住宅地產 (EQR) 2014 Q1 法說會逐字稿

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

(Operator Instructions)

This conference is being recorded today May 1, 2014.

I would now like to turn the conference over to Mr. Marty McKenna, please go ahead.

Thanks, Camile.

Good morning, and thank you for joining us to discuss Equity Residential's first-quarter results. Our featured speakers today are David Neithercut, our President and CEO, and David Santee, our Chief Operating Officer. Mark Parrell, our CFO, is 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 laws. These forward-looking statements are subject to certain economic risks and uncertainties. We are under no obligation to update or supplement these statements that become untrue because of subsequent events.

And now I will turn it over to David Neithercut.

Thank you, Marty. Good morning, everyone. Thanks for joining us.

We are extremely pleased to have delivered normalized FFO for the first quarter of $0.71 per share, and that's an amount that's near the high end of our previously provided guidance range, and one the represents an increase of nearly 11% over the first quarter of last year.

For the first quarter 2014, our same-store revenue, which includes nearly 18,500 Archstone units, grew 4% over the first quarter of last year, which was slightly better than our original expectations. And it is no surprise that San Francisco, Denver and Seattle continued to lead the way, with Washington DC bringing up the rear by a very wide margin.

Fundamentals in the business remained favorable. David Santee will go into more specific market level detail in just a moment, but from a portfolio wide perspective, current occupancy is 95.9%. And through the first four months of the year, we have achieved average renewal increases in excess of 5%, a level we expect to achieve in the coming months, as well. So we are confident that we are well-positioned as we approach our primary leasing season and I can assure you that our teams across the country are eager and very well prepared to maximize revenue during this very important time of the year.

Now I will turn the call over to David who will take you through what we are seeing across our specific markets today, and how things are setting up for the summer leasing season.

Thank you, David, and good morning everyone.

Today I will round out our Q1 performance results with a brief recap of our key drivers of revenue growth, provide some color on our expenses and how that plays out for the balance of the year, and then give you current pricing, renewal rates for April and May, coupled with some brief commentary across the core markets.

In addition to the renewal and occupancy results David gave you in his opening remarks, turnover for the quarter continued its decline with an 80 basis point reduction from Q1 2013, translating into a 300 basis point decline on a year-to-date annualized basis. While managing lease expirations is a never-ending but critical process, the percentage of residents electing to renew with us is at the highest level we have seen in the seven years we have been tracking this metric.

Also fueling the lower turnover is less homebuying. Move outs for home purchases decreased 30 basis points to 11.9% of move outs. But more telling is absolute number of residents buying homes declining in 9 out of 10 of our core markets. The lowest we have seen in the last five quarters. Net effective new lease base rents for the quarter averaged about 3% through March, and have averaged slightly above 4.5% April over April. While a much stronger start to the leasing season than last year, improving rates are simply reacting to the normal season patterns that occur every year.

Also contributing to our favorable revenue growth for the quarter is the ancillary income growth in the Archstone portfolio. Plugging these assets into our platform allows us the visibility to fully realize the benefits of our centralized and subject matter expert approach to day-to-day property management activities. Simple things like late charges, which were up 50%, pet rent up 250%, transfer fees up 220%, all add up to being very accretive to our total income growth. As we say internally, the next big thing at Equity Residential is doing many small things extremely well if not perfect.

As we look out over the next 90 days our exposure is dead on to same week a year ago. Renewal offers have been issued above 7% through July and achieved renewal results for April and May are on the books at 5.3%, with net effective new lease rents approaching 5% year-over-year. With all of these indicators flashing green, we remain extremely optimistic but mindful of the magnitude of new deliveries across all of our markets, and that the full-year revenue growth targets are achieved over the next 90 days.

Expenses for the quarter came in on the high end of our expectations due to utilities and real estate taxes. As we have discussed previously, real estate taxes, payroll and utilities make up 68% of total operating costs. So by now it's no surprise that utility costs had a significant impact across all types of businesses as a result of the extreme temperatures. More telling are the significant price spikes that occurred in the deregulated electricity markets in the northeast, with unprecedented increases of 300% to 400% across all of the regional pricing indexes.

Consumption of energy in the EQR portfolio was up a modest 5% to 7% as we continue to aggressively invest in LED lighting, solar and cogeneration opportunities that provide outstanding rates of return on investment. More recently, with global forces having tremendous influence on energy costs here at home, vigilance will be necessary to keep these costs in check going forward. Additionally, since our initial guidance in February, we have revised real estate taxes upward to 6.2% from 5.2% for the full-year as a result of Washington DC valuations increasing more than expected, and higher-than-expected taxes in King County, Seattle Washington.

Now mitigating these costs are the operational efficiencies realized through the addition of the Archstone portfolios to full-year same-store. Comparing Q1 2014 costs on the EQR platform versus Q1 2013 costs on the Archstone platform, allowed us to reduce total costs in leasing and advertising, which were down 23%, turnover costs down 19%, property management costs down 2.3%, and most importantly, making up 20% of our total expense, on-site payroll, which was down 4%. So excluding real estate taxes and utilities, our controllable operating expenses declined 2.1% for the quarter.

While we expect these expense levels on the Archstone portfolio to continue to offset legacy portfolio growth rates, the impact will diminish over the course of the year, primarily in the next two quarters. Archstone payroll, as an example, was not fully optimized until mid Q3 of 2013. For modeling purposes, we would not expect any material expense mitigation beyond Q3, and the mitigation in Q2 to be less favorable than Q1.

Moving onto the markets. I will provide you with our occupancy today, April and May achieve renewal rates, and then net effective new lease based rents four weeks out. For California, I'll only quote April renewals, as these are 30-day markets and May has yet to firm. As David said, we continue to maintain our three buckets of performance across the portfolio. In our top performing buckets we have San Francisco, Denver and Seattle, with expected full-year revenue growth well above 5.5%. The bottom bucket remains Washington DC, down 1%, and all other markets making up the middle bucket with expected full-year revenue growth of 3.5% to 5%.

Seattle continues to be a great job producer and systematically absorbed the expected 7,500 deliveries without material disruption to the market. With occupancy at 96% and exposure on top of same week last year, renewal rates achieved for April and May are gaining momentum at 8.3% and 9% respectively. Net effective base rents 30 days out, are up 6% to 7% versus same period last year, with impressive strength in the CBD and Belltown Queen Anne submarkets.

San Francisco continues to be our top market for yet another year with the Peninsula and South Bay leading the way in year-over-year revenue growth. While north San Jose continues to absorb units at a reasonable pace. After a slow start to the year, occupancy is now 96.3%, and renewal rates achieved remain strong at 8.8% for April with net effective base rents up 8% to 9%.

Denver, despite delivering almost 10,000 units this year, remains resilient with a bustling energy and tech driven economy and is producing some of the best job growth numbers in percentage terms in the nation. With concentrated deliveries in the urban core, and our portfolio concentrated in the south and southwest, we would expect another banner year from Denver with occupancy today at 96.6%.

Renewal rates achieved remain very solid at 8.3 % and 8.5%, with net effective base rents above 7%. So jumping down to Los Angeles, results thus far, while solid, unfortunately do not paint the picture of the breakout year that many had hoped. LA continues its slow and steady improvement in fundamentals with occupancy at 95.4%. Although employment remains stubbornly high at 8.7%. Nevertheless, renewals achieved are solid for April at 6.1%. Net effective base rents are up 5.8%, again this was versus same week last year, and were poised to have a good run over the next three months based on our historical seasonal pattern.

Orange County, after dealing with a constant stream of elevated concessions in Q1, primarily from the overhang of delayed deliveries, has now returned to good health. Occupancy today is 95.9% and achieved renewal rates improved to 4.9%, with net effective base rents up 6%. Our Outlook for Orange County is a bit brighter than that of LA.

San Diego, good news, the ship is still in with occupancy strong at 96.7%. Renewal growth rates are some of the highest we have seen in years at 5.2% for April. Net effective base rents are steady, up 6% over same week last year. With 5,000 new units sprinkled throughout the market, we would expect smooth sailing through the balance of the year.

Jumping over to Boston, the urban core deliveries have arrived and are in full lease up mode. Across the street and down the block we continue to see favorable demand in our downtown submarket and steady absorption of quality assets, with only modest price negotiations on renewals at 96.8% occupancy, and renewals achieved having remained solid at 4.1% and 4.3%. Net effective base rents remain strong, up 4.5% versus same week last year.

Now, New York fared better with occupancy in the quarter. However, the pause button remained in the on position relative to net effective base rent growth, which remained at or below 2% for much of the quarter. Job growth remains solid, but many are on the low end of the pay scale, with fewer in the higher-paying financial services sector. Today the portfolio is 96% occupied, with achieved renewal rates of 4.7% for both April and May. Net effective base rents are up 4% versus same week last year, so the next two months should set the table for full-year revenue growth.

Jumping down to south Florida, and saving Washington for last, south Florida remains a steady performer with occupancy at 95.8%. About the same position they were last year. Achieved renewals of 5.7%, 5.8%, for April and May are very strong, with net effective base rents well above 6%. Given our diversified three county portfolio, we would not expect, nor are we seeing, any impact from the expected 7,200 new deliveries this year on top of the 6,000 units delivered and 2013.

And last but not least, is Washington DC. Occupancy pressures are starting to mount as our portfolio occupancy sits at 95% today, roughly 30 to 40 basis points less, versus year to date last year. Looking at our dashboard, there still appears to be a healthy level of demand across the MSA. Net effective base rents continue to fluctuate between flat and minus 2%, as the various submarkets react to the deliveries.

Achieved renewal rates are still holding at 2.6% and 3.3% for April and May. And our experienced during the last downturn leads us to believe we can continue to mitigate the effective lowered new lease rents with more favorable positive renewal growth.

Jobs will continue to be the governor on how this all plays out through 2016. Today though, interestingly, aside from PG County Maryland, the District and the Rosslyn Boston submarkets are performing the best, making up 41% of our portfolio. Both have the least negative year-to-date revenue decline with current month revenue growth improving versus Alexandria and south Arlington submarkets which are further out and declining, a potential signal that many are taking advantage of moving closer in while rental rates become more attractive.

So all in all, everything appears to be on track as we enter the peak leasing season. Seattle takes first place for the unexpected upside surprise, while New York City brings us back to even. We know there are major delivery hurdles out there, but to date, the markets are absorbing these units with little dislocation or concessions. We have our platform tuned up. We have some of the best and brightest in our industry, across many disciplines, and we are all anxious to deliver our 2014 goals.

Terrific. Thank you, David.

Just a little bit now on transaction and development before we open the call for questions. For the first time in nearly a year, we acquired a one-off asset in the first-quarter 2014 in Los Angeles, where we bought a 430 unit project built in 2008 near LAX. The deals was acquired for $143 million at a cap rate of 4.9%.

You will recall that we exceeded our original disposition guidance in 2013, when we opportunistically sold a 1,400 unit asset in San Diego late in the year for $366 million, and a cap rate in the mid 5%s. Now, in addition to lower annual sales volumes going forward, that sale and this acquisition are examples of the type of transaction activity you should expect from us. The sale of older surface park properties in our core markets, but more suburban in nature, with proceeds reinvested in higher density, more urban assets, at a much narrower cap rate spread than experienced in recent years. In this case, about 70 basis points.

The development team continues to be extremely busy with an elevated level of activity thanks to our legacy land inventory in the Archstone land sites that we acquired in 2013. During the first quarter of this year, we completed construction on five projects, 1,290 units, with a total of development cost of $370 million, and we expect to achieve yields from 6% to 7% on current market rents inclusive of management costs on those transactions. During the first quarter we also started three new projects. 1,145 units and a total project cost of $614 million, and we project yields of mid-4% to mid-5% on current market rents on both starts.

So with the starts in the first quarter, that leads us today with nine land sites in inventory that we expect to develop soon, representing a pipeline of just over 2,500 units in terrific urban locations in our core markets, with a development cost of approximately $1.1 billion. And of this current inventory, we expect to begin construction on several hundred million more yet this year, with the balance to begin in 2015.

And with that, Camile, we will be happy to open the call for questions.

Thank you Sir.

(Operator instructions)

David Toti, Cantor.

Good morning, guys. I just have two questions. First stepping back in terms of operations. The quarter saw slightly higher occupancy and lower turn, which to me seems a little bit counterintuitive in this part of the cycle. Is that characteristic of your first-quarter dynamics, in your opinion? Or was that intentional somewhat defensive?

I think we are managing lease expirations. We're being very intentional in trying to mitigate the volatility that we see in Q4 and Q1. So like I said, one of the biggest benefits is just significantly fewer homebuyers. And then just a tendency for people to stay put.

And do you find this, in general, kind of surprising at this point in the cycle?

No. I don't find the homebuying surprising. We saw turnover drop pretty dramatically in Q4, and we had hoped that would continue through Q1 and it did.

Okay that's helpful. And then my other question just has to do with the acquisition, the $143 million. Can you give us maybe some detail on the underwriting that made that price attractive in terms of your expectations for occupancy perhaps, or rent growth, or is there material synergies in terms of operating savings? What is the driver of that being a good fit at a 4.9% cap?

Well, I guess we identified this asset at a higher density kind of urban location. We think we bought at a favorable price. I'm not sure the deal was heavily marketed. And we're able to just plug it into our platform there in LA and run it very efficiently. As I say, we bought it at about a 4.9% cap. We think that year two could be in the mid-5%s. And it's just a nice complement to our existing portfolio.

Do you think it will top out in the mid-5%s, or do see more upside in a two or three-year window?

Well, I don't think rents are going flat, if that's the question. David commented about LA. We think Southern California is beginning to show improvement and we think it will be a very solid long-term deal. And it will be very strong high single-digit IRR for us.

Okay. That's it for me. Thank you.

You're very welcome.

Nick Joseph, Citigroup.

Great, thanks. Recognizing that Archstone is now in the same-store portfolio, but could you give a break down of how same-store revenue growth differed between the EQR legacy portfolio and the Archstone portfolio?

So, I think the best way to say this is that the Archstone portfolio is performing as we expected relative to our underwriting in the various submarkets. So head-to-head, when we have a couple of Archstone properties in Chelsea and we have our legacy properties in Chelsea, those properties perform very similar. When you start looking at market dynamics, there are anomalies that kind of create some differences. But we know what those are. So head-to-head, they perform as expected and very similar.

Thanks. And then you quote the 5% average renewal increase. How does that compare to where the renewals were actually sent out?

So, historically, our spread has always been in the neighborhood of 180 to 200 basis points. And that is where it stands today. Some markets are a little tighter, but rarely do markets exceed 200 basis points.

David, it's Michael Bilerman. I just had a quick question. In your opening comments you talked about transfer fees being up something like 200% and you talked about the retention and that people are staying in place; it was the highest rate in seven years. And I'm curious when you step back from that, how much of it do you think is just the new EQR portfolio that more people like the places that you offer?

How much of it is the services and the customer things that you are doing? How much of it is maybe not charging high enough rents to the tenants? And how much of it maybe was just weather-related, where no one wanted to move and were willing to pay whatever it was to not schlep their stuff around.

Well, gosh there's a lot of questions there. Let me deal with revenue first. I think if you remember a few years back, we set up this business group and we have taken a lot of -- if you want to call it authority, or some of the decision-making. At the property level, we have simply automated a lot of that, so no longer do we leave it up to property managers to charge late fees or settlement fees or all of these fees. And additional charges are built into our platform and automatically bill.

And then, if they want to wave that, then there is a process and the support group that helps them with that, but when we set this up on our legacy portfolio, I think three or four years ago, we saw the same thing. 50%, 60% increases in late fees. It's just we are seeing the same thing that happens with legacy portfolio when we implemented those types of activities on these ancillary income items. What was your next question?

Well, I'm just trying to figure out -- you said there was higher transfer fees that you got, or as people transferred from the Equity Res portfolio, and there was a much higher retention rate of people staying and renewing. I think you said it was the highest in seven years, and I just wanted to try to figure out is, is that a sign of the portfolio that you have? Or is it a sign that maybe you are not pushing rents enough? Or was it just happening in the first quarter where a lot of people just didn't want to move, and were willing to accept whatever rent they got? I was just trying to put those two things together.

Yes, I guess I would say it's probably a bit of all of that. But I would tell you that -- let's talk about the renewals. The percent of residents renewing. We see that across almost all of our markets. It's not just an Archstone-related thing or a new portfolio. Seattle we added three Archstone properties. Virtually zero impact on our overall stats.

So I think there was some of that. On the other side of lower turnover, in raw terms, it was about 700 move outs for the quarter. Consequently, we had 700 less move ins than we had last year. So it becomes a little murky because when you get up to 96% occupancy, you start having availability issues. But could the weather have played a role in that? Certainly it could have, but I don't know how we would measure that.

Michael, it's David Neithercut. Just to make one clarification here. The increase in the fees really came from the Archstone portfolio. Or a lot of it. In which we collected more in the first quarter under our ownership than they had collected in the first quarter under their ownership. So, I just want to make sure that it is clear that these -- we're not going to increase fees across the board, but rather significant increase in those collected as a result of plugging their assets onto our platform.

That's helpful. Thank you.

You bet.

Dave Bragg, Green Street Advisors.

David Santee, at the beginning of the year, or on the fourth quarter call, you laid out your revenue growth guidance and you pinned it with your assumptions for base rent growth, renewal rent growth and occupancy. And through the first four months of the year, it appears as though you are tracking well ahead on all three of those metrics. Are we correct in that interpretation? And is that steering you towards the top half of your growth guidance for the year?

I feel good that we would be in the top half of the guidance. Just as I would expenses.

Okay, that's helpful. Thank you.

Another question relates to your March investor presentation and I think you talked about this on the fourth quarter call as well. Equity Residential has put out a view that apartment completions in your core markets will be significantly lower in 2015 then 2014. And you must have a very sophisticated way of looking at this, but we are looking at permits and all of your key markets and on a year-over-year basis, in nearly ever market, permits are up still pretty significantly and that would translate into starts a year from now -- I'm sorry, into completions a year from now. So, can you talk about the process that gets you to this much lower level of completions next year versus 2014?

Well, that process is the result of the investment professionals and the management professionals that we have got in each one of these core markets that really do bird-dog this process extensively, and are aware very specifically of the sites and the activity and what is expected. So not simply what is being -- permits being pulled, but they have a very good sense as to the real activity that they expect to see happen.

So that creates our view of our expectations that deliveries should be down. And also, as we look at -- again what is happening on the demand side, and the continued expectation for household formations in these markets, gives us the view that things will be back in balance as early as next year.

And then also, Dave, we're talking about deliveries of appartments. And the permit numbers are generally anything 5-plus units. That could include college dorms. It could include senior housing. It could include any type of dwelling that would house five or plus more units.

But like David said, we use our BI platform. We update it every quarter. We recently made a 1,500 unit adjustment to deliveries in DC next year. So, I don't know that there is a one-to-one correlation on permits versus deliveries in 2015.

Okay, that's helpful. And just on that point, are you increasingly hearing from your staff on the ground that planned projects are getting shelved?

Well, I guess I'm not the sure that I'm hearing that specifically as this process that we went through recently in preparation for this call led us to really no changes from the last time we went through that process.

Okay thank you.

You're very welcome.

Nick Yulico, UBS.

Hello, it's Ross Nussbaum here with Nick. I have got two top down industry questions for you. The first relates to the bill that is making its way through the Senate Banking Committee that would, I guess, preserve the liquidity that Fannie and Freddie are providing to the multifamily housing business. And curious what your take on that is and the success of that actually moving through the pipe.

I guess I'll let the Vice Chair of the NMAC finance committee answer that question.

I don't think that comes with any compensation. (laughter) To answer the question, Ross, we think that bill is very favorable. This is the bill that is now being considered by the Banking Committee, the multifamily. We think it preserves many of the best aspects of the existing system and will provide a great deal of liquidity in good times and bad to the sector.

In terms of probabilities, what we are sort of hearing is that it's increasingly less likely that anything will happen this next month or so. And if that's the case, with the election in a lot of respects right around the corner, that means nothing will happen in this Congress and it will all be deferred. So our best guess is that nothing will occur, but certainly that is subject to change. And they are working on the markup, as we understand it, right now. So certainly subject to change.

Okay, appreciate that. Second question on the homeownership rate. I'm sure you knew that Sam was speaking earlier this week and talked about the rate, which is at 64.8% now, potentially going down to 55%, which is a pretty bold statement. And I'm curious if you all are in full agreement with your Chairman's view on the homeownership rate and the direction of it.

Well, I'll just say that Sam is making more, sort of, points, than making very specific declarations about levels. He believes that there is no reason why the homeownership rate needs to stay back at this historical level of 64%, as a result of just sort of changing demographics and preferences and delayed marriage et cetera, et cetera.

Now, whether it is 55% or not, you're absolutely right, that is a very bold statement and I think he's trying to be provocative. But he certainly is trying to make a point about that at least for this demographic that rents a significant percentage of our apartments, they are staying with us longer and we expect them to be in the rental housing occupants much later as they do delay marriage, as they enjoy the lifestyle we provide in these high density urban markets.

Yes, I think Nick had a question.

Yes, just on New York City, I'm wondering if you have at all explored a sale of one asset or more assets to test the condo conversion bid for your portfolio.

We like our assets in New York. I think we're very well positioned, and we're certainly keeping an eye on what is happening there and who knows what it might provoke us to do. But we have not done anything at this time.

Okay, and then I guess just the one on New York is the development right that you added. Can you just remind us where is that parcel?

Well, it is by the Lincoln Tunnel, and those rights were against an easement and there was a subdivision of a neighboring parcel, which gave us some more rights. But that's a properly we own near the Lincoln Tunnel.

Okay, and how soon would that be a start that would be possible?

It will be some time before that's a start. That is not one of the transactions that is included in our expectations for 2014 and 2015.

Okay, thanks.

Ryan Bennett, Zelman and Associates.

Good morning, thank you for taking the questions. Most of my questions have been answered, but just one point of clarification on the quarter. David Santee, I think you mentioned utilities being up significantly year-over-year. Just in terms of the impact on your revenue, given your recoveries on utilities, was there a material impact this quarter and how that compared to the first quarter of last year?

Hello. It is Mark Parrell. Just answering the question. So just a little bit of context on utilities for us and the RUBS income, which is the sort of contra to that, which is a number in our revenue. 75% of the RUBS income we have is water, sewer and trash, which does have energy related components, but it's not a direct item that's hit by an energy cost change.

So what we did, as David Santee mentioned, when we plugged all these new acquisition properties into our system, was also to plug it into our RUBS system. So sequentially, the 0.5% revenue increase we reported was unchanged of RUBS. So, if you had taken RUBS out, you still would have had 0.5%. Quarter over quarter it was a 19 basis point improvement, so benefit to our numbers. And, again, that's because of this, I think, permanent plugging in of these acquisition assets into our system and better utilization of it, and better acceptance by residents of these charges being part of their responsibility.

Great. Thanks, Mark.

You're welcome.

Jana Galan, Bank of America.

Thank you. Good morning. Just a quick question on Boston.

It seems that you benefited 100 Just a quick question on Boston. It's and you benefited 120 basis points year over year from nonresidential related income. Is that the ancillary income you spoke about earlier, and will you continue to see that benefit for the remainder of the year?

It's Mark Parrell.

That's really the garage. We have a garage near the Boston Garden, and depending on the ups and downs of the Boston sports teams and also we did some substantial rehab at that garage that closed it down in part during 2013. So this benefit will exist in Q1 and Q2 and it will get smaller through the year. And we did reference by footnote in our 2013 statements, Jana, the impact of the glide being down and we are now just trying to be consistent by showing you exactly what the positive benefit was of the garage and bringing it back online.

Great, thank you.

Mike Alexander Goldfarb, Sandler O'Neill.

Good morning. Just some quick questions here.

David Santee, I think in your opening comments about New York where you said the pause was still on, you commented about lack of financial service growth. Just curious, any of us looking around the street can see that -- I don't think -- unless you are compliant, Wall Street is really not hiring. Do you feel that your mix in New York requires financial service, or the growth in the TAMI industries are enough -- those income levels are enough to pay the rents at your portfolio here in the city?

Well, when we look at our resident makeup, we still have 51% of our New York units occupied by one person. So that goes to more unit makeup so to speak. Also, what really doesn't get talked about much is just the level of new development, and there has been a lot -- quite a bit of new development in New York City, all at the very high end of the range.

So I think with just the lack of growth in the higher paying jobs, you have significant deliveries in the luxury class AAA apartment market. You have other neighborhoods like Brooklyn, Williamsburg that were at one time in the past year deemed more affordable. Now those rates are approaching New York type rates. I think there has just been this movement around that has kind of put a temporary ceiling on rents. I hope that answers your question.

So are you seeing -- are your folks -- when the applicants come in, the people from the ad agencies and social media and all of the growth industries, are your leasing people seeing comparable income levels that support where the rent is in your portfolio right now? Or do think that it may cause a shift in how you allocate capital in the city going forward?

Well, if people are renting these units, they're obviously qualifying with their income.

And I think it's more when you just look at the different neighborhoods in town, I think that is very telling to some degree. The upper west side has been a little soft for us. But Williamsburg, Brooklyn, those are doing plus 8%, 9% revenue growth.

But even in Midtown, upper west side, we have all different types of quality and price points available with our Parc Cameron, Parc Coliseum assets. You have Trump. You have 101 West. All of those assets have various price points that could really fit, or meet the needs of any wage earner, I think.

Okay great. And then the second question is on the acquisition disposition guidance, you maintained it, but it definitely seems like the disposition market is heated up a lot, whereas the acquisition market is a lot tougher. So your view is, obviously you maintained it, so your view is that you can still keep it. But it would almost seem like we could see you end up being net sellers this year, just as the acquisition market is very competitive.

Is that a fair view, or are you comfortable that there are enough off market deals or what have you that there are still some attractive acquisition opportunities?

I guess that remains to be seen. I will tell you that we are beginning to see a reasonable increase in potential activity on the acquisition side. I will tell you that that seems to be very aggressively priced, so it remains to be seen what activity we'll have in pursuit of some of those opportunities. But the disposition activity will be a function of the kind of reinvestment opportunities that we find.

So it's hard for me to answer that question, Alex, except to tell you that we are seeing potentially more assets being offered in the marketplace that we would be happy to own. It's just a question of whether or not pricing make sense for us relative to the dispositions that we would incur in order to fund that.

Okay, so bottom line is you would not want to sell more and just take advantage of the current strong bid for assets? You want to do really matched transactions?

That's correct. As we have discussed on multiple calls now really, our acquisition activity will be funded by the disposition activity and following the $4 billion-plus of products that we sold last year, we are not in any hurry and no immediate need to sell anything. It would just be a function of the reinvestment opportunity.

Thank you.

You're very welcome.

Vincent Chao, Deutsche Bank.

Good morning everyone. Just come back to the housing market commentary.

We continue to see a slowdown in the overall housing market and just curious in terms of your outlook, what level of deceleration was anticipated in the overall housing market? And if it continues to slow, does that add incremental potential upside for you guys?

Well, I guess I'll tell you that our expectations or are planning our budgeting for any one given year does not start with a big macro view on single-family housing. It's really just looking at each individual asset and each individual submarket and what we think is going on in that market.

So the fact that fewer people are moving out of our apartments to buy single-family homes really does not surprise us much. Nearly 50% of our units are occupied by a single individual. We just don't have in our properties the most common demographic that would be buying single-family homes: that of two adults and a child.

That represents about 9% of our units. So, what is really going on in the greater housing market -- and I'll also tell you -- what is going on in the housing market in Atlanta and Phoenix and Las Vegas doesn't really concern us. So as we look at the individual markets in which we have been concentrated and we have been focused, we are not terribly surprised to see the numbers that we are seeing.

Okay, thank you.

Michael Salinsky, RBC Capital Markets.

Good afternoon, guys. Just to go back to a couple of questions on dispositions, just to Alex's questions. How much is actually being marketed right now, and is it more dependent upon the opportunities coming in? I mean, is there a portfolio that you're marketing that you are just waiting to pull a trigger on right now? Or how should we look at that? Think about that?

Well, I guess I'm not quite sure why it matters, Mike. I mean we do have identified the assets that we would sell. And so, in order to make those ready to go, we have got brokers opinions of values. We are prepared.

But in terms of actively marketing, there is not a great deal -- we don't have a large number of assets to be actively marketed out, but we know which ones they would be, and we would be able to get them to the market very quickly if we felt like we needed to our wanted to.

But there's no tax situation or anything like that that would preclude you from having to do a 1031 or anything like that? You could sell more if the opportunity arises?

No. The level of activity we would expect to do we could be doing without concerns of 1031.

Okay, that's more of what I was getting at. Mark, what is debt pricing right now? Is it still a bond offering dollar in the midpoint of the year?

Yes. So we really put that both in February and now the bond offering in the third quarter. Just for the purposes of your modeling. And we have something like a 4% rate on that. I think we would do better in the 10-year market by 20 basis points or so than that 4% number. And we also have hedges that have a positive mark, that would also lower the rate further. But we're going to be flexible and opportunistic. That may occur little earlier, it may occur a little later. It may not be an unsecured offering.

But right now to answer your question about pricing in the secured market is worse. Probably by at least 1/8% and probably 1/4%. So again, I think EQR could borrow at 3.80% on a 10-year basis or so in the unsecured market, or 3.65% -- pardon me -- and 3.80% in the secured market. So, I do think the unsecured market is probably a little more favorable to us at the moment.

Okay that's helpful. David Santee, did the 3% of net effective rent you recorded, is that a lease over lease number or a blended number in the quarter for the quarter? And if not, what was the actual rent change on leases signed in the first quarter?

Yes. The 3% is really just the net effective base rents that come out of LRO, averaged for the whole portfolio. The actual checkbook number, like every year, tends to be a pretty flat. Because you're renting apartments at the lowest point in the cycle. You have folks breaking leases that rented in the summer. And so when you turn that lease you are operating at a negative gain to the previous lease amount. So that number, really for the last seven years, has always pretty much been zero to very minimal growth in Q1.

So no real change then year over year in terms of the average?

No real change. I don't like to quote that number because I just don't think it's representative of the direction that the business is going. It's just an anomaly that occurs in our business cycle.

Understood. Just helpful just to gauge how it is changing year-over-year though.

Tayo Okusanya, Jefferies and Company.

Yes, good morning. Just trying to get a better understanding of the intricacies of Boston. I was hoping maybe you could give us particular submarket information about renewal rates, and as well as new rental rates? What those trends look like for particular submarkets?

I couldn't give you any specific rates at the submarket level today, but I can tell you that in the financial district, where our 600 Washington community is, you have probably three or four lease ups in that immediate area. That is probably the most impactful.

When you go over to West End where we have our large West End Charles River Park Emerson over by The Garden were doing extremely well: 6%, 5%, 6% revenue growth. Cambridge is doing well. And I think if you take the numbers that I gave you, those are pretty representative of the entire market other than the financial district where you have a lot of high-end luxury communities coming online pretty much all at the same time putting pressure on the immediate comps.

All right. That's very helpful. Then the other thing, just some of the papers coming out in San Francisco about some new tenant [production] ordinances in East Palo Alto. Can you just talk about that a little bit and if it has any meaningful impact on your operation?

None whatsoever.

Okay, fair enough. Thank you.

You bet

[Ahid Corsend], BWS Financial.

Hello. Could you provide some insight into how DC is tracking compared to what you expected at the beginning of the year and where you think that market is headed for the rest of the year?

Which market?

The DC market.

DC. I guess I would say, late last year, I said that DC, at best, would not go negative until Q2. And would it have not have been for a lower occupancy in Q1, we probably would have ended the quarter flat. So other than being lower occupied, rates did exactly what they thought, and we just arrived at minus 50 basis points about two months earlier than expected.

Okay, and how do you think that's going to track for the rest of the year? Is it going to continue down the same path with lower occupancy than expected? Or will there be a swing upwards?

Like I said in my comments, when we look at the markets, there's varying degrees of levels of deliveries in some of the submarkets. The RB, Rosslyn Boston corridor has seen a lot of deliveries in the last couple years. They will continue to have deliveries.

But yet on a year-over-year revenue basis, revenue growth basis, that market is doing better than we expected. Alexandria, south Arlington, the further you get away from downtown DC, it seems to be more problematic. But you also have equal amounts of new product coming online there as well.

Okay, thank you.

There are no further questions at this time. I'd now like to turn the call back over to management for closing remarks.

Well, thank you all very much for your time and attention today. We look forward to seeing many of you at the NAREIT meetings next month. Thanks so much.

Ladies and gentlemen that does conclude our conference call for today. Thank you for your participation. You may now disconnect.