Essex Property Trust Inc (ESS) 2016 Q4 法說會逐字稿

Good day and welcome to the Essex Property Trust fourth-quarter 2016 earnings call. As a reminder, today's conference is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to the company at this time. A number of factors could cause actual results to differ materially from those anticipated. Further information about these risks can be found in the Company's filings with the SEC.

When we get to the question and answer portion, management asks that you be respectful of everyone's time and limit yourself to one question and one follow-up. It is now my pleasure to introduce your host, Mr. Michael Schall, President and Chief Executive Officer of Essex Property Trust. Thank you, Mr. Schall, you may begin.

Thank you for joining us today and welcome to our fourth-quarter earnings conference call. John Burkart and Angela Kleiman will follow me with comments, and John Eudy is here for Q&A. This morning I will comment on Q4 results, market conditions, and investment activities.

2016 was another successful year for Essex even though the operating environment became more challenging with each passing quarter. Apartment supply deliveries with large lease concessions intensified the normal seasonal slowdown in apartment demand that occurs every fourth quarter. These factors underlie our Q4 same property NOI results, which hit the midpoint of the guidance range and a $0.01 per share beat to core FFO. I believe that our operations team did a good job of managing the portfolio given these conditions and we greatly appreciate their effort.

We have noticed that consensus estimates for our 2017 FFO have risen in the past six weeks, attributable to an expectation that the US economy will strengthen, improving the outlook for apartments. Clearly, we agree that a better economy will produce more housing demand, although the timing of that improvement is debateable.

As anticipated and discussed on last quarter's earnings call, we experienced a challenging fourth quarter and a slow start to 2017. In the near term, we continue to experience deliveries of apartment supply with large concessions, particularly in Northern California. Loss to lease, which is defined as market rents minus scheduled rent was negative as of year-end and should rebound as we approach our peak leasing season. Therefore, any positive impact from an improved economy is not apparent at this point and, therefore, likely won't materially impact our outlook for 2017.

Generally speaking, our 2016 expectations for the US economy were too optimistic, both in terms of GDP and job growth. With respect to job growth, the most disappointing result last year was in Los Angeles, which we expected to outperform the nation, much like it did in 2015. Unfortunately, LA Q4 2016 quarter-over-quarter job growth was only 1.5%, versus our 2.2% year-ago estimate.

Measured against its historical relationship to the US, job growth in the tech markets over the past several years have gone from extraordinary to good. Although the US underperformed our outlook in 2016, the San Francisco Bay Area produced 2.8% job growth, nearly matching our year-ago estimate, and Seattle outperformed with 3.7% job growth.

We have continued to overweight the tech markets from an investment standpoint, largely because it is one of very few industries with above average growth prospects. In a slow growth economy, which we expect for the next several years, we believe that tech continues to be the best alternative. Thus, we view this economic cycle differently as we have not increased our Southern California portfolio allocation like we did during the later innings of prior economic cycles.

On last quarter's call we discussed our 2017 market forecast and page S-16 is materially the same, with the exception of lower market rent growth in Los Angeles, attributable to lower job growth as previously noted, which resulted in LA 2017 market rent growth forecast to be reduced from 4.2% to 3.7%. We still believe in our overall thesis as to Northern California, that rents will improve as apartment supply deliveries decline. With reduced supply, the large concessions should also decline, giving stabilized owner greater pricing power.

While affordability will remain a key issue in Northern California, estimated median household incomes improved in the three Bay Area metros by between 5% and 7% in 2016, leading to an overall improvement in affordability. We expect wage pressures for tech workers and minimum wage laws to push incomes higher. As noted last quarter, we have conformed our supply definition to axiometrics, although there are differences from axio due to project completion timing.

In general, apartment supply is expected to increase about 11% in Southern California and most of that increase is attributable to a 65% increase in Orange County. The Bay Area should see apartment supply decline about 9% and we estimate that 64% of the total 2017 supply in Northern California will be delivered in Q1 and Q2. The greatest reduction in apartment supply in the Bay Area will be in San Jose, a 28% drop. This leads us to believe that pricing power in the Bay Area should improve in the second half of 2017.

Venture capital investment remains healthy, although each of the last six quarters had less VC investment compared to its peak of $8.5 billion in the second-quarter of 2015. We share concerns about potential slowdown in the technology industries. We still see tech as the world's leading economic engine and believe that leading tech hubs in the US, including the Bay Area and Seattle, will be the primary beneficiaries.

At least part of the slowdown in job growth appears to be finding workers that have the skills and backgrounds needed by the top tech companies. We tracked the number of job openings at the top 10 tech companies, all of which are located in an Essex target market, which indicates some 21,000 open positions compared to about 17,000 last summer. We anxiously await news on immigration policy, especially with respect to the H1B Visas.

An example of tech potential is the Internet of Things or IoT. It has taken about five decades to bring the microprocessor to its current state and its usefulness is about to expand dramatically. Coupling the microprocessor with sensors and actuators while being connected via internet creates a different kind of machine, one that is capable of accomplishing a wide variety of tasks in almost every industry and household. Estimates of its growth are extraordinary. For example, a PriceWaterhouseCooper's report suggests a massive increase in devices connected to the internet from 14 billion in 2014 to 50 billion by 2020.

IoT products that relate to housing have hit the market and they're mostly focused on single family housing at this point, involving devices that can remotely control a variety of systems including locks, alarms, blinds, and garage doors. It is not difficult to imagine a refrigerator that reorders essential food items or a device that reports a malfunction or leak.

With reductions in cost and integration of common items into comprehensive systems, you will start seeing IoT devices in apartments. They should allow us to utilize our leasing staff more productively by understanding traffic patterns, improve property security, while reducing cost and become more efficient and knowledgeable in our use of utilities. We expect our tech markets to be at the forefront of this activity and are well positioned for the related economic growth.

My next topic is investments. We noted on our Q3 earnings call that we expect to be more active in the transaction market in the fourth quarter. In part that relates to increased disposition activity, necessary given that we did not issue common stock in 2016 and we won't in 2017 unless our cost of capital significantly improves. Recent dispositions are outlined in the press release and Angela will discuss them further in a moment.

As to the acquisitions, we bought two communities in Valley Village, a submarket of Los Angeles, for $185 million. The San Fernando valley continues to perform well and this area has minimal apartment supply expected for the next several years. We also converted our preferred equity interest in the recently built 166 unit marquee apartments in San Jose into a common equity interest. Being a good partner allows us to be part of the discussion when construction ends, which in this case provided an opportunity to acquire half the property.

Cap rates remain stable last quarter with A quality property and locations trading around a 4 to 4.25 cap rate using the Essex methodology and from time to time more aggressive buyers will pay [sub 4] cap rates. B quality property and locations typically have cap rates from 25 to 50 basis points higher than A quality property. With most of the REITs on the sidelines, there are fewer motivated apartment investors in the market compared to a year ago. Recent increases in interest rates have caused some noise in negotiations but ultimately cap rates have not changed.

As noted before, we continue to be active in our preferred equity and subordinated debt program, which aggregates around $250 million in outstandings, including the two new investments closed during the quarter. As noted last quarter, we continue to see headwinds to new development deals and believe that the trend for apartment supply is downward in 2018.

That concludes my comments. Thank you for joining the call. I'll turn the call over to John Burkart.

Thank you, Mike. The Essex team had another solid quarter, delivering total same store revenue of 5.8% and NOI growth of 7.1%, relative to the comparable quarter. Our performance was in part related to our strategic decision to favor occupancy. The team did a great job executing our strategy and increasing occupancy by 70 basis points relative to the comparable quarter. In 2017, to maximize revenue, we will favor occupancy, yet take advantage of market strength as the opportunity presents itself, typically in the summer.

I will now comment on each of the major markets from the north to the south. The economy in the Seattle MD continues to grow at a rate well above the national average, fueled by both the major well-known technology employers as well as the developing technology ecosystem that is nurturing numerous startup and smaller technology firms similar to the ecosystem in Silicon Valley. There are over 30 technology focused co-working office spaces and about 20 accelerator and/or incubators. The top 9 Angel networks and 15 venture capital firms have made over 1200 investments in the Puget Sound area.

Employment grew at a rate of 3.7% for the fourth-quarter of 2016 over the prior year's quarter, adding 59,300 jobs. Office absorption was 2.6% with 5.9 million square feet under construction, 46% of which is pre-leased. Numerous leases were signed in the quarter by companies such as Facebook, Amazon, Pokemon, Snap, Big Fish, and BitTitan, with activity focused in the South Lake Union and Bellevue markets. Each submarket performed well with respect to the fourth-quarter revenue growth, with the CBD submarket achieving 6.6% and the east, north, and south submarkets achieving between 8% and 10% revenue growth relative to the comparable quarter.

Onto the Bay Area where the economy continues to grow with employment growth of approximately 2.8% for the three Bay Area MDs, San Francisco, Oakland and San Jose, for the fourth-quarter of 2016 over the prior year's quarter, substantially outperforming the nation's employment growth of 1.5% for the same period. During 2016, the Bay Area office market absorbed 4.4 million square feet or 1.9% of total office space. Currently, there is 15.3 million square feet under construction, 43% of which is pre-leased.

As Mike mentioned in 2016, median household income grew in the three Bay Area MDs while market rents declined approximately 1.8% December over the prior year's period, improving affordability. The decline in market rents has created a gain to lease in our Bay Area portfolio. Therefore, although we're expecting market rent to increase 2.5% in the Bay area in 2017, the impact on Northern California gross revenues will be muted and are expected to be less than the market rent increase.

In 2016, our Bay Area revenues substantially outperformed the market due to loss to lease. In 2017, the conditions are reversed and we expect to grow loss to lease, setting the portfolio up for a better 2018. The impact of the loss to lease-up -- the impact of the lease-ups is now reflected in the market rents. The supply deliveries are expected to be greater in the first half of the year, subject to weather delays, with some of the pressure abating in the second half of the year. The likely impact will be a reduction in concessions for the product impacted by the new supply, ultimately positioning the market for a stronger 2018.

During the quarter we started lease-up of century towers, a 376 unit high-rise in downtown San Jose, currently it is 13% leased. Galloway at Owens continued to lease up during the slower demand period and is currently at 87% leased with concessions of six weeks on selected units, which is consistent with the new lease-ups in the local market. Finally, as planned, we are pre-leasing Galloway at Hacienda, a 251 unit podium building adds Galloway at Owens.

Moving down to Southern California, each of the markets performed well this last quarter. Despite LA's slower job growth, the MSA achieved 5.5% revenue growth in the fourth quarter, relative to the comparable quarter. It is noteworthy that West LA achieved 4.6% revenue growth in the fourth quarter, below the average, while our CBD asset achieved 6.1% above the average. The best growth during the quarter was in the tri city submarket where we achieved 8.3% revenue growth, all relative to comparable quarter.

Technology footprint continues to grow in Santa Monica, Hollywood, Century City, and other West LA locations. We Work, Fandango, Snap, and Netflix all added space during the quarter. Additionally, Citi National Bank, which is head quartered in downtown LA, signed a lease for 300,000 square feet of space on Bunker Hill as part of an expansion plan in downtown LA. And of course George Lucas has chosen Exposition Park to be home to his $1 billion Museum of Narrative Art with the ground-breaking before year's end.

In Orange County, the market continues to be a solid Southern California performer with year-over-year job growth for the fourth quarter of 2.3%. The North Orange submarket outperformed the South Orange submarket, achieving 6.4% revenue growth compared to 4.1% revenue growth. In 2017, there will be significant increase in supply being delivered in the Orange County market, with the greatest concentration, almost 2,000 units being delivered into the Irvine market where we have limited exposure.

Finally in San Diego, the performance across the submarkets was fairly consistent, leading to our 6.3% revenue growth, relative to the comparable quarter. In 2017 the supply increases significantly with approximately 1700 units being delivered into the San Diego CBD that will clearly impact the CBD market as those units get absorbed into the marketplace.

Currently our portfolio is at about 96.6% occupancy and our availability 30 days out is at 4.8%. Our renewals are being sent out at about 4% for the portfolio overall, which breaks down to 2.4% for Northern California, and 5% for Southern California and the Pacific Northwest. Thank you. And I will now turn the call over to Angela Kleiman.

Thanks, John. I'll start with a brief review of 2016 results, then focus on 2017 guidance, capital markets activities, and the balance sheet. 2016 was another good year for Essex. We generated same property revenue and NOI growth of 6.7% and 8.1% respectively. In addition, we achieved core FFO growth per share of 12.4% for the full year, which exceeded the midpoint of our original guidance by $0.12 per share.

Turning to 2017. Our same property revenue growth of 3.25% at the midpoint reflects our view that rent growth in our markets will moderate to the long-term average, following five years of exceptional growth. We also expect same store revenue growth to be lower than the market rent growth published on S-16, as current in place rents are slightly above market. Our operating growth forecast is 3%, resulting in NOI growth of 3.4% at the midpoint.

As for the FFO guidance, we continue to track -- we continue our track record of driving operating results to the bottom line and are projecting core FFO growth of 5.8% at the midpoint, which is 240 basis points higher than our projected NOI growth rate. A complete list of assumptions supporting our FFO guidance range can be found on S-14 of the supplemental.

Moving to capital and funding activities. In 2016 we funded our investment activities with disposition proceeds and joint venture capital in lieu of issuing common stock. We expect to maintain this funding plan in 2017 if the common stock pricing remains unattractive.

We are cognizant of changing market conditions and are focused on allocating capital appropriately and thoughtfully. For example, in the fourth quarter the $185 million acquisition in Valley Village was funded by contributing four wholly owned properties into a newly formed joint venture where we have retained majority ownership and it is what we have been referring to as a dispo JV. In general, the dispo JV provides for an alternative source of capital to match fund our investment activities in lieu of issuing common stock.

Key considerations to transact via a dispo JV are: to divest from properties with lower total return expectations relative to the portfolio, and minimize dilution and fractional sales costs via management fees, promotes, and other economic benefits. Leverage is not a key driver to transact in an off-balance sheet vehicle. In fact, our joint venture platform leverage is only around 28%.

Lastly, our private equity platform has done well, currently with a total estimated promote ranging from $30 million to $50 million. We will look to optimize our returns as we evaluate opportunities to monetize this value creation.

Lastly, onto the balance sheet. During the fourth quarter we repaid the existing $225 million term loan and originated a new $350 million term loan which matures in 2020 and priced at LIBOR plus 95 basis points. We have swapped $150 million of the term loan to fixed rate of 2.2%. Major debt maturities in 2017 primarily consist of a $300 million unsecured bond in mid-March.

Our current preference is to finance this debt with 5 to 10 year unsecured bonds, depending on the treasury rates and underlying spreads. So we will opportunistic, as we have several options to refinances this debt. With a low level of unfunded commitments for 2017 of $215 million, which represents only 1% of total market cap, our $1 billion line of credit extendable to 2020 and a light maturity schedule over the next couple of years, we continue to be well positioned to weather any potential capital markets dislocation. That concludes my remarks. I will now turn the call back to the operator for questions.

Thank you. At this time we'll be conducting a question-and-answer session.

(Operator Instructions)

Our first question comes from Jordan Sadler from KeyBanc Capital Markets. Please go ahead.

Hi, it's Austin Wurschmidt here with Jordan. I was wondering if you could provide a little color on your Southern California outlook of 3.5% to 4%, of how that breaks off across the various submarkets. You mentioned Orange County having significant supply this year, so some color on the various submarkets would be helpful.

This is John. The submarkets, what we're seeing going forward is Irvine and downtown San Diego are going to get hit with more supply, significantly more than they had this year, so those areas most certainly will be weaker. As we look on the job side, the LA market slowed down quite a bit in employment just broadly, but yet supply is kind of in the zone. But the big hits on supply, the big changes would really be in the Irvine area. We don't really have assets or very many that will be impacted by that and then downtown San Diego. Does that give a little bit more color of what you need or are you looking for more?

No, that's helpful. And then Northern California, I was curious, sounds like it's going to be a little bit volatile or choppy at the beginning of the year with the deliveries more heavily weighted. How would you expect the quarter by quarter trends to spread across throughout the year across Northern California? Do you expect it to snap back the second half of the year or once concessions begin to abate or more of just stabilization?

I would call it more stabilization. One of the good things, last year I used the word choppy. I'm laughing, we're using it now. A lot of the impact of the lease-ups is really in the market rent, whereas last year it was kind of transitioning in, so things were somewhat choppy. I think going forward it will be softer in the first half as we continue to absorb the supply.

As we get into the second half, I think what's going to happen ultimately is that some of the concessions are going to evaporate and so it won't be like a pure snapback but if you think about it, a property given two months concession, if that goes away as they finish lease-up that's effectively 16% rent increase. And so it ultimately as we move through the year, I think the market will move up a few percent. Some of the new lease-ups are going obviously reducing the concessions. So they'll see better rental strength, but not necessarily pushing rents up per se, coupon rents. As we roll into 2018, we should be in pretty solid position for a good year in 2018.

Great. Thanks for taking the questions.

Our next question comes from Juan Sanabria from Bank of America. Please go ahead.

Hi. Good morning. Still just wondering if you can give a little bit of color on -- you talked a little bit about the loss to lease, about kind of what you're expecting on new leases maybe across three regions and the spread to renewals that you're forecasting? It sounds like you're saying Northern California new lease growth could be negative. If you could just give us a little color on that, that would be fantastic.

This is Mike. Thank you for joining the call.

Our January to March renewals are going out at somewhere around 4% and within that, Seattle and Southern California are in the 5% range and Northern California is in the 2.5% range. So that should give you some idea. I just want to follow up on what John just said because, again, we expect the supply hangover, as John said, to clear over the next six months and from that point market rents should recover. The issue that we have is that for market rents to recover, it takes time before it really hits the bottom line. So I think this year is one of first couple of quarters being pretty challenging, especially in Northern California, but in several other Southern California submarkets as well.

And then as we get into the second half of the year, feeling much better about resumption in pricing power. And again, where this weird dynamic where the 1% that are leasing up apartments are effectively setting price for the 99% stabilized owners, so when that clears the market we think it will be a much different environment. Unfortunately we'll be probably at that point in time July or August, and there's just not that many months that we can turn the corner with respect to the rents that actually get reported because there's just not enough months left.

So I think those dynamics what we see happening on market rents looks much better in terms of how they hit the numbers is the part that we think lags and is causing the little bit greater lag than expected as it relates to same property revenue.

Okay. Great. And then for concessions how are you guys thinking about it? Is it I guess Northern California specifically, is the level going to be pretty similar 2017 over 2016 for the year as a whole or is the -- any color there in terms of how 2017 -- just because of the supply is still pretty elevated on a year-over-year basis in 2017 and how you guys have approached that.

This is Mike again. And again, it varies dramatically by market. Right now for example in Sunnyvale, which is just north of San Jose, there are eight lease-ups in the marketplace, and therefore, as you would expect, they're all trying to get 25 to 30 units a month, it's not surprising that there's six to eight weeks of concessions in the marketplace. That is not true for all of Northern California, that is that specific submarket and really is derived from the number of lease-ups that are competing against one another.

Fortunately, I think the trend for concessions is getting better, although slowly. In the fourth quarter of course you have two phenomenons that are affecting price. One is the normal seasonality in the marketplace where demand drops off in the fourth quarter and the second is the continuation of delivery and supply into the market. So those two factors together I think is what really caused a very weak Q4 relative to other Q4s.

So I think Sunnyvale being the key example of where we have lots of lease-ups in the marketplace, south of market is probably near that, around six lease-ups, one to two months free, and some of the other submarkets in Northern California continuing to improve. So with demand resuming as we approach our peak leasing season, I think that the level of concessions will be starting to scale back as these deliveries come online and by the time we get into the summer I think we're going to be looking at a much better scenario in terms of less concessions and better pricing power.

Thank you.

Our next question comes from Gaurav Mehta from Cantor Fitzgerald. Please go ahead.

Yes, thanks. A couple of questions on investment activity. I was wondering if you could provide more color on the expected development starts in 2017 and how your expectations on new starts versus last couple of years?

Well Mr. Eudy is here, so I'll let him handle that one.

Sure. We have as many as three starts planned for this year, all of which are land deals that we negotiated two, three, four years ago and entitled prior to the current exactions that are being asked for on new deals being transacted within various cities. And relative to the amount of exposure compared to say two years ago at our peak we'll be stabilized about a third of where we were at the peak, if I heard your question right.

Yes, that's very helpful. As a follow-up, you talked about this Dispo JV as a form of expected funding in 2017. I was wondering, the $400 million to $700 million guidance that you have for dispositions, does that include assets that will go in a JV or is that only for early on in dispersions?

The guidance is a net number, so includes dispositions. Is that what you're asking?

Yes, so I can include both dispositions as well as the assets that you will contribute in a JV?

Right, so it's $400 million to $600 million in our guidance range of acquisitions.

Okay.

$400 million to $700 million in dispositions. Dispositions probably will include some dispo JV activity, but it also includes the continuation of culling the portfolio. And so there's a couple of different disposition strategies, one of them is cull the portfolio, in other words, the properties that don't perform up to the level that we expect and we expect the underperformance to continue, we'll sell those assets outright. Then there are some properties that have decent growth rates and decent operations and they will become dispo JV possibilities.

One of the things about dispo JV is we can, again, through management fees and promotes and some other savings opportunities we can get a higher yield on dispo JVs. But we're only going to do that obviously for properties that we want to own for the long haul. And then every once in a while there's an opportunity to sell an asset and reinvest at a higher total return expectation. So we'll be pursuing all three dispo strategies and it's difficult to tell you right now how much will fall into each bucket.

Okay. Thank you.

Our next question is from Tom Lesnick from Capital One Securities. Please go ahead.

Hi, everyone. I guess first off, I know you guys mentioned preferred equity investments that you originated a couple or converted one in 4Q. As you look out to 2017, especially given the development market right now, how do you view the size of that market and how that will trend through 2017? Is that a fairly significant opportunity there or is it just kind of one-off opportunities?

Hi, Tom. It's Mike. I would say that it is a market that we see a fair amount of opportunity. We have a goal of about $100 million. Most of that related to apartment development transactions.

Again, these are properties in our core market that we would otherwise like to own. And so -- but they don't generally hit the yield thresholds that we would be willing to put our own money into them in a common -- as a common equity owner.

And so we see $100 million as being a goal that is achievable. But there's a lot of transactions out there, candidly, that fall below the yield thresholds that will allow that to work. And as time goes on we see more and more transactions that the cap rates are -- the going in cap rates are so low that you can't layer in a preferred equity piece with a 10% to 12% coupon and make the numbers work.

So I'd say that we have a decent pipeline. We have good reputation in the marketplace but I don't think we're going to -- I don't think we'd be able to, for example, double the $100 million goal. I think we will get four or five deals done. It will be around $100 million. And that's probably what's likely to happen this year.

That's very helpful. And then I guess bigger picture, how are you guys expecting or, I don't know, have you guys done any studies on how immigration policy might impact your major markets over the next four years? Do you have some sense as to the number of H1B Visa residents in your portfolio?

We have a substantial number of H1B residents in our portfolio. You have this huge -- purposefully in my prepared remarks, talking about the number of open positions within these big tech companies really highlights that issue. The H1B Visa program in general allows 85,000 H1B Visas to be granted annually.

I think that happens on April 1st. I think there is somewhere between 500,00 and 600,000 people in the United States on H1B Visas. I don't know where they are, per se, because that is not disclosed.

But it's an important factor and I don't think we know what's going to happen with respect to policy coming out of the new administration for this and a wide variety of things. And so really can't go there.

I can say that from our perspective we are a big fan of allowing the best and brightest of the world to come into the US and I think that's really important that that happen. I saw a statistic the other day which I think underscores this, which is about half of the US based unicorns were founded or co-founded by immigrants, which seems to be a pretty compelling, amazing statistic.

So as it relates to policy going forward, I don't think we can predict what's going to happen. I'm hoping that the groups of people from Silicon Valley that are meeting with the administration are making the same point that we're making now. But we'll have to wait and see what happens.

All right. Thanks. Appreciate the color.

Our next question comes from the Nicholas Joseph from Citi. Please go ahead.

Thanks. Just want to clarify your expectations for same store revenue growth in 2017. Does guidance assume a deceleration on a quarterly year-over-year basis throughout the year, or does it assume a stabilization in the back half?

We are assuming a stabilization in the second half as supply -- the supply pressure abates a little bit more and also as we work through the concessions, as both Mike and John commented earlier.

Okay. Sorry, I know, it's a little early for 2018, but would it be fair to think in your comments about economic growth and less supply that you might see a reacceleration into 2018?

This is Mike, Nick. You know how we are. (laughter) You know how conservative. But I certainly would think that 2018 is shaping up to be a very good year.

This year, the problem is that we start the year with a gain to lease, or scheduled rents are above market rents in Northern California by 3.5% and -- I'm sorry, by 1.9%, excuse me, and overall in the portfolio by 0.5%. So with respect to that assistance that we've had over the last several years from loss to lease, we're not going to see that. And in fact, we're going to need to rebuild some loss to lease. We need -- market rent growth happens, if it happened tomorrow it would immediately become loss to lease and then it would roll into scheduled rent over the next year.

So a move in rent does not translate into a move in same property revenue for some time. So we're in that rebuilding year in my view and -- in our view and as we get into the summer I think we're going to see things look much better. And unfortunately it doesn't really help us that much in 2017, but I think it does help in 2018. So we look forward to that.

Thanks. Appreciate that. And then finally, what was the gain on sale of marketable securities in the quarter?

We had -- from time to time we have marketable securities that we just -- we sell. And so that's all that is.

We have captive insurance entity that has generated a lot of cash and so we invest that cash and so from time to time we're going to be selling securities.

Thanks.

Our next question is from John Kim from BMO Capital Markets. Please go ahead.

Thank you. Mike, I appreciate your comments and your color on immigration reform concerns. I know it's very difficult to answer these kind of questions. But I was wondering, is the 21,000 job openings by major tech companies, is that a recent high or a high as far as you can remember? And also, is your concern at all embedded in your rental projections for Northern California in addition to the gain to lease?

Yes, the 21,000 I think is the biggest number that we found since we've been tracking that. And again, up from 17,000 last summer sometime. So there's been a surge in that. We all know I think the unemployment rate for college educated people is somewhere under 3%, 2.5% to 3%. And so obviously we have a shortage of skilled workers and that is causing some of the issues here I think in the tech world, because the demand is there for those workers. Those workers are not able to find the jobs for whatever reason.

We saw, for example, Apple opened a campus in Austin. We view that as not nearly as attractive as having those jobs here. In other words, the tech companies may go and build facilities and move jobs to the places where the right types of workers exist and that could be in the US and we fear potentially could be outside the US.

So again, this is an important issue to us and we try to track it fairly closely. And I'm sorry, you asked another question and I forgot what it was. Would you please repeat it?

I'm just wondering if that was embedded in your Northern California rental projections.

I think it's embedded in the Northern California actual job growth numbers and, yes, again, what we try to do is create a scenario with respect to job growth in our markets that's really based on historical relationships to the US. So we know for example that LA is very close to the US in terms of job growth and we generally don't deviate very much from what the US job growth expectation is in LA because it mirrors LA in many respects.

We actually pushed quite a bit higher in 2016 because we thought there was some lag, and we were wrong, because the job growth in LA is almost exactly the same. The job growth in the tech markets tends to be better than the US. And so based on, again, those relationships, we expect it to do better than the US. Now, I'd say generally speaking some of these factors, the shortage of skilled workers, the employment rate of people with college degrees and other factors are really holding back the entire US and holding us back at the same time. So some solution to that problem, some of those problems is really important to us.

Great. And if I could ask just a quick balance sheet question. What is the net debt to EBITDA including joint venture debt? And also, where do you think you could price 10 year unsecured notes?

The net debt to EBITDA including joint venture debt won't be a whole lot different just because our joint venture is only at 28% leverage, so it's very similar to the parent entity. And so but if you're -- in terms of the net debt to EBITDA change from last quarter, it's more of a transaction timing.

It's more that we had sold properties so we lost EBITDA there and then the newly acquired properties just have not had chance yet in EBITDA. As far as where the rates will be, it would be somewhere -- if we issued today a 10-year bond, unsecured bond, would be in the high 3% to 4%, in that range.

That's helpful. Thank you.

Our next question is from Rob Stevenson from Janney. Please go ahead.

Good afternoon. Mike, why sell 50% of the four older assets into as disposition JV? Why not sell 90% or something like that if it's really a disposition JV?

Why not sell 90?

Percent.

Yes, with that. There are some pretty good reasons for that, actually. I mean, but the main ones are we get fees, we have promoted interest and as we've seen, these promoted interests can be pretty substantial over time. And from a structuring standpoint we would like to prevent a reassessment generally speaking of property taxes. So there's some pretty important reasons to structure it this way.

Okay. So the latter was really the driver. If you sold another -- if you sold down to a minority share then the tax would be revisited.

We look at the whole equation.

Okay. All right. And then given the comments before about starting three developments, I don't know if any of that's the next phases of station part green or whatever, but it looks like at least from your listing on the development page you guys are starting to run short of land. How aggressive are you guys at this point in back-filling either through ownership or through option of future development parcels?

This is John Eudy. First off, you were correct on station park green being a piece of the three deals that we think we're going to do this year.

As far as being aggressive, yes, we're on the sidelines and we're looking at a lot of opportunities and we're trying to be opportunistic. But no, we're not going to do 4 to 4 and a quarter cap development deals to do deals. So that's an easier talk than it is an execution, as you know.

That said, with the stress in the market, the financeability being very difficult and the preferred program that Mike talked about earlier, we do think that this is a year where we may be able to strike opportunistically in a few occasions but we're not going to do it at retail.

Okay. All right. Thanks, guys.

Thanks.

Our next question is from Jeffrey from Goldman Sachs. Please go ahead.

Hi. Thanks for taking my question. Just a quick one again on investment activities. How are you guys thinking about redevelopment opportunities in your portfolio, and could your redevelopment pipeline grow from current levels?

Sure. This is John. We take a very deep look every year at the entire portfolio, sit down at a meeting, go through every asset and every angle of opportunity, whether it be unit turns, adding laundry, backyard extensions, complete full renovations like we have at some of the assets. And at this point I would say we're pretty much at a stabilized number. If you look at our unit turns versus the total portfolio, we're somewhere in the 5%, 6% range typically, which provides a 20 year life, somewhere in that zone, for the kitchen and bath. On the larger assets, we're putting a few two, three, to four through a major renovation at any one time.

We're pretty much on a sustainable level to continue forward. To accelerate from here, there's a few things we're looking at, some opportunities that relate to technology and a few other things. But not a lot of acceleration as relates to major assets or unit turns. We'll probably he slow unit turns down a little bit in 2017 just based on market conditions, but not huge.

I'd add one more thing to that. That is, when you have new lease-ups that are submitting concessions at the levels that we're seeing, it compresses the rehab returns. So it makes it more difficult to make them work economically. So we've seen some rollback in terms of the number of unit turns that we're able to do and that's a factor that will be a drag until the concessions start burning off in the marketplace.

Thanks. That's helpful. And then just on the development pipeline, how much of that is condo mapped?

That we will have condo mapped? It would be two of the three deals.

Great. Thanks. That's helpful.

Thanks.

Our next question comes from Nick Yulico from UBS. Please go ahead.

Thanks. I just wanted to go back to this issue of the market forecast in rents that you guys have for this year of 3.6% and your same store revenue growth midpoint below that. I think you gave some reasons, but I just wanted to be clear on why is that occurring this year?

Well, so this is John. So if you look at the big picture, if you look at the economic rent forecast, you end up at 3.6%. Right now we have a gain to lease in our entire portfolio of about a 0.5%. So if you do the math there you end up a little bit over 3% and the difference to get you to the midpoint at 3.25% is other value add and those types of things, big picture.

The practical side is the rents come throughout the year at different points in time. We have lease expirations. So some of the leases are going to expire and they have a gain to lease so they're going down, while at the same time the market's moving up. So it never matching perfectly. It's a timing issue that rolls through. But big picture answer really relates to the gain to lease and then versus the market.

And maybe one more thing to reiterate what John said using maybe a little bit different words. If supply abates as expected in Northern California after the second quarter, we would expect market rents to grow.

But again, that won't show up in revenue until -- we'll be fully priced into revenue until the middle of 2018. So in other words, you can see market rents grow but the impact on same store revenue is delayed to some extent. Just a normal operation of how this works.

So it seems like this is sort of a timing issue in the first half of the year where you face this pressure and then things get better in the second half of the year? Is that the way to think about it?

I think that that is -- that's part of it. Given the fact that we have all this delivery of new supply in the first half of the year in Northern California which are the primary concessionary markets, the second half looks much better than the first half.

More fundamentally in terms of looking at loss to lease, I think I said last quarter, on last quarter's call, that at September 30th, 2015 we had about 7% loss to lease and by September 30th, 2016 we had about 2% loss to lease. So of the reported revenue over that period, 5%, the difference between 7% and 2%, came from loss to lease. So when rents are going up, you're building loss to lease, and it's not been reported as rental revenue, when that flips around on you and rents are going down, you start eating into your loss to lease, and it makes your results look much better than they really are when you look at market rents.

Okay. Yes, I guess the question is whether -- I think it's definitely helpful to get all this market level forecast you guys give. But if you think about in the last couple years you've been outperforming the market forecast on rent growth and you now this year you're underperforming a little bit.

We got this original number of the market rent forecast, it kind of felt like that was a guide post to where your results could be this year and yet it ended up being a little bit optimistic I guess. Do you think about maybe changing that kind of messaging going forward or --?

If we had it to do over again, yes I think, we would change the messaging. We don't like the market to be surprised with respect to anything that we do. But candidly, Q4 was part of the problem in that Q4 was much weaker than we thought it was going to be and the deceleration that happened. Again, you had the combination of seasonality plus lots of concessions in the marketplace.

So Q4 was just a really tough quarter and so I'm not sure if we replayed the whole thing again, I'm not sure that we would have come of the right conclusion. Because I would have thought if we had 2% loss to lease at September 30th, as I just said, I would have thought we still would have some gas in the tank with respect to going into the new year. And again, I think that as we get into the peak leasing season what goes away quickly tends to come back. And so maybe we'll get a little bit stronger bounceback as we get into the peak leasing season. But again, I think, Q4 the underperformance and the issues that we had in Q4 are part of this issue.

Appreciate all the commentary. Thanks, Mike.

Our next question is from Alexander Goldfarb from Sandler O'Neill. Please go ahead.

I'll still say good morning out there, I think we've got another few minutes. Mike, on the JV capital front, has there been any change from JV partners for their appetite to invest in your markets? And then if there has been a change, if you could just talk about where they may be either more interested investing or less interested in investing.

I'm going to let Angela handle that one because she's probably the point person in touch with most of the institutions on this. Angela.

Thanks, Mike. Hey, Alex.

In terms of the demand of institutional investors in our markets, that has been actually steadily increasing. The change is really in the type of product and their return profile. So for example, three, four years ago there were a much stronger demand in development and correspondingly higher return threshold.

And more recently the focus has moved toward more of a core, core plus type asset of investments and as a result, the IRR, our return hurdles have also decreased. But the net dollar interest in our product still remains at a high level and has continued to stay strong.

Okay. But Angela, they're still happy to invest in Northern California as much as Seattle and Southern Cal or are they focused more on one specific geography versus the others?

They're happy to invest in all of those markets, because they're not -- they're very long-term in terms of these funds are seven to 10 years. And so they're not as focused on a one year supply concern with, say, Northern California. They definitely understand and believe in the strength of technology as an engine and driver of growth, not just for the West Coast, but for the US economy. And also given the dearth of transactions available in the West Coast, they have demanded just as much in North Cal as SoCal and Seattle.

Okay. And then second question is, again, looking at Seattle, that market just continues to impress. You guys have sort of at the same type of growth as Southern Cal. Despite all of the supply and all the South Lake union construction, et cetera, do you have any concerns about that markets or in your view, the decoupling that you've witnessed between San Francisco and Seattle will continue for another year or two?

This is John, Alex. Naturally we respect the amount of supply coming into the marketplace. The market can and has performed really well, there has been a lot of job growth out there. At the same time, the supply is something to be alert to. We see some supply coming in on the east side. I can tell you, our east side portfolio performed very well in the fourth quarter as it relates to revenue, as I mentioned in the remarks. But at the same time slowed down somewhat significantly as it relates to just really achieved economic rents. And that's typical for the season but it was a little bit more than normal.

So we're going to wait and watch as we roll into really past Super Bowl Sunday is when leasing picks up much more and see how that market perform. I think we'll hit our numbers but it's slowing down a little bit from where we were before and I think we have the right outlook.

Okay. Thank you, John.

Our next question is from Tayo Okusanya from Jefferies. Please go ahead.

Yes. Good afternoon. First of all, just thanks for all the detail and candor on the call. That's definitely appreciated. I just want to focus a little bit more on some of the acquisition and disposition activity.

I think the schedule on S-15 gives some basic pricing information, but I was hoping maybe you could just talk in terms of cap rates, where some of the 4Q and 1Q transactions were done, especially the JV and generally what kind of cap rates you're seeing in most of your major markets.

Tayo, it's Mike. They're very consistent with what my comments were in the prepared remarks. The JVs and the non-core assets were in the 4.5 cap rate range. So they tended to be a little bit older assets. And the Jefferson Hollywood deal that was closed was in the 4 cap rate range. So very consistent with what we talked about.

I think in every case we've hit our internal NAV estimates for these assets and so, again, we haven't seen very much movement in cap rate. We certainly had some noise. I think we had two or three buyers on the Jefferson deal, so some backed out. But obviously -- interest rates are a concern out there, but all you need is one buyer to go through and complete a transaction. There's different sensitivity levels to interest rates out there and there still, as Angela said, quite a bit of interest in West Coast apartment product.

Got you. Okay, that's helpful. And then just another quick one from me.

Apart from kind of the whole situation with immigration reform, the other thing everyone's freaked out about is tax reform under the Trump administration. Could you talk a little about how you guys are thinking about that, and if it could have any material impact on you in regards to your dividend or anything of that nature?

That's a great question Tayo. I'm not sure I'm equipped to exactly answer it because, again, these proposals are dramatic in terms of if 1031 exchange is going away, are we going to be able to write off all of the non-land purchase price of buildings that we buy and how will that relate to -- do you really even need a REIT election if the corporate tax rate is 20% and you have all these other write-offs.

These are all questions that candidly I can't answer at this point in time. We're just going to have to wait and see. As we get closer to having something written, we promise you we'll be studying it. But right now we've looked at it, but there's -- it's just too unclear to draw any conclusions from and we have lots of other things to do, at least right now.

So as soon as we feel like it's coming down the road and we really have to focus on it, we're just going to spend our time on other things. But I've got to agree with you, it's potentially very significant in terms of its breadth. I have a feeling that it won't be anywhere near as -- when reality comes out, I think it's like the story's going to be much worse than the bite. I don't have any reason to know that that's going to happen.

Fair enough. Thank you very much.

Thank you.

Our next question is from Wes Golladay from RBC Capital Markets. Please go ahead.

Hello everyone. Looking at a Seattle, do you think that could be the next San Francisco or is there just enough job demand to absorb the supply?

Hey, Wes. It's Mike. That's a great question.

We have been -- as you know, we've been a little bit reserved on Seattle for the last couple years because we're so concerned about the supply. The flip on Seattle is that it's much more affordable, rents are lower, incomes are still pretty high and so it's -- I suspect it's taken some of the jobs that would otherwise have landed in Northern California and they're going to the Seattle area. So what I think we've seen here is the market reacting to conditions and affordability specifically and moving some of that job growth to Seattle.

For us, it remains a market that has too much supply to be -- let's say to double down in, because candidly, I wish we knew with certainty exactly how these things were going to roll out, and obviously as you look at the quarter and look at guidance, we obviously don't know exactly how they're going to roll out. But there is a multifamily supply to stock of 2.3% expected for 2017.

That's a lot of units, that's a lot of multi-family units and it concerns us. And so you haven't seen us expand the portfolio in Seattle recently and that is the reason. So we'll probably stay on the sidelines. We're not selling Seattle either, although we might sell an asset or two in that area that will be part of the culling process.

But that percentage of the portfolio is somewhere around 18% of the portfolio. We feel pretty comfortable with it and we'll continue to ride it out. But it's a little bit concerning to us.

What about the behavior of the developers during lease-up? Are they being rational to this point?

No. Developers have a much different view of the world than a stabilized owner. This is what causes our problem, because the developer -- and we're a developer too. I'm not saying that Mr. Eudy Is not rational. He's very rational. (laughter) However --

If I was irrational we'd have 10,000 units in the pipeline.

Relative to San Francisco maybe, the developers out there.

Maybe. We have the same dynamic. We're like everyone else as a developer. When we have a building we want to fill it up as soon as we can because what we're trying to do is we're trying to minimize free rent for the whole building over that initial period until it hits stabilization.

And the way to do that, like it or not, is to offer some big concessions or the net effective equivalent of that and whatever that takes, that fills up your building and then you become a stabilized owner and then you're back with everyone else. Throwing rocks as the guys that are giving four to six weeks free.

So that's a dynamic, and until that goes away it has a, as we've seen, it has an impact on pricing over the broader marketplace. For example, in Northern California, we've had enough of this concessionary environment in San Francisco and San Jose that it really started to affect even the markets that were protected initially like the East Bay, for example. And the same thing can happen in Seattle.

Right now, the downtown is two to four weeks in concessions and Capitol Hill is four to six weeks and the other part of downtown and four weeks in Bellevue. So I think that concessions in that one month period, people generally don't want to move, won't move in great numbers to get a one month concession. But you start bumping that to two months and you will find that people will move.

I think that the thing that's really helped Seattle given the level of supply, is it's just continued to knock the cover off the ball with respect to job growth. And the expectation for next year is we have Seattle at 2.7%, which is quite a bit of slowing from the 3.7% it did in the fourth quarter.

So if it continues at 3.7% I think we have probably no problems in Seattle. If it goes down to what we have on S-16 which is 2.7% I think you're going to see more concessions and more concessions will lead to, once again, the lease-ups setting price for the stabilized owners and that's the scenario we don't want to be part of.

Okay, and then last one. Looking at Northern California, I know a lot of the year's going to be baked in by the time we get to the second half but how do you see the new leasing statistics playing out? You mentioned it could be good. Are with we talking 5%, high single digits? What type of snapback are you looking at in your base case, assuming unemployment projections are achieved?

It's less than that. Realistically what we would expect in the portfolio overall is in the 3% to 4% range. But what you're going to see again is some of the A product that's competing head-on with the new lease-ups, yes, net effective it's going up in essence 8% to 16% if you pulled away the concessions. But if you go across the whole market for our portfolio, which includes the B assets and all the way through, you're going to be closer to the 4% to 5% range, somewhere in there.

Okay. Thanks a lot.

Our next question is from Steve Sakwa from Evercore ISI. Please go ahead.

Thanks. Most of my questions have been asked, but I guess if I could have two quick ones. Just in terms of general development activity and kind of what you're seeing from private developers, how has the landscape changed maybe over the last six months and what is your expectation for starts? Have you seen projects actually get put on hold here? Secondly, Mike, maybe you could just address, where do share buybacks fit into your overall capital allocation strategy?

Okay, Steve, thank you. I'll have Angela answer the second part. And John Eudy is here, and John and I meet every week and we talk about deals and what's going on out there. And what I hear John tell me week in and week out is the factors of construction lending continues to -- become more difficult to obtain. Costs have moderated a little bit, but still are significantly up from where they were. And then the cities are tough in general. There a couple of exceptions to that. And so it's a very challenging development scenario.

Having said that, there are some deals that are out there that have very low land bases because they started many years ago and they're carrying forward a really low land base. And some of them will be built and we see some of them. Those are the ones that typically work for our preferred equity program.

There's a whole significant portion of other deals that have much higher land bases and maybe even developers that aren't completely in touch with how far costs have gone. That is where the distress is in the marketplace because they're trying to scramble to see how they can get their deal done. And again, our preferred equity program works really well at somewhere between a 4.75% to 5% cap rate measured today, not stabilized.

But if you start pushing that down into the 4.25% to 4.5% and we're seeing a lot of deals in that range, our preferred equity doesn't work, nor does anything else work. So that's my view.

Again, John and I talk about this stuff all the time. We look at a lot of deals. Especially as it relates to the preferred equity program, there are more people looking at that now. There's a little bit more competition within that area. But for the last year or so, we've had great visibility into the development world, given preferred equity. And it's pretty interesting to watch.

So clearly, I think from my perspective, clearly the trend is for construction declining and 2018 looking like a pretty decent year. John, do you have anything to add to that?

No, I think you hit on everything, Mike. Clearly there are a number of deals that were conceptualized in double-digit rent growth years that don't work in 3% to 4%. And when you do the math, there's a lot of transactions that are being talked about that will never get executed. You see the burnoff of inventory.

We think it's going to continue in the direction that it is going in 2017 and it's a challenging time to get deals done. And you can't borrow any money to get more than about 50%, which you could get 80% from a construction lender three years ago.

On the stock buyback, as you may recall we have a $250 million buyback program and we did buy back a small amount of stock earlier in the quarter. But it was immaterial, so we didn't need to report it.

But as far as just how we think about that piece of the allocation, when we sell an asset what we would look to is how do we maximize the return. And so we look at what are we selling the asset, what kind of cap rate and what are the acquisition opportunities versus buying back stock and what the stock is trading at that time. So it's a relative consideration. But we certainly -- if there is a window opens that makes sense, we certainly would execute.

Okay. Thanks very much.

Thanks, Steve.

Our next question comes from Conor Wegener from Green Street Advisors. Please go ahead.

Thank you, good afternoon. Could you please comment on the measures in Los Angeles, the one that was passed in November, the one that's coming up in March that would limit supply growth, what you think the potential impact that could be and then how that plays into your outlook for LA over the long term? Please.

Yes, Conor. It's Mike. And what was that proposition, was it --

SSS and then -- no, JJJ was in November and then it's S in March.

Well anyway, these are proposals. We've seen several of them, not just in LA but in San Francisco and a variety of places and those actually were passed, but there are many cases where city councils want more below market rate units, want other exactions and those types of things. So even though in LA they're actually mandated now, there's plenty of other places that the spirit is that in play. And I think we've seen this many times before where you end up layering on more requirements and then the next thing you know, you build less housing. And I mentioned -- I made some comments on last quarter's call about just the sheer number of housing demand versus the amount of supply.

In effect, we built -- California's built somewhere around a third of the number of housing units that would be indicated given its job growth. So it's incredibly chronically under supplied housing market and you're finding the political process leading to further restrictions and further exactions on building more housing.

And so I think it has the effect of slowing down housing production and actually exacerbating the rent issue, the affordability issue because if you slow down the number of housing -- the number of apartments you build, it will improve the price or price -- rents will go up. It's a conundrum that one would not expect, but this is the state in which we leave.

And then since measure JJJ was passed in November, have you guys observed any changes in land pricing or developer activity within Los Angeles for unentitled land?

We haven't yet but we expect to.

I'd say that there is distress, again, within the land area because, again, the construction costs continue their relentless march upward and the cities, they look at developers like we're a problem as opposed to a solution. And so the more that sentiment gets baked into various places, the less housing you're going to have built.

So I don't know where this is going to go exactly. I suspect that the land holder ultimately bears the brunt of anything that happens to cost. So if you're going to add B margin, it's going to increase cost relative to returns and it comes out of the land. So it has to affect the land values at some point in time. But again, I think it's too early to tell.

Thank you.

Thanks, Conor.

And our last question comes from Neil Malkin from RBC Capital markets. Please go ahead.

Hey guys, thank you for taking my question. Two questions real quick. First, given the elevated supply environment in your markets, are there any markets in particular that you view as particularly opportunistic or that you think you have a better chance to acquire into to gain more exposure? Any thoughts would be helpful.

That is a great question. And I think as rents have moderated here, again, we're focusing more on Northern California than we are Southern California, principally because the job growth or just the relationship of how many jobs are being produced and what the future looks like as compared to the amount of supply hitting the marketplace. I think we're still better in California, Northern, Southern California, you have similar levels of supply, yet Northern California has much better job growth.

And so our preference has been, given that price has come down pretty significantly in Northern California, to continue to be active in the acquisition and investment market in Northern California. So to get more granular than that is somewhat more difficult. But so maybe I'll leave it with that at this point in time. Northern California still would be our preference in terms of making acquisitions.

Okay, great. And then lastly, people have been talking about immigration and visas and job openings. But I think job openings, if no one film here, doesn't really matter people who take those jobs are -- the ability for them to come the United States is suspended. I just wonder if you have any sense, and I don't know if you have any numbers, but the people in your residents who may be here on H1Bs, are they more in Asia or is it more Middle East?

Because I would suspect that if it's more Asia there really isn't a risk of anything happening as far as immigration goes, where as there would be a bigger question mark if it was more of the ilk of the seven countries currently on the list.

That's a good question, as well. I haven't seen a breakdown of what countries the H1Bs are coming from at this point in time. I know that they're wildly oversubscribed, again, it's 85,000 a year. They get granted in I believe it's April first, and they go almost immediately. Because they've got many times that number of people that would like to come in the United States.

I can tell you that, it's interesting, 20 years ago we didn't have communities that were one ethnicity or from one background and we do have that today. So I do suspect that there are more people. But again, exactly where they come from, I can't really tell you as relates to H1Bs. I don't know who's here on an H1B and who is in the country through other sources. So I can tell you it's changed a lot in the last 20 or 30 years.

Okay. Thank you.

Thanks.

Thank you. This does conclude our question-and-answer session. I'd now like to turn the floor back over to Mr. Schall for any closing comments.

Thank you very much, and in closing I just want to note that we appreciate your participation on the call. We look forward to seeing many of you at the Citi conference in March. Have a great day. Thank you.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.