住宅地產 (EQR) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the first quarter 2012 earnings conference call. (Operator Instructions). This conference is being recorded today, Thursday, April 26, 2012. I would now like to turn the call over to Mr. Marty McKenna. Go ahead, sir.

Thanks, Joan. Good morning and thank you for joining us to discuss Equity Residential's first-quarter 2012 results. Our featured speakers today are David Neithercut, our President and CEO, and Fred Tuomi, our EVP of Property Management. David Santee, our EVP of Property Operations, and Mark Parrell, our CFO, are also here with us for the Q&A.

Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities law. These forward-looking statements are subject to certain economic risks and uncertainties. The Company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. And now I will turn the call over to David.

Thank you, Marty. Good morning, everybody. Appreciate you taking the time to join us today for our first-quarter call.

Clearly the strength in operating fundamentals that the multifamily space has enjoyed for the last six quarters or so has certainly carried over into the first quarter of 2012, and should continue for the balance of the year. And those fundamentals drove our first quarter results, which came in very much in line with our expectations.

Our same-store revenue growth for the quarter was 5.5%, and same-store NOI growth was a very strong 7.8%. Our new lease rates are pretty much where we thought they would be, and renewal rates continue to trend in the 6%'s, just as we had expected. So we feel very good about where we sit today.

And to help you understand how we are currently positioned moving into our primary leasing season, I'm going to hand the call over to Fred. He will share a bit about the current trends we are seeing across our markets.

Thank you, David. What I would like to do is talk about some of our key markets. But before I do that, I just want to give you a quick update on our key drivers of our revenue.

For the first quarter, the drivers of our revenue support our full-year same-store revenue growth around the midpoint of our guidance that we gave back in January. So, let me give you a quick update on each of those four drivers.

First is turnover. And resident turnover is up. It's up 100 basis points the first quarter of this year versus last year.

However, if you look within the quarter, January and February did have a pretty good spike in move-outs compared to the same month last year. But then March came right back in line with 2011, and as did April after the end of the quarter.

So to look at where we are in the market, kind of as expected, the markets with the strongest rent growth have been having some price resistance on renewals. And it's natural when you think about it. Residents who traded up in quality and in rent levels during the recession will eventually be priced out at some point. And that's happening in some of our high-growth markets.

Home buying is up in a few areas, but not by much, and is still well below historic norms. So, home buying is really not a problem and continues to be in check.

That takes us to occupancy. And while occupancy did match the first quarter of last year at 94.9%, it was below kind of what we wanted for the first quarter, kind of below our budgets, below our expectations. And the occupancy in our key markets actually declined throughout the quarter as we held onto our higher rates.

And we believe that making a trade right now in our strong markets, trading some occupancy for holding those higher rates, is actually a good strategy at this point in the cycle. Now as we enter the leasing season, we fully expect and began to see the recapture of that occupancy at those higher rates that we held onto as we enter the leasing season.

Now, I'm going to make a point here that new residents still show no problem accepting and achieving these new rates. So we are seeing some turnover based on price push-back, but not on new leases coming in.

So that takes us to the base rents. And as David mentioned, base rents running just as we expected through Q1, averaging about 6.5% over 2011 levels during the quarter.

And then finally, renewals; renewals remained very strong. We averaged 6.6% increases for the quarter, and in the month of April we actually closed now at 6.9% renewal increases for the quarter.

Now let's take a quick look at a sampling of some of our markets. First is Boston, Massachusetts. Boston has been on a great run, as you know. After several quarters of double-digit rent growth, we did experience price resistance during the first quarter. And therefore, turnover did move up in this market.

Occupancy is now recovering very quickly at rents 10% or more above last year. In-town and Cambridge, some markets are doing great, and [Dublin] and Quincy not quite as strong, as we're having some -- it's a little more turnover and some home buying down in Quincy.

New York, the financial sector is still holding very strong, very steady, and the new trend of people coming in from tech, new media and entertainment is continuing. We continue to see folks in those industries moving into our markets -- into our properties there, especially in the markets of upper West side and Chelsea.

Turnover did spike in New York also, being a high-growth market, January and February especially on the loss of some short-term corporate leases, and on some anecdotal reports of people trading down and moving into other neighborhoods as the rents recover back to peak periods.

Current traffic and leasing trends, mainly in the last few weeks, are very strong. And occupancy is now rebuilding quickly at rents 5% to 6% above last year. And renewals through the whole quarter are remaining stable in the mid-6% increase range for New York.

Moving down to DC, we, like everyone else, expect DC to experience a slowdown throughout this year. Government cutbacks and hiring freezes and salary freezes and per diem freezes are in place, beginning to show up. And then contractor uncertainty because of this is beginning to take hold.

As we go later in the year, this is going to match up with the delivery of these 8000 units this year. And that's going to create a little more pain (technical difficulty) in the back side of this year. Renewals remain strong right now, however, at 6%. And base rent growth -- still growing, but the gap over last year is narrowing to the 3% to 4% range, and this will continue as we come up to a tougher comp period from last year.

So, jumping across the country over to Seattle, Seattle has been a great market. But when we talk about Seattle now, we're going to have to talk about it in terms of submarkets, because I don't know if you know or not, but our Seattle market, as reported, includes 2347 units from Tacoma.

And Tacoma is not really the same market as Seattle. It's pretty much a military town. And the military rotations out of Fort Lewis have been dramatic and ongoing, and it's been a drag on our results. So without Tacoma, our 6.1% revenue growth for Q1 in Seattle is actually a 7.1% revenue growth.

Then within that, CBD near the downtown and Eastside are very strong. CBD posted a 6.6%, Eastside an 8.7%, and the big tech firms are all continuing to hire. New hiring is strong. Interns are higher. Hiring is strong, and they're doing great.

So, currently, base rents are up 10% year-over-year, and renewals are in 8%-plus range in these submarkets. Also in Seattle, Snohomish up north and the King County South are not quite as strong but still doing fine. So we expect Seattle to have a good run here, but to eventually slow throughout the year as the development pipeline begins to deliver the 3000 units this year. And then looking forward to 2013 and 2014, there's still that pipeline of about 6000 more units coming in, mostly downtown and the near downtown submarkets.

Going down to San Francisco, San Francisco as you know has been a very hot market for quite some time now, several quarters, very strong double-digit rent growth. So it shouldn't be a surprise that that's where we are seeing the most pushback on pricing. As a result, there's been a pretty big increase in turnover during Q1.

30% of our first quarter move-outs gave us the reason -- increased too expensive or my rent's just too damn high. So, like Boston, we believe in this market, and we have confidence that the new lease potential is there. So we are holding rates in San Francisco at the expense of Q1 occupancy. So we are now filling April and May traffic at rates 11% and 12% above last year. And renewal increases are steady at 10.5% for April.

Down in Southern California, Los Angeles is still definitely in recovery mode. It's continuing on, but still a little bit lumpy. L.A. is still constrained by its local economic problems, especially in the government sector. However, job growth has been revised up pretty dramatically for 2012, but we just haven't seen it yet. Q1 was flat or down, as this job growth is mostly back-ended in second half of 2012.

Base rents are growing steady in the 5% to 6% range, but we are seeing some persistent price sensitivity keeping occupancies below 95% by a touch so far this year. April renewals in L.A., 5.5%.

And that takes us down to San Diego. And I think us, along with others would, have to say San Diego remains a disappointment. It's in positive territory and steady, but at low levels of growth.

Based rents are 1.5% to 2% above last year. April renewals are up 4.7% and occupancy continues to lag on low demand, based on military lease breaks and a little bit of an uptick in home buying from San Diego.

So, overall, as David said, things are kind of as we expected this point. The leasing season will really make the year, so we look forward to reporting to you the results of leasing season on our second-quarter call come July.

All right. Thanks, Fred. So let me turn now from all about transactions, and just like last year, our first quarter acquisition activity was minimal and well below our full-year guidance of $1.25 billion might suggest. However, also like last year, we do expect the activity to increase as the year progresses, and we've kept our full-year acquisition expectations unchanged for the present time.

We did acquire three assets in the quarter totaling 544 units for $159 million at a weighted average cap rate of 4.4%. We bought 102 units in Marina del Rey, California. This asset was built in 2003 and was acquired for $371,000 a door. We also acquired 319 units in Redmond, Washington, built in 2009 and acquired for $299,000 a door. This asset is in the heart of Redmond in very close proximity to our red160 development deal, which should provide some operating synergies for those two assets.

And lastly, in Redwood City, California, we acquired 123 units in an older asset on the peninsula, midway between San Francisco and San Jose, and immediately adjacent to Stanford medical facility. It's a terrific value-add deal that we acquired for $211,000 a door, and we'll spend about $10,000 a door rehabbing. We are very excited about that opportunity.

During the quarter we sold only three assets, two in Portland, Oregon, and one near Princeton, New Jersey, totaling 1522 units. We sold those deals for $206 million, averaging $136,000 a unit at a 6.2% cap rate. We are pleased to have realized a 12.6% unleveraged IRR inclusive of management costs in those transactions.

Now, you will no doubt notice that the spread between our acquisitions and dispositions in the first quarter was a whopping 180 basis points on that activity. And I ask that you not read too much into that.

This book capital rate is probably a pretty good proxy for what we expect to sell, at least in the first half of the year, but the acquisition cap is on the low end. In fact, just last week we closed on a $230 million acquisition at a 5.3% cap rate, and that averaged that spread down to compress that spread delta to 127 or so basis points. So we still think the spread at 125 for the full year is the right estimate.

So I'll also add, and I'll tell you I know I sound like a broken record when I say this, but there still is a great deal of capital chasing very few deals in the marketplace today. And as a result, at least in our core markets, cap rates remain in the 4% to 5% range, where they've been for much of the last year. It really is quite simply a very competitive acquisition environment out there today.

So, with the acquisition market intensely competitive, we continue to look for new opportunities for our development business. Last quarter we acquired two land parcels for future development, one right on the Biscayne Bay in Miami, Florida, where we'll build 390 units for $97 million, and would expect to achieve a mid-6% yield on current rents on that transaction.

And we bought a land parcel in the South Lake Union neighborhood of Seattle, where we will build 283 units for $66 million and expect to achieve a low to mid-6% yield on current rents on that transaction.

So, for the full year, we currently expect to be a position to start 8 projects totaling 1430 units and totaling $630 million of total development costs. Now, you may know this is down about $120 million from expectations at the beginning of the year, because we've decided to first see if we can sell one asset that we were contemplating doing some work on, that's actually an expansion of an existing property we own on the Intercoastal in South Florida where we were recently able to increase the density on that site. And we're going to look at disposing of that first.

So the sites for our 2012 starts are all currently on our balance sheet. We have two in New York City, one in South Florida, two in Seattle and one each in Southern California and the District of Columbia. And current underwriting on those opportunities suggest a yield on cost in the low 6%'s on current rents.

So, before we open the call to questions, I want to say a few words about the Archstone situation, which I know a lot of people have questions about. But you must bear in mind that I'm extremely limited as to what I can actually say.

But what I can say is that we remain interested in working with all the parties that have an interest in Archstone to see if there's not some way we can't create a win-win situation for everyone. I will tell you that doing that is not an easy task, because there are a lot of parties involved, and many of those parties have different agendas, and we're trying to get everybody squared away.

But to give us more time to see what we can get done, we recently extended -- and this being for the second time -- the period under which we have an exclusive right to cause the banks to sell the remaining 26.5% interest to us. And any offer that we do make will need to be for at least $1.5 billion, and that offer will again be subject to Lehman's right to match it. And if they do, we will receive a breakup fee of $80 million.

Now, we continue to think that much of the Archstone portfolio would fit hand in glove with ours. It would make a lot of sense on our platform. And we're going to try and make it work.

So with that, Jo, we will happily open call to questions.

(Operator Instructions). Dave Bragg, Zelman & Associates.

Yes, good morning. Just wanted to touch on the disposition environment for you. Could you talk a little bit more about your expectations for the year, including whether or not you're currently marketing assets for sale? And maybe expand on that, as well as your perception of the appetite in this market for a portfolio sale.

Well, we are always actively selling deals, Dave, and we've got properties out on the market place in Orlando and Jacksonville and Phoenix, and most of the markets that you'd expect us to be disposing of assets, the remains of what we think is a pretty good bid for those assets. Fannie and Freddie continue to finance them. And we don't see any reason why we'd be unable to meet a goal of $1.25 billion on the disposition side.

A lot of that will be a function of what kind of acquisition opportunities that we can find, because our acquisition business is really self-funded from the disposition side. And our guys tell us that there could be interest in a large portfolio. There are a lot of people out there with a lot of capital that would be very interested in putting a lot of work in a single transaction. And if we wanted to do that, I think we could, and do so very successfully.

Okay. Now that you've accomplished a lot on the restructuring side, as you look at some of the other markets that you might consider non-core, could you talk about your priorities in terms of incremental exits when you think about Atlanta, Orlando, Phoenix, maybe even Tacoma, etc.?

Well, I guess we continue to sell assets in many of those markets as we continue to focus more on the higher-density core markets. But I'm not sure that there are necessarily any priorities. We will continue to sell assets on a one-off basis across some of those markets and continue to reduce our exposure there.

Okay. And then just a question on the outlook for the year. I think that you have a track record over the last few years of coming in at the high end of your revenue growth expectations, and you seem to be indicating that you are trending towards the midpoint. Can you talk about what has changed or what you're seeing over the first four months of the year that causes you to be maybe less comfortable with that high end?

Yes, this is Fred Tuomi. As we mentioned, the first quarter kind of points to -- all the indicators are right smack dab in the middle of our guidance. And the one area of our first quarter that kind of held us back a little bit, like I said, was the turnover was up in some of our key markets in January and February.

Most of that turnover, when we dissected it, was these short-term corporate apartments that we had in there for late December, January, February, in the key markets, the big rent markets like Boston, New York, and a lesser extent in Seattle and San Francisco. So we had some of those high-paying premium units vacate.

During a slow period of the year, it took us a little bit longer to refill them. And that's why we carried a little bit more vacancy during Q1 than we had hoped for, or really planned on. So first quarter was kind of -- the story was increased turnover due to some corporates, especially short terms, some price resistance in our key markets, leading to some lower occupancy.

Now, if you extrapolate that forward, like we said, that thing kind of guides us right toward the middle -- around the middle of the range. Now, we will know more come July because the leasing season is just really cranking up.

In the last couple weeks, in fact this week, very strong traffic, very strong leasing momentum building in those key markets, like Boston is coming back quickly. San Francisco is coming back quickly, Seattle downtown and eastside very strong, et cetera.

So (technical difficulty) our strategy is that we held rates. We took that vacancy in Q1, and now we are going to refill the leasing season at higher rates. So, in a perfect world, if the stars align, we could have a good result.

But right now, as I said before, last quarter, we expect our average growth over last year of our base rents to be in the 5.5% range. If we hit that, you can just kind of do the math, and that's why we're saying kind of around the midpoint. But based on leasing season, that kind of makes the year. So we'll know more here in several weeks.

Thank you.

Eric Wolfe, Citi.

Great, thanks. I just had a question about Fred's comments about seeing more turnover in markets with the best rent growth. Would you actually see that resident turnover right now as a sign of strength in those markets? Or is it really more so that you need to start holding back on renewals, given the higher turnover?

Yes, and that's the essence of what I meant by our strategy right now. We're happy right now to take that trade of a little more vacancy early in the year, when there's not many transactions anyway, and keep our rent roll growing, keep our base rents up there, and then just be waiting for the traffic to flow in the leasing season and fill up quickly at the higher rates, versus taking the rates, filling up and then being stuck with those leases throughout the year. So that shows confidence in the forward of the market in terms of demand will be there.

And as I said earlier, the prices that we are at right now, we're not having a lot of resistance from new people coming in. Our rent to income ratio is still strong. Credit is still strong. None of that has changed. So there's an ample supply of people willing, ready and able to pay these -- the new leases. But we are hitting that point of resistance on some renewals.

And as I mentioned, the corporate people, as you top out the rents, plus the corporate premium, we are squeezing their margins. So, naturally, they're going to look for some alternatives at some point. So I would agree with you that if things play out perfectly, that's going to be actually a good thing and not a bad thing at this point in the cycle. Different points in the cycle, you may play a different strategy.

Right, that makes sense. And I just had a question on your leasing and advertising costs. If I guess I look at your advertising costs over the last two years, they've come down pretty dramatically, as has the rest of your peers.

So, I'm curious. Is that just a renegotiation of rates? Or was print really that big a piece of your advertising? And I guess thinking about it from another perspective, if you're reducing your advertising budget, is there a risk that you're not creating the same number of leads as you were before and it's having an impact on revenue?

This is David Santee. When you look back -- I think you have to go back about four years. And prior to the downfall in 2008, basically markets like New York and Boston were -- those were two big broker markets. And then during the downturn, that -- the obligation to pay broker fees switched from the resident to the landlord. And we increased those fees several million dollars.

So, when you look at our advertising costs today, you see that decline. All of that decline is associated with less broker fees in Boston and New York. Everything else -- I mean, certainly we've done a great job of reducing print. We continue to optimize our paid search and our other ILS's. But really, the entire savings is due to less broker fees than last year.

Got you. And then just one more quick question along those lines. I guess how would you think about your sort of average customer acquisition cost in terms of advertising, or however you allocate sort of expenses to that category?

Well, certainly the largest cost to acquire a new resident is the vacancy. But as far as hard costs go, when you have 50% turnover, 50%-plus turnover, and we're at $100 a unit, we run into $200 to $250 range as far as all-in L&A costs.

Got you. Great. Thank you.

Ross Nussbaum, UBS.

Good morning here, Derek Bower. A couple different questions here. First, can you remind me how much of your unit base is in corporate apartments? I'm trying to figure out -- I didn't think it would've been that meaningful to have caused that much of an issue, or the amount of commentary we have already had this call.

Well, when we look back, we had roughly 700 corporate units. I don't know that it's a matter of the sheer volume. It's more about when they vacate.

So, when corporates take units in the summer, typically when our rents are at the peak -- and then in addition, we are getting a premium on top of that, which is typically 20% at 30% on top of peak rents for that year, and then they move out in Q4 or the beginning of Q1 when rents are at the bottom of the cycle, you are re-renting those apartments for sometimes 20% to 30% less when your average renter rents them at a 12-month lease. So we just saw a lot of volatility.

We saw some spikes in some markets, particularly Boston, New York City, and we constantly strive to kind of minimize our exposure to the corporate business, because like we just discussed, it creates unneeded volatility and it really doesn't align with our goal of creating loyal customers.

Okay. Given your strategy here of letting the occupancy slip a little bit and rebuilding at higher price, to me that implicitly would suggest if the turnover maintains on an up year-over-year basis, ultimately you're going to need higher traffic levels relative to last year. Is that what you are betting on, is that you're going to see more traffic flow into your units this year?

This is David. When we look at all aspects of our traffic, everything for the quarter was up. So, applications were up. Move-ins were up 4%-plus. Phone calls were up 20%. Foot traffic was up.

The only thing that was down was -- were e-leads. And I attribute that to -- I think our industry, or at least the larger players in our industry, we continually play cat and mouse with Mr. Craig from craigslist as far as playing by his rules. So we really suffered in Q1 as far as our ability to promote our properties through craigslist as they change the rules.

But as far as all of the indicators, everything is up, and I have no reason to think that that won't continue through the leasing season.

This is Fred. One other point is that, yes, we have that confidence at this point in the cycle also, not only because of the traffic patterns David mentioned, but based on the demographics. But don't forget about supply. There's still very little supply the system this year, especially the first half of this year. So, again, that gives us confidence that this leasing season is going to be pretty favorable.

Okay. And David, last question from me on Archstone. Can you give us a sense of how much of senior management's time has been spent locked in rooms with bankers and lawyers? And how much of a -- I don't want to use the word distraction, because I guess that's probably not the right word -- but how much time has been committed over there?

Less than you think. A lot of people have worked a lot on this over the last nine months or so, to get us in a position to have made the original bid that we made back in the fourth quarter. But since that time, I'll tell you, it's just been myself and Mark Parrell and Bruce Strohm, our General Counsel. Just the guys that are really running the railroad day-to-day basis have not been distracted at all.

Do you see any real possibility at this point that you will wind up with the whole thing, or are you playing for a result realistically other than --

I can't comment on any of that.

Thank you.

(inaudible) Morgan Stanley.

I was wanting to touch upon the guidance. Specifically, you mentioned that -- I think your guidance for G&A is up by $2 million or so, and also the ATM issuance was a little bit higher. So I was just wondering, the FFO number seemed to be the same. Are there any one-time items that are not discussed in the guidance?

No. It's Mark Parrell. On the G&A side, it's just an estimate change on some comp expense when we put our guidance together. We do it earlier, then we're done with our comp process. So that's the reason for the change on G&A.

The delay in disposition activity has been the offset. So G&A is certainly up, and the addition of the shares to the fully diluted share count from the ATM issuance is also a reduction to our FFO number.

On the compensating side is we have less dilution from transaction activity because we are going to be selling assets later in the year than we thought. So, before, our assumption had been we more or less were selling $300 million (technical difficulty) of assets each quarter. And now we will sell, we think, about $300 million to $350 million in the totality of the first half of the year. And that difference is the offset, and that's why we are still really right at the midpoint.

Great. That's helpful. And then, David, there were all these news headlines about housing finally hitting the bottom. You mentioned that home buying move-outs through home purchases were up slightly. If you can just give us a bit more color on that, which markets are you specifically seeing that? And what are those numbers relative to (technical difficulty)?

Okay. This is Fred Tuomi again. I had mentioned home purchasing did tick up a little bit, but still well inside of historic norms and still not really an issue on most of our markets.

For the whole portfolio, Q1 of last year, home purchasing as a reason for move-out was 11.6%, a very low number. Q1 of this year it's 12.6%. So it's up one point, so up directionally, but still very, very small.

The markets with the least home-buying, and actually a reduction, a continued reduction of home-buying, Seattle was down almost a point. Denver is down. Orange County is down. San Francisco is down. Boston is down.

Those that did show an uptick, Maryland, where housing is fairly cheap and plentiful, it went up 470 basis points. Atlanta, as you would expect, where housing continues to go down the tubes, was up 380 basis points. Phoenix we did see an uptick of 310 basis points. San Diego, as I mentioned earlier, did tick up 240 basis points.

L.A. we saw some home buying, so it's showing some confidence there. Maybe that's a good thing. It's up 200 basis points.

And in South Florida, with a continued clearing of the condos there and some of the single-family, I think that market has definitely bottomed out. Prices are recovering strongly there, South Florida, as well as Phoenix. So that's why you see some people jumping in to buy there in South Florida.

That's great. Thanks. And just last week, I'm sorry if I missed this, but what are the renewals being sent out for June and July -- May and June, I guess?

Okay. Renewals, like I said, for the quarter averaged 6.6%. April we closed out at 6.9%. May we are quoting basically 9%, and expect to achieve 7% -- or low 7%'s. June we are quoting above the 8% range and expect to achieve in the mid to high 6%'s. In July we are quoting an 8% as well.

Thank you.

My apologies, we had a technical difficulty. Anyone that was queued up for questions, can you please re-queue at this time. (Operator Instructions). Connor Finnerty, Goldman Sachs.

Fred, can you provide a little more color on L.A.? You mentioned obviously job growth got revised up over the last year, or in 2012. But you also talked about price insensitivity. Can you bridge that disconnect there?

Yes. Job growth was revised up. We're saying now that we are going to get 50,000 jobs this year. That's the economists' prediction. I hope that's true. But so far, Q1 actually the local economic reports showed a job loss in L.A.

So it's really -- that's what I meant by the job growth is expected to be back-ended. You're still seeing some losses from the local, city, county, state government and from manufacturing and some defense areas there. But entertainment is up slightly.

The port, net-net, imports/exports is up about 1%. And some of the defense is now retooling and selling to foreign governments, etc., etc. So that's the expectation is some good growth coming second half of the year.

And if you remember, back the last couple of years, L.A. has kind of been fits and starts. It'll start getting some traction and then pause, and get some traction and then pause. Now it's on a steady upward swing, but I'd say the accelerator continues to go up and down.

So we push rents, we get some good results, and then it kind of stalls. So we actually -- we had rents up about 7% there for several weeks, and then demand kind of slowed. Occupancy dipped. So we had to bring the rents back into the 5% range.

So it's still -- I have confidence in L.A. I think it's going to be fine. It just doesn't have that consistent, strong, steady power curve of a recovery like we've seen earlier in the cycle in markets like Boston, San Francisco, New York.

Okay. Thanks. And then David, you mentioned the seasonality of acquisitions, but has Archstone impacted the pace of acquisitions for the year either, or is it just mainly the seasonality?

Well, I guess I'm not so sure it's sort of seasonal.

For available product?

Well, there's just not a lot of supply, not a lot of product. And we've sort of seen this for the past three or so years. Generally -- this is the beginning of the year, we've not seen much. And it has sort of picked up more towards the end of the year.

But that's something that's happened just over the last several years, and I wouldn't say it's -- seasonal would imply it's been for an extended time period.

I think if you were to look back at our acquisition activity over extended time period, it's been fairly ratable during the year. But it's just been over the last few years or so that it's been a little early on and we begin to see more as the year goes on.

Okay. And then just lastly on land sales -- or land acquisitions, excuse me, you guys have obviously been active on the land front in the last kind of eight quarters. Any change there in terms of pricing? Do you guys still expect weighted-average yields to be in that kind of 6.5%, 6% area going forward on land deals?

Yes. If you look at our pursuit log right now that the guys are working on across the country, I'd tell you yes, that it is high 5%, low 6% to maybe mid-6%'s is generally what we are looking at across the markets today.

Okay. Thanks.

Jana Galan, Bank of America Merrill Lynch.

I appreciate your earlier comments on the 4.4% average cap rate being kind of on the low end of your acquisition cap rate range. I was curious if these deals, do they have -- are they significantly below market, or is there more redevelopment or value-add opportunities outside of the Redwood, California acquisition?

Well, there's a little bit on the one deal in Redmond, Washington, where there is some vacant retail that we think we can turn into some residential units. But generally, it was only the deal on the peninsula that we think we'll see, year two, a significant increase in that cap rate through the work we'll do on the rehab.

And were their rents below the market?

On the Peninsula, I'd tell you that we thought the rents on the Peninsula were very much below. So, in addition to what we think we'll achieve because the rehab, there was an opportunity to bring those to market. But I tell you just in general, the other properties were probably more stabilized, and I don't think represent the same opportunity.

Thank you.

Andrew McCulloch, Green Street Advisors.

You guys are always in the market, I guess, on both the acquisition and disposition front. Can you talk a little bit about how the spike that -- spike in treasuries that we saw in March impacted the investment sales market? I know rates have since retreated, but did you see any disruption in the market in the form of either re-trades or deals falling apart?

Well, I guess that presumes that there were a lot of deals, and I don't know if there were a lot of deals.

I can tell you that just on the construction side, we've heard from more merchant-like developers that there continues to be equity out there, but the merchant builders are sort of fighting for it. There's not enough equity to fund all of the opportunities that are there.

How any -- how that change may have affected or change of treasuries may have affected what the preferences might be for that equity, I don't know. I think it's probably -- construction financing probably plays as big a role in that. And that continues to be fairly inexpensive, difficult to get, but relatively fairly inexpensive. So I don't think that -- it was as disruptive to that business as your question might imply.

I guess it was more geared towards how sensitive is the investment sales market or the acquisition market for lower-quality assets that you might be selling to a short-term move in treasuries?

Again I think it's more sensitive to -- okay, so how treasuries may impact Fannie and Freddie financing.

Right.

I would tell you, on the assets that we have been selling, it is very sensitive to that, which is why, as you know, we've been fairly aggressive on the disposition side, thinking that increases in interest rates will negatively impact the values of those assets we want to sell, as well as any change in the liquidity that Fannie and Freddie provide that space.

Now, in addition to just treasuries going up, though, it is -- all-in spreads do matter. And the agencies will, if necessary, will trim their spreads in order to offset that, if it's important to maintain their share.

Okay, thanks. And then just generally on asset value, can you talk about what movement you've seen so far this year across your major markets?

Well, I guess as I told you in the more prepared remarks, I think that cap rates have generally stayed fairly consistent, but we've seen bottom lines improve. And so I think you've seen values increase modestly.

Okay, great. And then just one quick question. On your JV domain development in San Jose, it looks like completion and stabilization dates got pushed out quite a bit.

Yes.

What's going on there?

Well, it was just time that it took to pull permits. I think San Jose is not unlike many municipalities, where they're a little understaffed. And it has just taken longer to get the permits pulled and get through that process than what we had hoped.

Great. Thanks a lot.

Michael Salinsky, RBC Capital Markets.

Just wanted to go back to the base rents. I think you said 6.5%, which I'm assuming is a blended number. Can you give us what new lease rates were in the first quarter? And not necessarily (technical difficulty) on a year-over-year, but on a lease over -- lease over expiring lease basis?

You mean the replacement rent?

Yes.

It was up 4.3% during the month of April. During the quarter, it was kind of ramping up from the 2%'s as we came into the year up to that number. So we are right now at 4.3%.

Okay, that's helpful. And then traffic during the quarter, I don't think there was any mention of that. Can you give us a sense in how that's trended in April as well?

April is up. E-leads are up. Our daily traffic to EA.com is up over last year. Things appear to be strong on all fronts. I think this is David Santee.

Okay, so it wasn't traffic. It was really just floating on price, then, is where the occupancy shortfall seemed to be --

(multiple speakers) right. I mean, as I said earlier, when you look at our move-outs and move-ins, our move-outs for Q1 were 10% more than Q1 of last year. Yet move-ins were up over 4% over last year. That's driven by more foot traffic, more phone calls, more applications, etc. So it was really on the back end.

Okay, that's helpful. David, a question on Archstone not pertaining to negotiations, but the $1.5 billion purchase price you are talking about now, when you announced the $1.235 billion purchase price, I think you said that was a 5.3% cap rate on in-place. Where does the $1.5 billion pencil to, on current cash flow, in terms of cap rate?

About a 5%.

About a 5%? Okay. And then finally, just a question on financing. Where are you seeing GSE rates today? And also, where could you guys do unsecured paper, 7 and 10 years?

It's Mark Parrell. And you said seven and ten; I'm more focused on the ten, but I have some color for you on the five as well. On the unsecured side, assume the treasury is at about a 2% rate. I think our spread would be about 2% and we'd issue around 4%, for ten-year unsecured paper.

On the secured side, the GSE's are probably for guys like us, and this would be an interest-only loan with favorable terms, given our scale, would be about 3.85%, so maybe 15 basis points or so better. That relationship reverses on five-year debt. The GSE's don't particularly care for five-year debt. And they would be more like 2.5% over the five-year treasury, which would be about 3.3%, where I think the public market is happy to do five-year debt. And they would be more like 2.7%, or about 180 basis points or so over the five-year treasury.

The GSEs, as David Neithercut said earlier, continue to be very active and continue to be very good sponsors of debt in the sector.

Great. That's all from me guys.

Alex Goldfarb, Sandler O'Neill.

Just going back to the whole occupancy versus rate, is there at some sort of occupancy floor where, if occupancies were continuing to fall, at some point you guys would say that's it, let's just cut rates, fill back up occupancy?

This is David Santee. First, I think we keep things in perspective. Occupancy was right on top of where we were last year. So, yes, there is a floor, but we didn't come close to that floor. I think it's more about our expectations for improved occupancy versus being flat on occupancy over last year.

Right, and I'd say that will really be a property by property sort of decision. We run these things not just property by property, but unit type by unit type. So, certainly, the answer to your question is yes, but it really would be on a property by property basis.

Okay, that's helpful. And on the Marina del Rey and the Redmond deal, if those were sort of market deals, sort of curious why you did them if you think the cap rate -- was this [1031] driven? Or is there something beyond where it's getting those properties in those areas helps you further down the road with something else?

I think you should -- it's a very good question, and you should interpret that as just kind of trading. We are trading out of Jacksonville. We are trading some assets in Orlando. We're trading some assets in Phoenix, and we're just trying to trade into other assets that we think will represent a better total return over an extended time period than what we would realize we were to stay in the assets that we are selling.

Okay. Then that makes sense. And then finally, David, on the Archstone, just hypothetical, if there were a deal for just some assets, do you have a preference for markets versus quality or age of asset or you're agnostic if it came down to that decision?

I'm not going to comment on any of that, Alex. I'm sorry.

Okay. Thank you.

Jeffrey Donnelly, Wells Fargo.

I guess David, how do you -- how are thinking about rent affordability from this point? I mean, that is the consumer's ability to digest incremental rent increases regardless of whether or not they have a housing alternative in ownership? I guess I'm wondering if you might think we're running out of room in the consumers' wallets at this point.

Well, we track rent as a percentage of income. And the numbers are still -- demonstrate that there is a significant amount of runway across all of our markets.

Do you feel, though, maybe on more of a disposable income basis or something that actually takes into account all the other pressures on consumers' wallets that maybe you have less runway than you think? Or do you still feel pretty confident about those markups?

Well, I guess we'd just say in perspective, relative to the past, the actual numbers kind of come down. As Fred and David had mentioned, that we are losing residents that are unwilling or unable to pay our higher rents, but having no problem attracting new residents who are willing to pay that rent. And those people that are willing to pay that rent have got incomes that support that rent significantly better than past residents.

That's helpful. And just one last question. Just considering that we are little further into the cycle and growth has been certainly good to date, how are you -- or are you changing your underwriting on future growth as it relates to acquisitions? How does that affect your going-in cap rates? Are you tweaking down your growth expectations for multifamily, or has it been really unchanged in the last few months?

We feel very good about the multifamily space in 2012 and beyond for all the reasons we've been talking about for the last several years. The supply and demand situation is very compelling; the single family home ownership situation is very compelling. The markets in which we are in, given the cost of single-family homeownership, is very compelling.

So we continue to feel very good about this space. As I mentioned in response to Alex's question, we are trading assets from one market, going into other markets. And we think that the trade makes a lot of sense for the long-term.

Okay. Thank you.

Philip Martin, Morningstar.

Just a quick question again following up on the move-outs. Can you give us some clarity as to profile the move-out? Are they more heavily weighted toward a certain age group or income profile?

I would say it's probably more weighted toward specific markets. So I think Fred mentioned earlier in San Francisco, 30% of our move-outs really for the last two to three quarters have been due to price or too expensive. So when you see 30% for three quarters, that pretty much covers all profiles and demographics.

And I think we've seen that for the last two quarters in Boston as well, 20%. So it's more -- it's probably more of a lifestyle preference. And we just see it across all demographics.

Is it fair to say -- it sounds like the rent to income profile is being maintained, if not improving a bit. So are you seeing -- is it fair to say that we are seeing more of a want-to renter as opposed to a need-to renter?

Yes. When I look at our credit statistics, we have a credit model. And for the last two years, the number of people that are auto approved, meaning we received their social security number, we run their credit and they are instantly approved, that number has been increasing. For Q1 it was the highest it's ever been.

We look at the distribution of our FICO scores across all of our properties, the percentage of FICO scores above a 720 are the highest it's ever been. Again, this is partly due to the profile -- or I'm sorry, the property repositioning. But I think that's what we're after.

Okay, okay. Thank you for that. Now, on the acquisition, I know there weren't too many here in the first quarter. Was it $150 million, $159 million? I missed that number.

Yes, $159 million. And all of that is laid out in our press release.

Exactly, okay. So the $159 million, you mentioned that on one of the acquisitions you were looking to spend $10,000 per unit. Is that a fair assumption across the entire $159 million?

No. $10,000 a door is what we budgeted to rehab 123 units that we acquired in Redwood City, California.

Exactly. Now, looking across its portfolio, what is the CapEx per door?

It's Mark Parrell. If you turn to the release and go to page 21, there's some pretty detailed disclosure on CapEx, both for the same-store property set, where we've given guidance of about $1225 a unit for 2012. That is inclusive -- these are same-store, so these are stabilized assets.

On acquisitions, there's a different number. And those are under the non-same-store property set. So you do have some visibility into those numbers as you go through the release.

Okay. And then just the existing portfolio, when you look going forward, can you give us some sense of just the organic growth potential that you have in your existing portfolio from a redevelopment, value-add, just looking out a bit?

Well, we continue to rehab -- probably spend $40 million to $50 million a year on rehab of properties out there. So that's 5000 or so units a year. We think there will continue to be some opportunity there.

And again, we just think that the fundamentals of the business are such that we are going to have some pretty strong organic growth just through the ability to raise the top line just in our existing portfolio. So again, we think there's a lot of opportunity for the foreseeable future on the topline of our portfolio.

Okay. Thank you.

Tayo Okusanya, Jefferies.

Just a quick question in regards to the tenant surveys that you do. Just trying to get a sense, apart from moving out because of higher rent, if there's any real change in regards to the key reason tenants are moving out?

Just changes on the reasons people are giving us for moving out?

Yes, is there any big change trend-wise?

Well, the overarching trends kind of remain the same. Of course they change from historical patterns. The number one reason has always been job transfer, job change. Historically, the number two reason was always buying home, and then rent increase, too expensive was number four or number five on the list.

Now, depending on which market you look at, today in some markets home-buying is number two, a place maybe like a Phoenix, but yet rent increase too expensive could be number three. In markets where we see tremendous rent growth, places like Denver, places like Boston, San Francisco, certainly without a doubt the number two reason for moving out is rent increase, too expensive.

In every quarter, we pull the aggregate verbatim results. You mentioned our surveys -- we look at the verbatim remarks that all of our residents moving out make. And it's definitely -- the rent increases are definitely a key driver in their decision.

Yes, this is Fred. I would add to that, that that's a natural thing to expect and to observe at this point in the cycle, because during the recession when rents were going down 5%, 10%, 15%, 20% in some cases, not everyone lost their job. And those people with steady income enjoyed an increase in their housing value by being able to afford a nicer apartment, better location, better building at a lower rent.

So they actually -- basically we had the profile shift up. They were the beneficiaries. Now that rents are pretty much back or above peaks -- levels at some of these key markets, and now we've had a couple of years of very strong rent increases, those people who traded up now are going to choose to trade back down. They are not going to be able to either afford or want to afford those rent levels.

But the good news, as we mentioned earlier, is there's plenty of people behind them who are willing to fill those apartments, especially during the leasing season. So when we look at the marginal resident coming in, all of the credit and income statistics are very favorable and encouraging. And those moving out, we have the special case of the corporates, whose margins get squeezed, and then we have the case of those people who traded up who are now trading out.

Then one other just anecdotal comment, we looked at our transfers. Early on in the recession, when things were really going down, we analyzed our transfers within our system, and people were transferring out of expensive apartments and into cheaper apartments in the same building. And what's happening now is our transfers; we looked at those, more people actually transferred to larger, more expensive apartments within our buildings versus the contrary. That's another indicator that our resident base is healthy.

That's an important thing to point out, as well. Friend mentioned that our turnover was up 100 basis points. And 20 basis points of that stays within the family of Equity communities. Either they're moving from one apartment to another, or they are moving from a community in New York City to a community in L.A. We track all of that.

Nick Yulico, Macquarie.

Just quickly on the acquisition guidance, if we are to assume that you do get Archstone, would you then also have the desire to do $1 billion on top of that, of acquisitions, so you can actually be a significant net acquirer this year?

The guidance that we've given in press releases has nothing to do with Archstone. If something were to happen to Archstone, I'm not quite sure what would happen to the normal transaction activity.

Okay. I guess assuming that, at some point if you did become, say, a net acquirer of say over $1 billion, how should we think about how you guys might finance that? Do you have sort of a target? What's your sort of target leverage level that you want to keep the Company at these days?

Well, we have not suggested at all -- our guidance has suggested we have no intention of being a net acquirer this year. And in fact, we'll acquire -- we will sell whatever we need to sell to match the acquisitions.

And we are comfortable with our leverage levels. They are well within the ranges that we've been operating for the last 19 years. And sometimes we've been up within that range, sometimes down in that range, and we're very comfortable with where we are today.

Eric Wolfe, Citigroup.

It's Michael Bilerman. David, just wanted to come back just in terms of the Archstone cap rate. And I don't like to split hairs, but you talked about a 5.3%. And then you said it went down to a 5%, at the $1.5 billion implied equity. I get something closer to 5.10%, and 10 basis points, depending on how much you acquire, if you acquire, it could be a lot. So I just didn't know if there was something I was missing in that math.

No, Michael. We are just talking generalities here.

I know, but 10 basis points on $18 billion potentially could be a lot, depending if you're at a 5%, 5.3% or a 5.10%.

You're speculating a great deal. Should we be able to work something out, we'll be delighted to give you the specifics at that time.

And just to make sure I remember correctly, when you guys originally bid the $1.33 billion, implied a $5 billion equity value -- sorry, $5 billion equity value. Now at $1.5 billion, you're at a [$5.7 billion] equity value. I think I remember Lehman -- was at that point where they said they thought it was worth at least a $6 billion equity, and then another $1 billion enterprise value for the platform. Was that sort of general, how things had gone?

Is that what Lehman said, is that the question? I do believe Lehman said -- has publicly stated something along those lines, yes.

Okay. Thank you.

And there are no further questions at this time, so I will turn it back to management. You may continue.

Great. Thank you all for your time today. We appreciate it, and we'll see you around.

And ladies and gentlemen, that does conclude your call for today. Thank you for your participation. You may now disconnect.