住宅地產 (EQR) 2011 Q2 法說會逐字稿

Good morning ladies and gentlemen, and thank you for standing by. Welcome to the Equity Residential second-quarter earnings conference call. During today's presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions.

(Operator Instructions)

As a reminder this conference is being recorded today Thursday, July 28, 2011.

I would now like to turn the conference over to Marty McKenna. Please go ahead, Sir.

Thanks Mitch.

Good morning and thank you for joining us to discuss Equity Residential' s second-quarter 2011 result. Our featured speakers today are David Neithercut, our President and CEO, Fred Tuomi, our Executive Vice President of Property Management, and Mike Parrell, our Chief Financial Officer. 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. And now, I'll turn it over to David.

Thank you Marty, good morning everyone thanks for joining us on our call this morning.

[As] has been the case for quite a few quarters now, despite disappointingly weak economic growth and anemic job growth, apartment fundamentals remain very strong. Across all of our markets, we continue to experience strong occupancy and rising rates, and increasing revenues. Which combined with great cost control, and I mean great cost control, to produce same store NOI growth of 7.4% for the first half of the year. As a result, and as we noted on last night's press release, we have raised our guidance for same-store revenue to 4.8% to 5.1% for the full-year. Net operating income to 7.8% -- from 7% to 8% for the same period.

These 7 months of the year behind us, and our August rent rolls in hand, combined with the visibility we have of outstanding renewal offers for September; and even into October. We've got a pretty good view as to the full year and how it will be different from our earlier expectations. And so we've asked Fred to take us through a little bit about where we stand today. And how we are currently looking at the full year. Fred?

Thank you, David.

As David mentioned we're not projecting NOI for the year to be at the top-end of our guidance range that we provided back at February. This means that some or all of the key drivers of revenue that we have been discussing over the last few quarters; meaning, turnover, occupancy, base rent, and renewal pricing, are running better than our original expectations. So, now I will provide an update on what we are seeing in these metrics, and how this shapes our new guidance for the full-year.

So, starting with resident turnover, coming into this year we expected turn over to reverse the course, the last couple years. And actually begin to increase again. As rent levels recovered and recording larger increases to our existing residents. Turnover is in fact up this year, but not as much as we originally thought. First, we lowered our turnover projection for the full-year of 2011 to 57.2%. And while this turnover projection as lower than our original expectation, it does still represent an increase over 2010 of 50 basis points. So, turnover then leads to occupancy. And with very little new supply in the system, turnover held in check. Favorable demand indicators through this point of the leasing season, and our occupancy has remained well above our original target levels.

We now expect occupancy to average 95.2% for the year, which is a 40 basis point improvement over 2010 levels. The Northeast markets continue to have very strong demand and very tight occupancy. The Pacific Northwest including the Bay Area are now also experiencing very tight conditions. And Southern California, the laggard has finally stabilized above 95%. Overall, our portfolio this morning is 95.4% occupied. And a very favorable left to lease in the forward position of 7.5%. So, and that sets up our -- base pricing strategy. And by base rent, I mean the prices generated by a LRO every night, that we are achieving in market for new leases on a NET effective basis. Prior to the addition of any unit specific amenity premiums.

Base rent growth through this peak leasing season has been very encouraging so far, especially compared to some tougher comps last year as we were recovering. While prices are sure to moderate with the upcoming seasonal slowdown in Q4, the margin of growth over the 2010 pricing curve will be sustained. We expect 2011 base rent to now average of 5.6% over the 2010 levels. This is a 60 basis point better than original projections, primarily due to the strength of margins, such as Boston, DC, Virginia, and the San Francisco Bay area. In fact, Boston and the Bay Area are leading all other markets right now base rent growth. With double-digit growth in no real slowing in site. So, after 2 years of steady recovery in rents, we recently passed the overall peak set in June 2008.

And while at some point the rate of growth is sure to moderate, the basic factors of no supply, steady and increasing demand, and great customer demographics indicate continued strength in base rent through 2011 and well into 2012. This all sets up our renewal pricing. With moderate turnover, good strong occupancy, base rent pricing power, that gives us confidence as we set our forward renewal price quotations. Renewal increases are running ahead of our expectations, and we now forecast the average renewal increase to be 5.8% over the entire year for 2011. And this is an 80 basis point improvement over what we originally projected. And it's really evident across every one of our markets.

Now we expect that renewal prices begin to moderate as we reach our tougher comp period this Summer. But this has not been the case. Our unique renewal process, and continued fall on home buying and very strong customer loyalty, continues to support impressive renewal gains. So this leaves our to guidance, at this point we now know the outcome of the peak leasing season. And we have extended visibility into the balance of the year. Based on the favorable trends in the drivers of our core business we believe revenue growth for the full-year 2011 will be between 4.8% and 5.1%.

Thank you, David?

Alright, thanks a lot Fred.

I want to address the transaction market for just a minute here. And tell you that very little has changed, at least on the acquisition side over the last 90 days. It remains extremely competitive. That's because there simply an awful lot of capital other chasing very little supply. Cap rates on core product in our markets across the country generally have 4 handles, and I would tell you the better assets in those markets are certainly trading in the low 4s. And that's because investors continue to underwrite very strong rental revenue growth over the next several years.

And depending on the market, we think value, so absolute values are now back to peak levels in some markets and still down as much is 10% in others. So during the quarter, we acquired 5 assets for $410 million at a weighted average cap rate of 5%. We acquired assets in downtown LA, and in Encino, California, Seattle, Washington, Arlington, Virginia, and Washington, DC. As I noted it is extremely difficult to buy core assets in our markets today. We are, however, currently working on several hundred million dollars of deals. And we've got properties under contract today that include 476 units, in 3 properties in downtown LA. A couple of deals on the peninsula in San Francisco. One of which is a broken condo deal that would require a total lease-up, similar to what we have done on a couple of properties are ready this year.

During the quarter we also continue to sell non-core assets. And reduce our overall exposure to our non-core markets. Now, we sold 26 assets, for nearly $912 million for weighted average IRR of 11.7%. The sole asset had an average age of 22 years. And it included a 7 property 1,626 unit portfolio sale that was done to a single buyer for $296 million. And all those deals were in the Metro DC. During the quarter, we also sold 5 properties in Portland, Oregon as we continue to exit that market. 5 in Northern Florida, 3 in Phoenix, 2 in the suburban Atlanta, and 1 each in suburban Boston, 1 in Manchester New Hampshire, 1 in California's inland empire, and 1 in Newark suburban Seattle.

Given the competition we are facing as we try to redeploy this capital, this disposition activity has created a pretty significant cash balance. Which stands at nearly $800 million today. Selling assets in the sixes and re-investing cash proceeds at next to nothing is a highly diluted process. And that activity as well as being more of a net seller this year than we originally projected, as well is selling earlier in the year than we projected, have all combined to make us modestly reduce our normalized FFO guidance for the year, the midpoint of the guidance for the year. And again, that comes despite the extremely strong same store net operating income growth that should come at the high end of our original guidance.

But I'll tell you we are selling assets that -- simply do not fit into our longer-term plan. These are assets the we think don't have the rent [roll] upside that we see in our core assets, in our other core assets. Where they have immediate or pending capital needs that we don't think add value. And these are assets the we can trade today for prices that we think represent pretty good value on a per pound basis. We also think these are properties with values that are most at risk. Rising interest rates, changes to GSE, commitment to multifamily, and growing capital needs. So, this activity is certainly more diluted than we would like, but we expect there will be more opportunities to buy good-quality assets in our core markets in the near future. And we will be able to put that money to work soon.

We are already seeing an increase in deal flow, and our sense of the market today is that there will be even more coming down the road. So all the said, we have changed our transaction guidance for the year, to acquisitions of $1.15 billion and dispositions of $1.5 billion dollars. Now, that level of acquisition activity will require nearly $600 million of additional acquisitions in the second half of the year. We have $325 million that I've identified today, but we will also need to find new deals to hit that goal.

On a dispositions side, to sell $1.5 billion this year we have to sell only $326 million of additional property in the second half of the year. And most of that is already identified and in process. Now, we've also changed our guidance as to the expected spread, we expect to realize during the year as a result of all this activity. And that's due primarily to the fact that Cap rates have compressed more in our core markets and the have in our non-core ones. And that expected spread is now closer to 150 basis points for the entire year. Now, because that spread to the first half of the year was 120 basis points, basic arithmetic suggests that our activity in the second half of the year must produce a wider outcome. And don't forget, I said previously acquisition cap rates in the target markets are in the 4s, the yields we are selling at today in our non-core markets are in the high 5s to low 7s. And that's going to create a wider reinvestment spread in the second half of the year.

On the development side, during the second quarter, we are very pleased to complete the initial lease ups of our development projects in Brooklyn, in downtown Redmond, Washington, in downtown Pasadena, California. Also during the quarter, we acquired a land site in DC., it's on I Street which is right behind our 425 Mass. Avenue property. And we will build 162 units there, for about $57 million. We expect to stabilize yield on rents today in the low 6s.

And lastly, during the quarter, we commenced construction on one new development deal, that was our Sunrise Village property in Sunrise, Florida that's adjacent to Simon's Sawgrass Mills property. The 501 unit -- units $78 million total cost deal was projected yield on cost at current rents in the mid-7s. And as I noted on our last call, we are doing this with institutional partner. Looking forward, we nothing our starts to the year could come in around $500 million to $600 million. And this is more than we had suggested previously, because is now possible that some-- what we thought might be early 2012 starts could be moved into late 2011.

In addition to the $93 million deal in downtown LA that we started in the first quarter and the South Florida deal I just mentioned, additional starts this year could include sites in Seattle, Alexandria, Virginia, San Jose, and Pasadena. Now, over the past year we have secured over $1 billion in new development rights. We've closed on $485 million of those, and we continue to work on another $590 million of secured rights in New York City, in South Florida, and Southern California and Seattle. And due diligence will determine how much of those we take down.

And we also continue to pursue new opportunities across our markets. Some we have executed LOIs. And others we have submitted proposals that we hope will turn into LOIs. And yields on estimated costs based on current rents all these development deals we are working on today are in the high 5 to mid-6 ranges.

So, I will 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 2 topics, guidance for the entire year. And a little bit of color on our new revolving credit facility and on our balance sheet. For the full-year on the guidance side, we have revised the ranges for same store operating metrics, revenues, expenses, and NOI. And as David Neithercut described, we have also revise our transactions assumptions. As well as our normalized FFO range for the year. I will give you a quick rundown of our new ranges and the main drivers of our guidance changes.

Our new same store revenue guidance range is 4.8% to 5.1%, versus our prior guidance range of 4% to 5%. Fred has described the drivers behind our strong same-store revenue growth and improved guidance. So we will move right along to expenses. And on the expense side our new same store expense range for the full year is zero to up 1%. Fueled range was an increase of 1% to 2%. And really our 3 drivers on the expense side to this improvement in expense guidance [2 up] and one that is modestly down.

On site payroll reductions in health insurance costs, along with lower than expected salaries and overtime, are producing some savings for us here. We said in February that our on-site payroll would be up less than 1%. And we now see it as down about 2%. And we have process in technology initiatives that we discussed with you before in our field operations that continue to let us do more with fewer personal.

Also, on the positive or helpful side on the utilities line item, on the February call we said utilities would be up 3% to 3.5% this year versus 2010. We now expect utilities to be up more like 2% to 2.5%, with the favorable variance coming from lower than expected electric costs. And on a slightly less favorable side, property taxes, our biggest single line item about 27% of operating expenses. As you may recall from our prior calls, growth in this line item has been muted. I think we were all a little surprised by the given some of the fiscal issues local government have. It will be the case again this year that this line item will be at the lower end of expectations, but at the higher end of the range we gave you back in February 2011. So, up about 1% year-over-year. There's still a fair amount of uncertainty here between pending appeal activity and tax bills or pre-bills, that we should receive shortly. So, this number may still move around a little bit.

In 2012 or 2013, we would expect property taxes to rise more sharply, as assessors recognize the recent improvement in apartment values. And just to sum it up on expenses, I think we have done a tremendous job controlling expenses through the efforts of David Santee, Fred Tuomi and their dedicated teams, from 2009 to the present, the Company's compound average growth rate for expense growth has been only 1.3%. Almost half of the last 12 quarters have shown an actual reduction in same-store quarter over quarter operating expenses. And while it is impossible for us to promise to maintain or better this result, we do feel that our people and our processes give us a sustainable advantage in managing expense growth, no matter what the economic climate. With no compromise to quality or resident service. The cumulative result of these changes in our revenue and expense guidance is that now we see an NOI up 7% to 8% for the year versus our prior guidance of 5% to 7.5%.

I want to talk a little bit about normalized FFO guidance. Our new range for the year is $2.40 per share to $2.45 per share. And there's really 3 large variances here that I want to speak to. Property NOI will be up about $0.07 over our February expectation. $0.05 of that is same-store, the rest is lease-ups. On the transaction dilution side, we expect about $0.10 of incremental dilution from our transaction activity. And David has discussed the reasons for accelerated pace of disposition activity in his remarks. We really see the solution coming from 3 aspects of our transaction program.

First, transaction timing. So we are basically disposing of assets earlier and buying assets later in the year than our February guidance assumed. We have now assumed that all of our remaining dispositions will occur in the third quarter. And that all of our remaining acquisitions will occur in the fourth quarter. We've also increased our reinvestment spread, and the reinvestment spread again is the difference between the cap rate on the assets we are selling and the cap rate on the assets that we are requiring, from 1.25% to 1.5%.

And the third driver of transaction dilution is just having a larger net disposition program then we had suggested we would have back in February. Back then, we thought our disposition program would be about $250 million in net sales. Now we expect transactions be more of a $350 million in net sales activity. But all this disposition activity has left us with around $800 million of cash on hand, and that does include [$10.31]. That cash together with our new line of credit, which I will discuss in a moment, allows us to move the target date for our unsecured debt offering, which was previously planned for the Summer, back into 2012.

However, as always, we will be opportunistic in accessing the debt market, especially during these turbulent times. And that gets to our third driver, which is interest expense. Which we see as about $0.03 lower than we had expected. But we are going to have less outstanding debt when that we thought on joint venture development deals. So, these are deals that have stabilized so that interest expense is expense not capitalized. So overall, we will have less interest expense there, because we have paid off or expect to pay off loans on a few large development deals, coincident with taking our partners out of those deals.

This is a marginally accretive short-term use of cash to us that we did not expect back in February. Much of the remaining savings is due to postponing the planned Summer 2011 debt offering into 2012. Offsetting these positives, we will incur about $7 million of expense relating to $350 million in interest rate hedges, that we have in place to hedge the debt offering we had expected to do this Summer. These forward starting swaps start in July 2011. So, we are required to begin paying interest on them whether we have issued the new debt or not. The $7 million payment increases interest expense and reduces normalized FFO.

In addition to the $7 million of additional interest expense, by moving the debt issuance period associated with the hedges back by 6 months we have, under the accounting rules, incurred a $2.6 million non-cash hedge-in effectiveness charge. And we think about it this way. The hedges anticipated that we would have new debt outstanding for a 10-year period, that would begin in July 2011 and ended in July 2021. The Company will now issue debt in early 2012, resulting in a life for the new debt, this new 10-year debt instrument, of January 2012 through January 2022. This mismatch by 6 months is what creates the hedge ineffectiveness charge. Other ineffectiveness charges are possible in the future. This $2.6 million ineffectiveness charge does not impact normalized FFO.

The remaining reduction in normalized FFO guidance is mostly the result of lower interest income. Along with the dilutive impact of stock options. And finally, as you might expect, our current guidance does not anticipate the use of the Company's ATM stock issuance program. Just a quick final note on the balance sheet, and our balance sheet is just in terrific shape. And it gives us just tremendous flexibility, and our strong credit metrics continue to improve as our operating business thrives.

On July 18, we announced that we are calling for redemption of the $482.5 million outstanding of our 3.85% exchangeable senior notes, which are due in 2026. These are our convertible notes. The redemption of these notes has been plans is beginning of the year. And the impact has been included in the normalized FFO guidance we have given you for the year. Just as a side note for every dollar that the Company share priced during this exchange period exceed $61, the Company will owe roughly $8 million to the convertible note holders. This excess amount is payable in cash or stock at the Company's election, and is not a charge to earnings or normalized FFO.

As we disclosed couple of weeks ago, and as you saw on last night's press release, we have entered into a new $1.25 billion revolving credit facility. This new facility with a group of 23 financial institutions both US and international, matures in July 2014, subject to a 1-year extension of the Company's option. Diversifying our bank group by type and strengthening our bank group was a big goal of ours. And we think we succeeded marvelously. Pushing pricing was also important goal with favorable demand and improving bank market we obtained a borrowing spread at our current credit rating of LIBOR +1.15% along with the 0.2% annual facility fee, paid on the entire line amount. This is the lowest cost of any REIT revolving credit facility closed in the last 2 years.

One of the Company's unique credit strengths that the bank group recognized, is our massive unencumbered asset pool. We have approximately $800 million in unencumbered NOI. And about $13.8 billion in un-depreciated book value of those unencumbered asset. This produces in unencumbered debt yield which is the ratio of net operating income from unencumbered assets, to the amount of unsecured debt of over 15%. Which we think is an extremely strong number relative to our peers. This very important debt statistical approach 17% by year-end, We could not be more pleased with our bank group, with our pricing, and with this process. In sum, the combination be very liquid, having a new longer-term line and having a strong balance sheet, means added future flexibility to take advantage of investment opportunities.

I'll now turn the call back to Mitch the question-and-answer period.

Thank you Sir. Ladies and gentleman we will now begin the question-and-answer session.

(Operator Instructions)

Our first question comes from the line of David Toti with FBR. Go ahead, please.

Good morning guys. I just have two questions. First David, can you give us a little bit more detail on the cap rate range within the dispositions that took place in the quarter at the high-end and the low-end?

Well, the cap rates have been in the low fives on the portfolio that was sold in the Metro DC area. And then kind of in the low seven away from there.

Okay great. And then given that this seems to signal your view is that we are in a very attractive pricing environment, potentially the peak pricing environment, why not sell more into that?

Well I guess we are not calling kind of peaks, we just are identifying assets, Dave that we know we don't want to own long-term. And we're in the process of selling at values that we think it pretty good values.

And I guess as we exit markets is only so much you can sell in a market any one-time. So we sold some properties in Portland, we still more properties to sell in Portland, you would want to bring all those to market at the same time. And that would be the same in Tampa and Jacksonville and other markets that we've identified.

We are managing the process the more appropriate way that we think we can. We also are trying to balance that with redeploying debt capital and trying to find the right balance. So, last year we were doing that acquirer of assets, this year we will be a net seller of assets. And then we will continue into 2012 and see what that balance will be going forward.

Okay. That's helpful. And just lastly, have you considered other options with the proceeds in terms of potentially a return of capital, what have you tabled relative to reinvestment for distribution?

Well, I haven't tabled anything. We will do what we think is the right thing by our shareholders as we move forward. So I mean it's premature to save what we will do, if make sense to distribute we will if we find opportunity to invest we will. And I think we've been pretty goods stewards of capital in the past, and I would expect us to see that going forward.

Okay, great, thanks for the detail.

You are very welcome.

Thank you. Our next question comes from the line of Saroop Purewal with Morgan Stanley. Go ahead, please.

Hi Good morning. Fred, can you talk a little bit about the trends in new and renewal rents as started in August, September, October?

Yes, in terms of renewal rent, what we are seeing right now is July we finished up 6.3%. Then as we go forward into August we're closing in -- the sevens and we expect to achieve in the low sixes. And then beyond that we are quoting in the mid-sevens and maybe a couple markets a little bit stronger, and we expect to maintain in the low sixes going forward.

We have a little bit of a tougher comp period, but so far it hasn't really slowed us down. And in Q4 you have a little bit of softness, the speed will slow down, so you don't want to be wildly aggressive, you have to maintain a good balance there. But I still think the six-handle -- will be achievable perhaps a little bit better.

Great. Just going back to the guidance when you achieve some of the renewals -- it just seems that some of the momentum in some of your markets -- is the second half of the year just primarily because of the tougher comps? Or is there some other macro factors which are affecting your view of the second half of the year? Just going by the momentum in some of your West Coast markets, I would have expected -- third quarter sequential growth to be on par with second quarter, and maybe a little slowdown in the fourth quarter?

Yes as we look forward into the balance of the year we still see very strong indicators. I mean, renewal increases look good, occupancy should be fairly stable, although it will soften in Q4, it always does and probably always will. And then the rents over last year, I think I mentioned, will maintain good healthy spread over that, but you will see some softening of rent from the peak now as we get into Q4. That's the seasonal slowdown. That is to be expected.

Now, when you look at the numbers that I gave you for how we can achieve them this year, and you look at the total net result of the revenue change, you have to keep in mind that still in 2011, we have some leases in place that are either, equal to our current rents or maybe a gain-to-lease situations. Back in January, I mention that we had, at that point in time, 20% of the leases sitting in our rent role in January were actually paying rent above market back then by 5%. That's kind of a constrainer or governor on your overall growth. You wont get these growth numbers immediately impacting the rent well. You have to burn off the existing legacy leases.

And that's happened, but it's going to impact our numbers this year. For right now in July, will only have 3% of our people -- in our rent roles today that are paying rents equal to or above our current streets rent, and it's only by $5.00. So, basically flat. So, we burned through most of that. And I will set is upgrades for next year.

And just a supplement that, we expect very strong sequential growth in the third quarter to the second. We are still talking about a number that would be somewhere in the range of 1.8% or so. So I -- mean the number we just put up a was an outstanding number, and was one of the best sequential growth numbers we've ever had. But the next quarter is not going to be a great laggard in that regard either.

Got it, that's helpful. Just lastly to touch upon Manhattan market as given the negative press we're hearing on job cuts, and financial services from how you are seeing -- from ground to have the ability to continue pushing these high single-digit renewals?

New York, Manhattan in particular, and the Gulf coast of Jersey just continued to motor on. And yes, if we are seeing evidence that the answer is no. I would have to ask you all if you're seeing any evidence of it, because we don't?

And I've asked as recently as a few days ago our managers there, have you heard any talk, have you seen any verifiable evidence of any of our residents losing a job or getting a severance or worried about it, and the answer is no -- resounding no. To the contrary, we see stability in the financial sector, and we see growth in the entertainment and text sector. So, New York writer we have very struck occupancy, 96.2%, 7% left to lease, rents are up almost 11% since the beginning of the year. And we are getting very good renewal increases with virtually no push-back or real legitimate resistance to pricing. So, New York is still looking like a great place to be.

Great. Thank you for the detail.

You're welcome.

Thank you. Our next question comes from the line of Jan Magne Galaen with Bank of America Merrill Lynch. Go ahead, please.

Thank you. Good morning. I was wondering if you could touch on supply? And in kind of what quarters you expect it to impact maybe DC, Seattle, and Northern California, just kind of sound like they are being built up more so.

Yes. This is Fred again.

Supply is really a good picture for 2011 and 2012. For example, some markets like Phoenix, San Diego, and Orange County, there's virtually no deliveries this year. We have 800 units in Phoenix, 500 in San Diego, and 300 in Orange County. And looking next year, we actually have goose eggs for Phoenix, which is something we've never seen any -- any time in history of the Valley there. So, still a very good supply situation 2011 and 2012.

This year, on the higher end, you are delivering 3,600 units still into the Virginia-DC market absorbed very quickly and that's not an issue. LA still has deliveries of about 2,300 this year, meaning 2011. That's caused a little bit of friction there in certain markets such as a San Fernando Valley, Warner Center, and areas of downtown, -- because LA is not as robust of a market. And then Atlanta, still has 2,000 hits coming here to digest.

And even though that seems high, given the situation in Atlanta that's kind of an all-time historic low. And then Seattle has 2,000 which is really no issue to Seattle.

Looking forward, in 2012 and 2013 of the higher market, everybody knows we have a pipeline that's been building in DC -- and Northern Virginia. In 2012 we expect more than 7,000, maybe 7,500 units to come into the DC market. And for 2012, I'm not too concerned about that. We've had very strong absorption, even through the recession, and that should continue into 2012.

Now, DC looking forward into 2013 and plus, they can get a little sketchy. Because there we see right now we've identified about 12,000 units or more in the pipeline, more to come. Some of these deals may get canceled or delayed, but it is going to be pretty healthy delivery in 2013 and 2014. So, if government hiring and all the other great things are in DC continue, we can absorb that. If there is a slowdown, then we are going to have a little bit of a supply demand mismatch for a couple years there and 2013 and 2014.

South Florida is another one, virtually nothing coming next year, only 400 units. So, South Florida will, I think, have a great year next year. But beyond that, 2013 and 2014 there is a pipeline building, there's lots of proposed developments, including some of our schedule and it could be 10,000 units in the pipeline for 2013 and 2014 down there in South Florida. LA, less of a concern. Next year will be good, and then as we look forward to 2013 and 2014 and may be about 5,000 units, they will probably be highly localized. Again more coming Warner Center, unfortunately. And then the downtown, closed scene areas.

And then, Seattle is another one. Again it's going to be great next year, only 1,000 units. But then the pipeline looking forward is about 12,000 units, plus -- downtown East side and a little bit in the North, but we've got some great products there as well. And I'm not too concerned about the Seattle. So, really it boils down to DC and South Florida in 2013 and 2014, but between now and there, it's all systems go.

Thank you very much.

You bet.

Thank you. Our next question comes from the line of Rob Stevenson with Macquarie. Go ahead, please.

Good morning guys. Can you talk a little bit what's going on in terms of your rent in -- your major markets versus the market rents? If turnover is basically flat, and you are pushing rental rates 6%, 7% and you're not seeing a big bump in turnover, is it just the market rate? The gap between you and the market that's preventing you from going 8% and 9% on renewals?

Pricing -- the base rent pricing through LRO -- sets up everything. And we aren't really constrained -- a major impact of that is the competitive rents. But we are not necessarily absolutely constrained by that. We are running as the margin above our concentrate now, but you can't be an extreme outlier in the market. It will self correct based on just the sensitivity of the market.

When you give a big rent increase the first thing people are going to is be in shocked. They may come in and talk to my complaint, but then they are going to shop the market. When they shop the market, they're going to see if that price is valid or not.

And we are seeing they are validated, visa-vis the comp. And that's why they come back and renew, because it's a hassle to move and -- they are generally satisfied. Another indicator of that is people that tell us, gee I am moving up because my register rent is too expensive.

And as home buying has gone down the last couple of years we are seeing that on the relative mix, the makeup of regions for move-out that, that one is floating closer to the top. Changing job or changing life situations are always number one, but move outs because of too expensive have moved up over the last several quarters, but really not to a -- an outrageous level. In fact I would be surprised if we didn't see some of that.

Okay.

I'm not sure if I answered your question specifically, but all those factors come into play. Supply, demand, it's your comp, satisfaction level et cetera. And I can just tell you that our goal in revenue is to optimize. Which is to hit the right point between occupancy turnover and rates, and we are always trying to optimize those numbers.

Okay. Can you remind me how many units you have today, that are not in the same store portfolio? And sort of what the operating trends are there relative to the same store portfolio? Sort of in line, a little bit stronger, a little bit weaker, et cetera.

So, we have -- approximately 106,000 same store quarter-over-quarter units. The total unit count is about 120,000. So, the difference there, 5,000 of that 15,000 are military units. And that's just a different market altogether. So, call it 10,000 units in non-same store set.

It's hard to talk about those trends, those development deals tend to do very well for us. Those tend to be in the markets that David described to be subsequering in. Those also include a big vantage deal San Diego, before 25 Mass. Avenue deal in DC. So, I would suggest to you, that those deals are doing very well. I'm not sure they are going to move on their own the entire mix of the Company, just because it is such a substantial same store set at 105,000 same-store units versus other -- call it 15,000 less military housing that we actually have.

Okay unless question David, in terms of presale deals out there, is there an opportunity today to fund, developers looking to get back in the game, and take those out in your core markets? To even ramp-up the development over and above what you would normally do with less risk to the Company?

Well we are trying to do that Rob, and I would hope in the next quarter or two being decided we've done that successful. So, we have got numerous conversations taking place with owners of existing land, to see if there's not some way by which we can provide them with the bankable takeout upon completion of construction and do some sort of pre-sell. That's a much more efficient way to for us to deal with our disposition activity 12, 24, 36 months down the road. And we would like to do that.

I will tell you that anyone has got a good piece of dirt in one of our core markets has done got enough let people try to have the same conversations with them right now. We are having numerous conversations with people hoping to do that. And I would be disappointed if we didn't do one or two in the next 90 days to six months.

Okay, thanks guys.

You bet.

Thank you. Our next question comes from the line of Jay Habermann with Goldman Sachs. Go ahead, please.

Good morning, I'm here with Connor as well. David, if you look at acquisitions, and you talked about another $600 million perhaps by year-end. Can you also talk about portfolio transactions? I know there was a report that you guys might be looking at a portfolio in the Silicon Valley area. But can you give us some sense of had are using better pricing for larger transactions?

Anything that we are looking at that you might consider to be a portfolio is still relatively small. So, I'm not so sure we get to a level where they may be some discount on something for size. And anything that might be portfolio just in terms of absolute dollars, it's just not that much.

So, everything we are looking at today is pretty competitive across all of the markets. They said we've got $325 million of the balance that we hope to do this year already tied up and in various stages of due diligence, and we will have to identifying new opportunities. And we are working on lots of things at all times. But no, we are not seeing anything of real size at the present time.

And can you just remind us as well -- sort of your underwriting assumptions versus what you're seeing in the private market? How your assumptions compare for the 5% yield and where you expect those to trend over the next couple of years.

Well, I can tell you on things we've acquired most recently that have been acquired most recently, that have been acquired in that 5% or so weighted average cap rate for the second quarter. We think in a couple of years we will be in the high fives and even on one of them, hopefully in the sevens, because we are going to be doing some significant rehab work to the transaction. But, if we can achieve the same kind of rental growth that we have over the past six to 12 let's going forward, 5% yield will become high fives and sixes reasonably soon.

Okay, and as you think about asset sales -- beyond the $1.5 billion you have planned for this year, can you talk about markets that you plan to exit? Or even non-core assets and some of your top markets, can you give us a sense of what remains perhaps after the dispositions this year?

Well I guess I said on the last call, we still have $1 billion or $2 billion of assets that we think we'd like to sell. Again, I don't think there is necessarily urgency in those, and I would say that as a Company of our size, we will always, in every year, have assets that for various reasons we think we would want to sell. But we are still working on some markets in Northern Florida and again we'll exit Portland soon, and we're selling some properties in Phoenix and Atlanta. But, there's probably still $1 billion to $2 billion worth of stuff that we have identified that we are fairly confident we don't want to own in the medium term.

Okay, thank you.

You are very welcome.

Thank you. Our next question comes from the line of Eric Wolfe with Citi. Go ahead, please.

Hey, thanks. Just along the lines of Jay's last question, David, you've pretty focused on upgrading the quality of your portfolio for quite some time. And it's been a process that you have been going through for the better part of a decade. Just curious whether there is some sort of level of internal targets a you have for A-quality quarter product versus the non-core B-product? A and if there's any goals around where you would like your average rent, average ago of the portfolio to be, et cetera?

No, I think it's less of a goal in terms of average rent or quality of asset, and more the markets we want have the capital invested in. Because even in core markets, we'll have B-quality product. In fact we bought properties one could argue lately is C-quality product which we intend to bring up to a B-quality. So, it's not an average rental rate, it's not an average asset quality, it's what markets we want to be in? What markets do we believe will provide the best total returns going forward? And within the marketplace, you may find this in lot of different assets of a different quality and a different price point.

Got you, that makes sense. And you mentioned in you remarks some of the statistics about Cap rates being in the low fours in the mid-fours, maybe not as quality product and how buyers were factoring in a strong level of rent growth. The first question is just whether you think that level of rent growth that's being underwritten is reasonable? And second, whether you have some sense of what total returns these buyers are underwriting?

Well I guess we think that they are underwriting the people that we're competing with for product, probably seven handle IRRs. And we are still trying to achieve, and I think we will achieve IRR's with eight handles. But I think, of course depending on the market, people are underwriting 6% if not more percent rental growth over the next couple of years before they begin to moderate those expectations.

Okay. And just one last question, obviously long-term rates have stayed pretty low for quite some time, but if they were to move up 50 to 100 basis points, do you think that poor cap rate valuation is sustainable from here?

Well I think that valuations are certainly impacted by interest rates. I think the better-quality product that we own and that we have been acquiring is less susceptible, than the lesser quality non-core assets that we have been selling that we believe our much more subject to a leveraged bid. And therefore much more impacted by changes of -- in interest rates. If increasing interest rate also come as a result of economic expansion then we think our top line is going to grow and that doesn't necessarily mean the value of our assets will go down.

David, it's Michael Bilerman speaking. I have just a question on the expense side. You've opened up in your comments saying you have great, I mean great expense control, and it really sounds like you've been able to move a lot of stuff online, leveraging technology and really reducing FTEs at the asset level. I was just curious how real time of a reaction you're getting from the tenant base given the fact that multi-family -- it is a touch and feel business at the asset. Has that impacted anything on the customer surveys side? And -- could there be the potential that you may have to reengage and put more employees back at the asset level to maintain the higher service level that's required on the assets and your portfolio that you have driven towards?

This is David Santee.

I think you're referencing kind of some of our portfolios we took off of our property. When you stand back and look at that, that really ended up only impacting probably 10% of our communities. And really all we did there was right-size properties relative to the efficiencies that we created through technology. But when you look at your other question about re-engaging, -- we are super focused right now on continuing to re-develop our resident portal.

Most recently, we've seen record highs on our online payments, well over $100 million a month electronically. And what we see are our residents engaging each other, more building of a community, residents reaching out other residents. So we're focused right now on continued development of applications or other tools that residents can use to become more engaged within their community. Not necessarily with us, but with other residents, because if your friends live in your building, you are less likely to move. And already, we have seen pretty dramatic improvement in the length of stay of many of our residents.

And I guess, Mike I would tell you that, I think it's a very good question. Certainly something one needs to keep an eye on. And I can tell you that across our property management function, both those directly involved with property management, directly and David's team, and I will tell you for Fred, and David as well, their compensation structure includes not simply how we've done in terms of raising revenue and dealing with our expenses, but also customer loyalty scores. There is a check and balance in the valuation structure here that makes sure we are not raising revenue and cutting expenses at the cost of reduced customer loyalty scores.

And that is not an under-wieghted component relative to the other, that is a strongly weighted component relative to the other. And again, that's Fred, David, and their teams all the way down.

At this point I would add two other quick things that. One is that our business surveys tell us that our residents are really -- put a high degree of value on online services. They told us that they wanted to communicate with us electronically, to do their lease administration, check balances, enter service requests, enter payments et cetera.

So we thought early on, really a few years ago, significant increase in residents survey responses saying that they wanted these technology industries.

And then as David Santee referred to is the FTEs really didn't go down dramatically. But we reshaped the existing FTE on a property, meaning that we took the administrative functions off, the back office things off of the site people, put those in the hands of specialists offset that the residents know of never really saw or could appreciate. And we redeployed those same headcount's with customer service people at a lower comp level, but closer touch to be resident.

And that's what -- you look at your on site costs are but a these a third of the OpEx which is down about 3%. Part of that shift is I guess, going into corporate G&A, if you're moving those expenses there.

Property management.

Yes, not corporate G&A property management expense.

Okay. Alright, thank you.

You are very welcome.

Thank you. Our next question comes from the line of Derek Bauer with UBS Securities. Go ahead, please.

Hi guys it's Ross Nussbaum here with Derek.

Hi Ross.

Just a few questions. First, will the disposition activity exceeding acquisitions result in the need for any form of a special dividend from a comp perspective?

At the current levels, no.

Okay, second question. I'm looking back over the last decade. Looks like the peak revenue growth for the Company was right in the 6% ballpark in any given quarter. And it looks like you are going to be pushing toward that threshold in the back half of this year perhaps. What you think the likelihood is that you can push past that as we look ahead into next year? Or is 6% about what you can do and it sounds like from the renewals that are out in July, August, September, you are sort of in that -- in or slightly above that ballpark and holding there.

I will let Fred talk about where we can go from there because that's a function of incomes, et cetera. But Fred did note during his remarks that we're just kind of back to peak rent. Rents went down, and we're just now recovering where we were. So, that's one thing to keep in mind. But, from here going forward, rents as a percentage of income et cetera, Fred --?

We are going to go for all the gusto we can you hear but who knows how high we can take it next year. We are not going to talk about next year numbers. But you can tell from the momentum that we are building and the information I gave you earlier things are looking good for a setup, into 2012. Especially the fact that our gang to lease, or the ones equal to the current pricing those have pretty much burned off. So now would be in a overall kind of a [lock-lead] situation.

The other factor is that I have heard this question often especially in [May-read] a couple months ago. How can these people afford more rent? Aren't you going to hit a wall with people who just can't pay the rent? And we look at the rent versus income ratio of our residents.

And back in January the average rent as a percent of income was 17.7%. And today, it's 17.6%. It actually improves a little bit.

And in fact, our average income in the rent role back in January -- today is up 4%, and the rents are up 3.2%. So that's a healthy level, 17%, 18% is very healthy. 20%, 22% is healthy, we qualified it up to 30% without additional deposit. So, I don't see any kind of a near-term cap on people's ability to pay, especially in the market that we are in, and the type of product we are providing.

New York is one of the most expensive places to live, and we have the lowest rent to income ratio, it's only 14.5%. Southern California are the high ones in the low 20%-s, traditionally it's always cost more for housing in Southern California.

So, no one can really say how high we can this, we will take it to the highest level we can. But right now given supply picture for the next 18 months to 24 months, the demand -- which is stable even with low job creation, maybe this morning's report about unemployment picture is encouraging. And then the demographics and our portfolio mix it's pretty compelling for continued good results.

I would go back to Fred's comment earlier, Ross to talk about we've seen an increase of people moving out, saying they can afford the rent. But we're not seeing any problem with traffic backfilling that with potential residents who can pay the rent.

Okay. Last question, and I think I know the answer to this, but I am curious David, for you thoughts. There's been some talk recently about the government considering renting out some of the foreclosed homes.

And at first thought you say that's a good idea, but the second thought is who the heck is going to manage a program for them? And I would think that your name would come to the top of the list, but I'm not so sure you would consider it doing that. Can you give us some thoughts on that whole topic?

Well, Fred and David are so excited about that opportunity.

(background noise - laughter)

Even look at their faces right now. I think that we've experienced a good deal of success over the past handful of years I think that's because we've had a pretty specific, narrow focus and what we are doing. And I'm not sure that I would allow us, or these guys, would allow us to be distracted from that.

Do think anybody is capable of managing such a problem? Or such a portfolio if the government tries to go that route?

Can someone? I suppose. What will the cost per revenue dollar be to actually do that? I don't know, but I think it would not be the way that we are running our properties today as a percentage of other revenue dollar.

Do think that any realistic probability that, that would occur?

I can't speak to that, I don't know. I do know that at the GSDs there was talk about doing something like that. How that gets run, how that gets leased, how you manage that, how you deal with CapEx -- every single unit has got a four exterior walls, a roof, blacktop and landscaping. That is not a recipe for great rental opportunities. I don't know how you do that.

That's what I thought you'd say. Thank you.

It may be a good way to inventory products, and receive a de-minimous yield while it is in inventory, while you're waiting for some kind of recovery in absolute value, but I just think from a pure operating standpoint, I think it a nightmare.

Appreciate it, thanks.

Thank you. Our next question comes from the line of Alex Goldfarb with Sandler O'Neill. Go ahead, please.

Thank you, good morning. Just David, question, you had mentioned to an earlier question-response they were seeing any portfolios of size out there. Just sort of curious given some of the news reports about Archstone, potentially selling either assets or potentially markets. Just curious if that's more just newspaper chat or is the stuff that they are marketing is that product that would be of interest to you guys?

You know Alex, I would say there's not much I can talk about Archstone, so I'll just have you go to your next question.

Okay. On the debt heads, sort of curious, as you guys planned you debt offering for the summer, just curious how much of that offering was hedged? And where I am approaching it from is, you guys have obviously been impacted by delaying an offering, I'm thinking back to another company that entered a hedge and then rates changed and the hedge worked against them. So I'm just sort of curious as you plan your hedgings in your offerings, do you hedge the whole amount that you plan to offer in the debt? Or is it a portion therefore you have some flexibility in there?

Mark Parrell. It's a terrific theoretical conversation because we do think about this as how much debts can we do an entire calendar year, which for us this calendar year was get or take $1 billion that we thought we would refinance. And we hedged about $350 million of it. So Alex, generally we will hedge somewhere between 40% and 50% of what we think will come do.

We don't pretend we know what interest rates are exactly going to do, but we look at our P&L and we look at our balance sheet, and say can we manage our single biggest expense item is interest expense? If I can keep that number lower next year, then it otherwise would've been so that the debts that's rolling off had a higher rate than the new debt that is going on and extend duration appropriately as we buy assets that have longer lives. That's kind of the goal. The debt thought process is kind of integrated with the investment strategy. So, I would tell you we hedged give or take half of what we expect to issue in a calendar year.

In our guidance specifically, we thought we were going to do a $400 million that deal give or take July or August 1 2011. That we now have placed in our own minds in January 2012. That's what impacted guidance. But our theoretical construct is we hedge about half.

Okay. That's helpful, and then just finally, with all the talk about the AAA rating of the government. Just sort of curious, as you talk to your GSE contracts, has there been any change in GSE pricing? Have investors who buy -- who would re-buy the GSE debt that multifamily would fill, have they changed any of their desired returns or so far it's been pretty muted?

We haven't seen any change in that. We haven't seen any issues in the production line over Fannie or Freddy, so we haven't seen that manifest itself yet, Alex.

Okay. Thank you.

Thank you. Our next question comes from the line of Rich Anderson with BMO Capital Markets. Go ahead, please.

Thanks for hanging in. The $325 million of identified acquisitions is that the three in LA and two San Francisco, or is there more?

That is -- includes those and there is more. There is a South Florida deal in their and some other things that are kind or maybe' s.

Okay. What would you identify to be your down costs, because when I look at your new leases are still not growing as fast as your renewals, if I'm hearing your rates are you're not getting compensated for the times when people do vacate? So I was curious what your downtime cost would be when you think of the cost to up-keep the unit and also the vacant period of time?

This is David Santee. Our average vacant day is about 28 days. Does that answer your question?

Yes, I guess. So, then in would be the average rent roughly plus some CapEx?

Yes. Very minimal. CapEx.

Okay I just have one more question and it has to do with New York City. And I mean it as a serious question, so just hear me out. You said that things are going well there, and better than expected, but there's been a new thing in New York, right -- we have legalized gay marriage.

And I'm curious if you see any demand to your space for people moving to New York to get married? Any rainbow colored flags from the terraces going on? Or are you not feeling that yet?

No evidence of that, no reports of that yet. That's an interesting concept, I could see that to be the case, and there would be great residents to welcome. So, we will see what happens.

Okay, and again, there's no way to track that, because that would be a difficult question to ask, I guess.

Yes, very difficult. That would be purely anecdotal observation. And that one has not bubbled up to the surface yet.

Okay, thank you very much.

You're welcome.

Thank you. Our next question comes from the line of Andrew McCullough with Green Street Advisors. Go ahead, please.

Good morning.

Hi Andy.

To as a previous question maybe a little differently. When you're looking through cycle capital and you're analyzing that reinvestment spread you want to buy and what you want to sell, how why does that long-term [analogous] profile between those two buckets in your opinion? Essentially, what I'm asking is there a target cap rate spread in mind that you guys have where you either get more or less aggressive on that capital recycling front?

Well I guess I will tell you, Andy that we look at disposition IRRS we're selling and acquisition IRR we're buying. We think that we are on leverage. So, we think we are selling somewhere maybe in the seven to low seven and buying sixes -- or buying eights rather, when one is honest with the CapEx needs are of the assets that we are selling. So, it's not simply a first year delta on yield, but it's a longer-term total return calculation.

As we make decisions to exit markets, we kind of go through the process. You are not looking at every single asset. We are getting out to the point now where we've got two properties in Portland, Oregon, and we'll end up selling them, and I'm not quite sure we are going to worry about what the absolute cap rate is. It's time to complete that exit and we are realize a lot of benefits on the property management side and we will have a total exit there. So again, it's not simply first year kind of yields -- it's a longer-term decision.

On the assets were selling, how different do think the buyer's CapEx assumptions are versus what you think the real CapEx these are going to be for those assets?

One never knows. We know when they come back and they try and reach rate, based on what they think CapEx needs are. But one never knows what they might identify, what they really will actually spend, or what they claim they are going to spend. We also think that generally, the insurance costs will go up, generally we think the insurance cost are not the same as ours, and will likely go up.

And I think I mentioned on the call as time, when we think we are selling some cap rate we think that our buyers is probably buying something that might even be 50 basis points lower. That their yield because of insurance, because of real estate taxes, et cetera. But, we don't know really what CapEx dollars we will actually spend.

Great, just one more quick question. It looks like you bump up the expected stabilization for vantage point I think by two quarters. Can you talk a little bit about what's going on there?

This is Fred.

A lot of demand, a lot of leasing, and a lot of rent increases going on there. That product has kind of sat there in limbo as a for-sale product. And I'll tell you, once we got in there and understood it, positioned it, marketed it online, it just has been gang-busters demand. We are just way ahead of expectations. And frankly, when we did the underwriting on that one I was a little concerned about the velocity -- the leasing velocity in the early months, and I actually took them down a little bit on the margins, and they proved me wrong right through those numbers.

We are very happy with the demand there. This is another example of people didn't want to buy that product. But it's a beautiful asset in a great location in an exciting market, and they are certainly willing to rent that lifestyle.

Where do think the stabilized yield is going to come out once it's fixed up?

I don't know offhand what were where we thought we were. Probably in the sevens, is a guess, original underwriting and again like 425 Mass will exceed that and I wouldn't be surprised if we be in the eights.

Great, thanks guys.

You're very welcome, Andy.

Thank you. Our next question comes from the line of Dave Bragg with Zelman and Associates. Go ahead, please.

Just a couple quick follow-ups. First, on Fred's answer to Rob' s question earlier, what is sure margin above your comps, and how has that relationship turn it over the last few years? You seem to be early to the game in terms of pushing rents, so it would be helpful to get a little more insight on that.

Yes, this is Fred. On a overall enterprise level, this could change market to market, but our overall top-level of our rents, we are pretty much equal to the comps coming into this year, and has stayed that way through the slower Q1, where you don't have much transactions to really fuel rent growth there. But once we saw lift off in the leasing season which should be late April, early May, if we saw separation and actually the gap is that is at its widest point right now.

So that's one gauge, not the most important one, something relatively look at. We don't like to see going the other way. But from our competitive sets that we log into our LRO, it's telling us that right here in a moment we like what we see because we feel like we are on the more aggressive side and we're right on the top end of the pricing curve.

Got it, and about how wide is that gap?

About a quarter of an inch.

Looks more like three-eighths.

Alright I'll let you go on that one. And then, can you just talk about the residents who came in during 2009 at highly discounted rents versus perhaps the rest of your tenant base, which would be closer to current street rents. And can you talk about the renewal increases that you have achieved this year on that group that came in 2009 versus the rest of the tenant base? And any notable differences in terms of turnover, and also income levels of that group that came in at the time versus perhaps new tenants coming in today?

I can address -- first of all, these legacy leases throughout this whole process as I said earlier, the gain to lease situation is pretty much gone, basically flat now. A couple of markets such as Phoenix, South Florida and LA, we still have more exposure to that, but it's working its way through the system. From two components, one is rents go up and then the other one is people either renew to those new street rents or they do, in fact, move out and then we have to replace them.

In terms of our renewal strategy, through the downturn, we learned that consumer behavior is very interesting. A lot of people take flat to down 1% while market rents are going down 6%, 8%, 10%, 12%, 20%. So, it's no different now. Even though they have been paying rent that were higher and now maybe equal to or in some cases maybe even higher than current street, what we are doing now is we are still offering a slight increase. It may not be a 6% increase but we will offer an increase. What we call a minimum increase.

And in some cases we achieve those, other cases we would are willing to negotiate down to flat. Depending on lots of situation, the aspect of that particular market, that property, that unit type and then their personal situation of exactly how far. The propensity to stay increases with residency.

So those cohorts that went -- three years, four years, five years, they get very sticky, they continue to stay. So we know that's a kind of a propensity there and we have seen any changed in that, and as David Santee mentioned earlier, like the stay is increased over the last year by about three months, I believe. And that's a loyal customer base that continues to stay.

In terms of their income levels versus average, I don't have that information handy.

If you want to go back to 2009, last year in 2010, those residents that have been with us 12 to 24 months, those 18% when you take that snapshot -- at the same time this year, that percentage of 12 to 24 month residents jumped all the way up to 24%. So, we have a significant loyal group of residents that continue to stay with us, regardless of the increase.

That's helpful. Thank you. Last question just on the acquisition activity. You seem to be making a noticeable shift towards West Coast opportunities. This year as compared to last. Can you talk about your outlook for asset values on the West Coast versus the East Coast? Thanks.

Well again, our activities just a function of the opportunities we see. I can't tell you that last year we were focused on the East Coast and this year we are focused on the West Coast. We're focus where we find the opportunities and last year the opportunities were in DC and we had a pretty hard with 425 Mass and our deals in Arlington and made a lot of great acquisitions.

There was little product available a year ago in Southern California, this year we are seeing more, and so we just happen to be more active there. We've got guys in every region that are actively looking for product and in any given point in time there might be more opportunity in one over another and it happens to be in Southern California now. And Southern California has kind of been a laggard, slow to turn but we think long-term, it's a great market and we think that the asset that we have acquired in downtown LA will do very well for us.

Thank you.

You bet.

Thank you. And our next question comes from the line of Michael Salinsky with RBC Capital Markets. Go ahead, please.

Good afternoon guys. David, you talked about accelerating development starts here in the second half. What are the pro forma yields on that and what spread do you need for a -- on development relative to acquisitions right now? With the risk premium?

I just want to make clear, the acceleration of the development, so we talked about starting $400 million to $500 million, and I think that number now will be $500 million to $600 million. All that means is that some deals we thought might be first quarter 2012 and are going to be fourth quarter 2011. it's not that we decided to not mothball something and get at it. It's just that the timing of stuff that we are working on.

And the deals that we have in the pipeline, the land deals we bought -- very aggressive buyers a year ago we think will be in the sevens and in fact it is probably up now, because I know those our current rents of that, we'll know that rents have gone up considerably since then. New land deals today, we're looking at mid-fives to low sixes probably. I will tell you that we have lost some land deals to people that we think were taking development yields in the fours. Or low fives.

And I will tell you that we have always looked at getting 100, 150 basis point or so spread over acquisition yields, if we can, but certain times in markets where there is nothing to buy, so that kind of spread is irrelevant. I will tell you that it's not simply in our minds the spread to acquisition yield, we also think there's some kind of minimum (inaudible) get to be properly compensated for the construction risks. If acquisition deals go to 2.5 that doesn't mean we are building up 3.5. We think there's some kind of minimum return expectation that one ought to have, and we lost a lot of land opportunities over the last six months. We've been a bridesmaid awful high number of times.

Okay. Second question, relates to your comments about the spreads widening from 125 to 150 basis points. Are you seeing that -- are you seeing -- and you're talking about demand in your primary markets, are you seeing demand given the pricing in the primary market during two shift into some of the secondary markets?

Well, yes. We've seen that for a while and that's why we've been selling the assets that we've been selling within a pretty good prices. As soon as it gets very competitive buying core products, core market, capital will find its way into higher yields and in another markets and they sort of be willing take a little but more risk for a little yes less yield. We've certainly seen that.

I think that's the case with the portfolio that we sold in the Metro DC area. I think that's one of the reasons we are getting what we think is pretty good pricing on our Portland asset in Tampa and Jacksonville et cetera. So certainly, if capital can get what it wants in the core assets and higher barrier markets it'll migraters went to other markets and we are taking advantage of that.

Okay. That's helpful. Finally, where is pricing -- were are spreads right now? Where could you go out and issue one secure today?

Sure. Assume a ten-year rate of around 3%, Mike then you had to that about a 1.6% spread. I would say give or take call it a 460 ten-year unsecured. I think we are an eighth a two a quarter wide of that if we did a secured deal on that right now. Unsecured pricing I think we mentioned on the call just before this was -- has been better unsecured been secured for a while now.

Okay, that's helpful. Thanks guys.

You bet.

Thank you. Our next question comes from the line of Gautam Garg with Credit Suisse. Go ahead, please.

Good afternoon guys. A more macro question are there any markets where you see the rent versus buy argument beginning to switch? And if yes, what kind of impact are you seeing on your portfolio?

This is Fred. Not really. The home purchasings I mentioned earlier continues to go down. This quarter, second quarter versus second quarter of last year, for the same point of the season, we do not have a single market where the home purchasing has increased. They all continue to fall. And then when I look at the terms of affordability, some of the commodity markets for housing, such as Orlando, Atlanta, Phoenix, they continue to go down.

They're not buying even at almost at any price. It doesn't matter what event rent versus buy ratio is in theory, in practice, people are not buying homes in the commodity markets or -- really any market. It continues to go down. It's down 270 basis points quarter-over-quarter, the second quarter. We don't see any kind of beginning of a trend of that going up.

Not for minute do we think that we don't have residence in our properties that are ultimately want to be home buyers. And at some point in time, when they're willing to make that decision, that's not simply an economic decision, it's a lifestyle decision as well. We are looking at that. I will tell you a lot of those homes that might be value homes in the excerpts of where we operate, and that's why say really is as much of it life-style decision as an economic decision.

And, I think when people exercise that decision to go do that, I think it will be at a point in the economy at a time when there is job growth where there will be more than ample traffic to backfill those people who do decide to leave us to go buy a single family home.

Sounds great, thank you guys.

You're welcome.

Thank you. Our next question comes from the line of Tayo Okusanya with Jeffries & Company. Go ahead, please.

Yes, good afternoon. A quick question in regards to the Cap rate spread and the guidance revision. With it widening out, If I'm understanding this correctly, that means you're expecting more dilution from acquisitions, and disposition activity in the second quarter. Just wondering what that backdrop, what the rationale is to continue with the amount of acquisition and disposition activity you are talking about?

Again, this is not simply an earnings process, this is a ultimate total return in value creation process. And if we think that we can cell assets today that are at risk for interest rates or risk for GSE financing or risk to capital needs, and sell them at the prices we are seeing in the marketplace today we think long-term debt is the right thing to do. I don't think we would be selling assets today at call it 6.5% yield it without we could sell up or 6.5% yield two years from now. We might not be doing that.

We think that valuations of these are good, we know we don't want to own these assets long-term, I would think that those values are potentially at risk. And so we think that the right thing to do not withstanding what the amount of immediate first year dilution might be.

Okay. Could you talk a little bit about the IRRs that you are currently underwriting both acquisitions and dispositions, too?

Well as I said earlier, I think the disposition IRRs that we are selling we think are in the sevens and the IRR as we are underwriting in the eights. And I tell you that we make sure that our assumptions about residual value are not outlandish.

We make sure that we understand what goes on a price per pound price per unit basis of what the compound average growth rate would be during the ten year hold period. But again, we think we are buying better long-term IRR's than what we are selling.

Okay that is helpful. Quick question on occupancy at the end of the quarter was what?

95.3% and today it's 95.4%.

And that's for the total portfolio?

Yes, that is same-store.

What about the for the total portfolio?

Not really relevant if you have a lease up --

[background noise - multiple speakers] So on a stabilize portfolio.

Stabilizes 95.4% this morning. And as I said earlier, the encouraging factor is that this point in leasing season where we have a lot of transactions coming through the system we are only 7.5% left to lease this morning. That's a forward indicator (inaudible) which is very helpful. Typically might see that (inaudible) at this point in the cycle.

That is helpful. Thank you.

You're very welcome.

Thank you. And our final question comes from the line of Haendel St. Juste from KBW. Go ahead, please.

Last but not least. Just a couple quick ones here. David, not to beat a dead horse, but how confident are you that you will be able to meet your acquisition target this year, especially given the composition for high quality assets? And would you be willing to lower your cap rate IR minimum target threshold to get there?

I will tell you that we don't do that to meet "goals". I don't see here and say $1.15 billion of acquisitions and we will do whatever it takes to meet that goal. What we try and tell you is the assumption that our embedded in our guidance. If we can't find anything good to buy, we won't. I assure you. That's merely just the assumptions that have been baked into the guidance that Mark and his team have prepared for you.

And as I said, $325 million has been identified and we are working on it. And then the rest is yet to be seen. I will tell you every year we expect there to be opportunities late in the year, I will be honest with you until you about that last year we didn't see any. But our guys out there in the field are saying that the brokers are giving them notice that they are working on a lot of potential transactions. That they would expect to be bringing to the market in the short-term in the near-term, and we will have an opportunity to look at those.

I also wanted to say it's very possible something we identified to close this year could close in January of next year. That could just be pushed from one year to the next. Again, these are just guidelines and the assumptions we give you a we don't sit around and worry about whether or not we actually make that goal and do stupid things to make sure we don't.

Okay. Fair enough. And then on the acquisition deal that you missed lately. How much lower are you in terms of pricing? Either on a cap rate or percentage of value to the winning bids?

I guess I would probably say on some deals we might be right in there, and just missed by a little bit and I also know that things we've lost where we were 10% off. I will say we get price talk, whispered talk about where things are going, and we will just abandon working on them knowing that we won't be close to those levels. We think there have been deals trading in through with three handle cap rates and we are just going to go find something else to work on.

Alright, thanks, fair enough guys. Take care.

You bet, Haendel.

Thank you, ladies and gentlemen that concludes the question-and-answer session. I would now like to turn the conference back over to Mr. McKenna for any closing statements.

Well David Neithercut here, thank you all for your time today we appreciate it. And I'm sure we will see many of you in September. Have a great summer. Thank you.

And ladies and gentlemen, this concludes the Equity Residential second-quarter earnings conference call. You may now disconnect, and thank you for using AT&T conferencing.