems to be growing. So DC area is very favorable. Denver is coming back. Inland Empire, probably not. Los Angeles is going to be a little sketchy. New York is one that we are seeing some job stabilization and recovery. Anecdotally, our people in New York were telling me just recently that all of the big houses are hiring. JPMorgan, Chase, Goldman Sachs. We have got a number of new leases just recently, both in Manhattan and over in Jersey. And our lease-up at 70 Greene, coming from the bankers. So we're happy to see that sector coming back.

So in a lot of markets -- we're seeing -- the manufacturing went away. The real estate-related got hammered. The construction went away and will probably be a slow time coming back. But what is coming back right now are some these -- the technology companies, investments in infrastructure, investments in energy, and then also the consultants, the bankers, the engineers and those types of things are all starting to come back. Orange County, we're not seeing that. Orlando is a mixed bag. Phoenix, not. So it's really a market by market situation the way we look at it.

And one market of note is Seattle. Seattle had significant job losses the last two years as everyone knows, but it's one of the stronger forecasted recovery markets on the job front. Microsoft has started hiring again. Amazon has been hiring. The WaMu building which [cratered] the downtown is going to be replaced with Russell. So there are good things happening in Seattle, and of course, Boeing, now has a deep backlog of deliveries, and they need a lot of people.

Thank you.

You're welcome.

Your next question comes from the line of Farouk [Gala] with Morgan Stanley.

Yes. Good morning.

Good morning.

Can you give us some details on the land parcel purchase in Manhattan? Some idea of the price you are paying from the peak you've seen in this market? And when do you anticipate development on that site?

I'm sorry, the price we paid?

Yes.

We paid about $12 million or so for the property as well as the incremental costs that we'll need to incur to get all of the engineering and everything ready. We're making some modest changes to the plans and specifications that had been in place. So again, your follow-up question to that was?

When do you anticipate development?

As I said, we expect to start construction as early as the second quarter of this year.

I see. And I guess my follow-up question is, as you look at dispositions in 2010, are you targeting any particular markets? Any plans to exit any particular markets?

No. We're getting very close to having exited the -- all of the target markets that we have talked about. And I think we'll complete that process as well as we'll continue to look at older assets perhaps in some of our core markets or submarkets that we're less interested or assets that have got some capital issues or valuation risk. And again, as I mentioned earlier, our disposition process will really be a function of our investment opportunities going forward. They will be much more closely linked today than they have been in the past couple of years.

Okay. That's helpful. Thank you.

You're welcome.

Your next question comes from the line of Alexander Goldfarb with Sandler O'Neill.

Good morning.

Good morning.

I just want to go to the tender. I just want to get your thoughts. Some of your peers did the concurrent issuance with the tender. Speaking to some institutional investors, it sounds like, yes, they're pretty receptive to that. Given your size on the unsecured market, I just want to get your thoughts on why doing that strategy versus just doing the outright tender without the concurrent offering?

Yes, when we thought about the tender, we really thought about it as a primary means to manage our cash. Back in June of '09 when we did the large Freddie Mac secured financing, we were doing that, Alex, with the thought we would need that money potentially to meet maturities coming up in '09 and in 2010. And that we couldn't count on the capital markets to refinance us in the ordinary course. As we all got more confident here about that, we decided late in 2009 to go ahead and apply that cash right now to maturities -- the nearest public maturities that we had which were the '11s and '12s that we took out. The reason we didn't couple that with another issuance is we frankly didn't need the cash. The only reason to do an issuance in connection with a tender, I think, is to either extend duration or to manage interest rate risk. And we've done some hedging away from this that we think manages interest rates just fine. Our duration stands at seven years. We think that's okay. So we just felt that we had managed that risk in another way, and that was just as effective or more effective, frankly.

Just on that duration. What's the split between secured versus unsecured duration?

Secured versus unsecured duration. Nine years is our secured duration, and unsecured is five.

And then the second question is, given that the $1.25 trillion buyback program is almost coming to an end in March. What are you hearing? Or what is the take on GSE rates? Is there a view that they will go up, and that will make other portfolio lenders more competitive? Or are the GSEs going to try to compress spread and hold rate?

The GSEs have done a pretty good job of, frankly, lowering their guarantee fees -- their profits -- to try and keep their rates in that 5.5% to 6% corridor, Alex, to date. I can't accurately predict the future very well on that, but what I would say is, as those rates go up, investors, I think, would start to buy that security. So it becomes a bit of a comparatively more attractive security. So again as the Fed withdraws support, and maybe government agencies otherwise stop purchasing Fannie Mae and Freddie Mac, MBS and conduit product, I think other investors -- fixed income investors will step up because there is such a hunger for yield in this climate that that will offset it. So could it go up modestly? Absolutely. But I don't see a big jerk up here. Just because, again, I think there is so much fixed income demand that any yieldy product like this would get bid up.

If I could just follow up on that. Just given the appetite for yield, what is -- you are a big unsecured issuer. What would it take for you to come to market? What are you looking for in the market to issue?

Again, when we need the money, and we have a debt maturity that is coming up, we'll do that. At the end of the year, we are only going to be $250 million on the line. Pretty modest line exposure. Or $225 million on the line. So I do expect in the next year or so, we'll access the debt markets in one way or another. And I think we'd prefer that to be the unsecured market. But gosh, until we need the money, just stockpiling it and carrying that dilution around -- that has been the plan the last two years. And I just don't see the need for it at this point any more. So when we need the money, we'll borrow the money.

Thank you.

Thank you.

Your next question comes from the line of Michelle Ko with Banc of America.

Just along those same lines, recently, one of your peers had issued unsecured debt. If you were to tap the market today, what rates do you think you would be able to attain?

I think we could do a ten-year unsecured at maybe 175 or so over the ten years. So I think that's in 5.5%, 5.75% range really. And the really interesting thing, Michelle, of late on that is there is getting to be great compression between Fannie-Freddie rates, at least for us. Our Fannie-Freddie rate and our unsecured borrowing rate. Those two are pretty close together. You might remember, that gap has been pretty large, and that's why we were a pretty big secured borrower. As that gap tightens, that makes us much more inclined to borrow unsecured in the future than secured.

That's helpful. Thank you. Also, I was just wondering if you could talk about what markets you might like to increase your exposure in?

Well I will tell you, Michelle, we do not have particular goals in any of the individual markets. But we have been focused over the past five or so years on the New York, Washington, Boston, Southern Cal, Seattle, San Francisco. So you were to see us acquiring, it would likely be in those markets. We consider those to be our core markets today. Our activity will be in those markets.

Okay. Great. Thank you very much.

You're very welcome.

Your next question comes from the line of Jay Habermann with Goldman Sachs.

Good morning, everyone. Just a comment, you did talk about rates on renewals, and obviously you are seeing some modest increases here. What are you sensing from your competitors at this point? Are they buying occupancy? Or are they changing the game as well and starting to bump up rates?

Well the only thing we see on the competitor side of any importance is the new lease-up competition. In certain pockets of areas where we have supplies still working through the system, that will disrupt a local market or submarket basis. So if someone starts offering one month, two months -- in some cases you hear of three months free rent on a lease-up, until they get stabilized that will disrupt the market, and sometimes that does impact, not only your new net effective new lease rates, but also your renewal rates. Because you get more customers who may come to you and say I can go get a brand new property for two months off. That's really the most noticeable change. Other than that, I really don't see any disruptive behavior or competitive threat from anyone else on our core markets, our core assets.

And can you talk about the move-outs to single family? I think you expect turnover to be roughly flat year-over-year?

This is David Santee. When you look back over the past fourth quarter, there was a lot of news about increased home buying. When I look at our markets, at first glance, on a percentage basis, the percentage of move-outs, those numbers were quite elevated. But if you look at our actual turnover, which was considerably lower -- when you convert those to raw numbers, the numbers just --- they are not meaningful. Probably the most two meaningful markets as far as increased move-outs to buy homes are Phoenix and Northern Virginia. And those -- in Q4, those numbers were elevated well above Q4 of even 2008. But when you look back over 2008, 2009, 2007 -- across almost all of these markets, very few markets are even close to 2007 levels.

And I guess as you think about -- in terms of acquisitions, you still got another $500 million to go for the balance of this year. In which markets are you seeing the greatest discount to replacement cost? Is it New York, or is that really a unique situation?

Well, I think New York was indeed a unique situation. It all depends on who knows where pricing goes from here, Jay. Just past acquisitions are no indication of what future acquisitions are going to be. So I don't really know. But we have been -- we did get -- we did think New York was a pretty sizable discount to replacement cost. And certainly, more of a discount than the other deals we've been buying which have probably been more 90% of replacement costs down to more like 80% of replacement costs. But it just remains to be seen based upon the opportunities that are presented.

And what about the distressed selling -- the land deal? Are you seeing more of that activity as well?

Not really. Not distressed enough for pricing that makes sense, at least in our judgment. And I'm not suggesting that land parcels are not today available at lower prices than they were in the not too distant past, but they are still not making sense to us relative to what our acquisition opportunities are. So as long as we believe can we can buy existing streams of income at the right price, we would favor that. I will tell you we are looking at acquisitions, and we're constantly underwriting things. But have not yet seen anything from a new purchase standpoint outside of the unique situation in Manhattan that is getting us moving toward taking down new land parcels today.

Thank you.

You're very welcome.

Your next question comes from the line of Rich Anderson with BMO Capital Markets.

Thanks. Good morning, everyone.

Good morning, Rich.

I just want to make sure I understand this net effective new lease math that you're talking about turning positive. It was down. New lease effective leases were averaging down 9%, 10% last year, correct?

That is the change from the expiring lease.

Right. So what is that apples to apples number looking to be for 2010?

Well, there is -- this is Fred Tuomi. There are a couple of concepts that I don't want you to get confused on. First of all, the net effective new lease rate is your current price on the margin, the new person coming in. And that is the piece that fell dramatically late '08 and stayed flat. Those are now starting to move up. The replacement rent, which is when someone does not renew and they move out. And then, that new person comes in at the new lease effective rate. Then that gap has been as wide as maybe 10%,11%, and it is narrowing as we get improvement and as we get better comps. And it's right now about between 6% and 7%.

That's the number I was looking for. So down 6% and 7% today. And I guess I am maybe getting a little tangled up in terminology here, but what do you think turns positive? What is turning positive then in 2010?

Two things are positive trends. One is on the price that we can get. That's the net effective new lease rate, which is a new, on the margin, new person coming in. That is an upward trend. So sequentially, it's getting better.

So that's the market.

Right. That's the market. And then your embedded lease is another factor. So when someone does moves out, they don't renew, you are taking it and basically filling that unit with a new resident coming in at the new market rate. Then that is the writedown, and that writedown is improving. Every week we see it improving because of an easier comp period the year before and because of that slight, modest, but continual upward tick of the market rate. And those will compress, and the magic moment when they come flat will be later this year.

So that minus 6% to 7%, you think can go to almost a flattish-type number toward the end of the year.

Yes.

Okay. Thank you for that clarification.

And just to be clear -- I just want to add, and a lot of that is because, Rich, or some component of it, is the leases that we are renewing that were newly written in '09, right.

Right.

So a new lease that was written in '09, down 2010, will be rewritten flat, or maybe up a little bit. Maybe up one or two, and so that will have an impact. And so that number will go from '09 to 2010 and progressively come down a lot because of the comp of the leases that were expiring, as well as a little bit of the increase in the market rent.

So assuming the market rent stays stable -- if you take that movement out of the equation -- if market rent stays stable than the next year if you have a new lease then it would be a flat number. The roll would be flat?

Yes.

If the market rent goes up, then you would roll up then?

It would just occur a little bit earlier.

Right. Got it. On the acquisitions -- the most recent acquisitions in the fourth quarter and also during the first quarter. How depressed -- you had mentioned looking back 12 years in New York for example -- how depressed are the rents on a per square foot basis that you see today and that you're pro forma'ing for 2010? How depressed are they relative to history? And what kind of pent-up upside can you see, say, three, four or five years out from here?

I'll just tell you that our portfolio-wide in 2009, we had market rents that were down 10% from the previous year. And so I think that that shows you, I think, some of the gap that needs to be built in generally to get back to what might have been a high water mark. But beyond just getting back to historical numbers, I just cannot impress enough upon everyone the benefits that I think we'll get from absolute lack of new supply in our markets going forward and the demographic picture that's out there today. So we do believe that when we can establish job growth into this very modest but long recovery that we think we're experiencing now -- you have introduced some job growth into that, and I believe, Rich, we are going to see some rents that will spike up on a very material basis over an extended time period.

The history is one thing. The future might be something even better, considering the lack of new supply?

And the demographic picture.

And the demographic picture. Okay. Thank you.

You bet.

Your next question comes from the line of Michael Salinsky with RBC Capital Markets.

Good afternoon. Just had to pick on Cleveland, didn't you?

Sorry about that, Michael. I meant Milwaukee.

No offense taken. Just revisiting the development here. I think the Manhattan property was probably a one-off opportunity. Are you looking at additional opportunities on the development side right now? And where would cap rates have to drop right now before you would begin aggressively looking more on the development side?

I will tell you that we have got a development team that are looking at opportunities out there all of the time. Again, we have not seen anything compelling, and so the only deal we've done is the transaction -- which I agree with you, was a one-off, unique situation in Manhattan. And I think the development opportunities will be a function, as you point out, about where pricing goes or where valuations go in the marketplace as you get more transaction activity and more value marks going forward. I'll tell you, in just -- in more commodity-type markets in which we're not playing, you can look at transaction comps and use that as a baseline because you might always have the ability to buy assets at those cap rates.

I will tell you in more supply-constrained markets, you don't always have the opportunity to buy assets. And so I think you would be willing to start development deals at a narrower spread because there really is no transaction activity or the ability to buy existing streams of income. So we'll monitor that and watch that. I think 2010 will be an extremely interesting year. Far more marks in our business about valuations in transaction pricing than we had in 2009 and 2008, and we will just have to see how it plays out. But I can't sit here today and tell you -- at this cap rate, this development yield things make sense. It's just not as easy as that.

That's fair. Second of all. It sounds like then the 2010 transactions thus far, there is a little bit of redevelopment built into those. What kind of IRR have you underwritten those to? And then just curious as you talked about the property in DC, seeing a number of bidders and stuff. Where is the market right now? What are you competing against in terms of people underwriting?

Well I guess there is a great deal of money, that is -- people have raised or is currently available interest in owning well located, existing streams of income in core markets. Washington, DC, I think attracted probably a much larger number of potential bidders just because of the stability that that market has demonstrated over the past year or so. I'm not sure you get quite as much demand in looking at some other markets as you might there in DC. As it relates to -- one of the deals we acquired we're going to do a little bit of repositioning. It's only a ten- or 12-year-old asset. We think it was undercared for and undermanaged, and we think that by putting some money into it and fixing it up a little bit we'll be able to get a good return. But all of their acquisitions have been written with low, double digit IRRs. And again as I mentioned earlier, I think that buying at this point in the cycle on rents where they are today at the discounts replacement cost we think we're buying today. And the quality of assets in the locations we're buying, I would you be extremely surprised if we didn't wildly exceed those expectations.

That's helpful. And then finally, on disposition activity in the past, I think you provided color as to where those valuation -- where the pricing came out relative to a benchmark there. Just curious how those played out relative to your underwriting? I think it may have been 2007?

Yes. So right. So 2007 was a high water mark for us we think in property value rates. I can tell you what we sold in 2009 was done at about 25% off of that. So about 75% or so of what that high water market at 2007 valuation had been. And again, recognizing those are -- what we would consider to be our least desirable, older assets in non-core markets.

Thank you.

You bet.

Your next question comes from the line of Anthony Paolone with JPMorgan.

Hello, this is Mike Lewis on Tony's line. My first question is about you said some year-over-year savings in property taxes in the fourth quarter? And given where municipalities are now, how are you feel being that in 2010? Do you think you'll get a lot of pushbacks?

This is David Santee. 2010 taxes kind of roll out like this -- for the most part, we expect to see -- politicians have a little more pressure on them to possibly raise rates. Many states do not publish rates until third quarter -- third or fourth quarter, which that's why you see the adjustment in Q4. So right now, today, we're saying, next year we're going to see on average across the portfolio somewhere in the neighborhood of 4% to 5% rate increase. But as of today, we have record dollar volume appeals in the pipeline. So assuming we apply our historical win rate on those appeals, we're saying that that 4% to 5% will be lowered down to about 2% as far as year-over-year growth.

And then secondly, another expense question. Just wondering how long you could constrain your payroll or your G&A costs either through staff size or pay rate to your staff? I realize you gave G&A guidance, but I'm wondering if you feel pretty lean at this point?

Well I would say that we are -- we have always kind of been a lean shop relative to our industry. But on the other hand, we continue to leverage technology. We try to automate first, then educate. We are -- we have considerable initiatives to automate many of the day-to-day core transactions that happen at our properties. And I think we have another at least two years of opportunity relative to payroll. And other categories, things like leasing and advertising and things like that, we have fully automated via the Internet. So I feel very good about our ability to control expenses over the next two to three years.

Okay. And then my final question, and this is something you hinted at, but there was language in the press release about your -- you thought you had an advantage in your ability to close large, complex transactions. And I was just wondering if you could give a little more detail on that? You talked about some of the deals being large ones and limiting the pool of potential buyers. Could you talk a little more to that?

Well I'm not sure what more I can say. I think that there is a much deeper pool of potential buyers for mid-size price, call it $50 million or so assets -- fully stabilized $50 million assets. Then there are for larger assets that might have more lease-up or other sort of things. So just the higher the price point and the more complexity to getting to a stabilized income stream, I think will separate a lot of buyers. And I just wanted to note again our ability to get the Maclow transaction as well as the Chelsea development site were a result of being able to do things quickly that were extremely complex. And I do mean extremely complex, with cash on the balance sheet that not everyone would have been able to do. I'm not suggesting we're the only people that can do this. But I would be very surprised, frankly, if a few other people didn't knock on our door based upon what we've already demonstrated -- our willingness and ability to do.

Okay. Great. Thank you.

You're very welcome.

Your next question comes from the line of Dustin Pizzo with UBS.

Thanks. Good afternoon. David, my understanding is that the New York assets are completely unencumbered today. So can you talk about your plans, if any, to put mortgage on those assets. (Inaudible)

Thanks, Dustin. I just want to repeat the question. I'm not sure I heard it. You asked whether the assets -- the Maclow assets will be unencumbered?

Or, my understanding was that they are unencumbered today. Do you have any plans to put debt on them?

Yes. The two we have acquired are unencumbered. We have no plan to put any debt on those assets, nor do we have any plans to put any debt on the third asset once the debt referred to in the press release is discharged.

And looking at the GSE's, do you have any thoughts on Washington's plans to transform or restructure Fannie and Freddie in the future in light of some of the comments that Barney Frank has made over the past couple of weeks.

I don't think there has been a definitive plan that I've seen put out on what the GSE's will look like in the future. I took a lot of encouragement, I will tell you for the time being, out of the Christmas Eve announcement out of the Treasury Department that the government -- the Treasury Department, provide an unlimited amount of support by buying preferred stock in Fannie and Freddie to keep them solvent and allow them to do their -- continue to provide liquidity to the single family market and to us. So I found that announcement very encouraging. They also gave a bit of flexibility on the shrinking of the portfolio that had been something that Secretary Paulsen had spoke to two years ago. So they do not have to shrink their owned portfolio much. I thought that was pretty encouraging. I don't think there is ye any political plan that at least I've heard of that has been yet communicated that is definitive as to what the GSE's will look like two or three years from now. So I don't know how to take Mr. Frank's comment except to say that in the context of all the other comments it's just part of the stew. Is there another question, Operator?

Yes, sir. Your next question comes from line of Andrew McCullough with Green Street Advisors.

Good morning. I know the call is getting long, but I wanted to follow up on some previous questions. Your comments seemed to imply that market rents will slowly improve from today throughout the rest of the year. And considering that market rents usually lag job growth by three to six months, and we haven't seen material job growth even in your main markets. How do you reconcile that disconnect between markets rents and the historical relationship with jobs that you're seeing on the ground and that back your guidance?

One of the things that we're seeing is some seasonality impact to the rents. Historically, I think Dave mentioned earlier that our results over the fourth quarter were -- the opposite of what we've experienced over the last, say, ten years, where demand drops off in the fourth quarter. I would say that we also took some proactive steps in the fourth quarter to insure that our rents did not drift downward. We focused on lease expirations. We moved some lease expirations, and when you have less exposure, you can have the same demand and that puts pressure on the rents to move up. So we're not saying that we expect to see tremendous growth in rents over the next year, but we are expecting to see increased, slow but steady movement up as we retain more residents and have lower exposure which just naturally allows you to grow your rents organically rather than from external demand.

I'll add to that, Andy, because I think you're right historically, and had our occupancy dipped as a result of this. Let's just say we were 92$ and some change? I would agree with you. It would take us a while to build the occupancy back before we could begin to see this increase in some sort of net effective new lease rate. But throughout 2009 as we're sitting here in 2010, we are sitting here with very strong occupancy. We do not have any occupancy to have to build back first. And as we've said, I think for quite some time, and perhaps this is what we're seeing. We felt that we had the ability to incrementally -- and just incrementally start to move rates if people who were employed no longer worried about losing their jobs. And we may very well be experiencing some of that, too.

Okay. And then can you give us some additional color on the increase in other income that you have embedded in your same store revenue guidance. What is that exactly?

Sure. Andy, a lot of that is we referred to an increase in utilities. Utilities also affects other income for us because of the increase in reimbursements from residents, so a lot of that is a component of utility increases. Plus some additional focus on other income items at the property, parking and the like. But it's more -- on the kin of 30 basis points of that number we quoted of benefit to us. Not a huge mover.

Are there any associated increase in operating expenses with that?

Yes. The utility costs run through the -- we mentioned that those were going to be up give or take 3%. So that is included. These are consistent, the expense and the revenue forecast are consistent with each other.

Great. And one last question. Sorry if I missed this. Did you mention what your current gain to lease is in your portfolio?

No. And we have not talked about loss to lease. We've not talked about gain to lease in the past, and we're not going to start today.

Great. Thank you.

You're very welcome, Andy.

You have a follow-up question from Michael Levy with Macquarie.

Thank you. Just some questions about the land purchase. I'm trying to get a sense of the relative cost at which you purchased the land from Chelsea. By point of comparison, just doing some Internet searches, it seems that [Boymill Green] bought the land in 2005. Do you happen to know the price that they paid for that?

Again, the land is subject to a ground lease. So what we entered into was an existing ground lease. No one bought or sold the land. We bought an existing leasehold interest. And we paid essentially for that interest along with all of the site work as well as the architecture and engineering design work that had been done by the previous lessee.

Okay. I think I understand that. Thank you. And just one more question on the New York City market. What percentage of new tenants are using brokers to get an apartment relative to those who are coming in on their own? And are tenants that are moving into the New York City assets today paying brokers' fees when a broker is used?

This is Fred. That's a great question. A great indicator of the health of the New York market. In terms of what percent of the overall renters are using brokers, I think that probably hasn't changed. Maybe it's even gone up a little bit here recently. I would say 30% to 35%. That's what we had seen before, was about a third of our residents would use brokers, and in the good times we would not have to incur those fees because the resident would pay the fee. And then once things got a little challenging here, the owners in New York quickly switched to what's called OP or owner-pay. So that's was a huge drag to us last year in our performance. Not only the rent declines, but then also the expense associated with brokers. As the occupancy recovered, in the early summer of '09, by the time we hit August, we decided to take a bold move and said no more broker fees. Knowing that our traffic would go down. But we knew that there was sufficient other non-broker demand to fill our units.

So as exposure went down, occupancy was firming. The first move we made was to eliminate the brokers. That stuck on most of our portfolio. Since then, we had to put it back on a couple of properties. One of those we've already now switched again and are not taking brokers. So today, we have one property close to some significant lease-up activity in Hudson Yards, Mid-town West that we are still offering brokers. And then the others are a sprinkling of properties on the penthouse units only. The big-ticket penthouse units sometimes traditionally use brokers, so we're not going to let those sit vacant because it adds up. And as of today, we only have two penthouse units currently available. So the trend is good on the brokers.

Okay. And so, it sounds like the majority of those -- okay. I think I get that. In other words, you're not paying brokers any more. For the most part.

For the most part.

Okay. That's helpful. Thank you.

You're welcome.

You have a follow-up question from David Toti from Citigroup.

It's Michael Bilerman. I'll take the penthouse in New York at a discount.

I didn't say anything about a discount. And you have to pay your own broker fees.

We will need a reference check as well.

Do you accept Citigroup stock? I have two questions. On the other acquisitions, I know you said there was no debt, and you weren't planning on doing any Fannie or Freddie. On any of the other acquisitions, were there any mortgages? Or all free and clear?

We did assume a small piece of debt on one of the properties that still had seven or eight years to run. The other ones had either been [defeased] or paid off by the seller.

And you had no desire to try to even lock in what is an attractive rate and term today? I know you do not need the money, but -- one of those things.

Mark just got done saying that our senior unsecured levels are comparable to our Freddie and Fannie levels. So there is no reason for us to be locking anything in today. You said we've done a lot of hedging. So we have done some work for forward rates, but we just do not need to go today.

And on the third asset, what is the value of the third Maclow asset?

Which is it?

No, the value.

Oh, the value? We are under a confidentiality agreement to talk about this in the totality, Michael. And so I'm not going to talk about any of the deals or values on an individual basis.

Well, how much would you have closed in terms of acquisition? You have the guidance for the full year. How much is effectively -- including all of the deals that you've done, how much is effectively closed? Or under contract?

Call it half or so of what we suggested of $1 billion for the year. Actually, closer to $600 million with the Maclow transaction as of yet to close.

So $600 million total, year-to-date, is effectively all done.

Inclusive of the deal under contract with Maclow.

And the last thing, just on your comments in terms of just potential pent-up demand as we turn the corner on job growth and the supply situation being what it is, and then the demographic turn -- gets you pretty hopeful and pretty bullish about the future prospects for multifamily. Can you talk a little bit about the housing -- the single family housing situation, and how that may put a wrench into some of the upside that you may see. Just given the affordability gap that has narrowed, and also what the government is doing in terms of stimulating single family ownership. I'm wondering how much of that could depress some of the upside?

Well, we've acknowledged for quite some time that there will certainly be in our units pent-up demand for single family homeownership. And perhaps that's what David had noted that we were seeing in Phoenix and in Northern Virginia. But we believe very strongly, Michael, that as that demand is met, that there will be more than sufficient backfill of people with new jobs to backfill that incremental vacancy. I will tell you that I think the homeownership rate has come down, and my guess is likely will continue to come down. I think the -- much of that reduction is coming from the demographic -- the age segment that makes up much of our rental population. So while we certainly do look at that housing as potential competition and will monitor it closely, we do not think it's going to be -- the floodgates are not going to open.

I'll also tell you that we've looked at in our core markets like New York, Boston, and others, and we do see much of this data about homeownership versus rent and the numbers converging. I have to tell you you have to be careful about the SMSA or the size of the geography being considered there. I'm sure have you plenty of people that work for you that pay rents in Manhattan, and if they wanted to go buy a house in Bergen County, New Jersey and can do that at some very attractive rate. But that doesn't mean that they are going to do it.

And you think about Manhattan on the Upper West Side, where you have the Trump building. Have you not found that with the Extell developments going up, and both the existing condos and future condos. I think they also have a rental building going up. That you're not finding that push, if you're just sticking Manhattan to Manhattan for a second.

Actually, Manhattan is one of the markets where the move-out for homebuying actually went down. So we're not seeing people buy. I think there is still some price shock and maybe some confidence shock there, but we do not see home buying, in effect, as slowing.

Okay. Thank you.

You bet.

There are no further questions at this time.

Great. It's been a long one today. Thank you all for your questions and your comments and your patience, and we appreciate your time today.

This concludes today's Equity Residential conference call. You may now disconnect.