Download - AvalonBay Communities (AVB) Earnings Report: Q1 2015 …s.t.st/media/xtranscript/2015/Q2/13130655.pdf · 2015-04-29 · include a core FFO growth of around 7.5%, which was consistent

CompanyName:AvalonBayCommunit iesIncCompanyTicker:AVBSector:FinancialIndustry:RealEstate

EventDescription:Q12015EarningsCallMarketCapasofEventDate:22.68BPriceasofEventDate:171.19

©2014TheStreet,Inc.Al l R ightsReserved Page1of27

AvalonBayCommunities(AVB)EarningsReport:Q12015ConferenceCallTranscriptThefollowingAvalonBayCommunitiesconferencecalltookplaceonApril28,2015,11:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JasonReilley;AvalonbayCommunities;SeniorDirectorofIRTimothyNaughton;AvalonbayCommunities;Chairman&CEOMattBirenbaum;AvalonbayCommunities;CIOSeanBreslin;AvalonbayCommunities;COOKevinO'Shea;AvalonbayCommunities;CFO

OtherPart icipants

NickJoseph;Citigroup;AnalystJanaGalan;BofAMerrillLynch;AnalystDanOppenheim;Zelman&Associates;AnalystNickYulico;UBS;AnalystHaendelSt.Juste;MorganStanley;AnalystRobStevenson;JanneyCapitalMarkets;AnalystJohnKim;BMOCapitalMarkets;AnalystVincentChao;DeutscheBank;AnalystDaveBragg;GreenStreetAdvisors;AnalystAlexGoldfarb;SandlerO 'Neill&Partners;AnalystTayoOkusanya;Jefferies;AnalystMichaelSalinsky;RBCCapitalMarkets;AnalystWilliamPho;CowenandCompany;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodafternoon,ladiesandgentlemen.WelcometoAvalonBayCommunities'FirstQuarter2015Earningsconferencecall.

(OperatorInstructions)

Yourhostfortoday'sconferencecallisMr.JasonReilley,SeniorDirectorofInvestorRelations.Mr.Reilley,youmaybeginyourconference.

JasonReilley(SeniorDirectorofIR):

Thankyou,[Augusta],andwelcometoAvalonBayCommunities'firstquarter2015earningsconferencecall.Beforewebegin,pleasenotethatforward-lookingstatementsmaybemadeduringthisdiscussion.Thereareavarietyofrisksanduncertaintiesassociatedwithforward-lookingstatements,andactualresultsmaydiffermaterially.Adiscussionoftheserisksanduncertaintiesinyesterdayafternoon'spressreleaseaswellasintheCompany'sform10-Kandform10-QfiledwiththeSEC.




Asusual,thispressreleasedoesincludeanattachmentwithdefinitionsandreconciliationsofnon-GAAPfinancialmeasuresandothertermswhichmaybeusedintoday'sdiscussion.Theattachmentisavailableonourwebsiteatwww.avalonbaycommunities.com/earnings,andweencourageyoutorefertothisinformationduringthereviewofouroperatingresultsandfinancialperformance.

Andwiththat,IwillturnthecallovertoTimNaughton,ChairmanandCEOofAvalonBayCommunities,forhisremarks.Tim?

T imothyNaughton (Chairman&CEO):

Thanks,Jason.Welcometoourfirstquartercall.WithmetodayareKevinO'Shea,SeanBreslinandMattBirenbaum.WewilleachprovidesomecommentsontheslidesthatwepostedthismorningandthenbeavailableforQ&Aafterward.

OurcommentswillincludeasummaryofQ1results.WewillhighlightafewareasoffocusthatwediscussedinconnectionwiththeArchstoneacquisitionthatclosedacoupleyearsagobutarenowstartingtopayofffortheCompany,includinganincreasedpresenceinSouthernCalifornia,greaterefficienciesfromincreasedscaleandexpansionenhancementofimportantstrategiccapabilities.Lastly,wewilltouchonthedevelopmentfundingandactivity.

Startingonslide4,overallresultsinQ1werelargelyasexpectedforourbusinessplan,andwe'reofftoastrongstartasweenterthepeakleasingseasonthisspringandsummer.HighlightsforthequarterincludeacoreFFOgrowthofaround7.5%,whichwasconsistentwithwhatwesawinQ4oflastyear.Same-storerevenuegrowthwasup4.3%overQ1oflastyearor4.4%whenyouincluderedevelopment,whicharebothabout20basispointshigherthanwesawinQ4.

Wecompletedthreecommunitiestotaling$450millionthispastquarterataninitialyieldofjustover6%.Andwhilethatyieldisabitlowerthanotherrecentcompletions,60%ofthatcapitalrepresentsWestChelseaandManhattanwherecaprateshavebeeninthelow3%range,andtheother40%areassetsinLAandSeattlewherecapratesarecurrentlyinthe4%to4.5%range.

Sowe'restillseeingasignificantlevelofNAVaccretionfromthesecompletionswithmarginsthathavebeenconsistentwithothercompletionsofthiscycle.WealsostartedtwocommunitiesinQ1totalingabout$100million,andwebackfilledthepipelinewithnewdevelopmentrightsofover$400millionorroughlyacouplehundredmilliononceyounetoutprojectswedecidedtoabandonattheendoflastyear.

Movingoninturningtoslide5,oursame-storeportfolioscontinuetoaccelerateinearly2015.Year-over-yearsameunitrentisup5%to6%inthefirstfourmonthsoftheyear.FasterpacethanwesawinQ4androughly250basispointsto350basispointshigherthanthesameperiodlastyear.

Thisisactuallythestrongestrentgrowthwe'veseeninthefirstquarteroftheyearoverthelastcoupleofcycles.SotheportfolioiswellpositionedgoingintothepeakleasingseasonwithrenewaloffersforMayandJuneactuallygoingoutinthemidtohigh7%range.

Clearlystrongportfolioperformanceisbeingdrivenbyhealthyapartmentfundamentals,whichtakesustoslide6.AsyouseeoverthelastseveralquartersandI'msureyouknow,jobgrowthhasbeennorthof2%nationallyorover260,000jobspermonth.Andit'sbeenevenstrongerintheyoungadult,the25-to34-year-olds,whoareourprimerentersasyoucanseethereontheupperrightonchart2.

Morerecently,householdformationappearstobereboundingasyouseeinchart3,theupperhalfshowingsignsofthereleaseofpent-updemandthatmanyhavebeenexpectingsincetherecoverybegan.Thestrongdemandagainstabackdropofstablehousingproductionoverthelastseveral




quartersatleastinthemultifamilysectorsyoucanseeinchart4isresultinginrentalvacanciesthatareapproaching30-yearlowsaschart5shows.Andeffectiverentalrategrowththatisatorabovewhatwesawearlyinthecycle,sowe'veseenareallyniceaccelerationreallygoingbacktoQ4of2013andeffectiverentgrowth.

Turningtoslide7,strongfundamentalsareexpectedtobemoreevenlyenjoyedacrossourfootprintoverthenextcoupleyearsofthecycle.Overthepastfouryearsasyouseeontheleft-handgraph,theWesthasoutperformedsignificantly,drivenbystrongjobandincomegrowthinthetechnologymarketsofnorthernCaliforniaandSeattlewhilesupply'sbeenmodestinmostmarkets,particularlyintheBayArea.

Overthenextcoupleyears,weexpectjobgrowthtobemoreevenlydistributedasmorepartsoftheeconomyjoininontheeconomicexpansion.Secondly,wedoexpectsupplytoincreaseinSeattleandnorthernCalifornia,andasaresult,performancedifferencesbetweenregionsshouldbegintonarrow,includingintheDCareawhereperformancehaslaggedoverthelastcoupleofyears.ConverselySouthernCaliforniaisprojectedtoenjoythelargestdisparityinfavorabledemandgreaterthannewsupplyoverthenextcoupleofyears.

Turningtoslide8,thisexpectationforregionalperformancetonarrowasthecyclematuresisconsistentwithwhatwe'veseenhistoricallywheretheWesthasgenerallyoutperformedearlyinthecycleduringtherecoveryandearlyexpansionperiods.AndthenperformanceoftenconvergeswithEastCoastmarketsasthecyclematures.Tobeclearwe'renotcallingthetoptotheWest.It'sjustthatweexpectperformancetrendstobegintonarrowbetweentheEastandWestaswemovefurtherintothecycle.

Inevitably,relativemarketperformancewillebbandflowandmarketleadershipwillrotate.AsImentionedbeforeforexample,theDCshouldbegintorisefromthebottomandnarrowtheperformancegapwe'veseenwithotherregions.AndSouthernCaliforniashouldbecomeatopperformerintheportfolio.

Andwiththat,that'sprobablyagoodseguetotalkalittlebitmoreaboutSouthernCalifornia.AndI'dliketoaskMatttotouchonoureffortsoverthelastcoupleyearsandhowweexpectthattobearfruitoverthenextfewyears.Matt?

MattBirenbaum(CIO):

ThanksTim.AswementionedatthetimethatweannouncedtheArchstonetransactionbackinlate2012,theArchstoneacquisitionreallyhelpsusachieveourlong-termportfolioallocationgoals.

Slide9showshowthegeographicdistributionofourNOIacrossoursixregionshaschangedoverthepastfewyears,primarilyasaresultoftheadditionoftheArchstoneassetbutalsoduetoalotoforganicgrowthfromthelegacyAVBplatformasourdevelopmentactivityrampsupearlyinthecycle.TheregionthathasseenthegreatestgrowthisSouthernCalifornia,whichgrewfrom14.5%to19.6%ofconsolidatedNOIoverthelastfewyears.

Wehavebeenunderallocatedtothisregionformanyyearsandhavealwaysbeenchallengedtoincreaseourexposuretothebroadlydiversifiedeconomyandconsistentlong-termperformancethatSouthernCaliforniahasdeliveredforusfordecades.Bygrowingourpresencehere,wewerealsoabletomoverelativeallocationintheEastfrom50%to38%ofourNOI,whichprovidesbetterlong-termbalance.

Turningtoslide10,youcanseehowmomentumhasreallybeenbuildinginourSouthernCaliforniaportfoliooverthepastfivequarterswithyear-over-yearrevenuegrowthincreasingeachquarter.Rightnow,we'reseeingmarketrentsinalloftheSouthernCaliforniasubregionsaccelerateintothe6%rangeonayear-over-yearbasis.We'rewellpositionedforanotherstrongyearofsame-storerevenuegrowthinSouthernCalifornia,andthatgrowthwillcontributemoretooverallrevenuegrowthfortheCompany




givenourincreasedallocationtothisregion.

Lookingmorecloselyatwhereourportfoliogrowthhasoccurredacrosstheregion,slide11showsthelocationsofourcommunitieswiththesizeofthedotsproportionaltothesizeofeachproperty.TherearealotofdistinctsubmarketswithinthesprawlinggeographyofSouthernCalifornia.We'veincreasedourpresenceinallthreeofthesubregions--LosAngeles,OrangeCountyandSanDiego--withparticularconcentrationsintheTri-CitiesareaofPasadena,Glendale,Burbankandthe101CorridorfromWoodlandHillsouttoThousandOaks.

Ofcourseforus,it'salotmoreexcitingtoseetheactualproductthantolookatdotsonamap,whichiswhyweincludedslide12togiveyouasenseofthevarietyandqualityofproductwe'readdingtotheportfoliointhisregion.ThetoprowshowssomeofourlargerstabilizedassetsincludingAvalonStudioCity,whichisan827-unitcommunityacquiredfromArchstonelocatedrightnextdoortomanyoftheproductionstudiosinBurbank.

ThemiddlerowfeaturessomeofourrecentredevelopmentincludingAVABurbankwhichisoneoftheoldestassetsintheportfolio.Thisassetwasoriginallyconstructedin1961buthasbeencompletelytransformedandenergizedbytheintroductionoftheAVAbrand.

Andthebottomrowincludesthreeofourcurrentdevelopmentcommunities,includingAvalonWestHollywoodwhichisarealflagshippropertywhichwillfeatureaTraderJoe'sgrocerystoreonthegroundfloorand294apartmentsaboverightonSantaMonicaBoulevard.Wewereaggressiveaboutgettingshovelsinthegroundearlyinthecycle,andallofthesedevelopmentcommunitieshaveatremendousbaseastocurrentcapratesandcurrentreplacementcosts.


Thanks,Matt.AtthetimeoftheArchstoneacquisition,wetalkedaboutsomeofthebenefitsofthescale,namelyG&Aandoperatingefficienciesaswellastheexpansionandenhancementofimportantstrategiccapabilities.Sean'sgoingtotakeafewminutestoprovideafewexampleswe'vebeenabletoachieveintheseareas.Sean?

SeanBreslin (COO):

Thanks,Tim.Shiftinggearsnow,wethoughtitwouldbehelpfultotalkalittlebitabouttheefficiencyandeffectivenessofouroperatingplatform,andmaybealongthewayhighlightsomeinitiativesthatwillcontinuetoenhanceouroperatingperformanceinthefuture.

Sostartingwithslide13,thesemetricsreflectnotonlythebenefitsassociatedwithourlargerscale,butalsoourabilitytodelivermorecashflowperdollarofrevenuegeneratedfromtheportfolioovertime.Thechartontheleftreflectsouroperatingoverhead,whichincludesG&AasapercentageofNOIbothin2007andwhat'sexpectedfor2015.

WhileourportfolioNOIhasincreasedabout250%fromorganicgrowth,newdevelopmentandtheArchstoneacquisition,we'vebeenabletocontainoperatingoverheadgrowthtoabout20%oftherateofNOIexpansionoverthetotaleight-yearperiod.Thenetresultisthatoverheadisnowonly7%ofNOI,downabout500basispointsor40%from2007levels.

Thechartontherightreflectsoursame-storeNOImarginsin2007andwhat'sprojectedfor2015.Marginshaveexpandedbyabout200basispointsoverthelasteightyearsto70%,puttingusessentiallyatthetopofthemultifamilysector.

AndwhenyouthinkaboutourNOImargins,youreallyhavetoremembertwoimportantfacts.First,wehavenotenhancedourmarginsbysimplyreshapingtheportfolio,thatisexistinglower-rentmarketsand




acquiringassetsinthehigher-rentcoastalmarkets.

Andsecond,rentalratesdeclinedduringthefinancialcrisisandeconomicdownturnwhichputpressureonoperatingmargins.Infact,ifyoulookattherentlevelstodaycomparedtowheretheywerein2007,theCAGRoverthepasteightyearsisonlyabout3%,whichiswellbelowcurrentgrowthrates.

Movingnowtoslide14,IthoughtIwouldhighlightoneortwoinitiativesthathavemadeusmoreefficientandwillcontinuetopaydividendsinthefuture.Thisslidehighlightsacoupleofthebenefitsassociatedwithourrecentinvestmentsinproprietarytechnology,specificallyourprospectandresidentportals.Thesenewplatformscameonlinemidlastyearandhaveenhancednotonlytheefficiencyofouroperatingplatformbutalsoprovidedabetterproducttoourcustomers.

Leadsgeneratedthroughournewprospectportalhasincreasedby300basispointsto27%ofallleadstoday.Atthesametime,ourcostsassociatedwithotherformsofInternetadvertisinghasdeclinedbyabout28%.

Intermsofthenewresidentportal,enhancedfunctionalityhashelpedusbecomemoreefficientwithcertainback-officefunctions.Onlineresidentpaymentsarenowabout90%oftotalpayments,up12.5%since2013,andmaintenancerequestsorservicerequestsreceivedonlineareuptoabout50%ofallrequests,whichisanincreaseoftwothirdssince2013.

Ifyoumoveontoslide15,I'dliketoshareafewfactsaboutourcustomercarecenterlocatedinVirginiaBeach,Virginia,whichweviewasthebestinthebusinessandarealcompetitiveadvantageforus.Wehaveabout225associateslocatedatthecenter,andabout70%ofthemtakecustomerservicecallsandexecutetransactionsthatwould'vebeendoneonsiteatourcommunitiesinthepast.Forexample,postingrent,processingmoveouts,etcetera.

Thecostpertransactionislowerthanitwould'vebeenatthecommunitiesbecauseourhighlytrainedcustomercareassociatescanhandleamuchgreatervolumethananyoneindividualataproperty.Andtheseassociatesarecontinuouslymeasuredandmonitoredbasedontheirefficiencyandeffectivenessofprocessingtransactions.Theremainingassociateshandleothercorporatefunctions--accountspayable,cashmanagement,payroll,etcetera.

SoI'dhighlightthatwecontinuetoexpandourcapabilitiesatthecustomercarecenterwithauniquefocusonfunctionsthatarescalableandacentralizedenvironmentandforwhichwecanreducethecostpertransactionbybringingitin-house.Oneexampleofanewcapabilityisreflectedinthechartontherightsideoftheslidecollections.

Abouttwoyearsago,wedevelopedacollectionscapabilityatthecenterwhichisnoteasygiventheregulatoryconstraintsacrossallthestateswithinwhichweoperate.Webelieved,however,thatwecouldmateriallyreducethecostofcollectionsifwediditourselves.Andifyoufast-forwardtotoday,ourteamiscurrentlycollectingabout35%ofourtotalbaddebtin-house,whichhasresultedinanetbenefitofabout$2millionperyear.

Thebenefitreflectsthereducedthird-partycollectionfeesorcommissionsthatwewould'vepaid,offsetbytheoverheadassociatedwithourcollectionsteaminVirginiaBeach.Weexpecttorealizeanevengreaterbenefitaswetakeonmoreofourbaddebtcollectionsin-house.Andwealsothinkthereareadditionalopportunitiestoexpandourcapabilitiesatthecustomercarecenter,andwewillcontinuetoleverageittoouradvantageinthefuture.

Sohopefullythatprovidesanoverviewofsomeofouroperationalmetricsandinitiatives.AndnowIwillturnitbacktoTim.





Thanks,Sean.AsSeanmentioned,we'vebeenabletoreducecostssignificantlyfromthesystemoverthelastcycle.Partofthat'sfromscale,butimportantlypartofit'sfromreengineeringhowweconductandoperateourbusiness.

Lastly,Ithoughtwe'djusttakeafewminutesandhighlightdevelopmentactivityandfundingwhichwebelievetogetherpositionusforoutsizedNAVandFFOgrowthinthenexttwoyearswhilebeingabletomaintainaverystrongfinancialposition.Kevin,doyouwanttotakethis?

KevinO'Shea(CFO):

Thanks,Tim.Turningtoslide16,wehighlightthecurrentperformanceofthefivecommunitiesunderconstructionthatareinlease-up.Asyoucanseefromtheslide,theperformanceofcommunitiesundergoinginitiallease-upisquitestrongandcontinuestoexceedouroriginalunderwritingexpectations.

Specificallyforthesefivecommunitieswhichrepresent$455millionintotalcapitalcost,thecurrentweightedaveragemonthlyrentperhomeis$215orabout9%aboveinitialexpectations.Intermsofyieldperformance,theweightedaverageinitialprojectedstabilizedyieldforthesecommunitiesisprojectedat6.9%or60basispointshigherthanouroriginalprojectionof6.3%forthesecommunities.

Turningtoslide17,ourdevelopmentactivityremainswell-fundedtoday.Infact,asofquarterend,ourdevelopmentunderwayof$3.6billionwascompletelymatchfundedbythecombinationof$2.5billionincapitalspenttodateplusover$1.1billionfromcashonhand,projectedfreecashflow,andourequity.Asaresult,fundingriskforthisinvestmentactivityisessentiallyeliminatedwhiletheopportunitytorealizeasubstantialamountofvaluecreationasthesecommunitiesarestabilizedhasbeenlockedinforourshareholders.

Turningtoslide18,thisslidedemonstratesmoreclearlyhowourbeingmatchfundedonthisinvestmentactivityleavesusexceptionallywellpositionedfromboththecashflowgrowthandcreditperspective.Inparticular,theprojectedNOIfromrecentlycompleteddevelopmentandfromdevelopmentunderconstructiontotalsabout$225milliononanannualizedbasisasshowninthechartontheleft.Thisrepresentsmorethana20%growthinourannualizedadjustedEBITDAforthelastquarter.

Moreover,togiveinsightonhowthisprojectedEBITDAgrowthenhancesourleveragemetricsparticularlygiventhatnoincrementalcapitalisneededtocompleteconstruction.ThechartontherightshowshowourratioofnetdebttoadjustedEBITDAforthefirstquarterwouldhavedeclinedfrom5.9timesto5.0timesassumingthisprojectedEBITDAfromourdevelopmentunderwayhadbeeninplaceduringthefirstquarter.

Ofcourse,ouractualnetdebttoadjustedEBITDAwillmoveupanddownabitovertimeaswestartnewprojectsandsourcenewcapitaltofundthesenewprojects.Therefore,thisslideisnotmeanttocommunicatethatourleverageisgoingtodecreasedto5timesorthatourtargetleverageis5times.Infact,ourtargetrangeforthismetricisbetween5and6times.

Instead,thepurposeinshowingthisslideistoconveythatunfundedcommitmentswhichhappentobezerotodaybutmoreoftenwillbepositiveinthefutureshouldbeevaluatedintandemwiththeprojectedEBITDAgrowthfromongoinginvestmentactivity.Andaswestandtoday,fundingriskisverylowondevelopmentunderway,andtheprofitopportunityisrelativelyhigh,reflectingtwoimportantattributesofourcombinedinvestmentoffundingstrategy.

First,thefactthatourinvestmentactivityisexpectedtobeaccretivebothtoearningsandbalancesheet




strength.Second,thatthiscyclecontinuestooffercompellingvaluecreationopportunitiesfordevelopment-focusedapartmentREITssuchasAvalonBay.

Andwiththat,IwillturnitbacktoTim.


ThanksKevin.Obviouslywe'reofftoastrongstartinQ1totheyear.Asexpected,ourstabilizedportfoliocontinuedtostrengtheninthequarterpropelledbysomeofthestrongestapartmentmarketfundamentalswe'veseenoverthelastseveralcycles.Thedevelopmentportfolio'scontributingmeaningfullyasKevinjustspoketoinprovidingadditionalearningsandNAVgrowth.

Andimportantly,actionsthatwetookearlyinwhatwepredictedwouldbeastronganddurablecyclearepayingoff,includingthestartingandfundingofover$5billionofnewdevelopmentsince2010,acquiringanotherplusorminus$6billioninstabilizedanddevelopmentassetsintheArchstonetransactioninlate2012,early2013,andinvestinginimportantstrategiccapabilitieswhicharedrivingefficienciesandimprovingthescalabilityofouroperatingplatform.Alltheseactionsarepositioningustotakeadvantageofwhatwebelievecanbealongandsustainedexpansionperiodforthecurrentapartmentcycleandhelpusachieveoutsizedgrowth.

Andwiththat,Augusta,we'dbehappytoopenthelineforquestions.

QUESTIONS&ANSWERS


Thankyou.(OperatorInstructions)OurfirstquestionwillcomefromNickJosephwithCiti.

NickJoseph (Analyst-Citigroup):

I'mtryingtoreconcile1Qsame-storerevenuegrowthat4.3%tothegrowthyousawinJanuaryandFebruary.IthinkinearlyMarchatourconference,year-to-datesame-storerevenuegrowthwas4.4%to4.5%.Andfromthepresentation,theMarchrentchangeactuallyacceleratedintermsofthespreadyearoveryearfromFebruary.SowhatdrovethereductionofgrowthforthequarterrelativetowhereyouwereinearlyMarch?


HeyNick.ThisisTim.You'recorrect.WhenwemetattheCitigroupconference,wegaveamid-quarterupdateandwesaidourexpectationwouldbewe'dbeatthetopendoftherangefortheyearforthequarter,being4.4%to4.5%.Therealityisnumberslike[4.34%]andsomeofit'sonthenon-rentalrevenuesidethatgetsrolledupattheendofthequarter.SoreallynothingisdifferentthanwhatweexpectedandanticipatedinearlyMarchwhenwemetandspokewithinvestorsatyourconference.


Okay,thanks.SointermsofDC,itlookslikethequarterlyyear-over-yeargrowthwasthestrongestyou'veseensincemid-2013.Canyoutalkmoreaboutwhatyou'reseeingonthegroundthereandexpectationsfortherestoftheyear?

SeanBreslin (COO):

SureNick,thisisSean.IntermsofDCfromabroaderperspective,it'scertainlystillaweakmarketrelativetoothermarkets.Andthere'sstillafairamountofsupplycomingonline.Expectationsfor2015arestillforsupplygrowthsomewhereinthemid3%range.Butwhathasimprovedcertainlyisjobgrowthisnow




runningcloserto1%.

Soit'sinapositionnowwherefromamacroperspectiveacrosstheregion,we'reseeingsomeimprovements.Andasyouthinkaboutitintermsofthethreemarkets,theDistrict,suburbanVirginia,suburbanMaryland,itdoesdependonthenatureofyourportfolio,whetherit'shigherpricepointorlowerpricepointandthedistributionwithinthesubmarketsofeachoneofthosemarkets.Butforusatleast,rightnowDCisperformingthebestandisproducingslightlypositiverevenuegrowthandrentchange.

ThetwoweakermarketsaresuburbanVirginiaandsuburbanMarylandwithsuburbanMarylandbeingtheweakestrightnowparticularlygivenallthedeliveriesthatarecomingthroughinRockville,Bethesda,ChevyChase,allinthatarea.Butifyoulookatintermsofmaybetrendsfromthefirstquarterandwhatwe'reseeinginthesecondquarter,thefirstquarterrentchangeacrosstheregionoverallwasbasicallyaroundflat.

Butasyoumoveintothesecondquarter,it'strendingslightlypositivetothetuneofabout100basispointsintermsofblendedrentchange.Sowe'reseeingthatsecondderivativemovepositivelybutatarelativelyslowpace,andI'dsaywithstillafairamountofriskgiventhesupplythat'sbeingdeliveredintheregionrelativetotheanticipatedjobgrowth.


Great.Thanks.

Operator :

OurnextquestioncomesfromJanaGalanwithBankofAmericaMerrillLynch.

JanaGalan (Analyst-BofAMerrillLynch):

Thankyou,goodmorning.Yourturnovercontinuestodecline,andwesawthefirstquarterhomeownershipratedropbelow64%.Iwaswonderinghowlongdoyouthinkyouwillcontinuetoseeturnoverdeclineandhowthat'shelpingyourexpensesandthenanychangesinreasonsformoveouts.

SeanBreslin (COO):

Sure,Jana,thisisSean.Intermsofpredictingturnover,alittlebitdifficulttopredict.It'sreallyafunctionofI'dsayjobmobilityprobablyfirstandforemostaswellaschoicesintermsof--withinalocalmarketwhatchoicespeoplehave.Iftheyfeelliketheyhavemorechoicesattherightprice,itinfluencesturnover.

AndthereasonIsaythatisrelocationisstillthetopreasonformoveoutinourportfolioandrunsaround20.Ithinkthat'sconsistentwithmostREITs.Soifpeoplearerelocatingforjobreasons,etcetera,thatreallytendstoinfluencethetotalamountofturnover.

Andthenontheothertopics,homepurchasesstillrunningwellbelowlong-termaveragesintherangeof13%.Andhasbeenprettyflat,notreallymovedmuch.It'sdownalittlebityearoveryearbutnotreallymovingtheneedle.

Andthentheotherreasonsarereallyfinancialincludingrentincreasesaswellasintercommunitytransfers.Rentincreasestendstorunalittlebithigher,closerto16%to18%.Atthispointthecycle,youexpectittobetrendingupwards.

Butintermsofactuallypredictingwhatturnoverwillbe,it'safunctionofthemacrovariablesthatImentioned.Andsowe'renotyetatapointwherewe'repredictingit,butgivenwhatwe'reseeingacross




theportfolioaswelliswhat'shappeninginthesingle-familymarketandtheproductionlevels,it'snotfar-fetchedtoassumethatturnoverwillremainbelowhistoricalaveragesforthenextfewquartersforsure.


Maybejustaddtothat,asSeanmentioned,moveoutsandhomepurchaseshavebeenrelativelystable,andit'sbeenourexpectationthathomeownershipratesaregoingtostabilizeroughlyinthisareainthe64%,65%range.Sowedon'treallyhaveaviewthathomeownershipratesaregoingdownmeaningfullyfromhere.It'sbeenourviewthatyouaregoingtoseemoreofabalancedhousingpictureoverthenextfewyearsasthehousingmarketscontinuetorecover.

Andalotofthat'sbeingdrivenbysomeofthethingswe'vebeentalkingabout,whichisdemographicsandlifestylebehaviorintermsofwhattypeofhousingchoicefitsbesttheneedoftheemergingpopulation.Sowedoexpectittobemorebalancedinthenextfewyears.


Thankyou.AndthenjustmaybeonthesouthernCalifornia,expensesavingsthisquarterseemedveryimpressive.Ithinksomeofthatmighthavebeenbenefitingfromtaxappeals,butmaybeifyoucouldtalktowhatelseisinthere.

SeanBreslin (COO):

ThisisSean.That'sexactlyright.ThemainbenefitthatcamethroughinthefirstquarterwasasuccessfulappealofanassetinSouthernCalifornia.Andthatrepresentedthemajorityofwhatyou'reseeingthereintermsoftheexpensechange.


Thankyou.

Operator :

We'llgonexttoDanOppenheimwithZelman&Associates.

DanOppenheim(Analyst-Zelman&Associates):

Justwonderingifyoucouldtalkalittlebitintermsofexpectationsforsomeofthepricingwhereyoutalkedaboutthebeststartintermsrentalgrowthatthestartoftheyearrelativetosomepriorcycles.Asyouthinkaboutthebalanceacrosstheregions,doyouthinkthisacceleratesfurtherasthemid-AtlanticandNortheastgraduallyimprove?Howareyouthinkingaboutthatoverallintermsoftherentalratepower?

SeanBreslin (COO):

Sure.ThisisSean.Justafewcommentsonthat.Fromamacroperspectivecertainlyacrossthemarket,pricingpowerisimprovingatthispoint.

Timalludedtotherentchangeinhispreparedremarksnotonlyforthefirstquarter,whichtrendedhigherineachmonthofthefirstquarter,butalsocontinuedtotrendhigherintoApril.We'reonablendedbasis,we'rerunningataboutthe6%range.

AndIguessthewayI'ddescribeitiswe'reseeingincreasedpricingpoweracrossallthemarkets,buttherateofaccelerationisslightlydifferent.TherateofaccelerationisprobablythestrongestrightnowinSouthernCaliforniaaswellasnorthernCalifornia.Thosetwomarkets.NorthernCaliforniaobviouslyhas




beenadiscussionpointforseveralquartersnowintermsofthemomentumthere.

Anditwillbeinterestingaswemovelaterintheyearandmoresupplycomesonline,particularlyinthesubmarketofSanFranciscoandNortheastSanJosewhetherthatstartstothrottlebackalittlebitofthepaceinnorthernCaliforniawhichwesawacoupleyearsagowhenwesawbulletedsupplycomethroughSanJose.SouthernCaliforniajobgrowthhascertainlyrampedup,andsupplyremainsprettymutedrelativetoothermarkets.AndifyoulookataplacelikeOrangeCounty,jobgrowthhasreallymadethedifferencetherewhereit'supcloserto2%overthelastsixmonths.

Andsowhilethere'sstillameaningfulamountofsupplycominginoncertainsubmarketsthere,HuntingtonBeach,Anaheim,etcetera,Irvine,thejobgrowthhasreallycaughtuptoapointwhereit'sprettyhealthy.SothemomentuminnorthernCaliforniaisstrong,SouthernCaliforniaisstrong.

OntheEastCoastmarket,themid-Atlanticiscertainlyhelpfultoseeapickup,andImentionedthatessentiallyrentchangewasflatinfirstquarter.It'spositiveabout100pointsfromthesecondquarter.

AndIthinkit'sjustgoingtobetouchandgointhemid-Atlanticoverthecourseofthenextyeardependingonhowjobgrowthcomesout.Butassumingwemaintainoraccelerateonthejobfrontinthemid-Atlanticmarkets,weknowwhatthesupplyisgoingtobelikelytoseepricingpowerconsistentwithwhatwe'reexperiencingnowtopotentiallyslightlybetterasyoumovethroughtheyear,particularasthehouseholdformationsstarttocomethroughconsistentwithwhat'sforecastedfor2015.

Soreallyasyoutalkthroughthemarkets,itdependsonwhereyou'relocated,whatyourexposureiswithincertainsubmarketstosupply,etcetera.Butingeneral,pricingpoweriscontinuingtoimproveatdifferentratesacrossthefootprint.


Timhere,justtoaddalittlebittopartofyourquestionIthink.GenerallytheWestCoast--ifyoulookhistoricallyhasjustbeenmorevolatile,andtheEastCoasthasbeenmorestable.SoastheEastCoasthastendedtooutperformlaterinthecycle,it'sreallybeen--it'sbeenlessaboutitacceleratingpasttheWestCoastandmoreaboutitbeingastabilizerrelativetomorevolatileperformanceontheWestCoast.

Ithinkit'salittlebitofanopenquestionhowthingsmayplayoutthiscycle.Asyousawontheonechart,ifhouseholdformationreallydoesrecovertothe1.5millionplusrangeandhousingproductionlevelsreallyjustdon'trespondinamaterialwayquickly,we'realreadyseeingrentalvacancyrates,30-yearlows,you'reseeingownershipvacancyratesapproachinglonger-termnorms.Yougetanothercouplequartersofhouseholdformationwethinkwe'veseen,Ithinktherecouldbeashortage--anaccelerationinimpactpotentiallyallmarketfromapricingperspectivewhetherthat'sforsaleorontherentalside.

DanOppenheim(Analyst-Zelman&Associates):

Great.Andjustlookingatthechartwhereyou'reshowingthenewversusthemoveinonpage5,showingtheimprovementinthenewmove-inrentalrates,certainlypositivethere.JustthinkingabouttherenewalsespeciallyontheWestCoastwheretheoverallgrowthhasbeenthestrongest,howmuchareyoupushingtherenewals?Isthereanycautionaboutpushingtoomuchanddrivingturnoverhigherthere?

SeanBreslin (COO):

ThisisSean.Imeancertainlyaconversationwehaveallthetimeintermsofoptimizingtheperformanceoftheportfolio,butatthispoint,wefeelprettycomfortablethatwe'rehandlingitinawaythat'snotonlyoptimizingtheperformance,butalsoisbasedonwhatwethinkthecustomers'reactionwilllikelybegivenavailablechoiceswithintheirspecificsubmarketandgeneralgeography.




Inonethingtokeepinmindispeoplefocusalotontherenewalnumbersversusthemove-inrentchange.Youreallyhavetolookatitonablendedbasisbecauseitdependsonifyou'retalkingaboutthesameunitrentchangewhenthelastpersonmovediniftheymovedinfiveyearsago,it'sverydifferentpotentialrentifthey'recomingoutfiveyearslaterascomparedtosomeonewho'sbeentheretwoyears.Soifyoulookatitonablendedbasis,it'sprobablymoreappropriate.

Andtheotherthingwelookatishowwideisthegapgettingbetweentheabsoluterentthatacustomerispayingastheymoveintoanapartmentrelativetosomeonewhoisrenewinginthatsameapartmentinthesamecommunity,andthatspreadtodayonanabsolutebasisisonlyabout2%.Sowhenyouthinkaboutit,it'snotthatwideintermsofexistingcustomersgoingtoawebsiteandlookingatpricingfortheirparticularapartmenthomeforsomeonewhoismovingin.Andobviouslytheyhaveswitchingcostsintermsoftheirmoveandeverythingelse.

Sothat'sarelativelyreasonablespread,2%.We'dprobablybealittlemoreconcernedifthatnumberwasapproaching5%asanexample,butacrosstheportfolio,Ithinkwe'reinprettygoodshapeonthat.

Operator :

OurnextquestioncomesfromNickYulicoofUBS.

NickYulico (Analyst-UBS):

Thanks.Tim,Iwashopingtostartoffwiththeguidanceagain.Imean,youguysareatthehigh-endyear-to-dateonsame-storerevenue,aboveonsame-storeNOI.

YoutalkedaboutreallygoodtrendssofarandeveninApril.Sohowdowebalancethatagainstyouguysnotdecidingtoraiseguidance?Istheresomethinginthebackhalfoftheyearthatyou'reconcernedabout,orareyoujustwanttotakeawait-and-seeapproachforanotherquarter?


Yes.Nick,firstofall,thefirstquartermoreorlessplayedoutthewaythatweexpected,particularlyasitrelatestothetopline.Thatalonewouldn'tdriveaneedtorethinkouroutlookatthispoint.

Andwearemovingintothepeakleasingseason,andwhilewe'rewell-positionedandwe'reofftoastrongstart,we'regoingtohavealotmorevisibilitymidyear.Andthat'stypicallywhenwedoamorerobustreforecastprocessandreopenthepropertybudgetsifyouwill.

Ifeellikewewillbeinamuchbetterpositiontogivetheinvestorandanalystcommunityasenseofwherewethinkwe'regoingtoendupfortheyear.Sowe'reneitherchangingnoraffirmingoutlookatthispoint,butwewouldlooktodosomidyear.


Okay.Andthenonthedevelopmentpipeline,twoquestions.Oneisshouldweassumetheforwardgetssettledallinthethirdquarter?Andthenhowareyouthinkingaboutfundingthenextwaveofdevelopment?

Ithinkyouguysweresayingyoucoulddo$1.4billioninstartsthisyear.Wouldyouconsideranotherforward?Howareyouthinkingaboutthatoverthenextcouplequartersfromafundingstandpoint?Thanks.

KevinO'Shea(CFO):

SureNick,thisisKevin.Iguessthere'safewquestionsinthere.Firstasitrelatestowhenwedrawcapital




downundertheequityforward,asIthinkweindicatedinthefourth-quartercall,ourexpectationisthatwedosointhesecondandthirdquarters.

Reallynonewnewsonthatfront.It'ssomewhatdependentonwhatwedointermsofincrementalcapitalactivitygoingforwardoverthenextcouplequarters.Otherwiseintermsofdispositionactivityandraisingdebtcapitalpursuanttoourcapitalplan,thatcouldaffectthetimingthere.

Ithinkit'sfairtoassumethatprobablyatleasttwothirdsofitwouldbeinthethirdquarter,andathirdorlesswouldbeinthesecondquarter,butthatnumberbouncesaroundquiteabit.Inthere,whatwe'relookingatisjusttryingtobalancecashonhandandminimizingourcostsunder--interestexpensecostsunderourlineacreditwithourotheractivityinthecapitalmarketfront.

Thesecondquestion,justtoanswerthat,itmightbehelpfuljusttogivearefreshonourcapitalplanfortheyear.Ifyoulookbackatourinitialoutlook,wehadtotalsourcingusesof$2.35billion,andintermsofthesources,wehadcashonhandandanexpecteddrawdownonunrestrictedcashaccountforabout$600millionofthat.

Asyouprobablynoticed,wedrewdowncashby$300millionduringthequartertofundColumbusCircle,sothathashappenedasplanned.Thatleftuswithabout$1.75billionofexternalcapitalinourcapitalplanfortheyear.About$650millionofthatrelatestoforwardwhichwejusttalkedabout,leaving$1.1billion.

Wesoldoneasset,StamfordHarbor,inthefirstquarter.Sothatleavesabout$1billionofnetincrementalcapitalwhichweexpecttosourcepredominantlyintheformofunsecureddebtandthebalanceinthesaleofassets.

Thoseareourthoughtsregardingthecapitalplanfortheyear.Iguessthefinalquestioniswhatisourphilosophyaroundtheuseoftheforward?Iknowweuseditforthefirsttimeattheendoflastyear.

Therealityiswe'vebeenawareoftheforwardforprobablymorethanfiveyearsasatoolthatwasinourtoolkitifyouwillthatwecouldpotentiallyusetofunddevelopment.Andaswetalkedaboutinthepast,youneedtohavetherightconfluenceoffactorsthatwouldjustifyonetouseitagain.Andcertainlyfirstandforemostistheexpectationofelevatedfundingneedsfordevelopment.

Wecertainlyhadthatthisyearorhavethatthisyear.Wesawthatbythemiddleoflastyearbeingsomethingwewantedtothinkabout.Aswedisclosedinourinitialoutlook,weexpecttospend$1.7billionondevelopmentandredevelopmentactivity.

That'sacyclicalhighforussofarthiscycleandameaningfulamountofcapital.Andthatreallyinformedourviewaboutwantingtobemorelike100%matchfundedratherthanbeingmorelikecallit75%matchfunded,whichiswherewe'vereallybeenforthemostpartthroughoutthiscycle.

Soit'ssomethingit'satoolinourtoolkit.It'ssomethingwecanpotentiallyuse,butit'snotsomethingwenecessarilyfeellikeweneedtouseallthetimebutreallyneedstobedrivenmorebyunusualconfluenceoffactorswithelevatedfundingneedsbeingthemostimportant.


Okay.Thanksguys.

Operator :

We'llgonexttoHaendelSt.JusteofMorganStanley.

HaendelSt.Juste (Analyst-MorganStanley):




Goodmorning.Acouplequestionshereondevelopment.Sofirst,youguysstartedacoupleprojects,twothatI'dcharacterizeasex-urbanorwelloutsidethecoreoftheMSAs,yourHuntChaseandLynnwoodprojects.Andyou'renotseeminglyslowingdownonyourdevelopmentpaceasmuchinatimeperiodwhereyourpeersareslowingmore.

Sospecifictothesetwoprojects,whatisitabouttheseprojectsthatmakesyouexcited,especiallyinlightofthesuburbanMarylandweaknesscomments?Areyougivingyourselftocapitalizeontheperceivedpent-updemandinthesuburbs,andifso,howmuchmoreofyournear-termdevelopmentstartscouldbemoresuburbaninnatureversusurban?

MattBirenbaum(CIO):

ThisisMatt.Icanspeaktothatone.Itwasactuallyalightquarterforusforstarts,$100million,andwe'reontracktostart$1.3billion,$1.5billionfortheyear.Thatisobviouslyaverysmallportionofourdevelopmentactivityplansfortheyear.

TheAlderwooddealwasjustasecondphaseofthedealthatactuallycompletedthisquarter,andthatdealcompletedatayieldofarounda[7%].AndagainSeattlemarket,eveninsuburbanSeattle,that'sprobablyamid[4s]cap.

Sothat'sincrediblycompellingvaluecreation,second-phaseincrementaleconomics.Wejustphasedthatdeal,phasedthelandtakedownwhichwasgreat.

Theotheronethatwestartedthisquarter,HuntValley,that'sabitofauniqueassetforus.Itisasuburbanlocation,butit'satransit-orientedsuburbanlocation.It'sactuallyattheendoftherailline,it'srightnexttoaWegmans,it'sanoldmallthathasbeenturnedintoatowncenter,andit'sasubmarketthathasseennonewsupplyforprobably30years.

Soinsomeways,it'salotlikeouroldernortheasternstuffwherewe'rebringingaluxuryproducttoasubmarketthathasveryhighhomeownershipcostsandveryhigh-endhomesupinthatareaaswellasadecentamountofemployment,alotofotheramenities,butjusthasn'tseenluxuryrentals.Sowe'reactuallycreatingabitofmarketthere,andwedon'tgetthatopportunityveryoften.ItalsoincreasesourexposurealittlebittotheBaltimoreMetropolitanarea,whichhasdonequitewellwithcycleandwherewe'reprobablyalittlebitunderallocatedinthelongterm.

Butmorebroadlyaswelookoutoverourstartsfortheyear,andwehavesaidoverthelastyearorsothatwearestartingtoseeoursuburbanassetsperformalittlebetterthanoururbanassets.AndIthinkyou'reseeingthatingeneraljustbecausethesupplyissoconcentratedintheurbanareas.Andalsotheurbanproducttendstobemorecompellingeconomicallyifitcanbedoneearlierinthecyclebecauseit'sgenerallyhighercapitalcostwhenyougetintoconcreteframe.

Sowhenyoulookatourpipelinegoingforward,what'scurrentlyunderconstructionisabout50%urbanversuswhat'sinthepipelineisprobablyabout25%urban.Soitismoresuburbanthanwhatwecurrentlyhaveunderway.

Butweactuallyhavesomenear-termstarts,wehavenear-termstartactuallyintheDistrictofColumbiathatweexpecttostarthereinthenextquarter.Sothere'sstilladecentmixofproduct,andagain,we'regenerallyjustdrivenbylookingforwherethebesttotalrisk-adjustedreturnsareinthemarket.Andatthispointinthecycle,that'swherewe'refindingit.


Iappreciatethat.Anotherdevelopmenttypeofquestion.Itlookslikewe'reseeingsomemoderationincertainkeyinputcosts,landpricecostsaregoingupbutmoderating,lumberandgypsumcostare




comingdown,wagegrowthismoderatingaswell.Iwonderwhatyou'reseeingonthatfrontandhowyoumightbefactoringthatinto--theselowercostsintoyourprospectiveprojectunderwritingandnewstarts.

MattBirenbaum(CIO):

Wewouldlovetoseesomeofthatcomethrough.Thesubcontractorshavebeenholdingontoitsofar.Generallyspeaking,whenweunderwriteourbusiness,weunderwriteeverythingonacurrentspotbasis,sowedon'ttrendrents,wedon'ttrendexpensesandwedon'ttrendcapitalcost.Wesay--whenwesignupanewdeal,wesay--ifwewerebuildingthisprojecttoday,here'swhatitwouldcostustobuilditandhere'stheNOIwewouldexpecttogetoutofthat.

Andgenerallyspeaking,dependingonwhereyouareinthecycle,wemaybelookingforahigherorlowerspreadbetweenwherethatyieldisandwherecapratesare.Ifwe'reinamarketwhereit'searlierinthecyclewherewethinkthere'sbetterrentgrowthaheadrelativetocostgrowth,wemightbewillingtogoinatleasttotheinitialduediligencewiththetightermarginthanifitwastheotherwayaround.

Butgenerallyspeaking,we'restillseeingcostsgrowataprettyrapidclipinmostofourmarkets,andagain,it'sdrivenmostlybysubcontractor,bylaboravailabilitywhichisgettingtighter,andbysubcontractormarginsandjustthevolumeofbusinessoutthere.There'salotofconstructionoutthere,thesubsarebusy,sotheycanaffordtobeprettyaggressiveinthepricingtheyoffer.AndotherthaninMetroDCwherethey'reprobablycomingoffofmoreproductionrampingintolessproductionandsotheyarealittlehungrier,otherthaninDC,prettymuchallofourothermarketsisgoingtheotherwaystill.


Okay,andthelastoneonEdgewater,Iknowyouhadachancetogothroughtheinsuranceassessmentandrecoveryprocess.The$793,000netlossfigureyouquoteinthepressrelease,isthatthefinalfigure?Couldtherebeadditionalcosts?

Andanyupdatedthoughtsonyourplanforthatprojectgoingforward.Ifyoudeterminedifyou'regoingtorebuild,sell,etcetera?

KevinO'Shea(CFO):

Yes.Haendel,thisisKevin.Iwillansweronthefirstpartwithrespecttosomeofthecosts.The$800,000ofcoststhatyouseeflowingthroughwithrespecttoEdgewaterwereessentiallyourinitialresponsecostswithtenantdisplacements,firewatch,etcetera.

Wewillseewhatrollsforwardthere,probablyaresomemodestcostsbutnothingverysignificantinthatregardgoingforwardsincewe'reclearingthesiteandtheotherbuildinghasbeenreoccupied.SonotmuchinthewayofEdgewater-relatedcoststhatweexpect.

Inthequarter,whatwedidinthefirstquarteriswewroteoffthenetbookvalueofthebuildingthatwasdestroyed,whichwas$22million.Itturnedoutthenetthird-partyinsuranceproceedsthatwe'dreceivedduringthequarterwas$22million,sothatwasanoffset.Sothatreallyhadnoimpactonourfinancialsforthequarter.

Goingforward,wecontinuetoworkwiththeinsurancecompaniesonsecuringthebalanceoftheinsuranceproceedsthatweexpect.Inourinitialoutlook,weindicatedthattheloss--thecasualtylosswaslikelytobewithrespecttothedestroyedbuildinggreaterthan$50millionwherewehave12%self-insuredexposureofabout$6million.

Sowe'restillworkingonthat,it'samatterofjustworkingthroughthedocumentationandobtainingfinal




signoff.Andgoingforward,aswenotedinourrelease,intheeventthatwereceiveadditionalinsuranceproceedsrelatedtothecasualtylossonEdgewater,thoseadditionalinsuranceproceedswouldbereflectedasacasualtygain,whichwouldflowthroughanincreaseFFObutwouldbepulledoutforcoreFFOpurposes.


Haendel,Timhere.Justintermsofyoursecondquestion,reallyourfocusintermsofthesiteitselfhasreallybeenonclearingthesiteandcleaningthesitetodate,alsojustsomesalvageeffortsthathavebeenundergoingintermsoftryingtorecoversomeitemsforformerresidents.AsKevinmentioned,obviouslyinsuranceprocesswhichincludestryingtohelpfacilitatethesettlingofresidentclaims.

Wehavebeenevaluatingoptionsforthesiteaswellasitrelatestorebuilding.There'sobviouslyanumberofphysicalissuestobeconsideredthereintermsofthestructuralcapacityofthegaragethatremains.Butthere'salsopoliticalissuesthatweunderstandweneedtoworkthroughwiththetownintermsofwhatmightrightlybeabletoberebuiltthereintermsoftheformandstructure.

Andthenlastlythereisalenderonthesite.Itissubjecttoacreditpoolthatwouldneedtobeconsideredaspartofit.SoI'dsayit'sprematureyetintermsoftellingyouwhatexactlyourstrategyisandtimingaroundtheresolutionofthesite,butsomethingwe'reactivelyevaluatingatthemoment.


Okay.Thankyouverymuch.

Operator :

We'llgonexttoRobStevensonwithJanney.

RobStevenson (Analyst-JanneyCapitalMarkets):

Goodmorningguys.Tim,canyoutalkabouthowrobustthecondodevelopmentandcondoconversionprocessisinyourcoremarketstoday?


Yes,Rob.Othersmaywanttojoininaswell.Iwouldn'tsayit'sallthatrobust.You'recertainlyseeingsomesignsofitinNewYorkandperhapsSanFrancisco.

There's--ifyoujustlookatapartmentvaluationsarerelativetocondovaluationsorforsalevaluations,itstillreallydoesn'tmakesenseinmostcasestoactuallyconvertanassettoacondominiumandtakethatmarketrisk.Andyou'rejustnotgoingtogetenoughcompensationinordertodothat.

Ithinkinsomecases,andDCmaybeanexamplewhereitactuallydoesmakesensetothinkaboutnewground-updevelopment,andcertainlyNewYorkandSanFrancisco,thatmakessomesense.Butwe'rejustnotseeingalotof--franklyalotofunsolicitedinterestinourassetslikewedidinthemid-2000topotentiallyconvert.

It'sprettyisolatedIwouldtellyouatthispoint.Anditjustmakessensewhenyougobackandyoutrackwhatapartmentvaluationshavedoneoverthelast10to15yearsversuswhatforsalecondominiumvalueshavedoneduringthatsametimeframe.It'sreallygoingtobeisolatedatleastoverthenextcoupleyearstoreallymicrolocationsandreallyone-offtypeopportunities.





Okay.Andthenwhenyoulookatyourredevelopmentpipelinetoday,what'stheexpectedreturnsonthat,andhowmuch--howmanymoreprojectsdoyouexpecttoaddtothepipelinethisyear?

SeanBreslin (COO):

YesRob,thisisSean.Intermsofredevelopment,thepipelineisprettyplentiful,particularlygivenwhatweacquiredfromArchstone.AndIthinkwhatwe'veindicatedinthepastisthatwewillprobablystartsomewhereintheneighborhoodof$100millionto$150millionyearroughlyintermsofredevelopmentactivity,somefromtheAvalonlegacyassetsbutalsoarelativelyhighpercentageoftheArchstoneassetswouldbeinthepool.

Intermsofthereturns,thereturnssofarthiscyclehavebeenactuallyveryhealthy.Andthewaythatwelookatitisifyoutaketheoverallinvestmentintotheenhancementsattheassets,we'retypicallylookingatreturnsthatareprobablyunderwritteninthe10%to12%range.

Butactualresultshavebeenmoreinthemid-teens,andthatexcludescomponentslikeifyouhavetoreplacetheroofaspartofadevelopmentorsomethingwhereyou'renotreallygettinganeconomicreturn.It'smorelikeCapEx.Butintermsoftheactualredevelopmentopportunity,kitchensandbathsandotherenhancementsincommonareas,underwrittenagain10%to12%andproducingmid-teensrecently.


Okay,andthenlastquestion,the35projectsonthedevelopmentsrightpage,howmanyofthoseareshovelreadytoday,andisthereanyissueorreasonwhyyouguysonlystartedtwothisquarter?Intermsofyourthinking,isthatthat'swhatwasavailableandthat'swheretheyieldswere?Isthereasituationwherethestartsare--andsomeofthestuffthatyou'replanningfortherestoftheyearbackendweightedtowardsmoreurbancomplexdeals,etcetera?Canyoutalkalittlebitaboutthat?

MattBirenbaum(CIO):

Sure,Rob,thisisMatt.No,prettymuchwhentheyareshovelready,wegenerallytendtostartthem.Sothereare--we'replanningafairnumberofstartsthisnextquarterhereinthesecondquarter.

Anditjusttendstoworkoutthatway.It'sasmuchtodowithweatherisanythingelse.Youwindupwithgenerallyspeakingthedealsinthepipeline.We'rebiddingthem,we'refinalizingtheplansandpermits.

Whenwegetthefinalbidnumbersandwefindtheeconomicssatisfactory,wetendtostartthem.SoIwouldn'treadanythingintothat.LikeIsaidthisnextquarter,weshouldhaveaprettyhealthyamountofstarts,andthereisn'treallyanythingintherethat'sreadytogothatwe'rejustsittingon.


Okay.Thanksguys.

Operator :

OurnextquestioncomesfromJohnKimwithBMOCapitalMarkets.

JohnKim(Analyst-BMOCapitalMarkets):

IhadacouplequestionsonyourassetsaleofStamfordHarbor.YouprovidedtheunleveredIRRof11.9%.Butcanyoualsoprovidetheleveragereturngiventhisonehadmortgagedebtandalsomaybesharesomeofthecharacteristicsofthebuyer?




MattBirenbaum(CIO):

Yes.ThisisMatt.Wegenerallyhaven'tprovidedthosenumbers.Thedealwasoriginallydevelopedoffthebalancesheet,itwasputintoapoolin2009.

Soit'shardtoisolatethat.AndthebuyerIthinkwasaprivatebuyer.Folksthatwe'vedoneotherbusinesswithbefore.Regionalplayer.


Wheredoyouthinkyourdispositionswillcomeinthisyearversusyouraveragerunrateof$380million?

MattBirenbaum(CIO):

Ithinkweprovidedsomeguidanceatthebeginningoftheyearwithouroutlookintermsofthetotaldispositionvolume.

KevinO'Shea(CFO):

ThisisKevin.AsImentionedinmyearlierremarks,Iwentthroughthecapitalplanthatweannouncedatthebeginningoftheyear,andmuchofthatcapitalatleastexternallyhasyettobeformedapartfromtheequityforwardandsaleofStamfordHarbor.Thatleavesabout$1billionofnetincrementalcapitalpursuanttoourinitialplanfortheyear.

Wedon'tbreakitoutfurtherthanthatotherthantosaythatthepredominantamountofthatcapitalweexpectwillcomeintheformofunsecureddebt,andthebalancewillbeinthissaleofassets,partlybecausewedon'treallywanttobeoverlyprecisewithrespecttoouranticipateddebtcapitalmarketsactivitybygivingspecificamounts,andplusbecausethecapitalmarketsconditionscanchangeandthepreciseamountmaychangethroughoutthecourseoftheyear.Butitwillbemostlyintheformofunsecureddebt,atleastthat'sourplanandhope,andthebalancewillbesaleofassets.


Okay.Justafollow-upquestiononEdgewater.Accordingtoyourdisclosure,thelenderofthemortgagedebtcandecidehowyouusetheinsuranceproceedswhetherornottorepaytheloanorredeveloptheasset.Soifthelenderchoosestoredevelop,doyouhaveachoice,andcanyoupotentiallychangethescopeoftheproject?

KevinO'Shea(CFO):

Yes.John,thisisKevinagain.AsTimnoted,wearestillindiscussionswithrespecttowhatthelenderandalsoevaluatingwhatourplansarefortheasset.Soit'salittlebitearlytosaywhat'sgoingtohappenwithrespecttowhetherwe'regoingtoredeveloprebuildEdgewaterandwhat'sgoingtohappenwithourdiscussionswiththelender.


Okay,andthenjustonefinalbigger-termquestion,butCaliforniacontinuestobeverystrong.Atwhatpointdoyoubecomeconcernedwiththestate'songoingdroughtandmaybethepotentialimpactontheeconomy?


I'mnotsure.I'mnotsurehowtoanswerthatreallyjustintermsofthedrought'spotentialimpactontheeconomy.




Obviouslyit'saffectingourpropertiesintermsofwe'resubjecttothesameconstraintsthatotherhomeownersare.Sean,youmightwanttojusttalkaboutthat,butasitrelatestoitseconomicimpact,itwouldbetotalwildspeculationonourpart.

SeanBreslin (COO):

John,thisisSean.There'sbeenplentyofpressoutthereaboutstatemandatedreductionsinwaterusageandhigherratesasaresultofexceedingthe25%targetedreductionsforthestate.

SoIthinkpeoplearegettingtheirarmsaroundthatintermsofhowthatactuallyflowsthroughtothecommunitiesandtoresidentswhoultimatelypaythemajorityofthewaterbill.ButIthinkthatthegeneralexpectationiscertainlythattherewillbepotentiallyhigherutilitiescostacrosstheboardinthatmarketwhichwouldimpactchoicesintermsofresidentialdwellings,whetherit'smultifamily,,single-familywhateveryourchoicesare.

Intermsofourresponse,ourresponseisasyoumightimaginetryingtobeasefficientaswecan.Andbeforethisevencameout,wealreadystartedinitiativesrelatedtosmartirrigationsystemsandthingslikethattotrytobeasefficientaspossibleasitrelatestowaterusagebecausetherehadalreadybeenpressureonrates--waterratesinCaliforniaasaresultofthedrought.


There'sbeensomemarketreportsthatdevelopmentsareslowingdown.Areyouseeingthisatall?


Developmentsareslowingdownasaresultofthewaterissue?


Yes.


I'venotheardthat.


Okay.Thankyou.

Operator :

We'llgonexttoVincentChaowithDeutscheBank.

VincentChao (Analyst-DeutscheBank):

Goodmorningeveryone.Justaquickquestion.IntermsofNewEngland,yououtlinedthesnowremovalcosts'impactonexpenses.Justcuriouswhatimpactyousawontheleasingside.

Itseemslikethingsdidtrackalittlebithigherthanlastquarteronayear-over-yearbasis.Butjustcurioushowmuchimpactyousawintheleasingandifthere'sbeenanotableimprovementsincethingshavestartedtofillouthere.

SeanBreslin (COO):

Yes.ThisisSean.WedidquantifytheOpEximpactinNewEngland.Andifyouhadexcludedtheimpacts




ofthosestormsonOpEx,ouryear-over-yeargrowthrateinOpExwould'vebeenabout100basispointsless.

Intermsoftherevenueside,it'salittlebitdifficulttoquantify.Imeanyoucanlookattrafficandnetleasesandthingsofthatsorttotrytoquantifyitasbestyoucan.Wehadadifficultwintertherelastyear,it'sworsethisyear.Sothere'ssomeimpact,butit'sreallyhardtoquantifywhatthatisintermsofwhodidn'tshowup.

NewEnglandisamarketlikeSeattlethat'salittlemoreseasonalthantheaveragemarket.Sotypicallyitisrelativelysoftorquietinthefirstquarterintermsofwhatyoumightseeinmarketrentgrowth,anditrampsupmateriallyasyougetintoMarchandAprilthroughaboutJuly.

Andthat'sprettymuchthepatternwe'veseenthisyear,soit'snotterriblydifferentfromwhatwe'veseeninthepast.WestructureourleaseexpirationsinNewEnglandinthefirstquartertobeprettylow,lowerthanaverageportfoliointheregion.Excuseme,averageacrosstheportfolioforthefirstquarter,andthatdiminishesthelevelactivityintheregiontobeginwith.


Gotit.Okaythanks,andthenjustanotherquestion.LastquarterIthinktherewasaquestionabouttheremainingHoustonassetsthataregettingreadytobemarketed.Justcuriousifyouhadanycoloronwhatyou'reseeingintermsofdemandforthoseassetsandpricingandthatkindofthing.

MattBirenbaum(CIO):

Vincent,thisisMatt.Weare--wehavetwoassetsinHouston.Oneofthemwedidmarketinthelastseveralmonthsisundercontractnow,soIcan'treallycontractanyfurtherthat.

Icanletyouknowmorewhenitcloses.Andwehaveoneotherassettherethatwearepositioningforsalebutwehavenotbroughttothemarketyet.


ImeanIknowit'sundercontract,butanycommentonthedemandyousawforthatasset?Wasitbetter-than-expected,inline?

MattBirenbaum(CIO):

Ican'treallygetintothatwhenit'sapendingtransaction.


Okay.Thankyou.

Operator :

We'llgonexttoDaveBraggwithGreenStreetAdvisors.

DaveBragg (Analyst-GreenStreetAdvisors):

Thankyouforallofyourthoughtsearlieronyourportfolioallocationgoalsandaccomplishments.It'sbeenaverybusyperiod,butIwantedtorevisitonegoalorideathatyouhadsuggestedbackatyourInvestorDayin2010.

Atthetime,yousaidyourportfoliowas15%ClassB,buttheefficientfrontieranalysisindicatesthat25%wouldbeoptimal.Wheredoyoustandasitrelatestothat?





Yes,Dave,thisisTim.Aswetalkedaboutmaybeonthelastfewcalls,wethinkreallymorefromabrandallocationstandpointatthispoint.ButyoucanthinkjustroughlyEavesasaClassB,generallysuburban,andAvalonandlargelyisClassA.AndAVAcanbeabitofamixbutprobablymoreClassAthanitisClassB.

Andwhatwesaidisit'slessaboutatargetallocationfortheentireportfoliothantryingtooptimizepositioningofassetswithintargetsubmarkets.Andthatsometimesisgoingtobeamoreaffordableassets,andothercases,it'sgoingtobemoreofaClassAornewerbuildtypeasset.

Andwewerejusttryingto--backinNovember2010,weweretryingtogiveanindicationwhatwethoughttheoutcomeofthatstrategymightlooklike.Butaswementionedinthelastfewcalls,we'reactivedevelopersrightnow,andwe'reallocatingmorecapitalthroughnewdevelopmentthanwearethroughacquisition.AndsoyoumightexpectthatthatwaitingtocontinuetobealittlemoreweightedtowardsAvalonthanEavesoverthenextcoupleyearsaswebuildouttheportfolio.


Right.Thatmakessense,andIknowyou'vepublishedthismanytimesbutIdon'tseeitinfrontofme,what'sEavesasapercentageoftheportfolio?


Eavestodayisabout17%,AVAisabout6%,andtheremaining75%,76%isAvalontoday.Andthat'sbyfairmarketvalueoftheassetsifyouwill.Soonaunitcount,itwouldbealittledifferentthanthat.


Okay.Thanks,andanotherquestionrelatestotheAmericanBibleSocietydeal.Itseemsreallyinteresting,we'rehopingyoucanprovidealittlemoredetailonthatincludingyourexpectationsforstreetretailrentsinthatsubmarket.

MattBirenbaum(CIO):

HeyDave,thisisMatt.Weareactivelyworkingthatproject.ObviouslyasweclosedtheendofJanuary,weputthedesignteamtogetherworkingthroughtheconceptdesignsrightnow,movingitasquicklyaswecantowardshopefullyastartsometimeinthesecondhalfofnextyear.

Andaspartofthatprocess,wearetalkingtopotentialretailpartners,anditisquitepossiblethatwewillwindupdoingatransactiontheretobringinsomebodyeitheronaforwardsellbasisoronacurrentbasistotaketheretail.Wedohavesomeestimationsofwhatwethinkretailrentsarethere,butultimatelyweknowthatthatisamaterialpartofthevalueofthatassetandthatisnotourareaofexpertiseobviouslyasmuchastheresidential.Sowemaywellbringinapartnerthere.

It'sabout55,000feetofretaildividedbetweenthreelevels,thegroundfloor,thesecondfloorandsomesellerspace.Andobviouslytherentsareverydifferentdependingwhichofthosefloorsyou'reonandevenifyou'reontheBroadwayfrontageversusthe61stStreetfrontage.Butwe'relookingatintermsofwhatthetotalvalueoftheretailisandthereforewhatthetotalvalueofournetinvestmentwillbeafterthatassumingthatsomebodyelseultimatelyownsthat.


Okay,soalotofmovingpieces,nothingelseyoucansharerightnow.




MattBirenbaum(CIO):

Right.


Allright.Thankyou.

Operator :

We'llgonexttoIanWeissmanofCreditSuisse.

Unidentif iedPart icipant :

Heyguys,thisis[Chris]forIan.Inyourpreparedremarks,youtalkedalittlebitabouthowyoustrategicallyincreaseyourexposuretotheWestCoastoverthelast7to10years.

Whenyoulookatyour$3.3billionshadowpipeline,thevastmajorityofitcomesfromyourEastCoastmarkets.Socanyoutalkalittlebitaboutwhatyou'regoingtodointermsofdevelopthoseassetsorthoselandparcels,orareyougoingtobegoingouttobuymorelandinordertoincreaseyourexposuretotheWest?

MattBirenbaum(CIO):

It'safairquestion.ThisisMatt.Icangetintothatalittlebit.You're--obviouslyyou'reright,ourdevelopmentrightspipelineismoreheavilyweightedtotheEast.

Ithinkthat'safunctionofacouplethings.OneistheentitlementcycletendstobeveryextendedparticularlyintheNortheast,sosomeofthosedealsareinthereforalongperiodoftime--three,four,fiveyears.

Thatisn'tnecessarilyreflectiveofthebalanceofwherethestartswillbe.TheWestCoastdealshavetendedtocomeinandmoveoutmorequickly,particularlyearlyinthecyclewherewewerebuyingsitesthatmaybesomeoneelsehadentitled.

Sosomeofitisjustatimingmix.SomeofitismarkettimingthoughthattheWestCoastmarketsaremorevolatileasTimhadmentioned,andsowe'retryingtobeveryaggressiveaboutgettinginearlyintheWestCoastmarketswherethedevelopmentwindowcanbealittlenarrower.

SoIthinkwearemorecarefulaboutthat,buthavingsaidthat,wedo--wearelookingatsomeprettysignificantWestCoastlandopportunitiesrightnow,andwe'recontinuingtopursuethose.SoIthinkyoumayseethatmixchangealittlebitoverthenextcouplequarters.Butgenerallyspeaking,thedealsintheWestdoseemtocomeinandoutofthepipelinealittlemorequickly.


AndChris,justonelastthingtoadd,aswefeellikewe'regettingoutofbalancebetweenEastandWest,wecanobviouslymanagethatthroughjustbuyingandsellingassetsaswell.Whilewe'renot--whileopportunitymaynotallowustodothatthroughdevelopmentbaseduponwhereyouareinthedevelopmentcycleinparticularmarkets.Wedohavelittlemoreflexibilityasitrelatestobuyingandsellingassets.


Great.That'sreallyhelpful.Iappreciateit.Justnowacouplequestionsaboutlikeimpairmentsandhowthosehittheincomestatement.




Itlookslikeyouhaveaboutroughly$5.8millionimpairmenthittingtheincomestatementwhere$4.2millioniscomingfromNortheastweatherandthenabout$800,000fromthelossonEdgewater.What'stheremaining$800,000?

KevinO'Shea(CFO):

Chris,thisisKevin.Theremaining$800,000isanimpairmentchargeonlandthatisdueundercontractforsalethatweexpecttocloseinthesecondquarter.


Gotyou.AndthenintermsoftheNortheaststormimpairment,it'sreversedaboveNAREITFFOs.Isthereanyreasonwhythat'sthecase?

KevinO'Shea(CFO):

It'sacasualtyondepreciablerealestatewhichundertheNAREITdefinitionofFFOisaddedbacktoFFO.


Okay.That'shelpful.Andthenlast,ofthe$3.2millionyouhaveaddedbacktocoreFFO,I'massumingthe$793,000isfortheactualimpairment.Andisthebalancetheopportunitycostoflostrents?AndoftheIthink$0.09to$0.11youhaveintheguidanceforthefullyear,isthatalsoamixofopportunitycostandactualcost?

KevinO'Shea(CFO):

Onthefirstpart,the$3.2millionthatisaddedbackinourattachment13ofourreleaseisaddedbacktocoreFFOfromFFO,itconsistsofabout$1.6millionoflostNOIfromEdgewater.Soweexpectroughlyspeakingthatthattorecurthroughoutthebalanceoftheyear.

$800,000asyoupointoutistiedtoEdgewater'stheincidentresponsecostthatweincurredduringthefirstquarter.Intheremaining$800,000isthelandimpairmentcostsforthewhollyownedparcelthatwejustmentionedamomentago.Canyourepeatthesecondquestionagain?


No.Ithinkyouprettymuchgotit,butitsoundslikethat'sgoingtoberecurringthroughouttheyearandthatthe$0.09to$0.11willbethenextofthosethreethings.

KevinO'Shea(CFO):

WellIthinkwecanfollowupafterwards,butbasicallytobeclearintermsofwhatIwasjustdescribing,ofthe$3.2million,$1.6millionrelatestolostNOIfromEdgewater.Thatwillrecurthroughoutthebalanceoftheyear.

Soyoujustmultiplythatbythree,andthat'swhatweexpecttoreceiveoverthenextthreequarters.Theothertwoitems,the$800,000inresponsecostfromEdgewaterand$800,000inlandimpairmentcost,thoseareone-timeitemsthatweexperienceinthequarteranddonotexpecttorecuroverthebalanceoftheyear.


Gotit.Thatmakessense.Thanksalotguys.




Operator :

We'llgonexttoAlexGaldfarbofSandlerO 'Neill.

AlexGoldfarb(Analyst-SandlerO 'Neill&Partners):

Goodafternoonandthankyoufortakingthequestions.Justtwothatarereallyquick,firstKevin,youtalkedaboutpotentialdebtissuance.Goingbackafewmonthsago,theratingagencieswere--seemtobeindicatingtheymaybelookingtoupgradeyouguysalthoughbasedontheconversations,thedebtmarketsalreadypriceyouguyslikeanAtypecredit.

Soasyouarethinkingaboutdebtissuanceorcapitalfortherestoftheyear,areyouobligatedtochangeanyofyourthoughts?Orthisisalltheratingagency'sdoing,youguysaren'taskingforanyofthisandthereforeyou'renotchangingthewayyouviewyourcapitalstructureordevelopmentspending,etcetera?

KevinO'Shea(CFO):

Alex,thisisKevin.Ourthoughtsaroundourcapitalstructurehaven'tchanged.Theratingagenciesaretakingtheirownactionoftheirownaccordbasedonwhateverthey'reseeingintermsofboththeevolutionofourbusinessandthecurrentcapitalmarketconditions.It'sasetofactionsthatarehappeningindependentlyofus.

Intermsofourcapitalplanfortheyear,ourdecisionsaroundhowmuchtoraiseisafunctionofhowmuchweexpecttoexpendondevelopmentandotheractivities,soit'sdrivenbyouruses.AndsoasImentionedearlier,weexpectaboutanother$1billioninincrementalactivityonasourcingfrontintheformofdispositionsanunsecureddebtissuance,reallybecauseoftheinvestmentactivitywehaveinourcapitalplan.

Intermsofourchoicesaroundwhattoraise,it'sreallyafunctionnotoftheratingagenciesbutratherwhatarethemostcosteffectivesourceofcapitalatanygivenpointintime.Andasthingsstandtoday,unsecureddebtpricingisrelativelyattractive.

Moreover,asyoucanseeinourinitialoutlookfromthefourthquarter,wehave$650millionofdebtthatweexpecttorefinance.Sothat'sause.Andonaleverage-neutralbasiswithNOIstabilizedportfoliogrowinganddevelopmentNOIcomingonline,wecanaddmorethanthatamountintheformofnewlyissuedunsecureddebtandstillgrowonaleverageneutralbasis.

Sothat'showwearoundtriangulatearoundourtotalincrementalneedsandhowmuchofitmightbeintheformofunsecureddebt.Butatthispointasyouknow,wehaven'tissuedanythingintermsofdebt,sowewilljusthavetowaitandseewhathappensasweprogressthroughtheyear.


AndKevin,canyoureminduswhatcapratestheyuseforyourunsecureddebt?Fortheunencumberedpool,sorry.Whatcapratetheyuse.

KevinO'Shea(CFO):

I'mnotsureifI'mfollowingyourquestion.Wehavedisclosureinourpressreleasethattalksaboutthecapratesthatpertainstoourline,andIthinkthat'sthe60%caprateifI'mrecallingcorrectly,butyoucanseetheattachmentforthat.Butintermsofthecapratesthattheratingagenciesuse,Idon'thaveanyinformationandIdon'tknowthatitwouldbesomethingIwouldwanttoshareifIdid.





Okay,that'scool.Andthenseparatequestion,areyounowdonewithanyofthelegacyArchstonedispositionsorgains,oristherestillpotentialformoretocome?

KevinO'Shea(CFO):

WellIguessonepointIwillmention,thisisKevinagainandothersmaywanttocomment.WeexpectpotentiallythesecondquarterandyouprobablysawthisintheJVincomelineitemtoreceivesomeadditionalsettlementproceedsrelatedtosomepreacquisitionthatwilllikelyfallthroughinthesecondquarterandbeincludedwithinreportedFFObutcarvedoutforcoreFFO.


ButImeaninadditiontowhatyou'vealreadydisclosed,isthereanythingfuturebeyondthisorfirstandsecondquarterclearsthedeckandthat'sit.

MattBirenbaum(CIO):

Alex,thisisMatt.There'sonemoreasset.Thereweretwoparcelsoflandthatwoundupintheparkinglot,onesettledearlierthisyear.

There'soneotherparceloflandouttherethatwewilleventuallysell.Itmaysettlethisyear.Itmaynotsettleforawhilelonger.Wewillseehowthemarketplaysoutonthat,butthat'srelativelyminoratone-timeadjustmentifitclears.

KevinO'Shea(CFO):

It'sbeenactuallyreflectedinthefirstquarter.


Perfect.Listen.Thankyou.

Operator :

We'llgonexttoTayoOkusanyaofJefferies.

T ayoOkusanya(Analyst-Jefferies):

JustalongAlex'slineofquestioning,canyoujusttalkalittlebitmoreaboutwhatyou'reexpectingfortherestoftheyearandjustinregardtoacquisitionsoverallandgenerallywhatpricingyou'reseeinginmostofyourkeymarkets?I'msorry--disposition,notacquisitions.

KevinO'Shea(CFO):

Tayo,thisisKevin.IthinkoverallasImentioned,there'sprobablyanincremental$1billionofcapitalweexpecttosourcepursuanttoourplanfortheyear.Mostofthatweexpecttosourceintheformofunsecureddebt.Thebalancewillbedispositions.

Intermsofthedispositionsthatwecontemplate,IthinkMattoutlinedthatamomentagothattwoofthemrelatetoHouston.OnewecompletedinStamfordHarborinthefirstquarter.Sothere'soverall,andyoustepback,there'snotanawfullotofdispositionactivitythat'santicipatedwithinourcapitalplan,andprobablythosetwosourcesrepresentthebulkofthat.


Okay.





AndMatt,anythingyouwanttoaddjustintermsoftransactionmarketgenerally,whatwe'reseeingoutthere.

MattBirenbaum(CIO):

Transactionmarkethasbeenveryhigh.There'sclearlymoredemandfrombuyerstobuyhigh-qualitymultifamilyassetsthanthereareassetsonthemarketforsalegenerallyspeaking.Obviouslyitvariesalittlebitmarkettomarket.

SolikeKevinsaid,ourneedsarefairlymodest.We'realwayslookingtotransact.Onthemarginifwecanshapetheportfoliosowemaysellanadditionalassetifwe'reusingthosefundstobuyanassetthatmaybeinasubmarketwelikebetter.Butrightnowthemarketisveryactive,veryliquid.


Gotit.Thankyou.

Operator :

(OperatorInstructions)We'llgonexttoMichaelSalinskywithRBCCapitalMarkets.

MichaelSalinsky(Analyst-RBCCapitalMarkets):

Justinthenatureoftimeasthiscallisrunningalittlebitlong,justtheREITadditionsoverthelastcouplequartersseemstobealittlebitmoreofanurbanfocusparticularlywiththeNewYorkassetthere.Isthereanyshiftasyouthinkaboutstartsmaybetwo,threeyearsdowntheroadmovingmoreurbanbackintheurbancoreasopposedtothesuburban?

AndthenjustgiventhestartsinDC,youguysareamongthefirsttosellouttoreduceyourexposuretoDCaheadofthedownturn.CanyoujusttalkaboutyouroutlookforDCoverthenexttwotothreeyears?Istheworstalreadypast,anddoyouexpect2016and2017--wouldyouexpectDCtoperformmoreinlinewiththerestoftheportfolio,ordoyouthinkthere'sarecoverypotentialthere?

MattBirenbaum(CIO):

Michael,thisisMatt.IcanspeakalittlebittothefirstpartofthequestionandmaybeSeanorTimmightwanttoaddsomecoloraswellonDClonger-term.

Intermsofourdevelopmentrights,obviousthatColumbusCircledealisaverylargedeal,sothatdoesmovetheneedleintermsofwhenyoustartlookingatthenumbersandweightingitbyurban/suburbaninthosethings.ButasImentionedearliergenerallyspeaking,we'restillfindingjustwhenyoulookatoverallsupplydemandfundamentalsandyoulookatwherelandispricing,thecostofconstruction,we'refindingbetterrisk-adjustedreturnsgenerallyspeakingonnewlanddealsinsuburbanmarkets.Andagain,alotofthisisinfillsuburbantransitorientedinsuburbanjobcenters,someofitisfurther-outbedroomsevers,butmostofitisthatinner-ringsuburbs.

SoIwouldnotexpectourdevelopmentrightsmixtochangemateriallyonewayortheother,butit'sreallybottom-up.Wedon'tsithereandsaytothelocalteams--gofindusfivedealsinanurbanmarketandnowgofindusfivedealsinasuburbanmarket,it'sfindusthebestdealsinyourmarket.

Andtheyrespondtowhatthey'reseeingontheground,andsometimesthosearemoreurbandeals,sometimesthey'remoresuburbandeals.Butatthispointinthecycle,theyarestillmoresuburban,ColumbusCirclenotwithstanding.




AsitrelatestoDC,weareplanningacoupleofstartsinMetroDChereoverthenextcoupleofquarters.Someofthosearelegacypositions,oneofthemisalargedealintheDistrictthatwehadinheritedthelandfromArchstone.

Butasitrelatestothedevelopmentcycle,itisprobablyabettertimethanithasbeeninthelastcoupleyearsifyouthinkthatDC'shadseveralyearsofbasicallyflatrentgrowthunderperformancerelativetotherestofourfootprint,andifreplacementcostshaven'tmovedallthatmuch,it'sprobablyabettertimetobethinkingaboutthat.Intermsofwherefundamentalsareheadedandwhererentgrowthmightbetwoorthreeyearsfromnow,Idon'tknowthatwe'reinapositiontopredictthatotherthanweknowthere'sstillafairamountofsupplycomingnextyearortwo.


Mike,maybejusttoaddontothat,tobeclear,IsaidinmyremarkswedoexpecttheperformancegapstostartnarrowingbetweenDCandourothermarkets.Butoverthenexttwoyears,wedoaskthattounderperform.

Whenyoujustlookatthesupplythat'sstillcoming,andwhilejobgrowthhaspickeduprecentlyinDC,wedoexpectitwillbeanunderperformerrelativeouraveragemarketsoverthenextseveralquarters.

ButtoMatt'spointasitrelatestodevelopment,you'rereallyfocusedonsecondderivativeaswellasthefirstderivative.Andthatoftentimeswherethere'sgoodlandopportunities.Andifyoucantimeitfromaconstructionstandpoint,whenthelabormarket'sstillrelativelysoft,thoseareoftentimesourbest-performingassetslongterm.

MichaelSalinsky(Analyst-RBCCapitalMarkets):

Appreciatethecolorguys.Thankyou.

Operator :

We'llgonextto[WilliamPho]ofCowenandCompany.

WilliamPho (Analyst-CowenandCompany):

Great.Thanksguys.Appreciatethecolorinthepresentationandtheadditionaldatapointsaroundthedevelopmentpipeline.Justlookingatpage16wherethefivecommunitiesunderconstructioninleaseup,wherethecurrentprojectedyieldis6.9%versusthe6.3%original,about10%higher.Givenyourviewoftheextendednatureofthecurrentcycleandcallittwoyearstodelivertherestofthepipelineonaverage,isthereanyreasontothinkthatthecurrentpipelinewhereifIestimatea6.2%yieldthatthatwon'tstabilizeat10%higheraswell.


YesWilliam,it'sTim.Ifyoulookoverthelastthreeorfouryears,thedealsthatwecompletedhaveallstabilizedonaverageforeachvintageyearabovewhatwehadanticipateduponoriginalproduction.Andit'sreallyjustrentgrowth.

Ithinkit'sgoingtocomedowntohowyouunderwriterentgrowthoverthenextfourorfiveyears.Totheextentwecontinuetoseealongsustainedcyclewherewe'regettingtrendtoabovetrendrentgrowth,wewouldexpectstabilizedreturnstobeabovewhatwefirstreportinthereleasewhenitinitiallygoesontheseschedules.





Okay.Thanks.AndthenjustquicklynowthatHighlineWestChelseais97%leased,canyoutalkabouttheperformanceofthetwodifferentsegmentsversusoriginalexpectationsandhowsplittingupthatintothetwosegmentshasperformed?

SeanBreslin (COO):

ThisisSean.Intermsofperformance,we'vebeenhappywithboththeAVAandtheAvalonproduct.AVAdeliveredfirstalittlebitbiggerbuilding,andAvalonfollowed.Butwhenyoulookatitjustfromaleaseupdateperspectiveandwhathappenedwithrentsthroughthecourseofthedifferentseasonsoftheleaseup,performancerelativetotheoriginalexpectationswasprettysimilarbetweenthetwobothAvalonandAVA.


Okay.Thankssomuch.

Operator :

Wehavenofurtherquestionsatthistime.I'dliketoturntheconferencebacktoTimNaughtonforclosingremarks.


Thankyou,Augusta.Thanksforbeingontoday.Iknowit'sbeenalongcallsowewon'ttakeanymoreofyourtime,butwedolookforwardtoseeingallofyouinJuneatNAREIT.

Operator :

Thatdoesconcludetoday'sconference.Thankyou,all,foryourparticipation.

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