Equity Residential Q3 2008 Earnings Call Transcript

| About: Equity Residential (EQR)

Equity Residential (NYSE:EQR)

Q3 2008 Earnings Call

October 30, 2008 11:00 am ET

Executives

Marty McKenna - IR

David Neithercut - President and CEO

Mark Parrell - CFO

Fred Tuomi - EVP of Property Management

Analysts

Dustin Pizzo - Banc of America Securities

David Tody - Citigroup

Jay Habermann - Goldman Sachs

Lou Taylor - Deutsche Bank

William Acheson- Benchmark

Rob Stevenson - Fox-Pitt Kelton

Michelle Ko - UBS

David Bragg - Merrill Lynch

Anthony Paolone - JPMorgan

Sameer Patil - FBR Capital Markets

David Harris - Arroyo Capital

Michael Salinsky - RBC Capital Markets

Michael Bilerman - Citigroup

Dan Litt - LaSalle Investments

Haendel St. Juste - Green Street Advisors

Operator

Good morning. My name is Nicollet, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter earnings conference call. All lines have been placed on mute to prevent background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions).

Thank you. Mr. McKenna, you may begin your conference.

Marty McKenna

Thank you, Nicollet. Good morning and thanks for joining us to discuss Equity Residential's third quarter 2008 results. Our featured speakers today are David Neithercut, our President and CEO, Mark Parrell, our Chief Financial Officer. Fred Tuomi, our EVP of Property Management; and David Santee, our EVP of Property Operations are also here with us for Q&A

Certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the Federal Securities Law. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.

Now I would turn it over to David.

David Neithercut

Thank you, Marty. Good morning everyone. Thanks for joining us for our call today. As noted in last night's press release, we delivered what we think are pretty solid operating results, and I want to let our teams across the country know how proud we are of them and how grateful we are for their contributions to Equity's success.

Across the board, we had very good occupancy and saw increasing rental rates in most of our markets. We were able to deliver revenue growth of 3.4% for the quarter, 3.6% for the first nine months of the year, and these results were very much in line with expectations.

We continue to benefit from the changes we made in our portfolio over the last few years. Year-to-date, same-store net operating income growth for assets we acquired in 2006 was 8.2% on revenue growth of 6%. Assets acquired in 2005 delivered 7.7% net operating income growth on revenue growth of 5.6%, so we are very pleased with the performance of those acquisitions.

We also continue to benefit from our residents reluctance to buy single-family homes. We saw a one percentage point or 5% decrease in the number of residents moving out to buy homes in the third quarter of 2008, versus the third quarter of 2007. Our resident retention is up.

In October, we realized a positive increase in the rent charged to renewing residents across every one of our markets. Unfortunately, the increases we are getting from our renewing residents have been at decreasing rates of growth over the last several months.

Furthermore, even though traffic is up, and by that I mean both walk-in traffic and [yearly] traffic. New prospects are resisting higher rental rates, and new residents are paying less than the previous occupant in many of our markets. These are trends we expect to continue to see going forward.

So our teams across the country are working hard and giving it their all but they can not overcome the impact the economy is having on our business. So as we expected, and as I included in operating guidance we gave in late July, we are seeing revenue growth slow across every one of our markets.

With 10 months of the year in the bank and the visibility we have 30 to 60 days out, we have tightened up same-store operating guidance we gave in our last call to numbers that are solidly within the previously given range.

Revenue growth for the year, we are now suggesting will be 3.25%, expense growth for the year, 2.25% and net operating income growth, 3.75%.

We were expecting things to get tough in the fourth quarter, and unfortunately, we were right. I want to note that, while our same-store operating expectations for the fourth quarter and therefore full year have not changed, it is not because we expected the economy to be as bad as it is, because it is certainly in far worse condition than almost anyone thought.

It is simply that we do not expect the worsening economy to impact the fourth quarter anymore than we had previously thought due to the limited lease rollover we expect in the next 30 to 60 days, but we do expect 2009 to be a very challenging year.

As noted in our release, we will give 2009 earnings guidance on our fourth quarter call in February, therefore our comments today, both prepared and during the Q&A will we based on how we see things today with a view out 35 to 60 days, because that is the visibility we have with regard to our notice to vacate lease commencements to our future residence et cetera.

With all that in mind, what are we doing in our various businesses to deal with the current economic and liquidity situation? While on the transaction front, to preserve and build liquidity, we continue to sell properties and not buy. For only the second time in our history, we did not buy a single asset in the quarter, and we have reduced our full year acquisition expectations to $400 million. This is down from the level of $750 million which we gave you only 90 days ago on our second quarter earnings call. Again, this is down mainly due to our desire to protect our liquidity position given the uncertainty in the credit markets.

As noted in last night's earnings release, this reduction in acquisition activity will be about $0.02 dilutive in the fourth quarter, and this is what we have come to call, good dilution.

Meanwhile, we continue to take advantage of the strong bid for assets, with smaller price points, in slower growth or in our non-core markets and other assets we have targeted for sale. As a result, we sold 11 assets in the third quarter for $328 million. An average sales price of $30 million will be sold, nearly 3,500 units, an average age of 15 year old, at a 5.9% cap rate, and an internal rate of return of 10.8%.

We sold nine assets in Austin in the quarter, and essentially completing our exit from the Austin, Texas market. We sold one property in Denver and one property in Sacramento.

We continue to assume that we will sell $1 billion of assets for the full year. We sold $807 million through September 30. We sold another $28 million in October, and we have a pipeline of assets for sale, many of which could close by the end of the year. They are in various stages of diligence or in the closing process.

These assets are in Texas, Florida, Colorado, Arizona, Connecticut, and North Carolina. Now there is absolutely no certainty that any of these deals will close; I stress; no certainty.

In fact, $1 billion could be a stretch goal. These are all deals being offered at prices of less than $20 million. Fannie and Freddie are currently working on most of them and they are open for business. If interest rates do not increase terribly much we believe that we can close a good portion of these deals.

I want to say that on prior calls, we have indicated we could be a net seller of $500 million without causing the possibility of a special dividend. That was based on our best guess at the time of the assets we were likely to sell. Well based on what we have actually sold and those that we believe we could yet sell this year, we are confident that we can be a net seller of this of unto $600 million not the in a special dividend situation.

Turning to the condo business, you will not be surprised to hear that the last several months have not been very good to sales velocity there. While traffic remained surprisingly good, there are simply no buyers. Everyone is either waiting for a better deal or afraid to catch a falling knife.

So we are taking one of two courses of action on properties that that have unsold inventory, and inventory which totals fewer than 160 units in three properties. We have a small amount of unsold inventory; we are pricing the deals to sell. We could very well sell them in bulk but the objective is to unload this inventory.

Where we have more unsold inventory, we are going to aggressively lease up units. All this has caused us to increase the loss of our conversion business for the year by about $2 million at the midpoint, and this primarily from closing fewer units.

Lastly, as we have said for the last year or so, we will closely watch our overhead cost to insure that they remain inline with our activity in this business. While we think the conversion business can be an important business for us over the long time, we admit that it will likely be a while before that market recovers.

Onto the development business, given market conditions, there is very little new to report there since our last call. We did complete our Key Isle project in Orlando, Florida. We did not commence any new projects in the third quarter, nor did we add any new projects to the pipeline.

In fact, we dropped a couple of pipeline deals in the third quarter and incurred a charge for the quarter of $880,000 on those. So the pipeline is now less than $2 billion. It may very well shrink if we abandon pursuit of other deals during the fourth quarter.

Through the second quarter, we had started $255 million for the year. That does not include the Mosaic transaction that we acquired in the second quarter mid-construction, which is now 82% complete. As I noted previously, we did not start any projects in the third quarter and I do not expect to start any additional development for our own account until the capital markets show improvement and we get a better picture of capital availability.

We do have some JV relationships where we may try to find third-party construction financing, but I am not optimistic that those deals will come together in this marketplace. All that said, I continue to strongly believe that in our core markets, well located, well conceived assets delivered in 2010 and beyond will perform very well.

This is due to very favorable demographic trends, as well as the likelihood of very little new products being built in the near future with the construction loan market all but shut down there. As a result, we will continue to underwrite new development opportunities with the goal of auctioning sites; that is, tying them up on our terms, which will include a long lead time before significant funds are actually put at risk.

So with all that said, Mark will give you a little bit more color on our operating performance, guidance for the year, and perhaps, more importantly, our liquidity position. Mark?

Mark Parrell

Thanks, David. Good morning, everyone, and thank you for joining us on today's call. These difficult times for our economy and the capital markets have created a heightened focus across all sectors on liquidity and near-term funding needs, in addition to the usual emphasis on apartment fundamentals.

As long time investors in our company know, Equity Residential has always maintained a conservative balance sheet, it is been aggressive in addressing our cash needs, even before recent events made having liquidity absolutely imperative.

With that in mind, I want to give all of you a deep dive in Equity Residential's cash position, funding needs and our plans to meet those needs over the next few years.

First, I want to talk about our good same-store operating results and FFO results, as well as give you some color on our same-store and FFO guidance for the remainder of 2008.

We are very pleased to report same-store NOI growth of 3.9% for the quarter and 4.4% year-to-date. For the quarter, our same-store revenues increased 3.4% over the third quarter of 2007, driven by a 3.3% increase in average rental rate, solid occupancy of 94.4% and an increase in other income.

As we said on our last call, our growth rates have moderated in the second half of the year in virtually all of our markets, with the moderation more pronounced in the markets that continue to feel the pains of the single-family housing market slowdown, Florida, Inland Empire, Phoenix.

We expect same-store quarter-over-quarter revenue in the fourth quarter to be only up about 2.5% as rising unemployment pressures demand for our apartments.

The story on the expense side of the house continues to be good. Same-store expenses were up 2.6% for the quarter and 2.1% year-to-date, due to our cost control initiatives.

In the third quarter, payroll grew at an inflationary level and insurance costs declined. Other less controllable expenses, predominantly higher utility costs, up 6.8% quarter-over-quarter or $1.8 million, and higher property taxes, up 5.3% quarter-over-quarter or $2.2 million offset some of these expense savings.

We are also very pleased with a 13% quarter-over-quarter decrease in our total property management expenses and a 20% decrease in quarterly G&A.

Despite the current conditions in the economy and credit pressures on the consumer, our bad debt was 0.9% or 90 basis points of revenues in the quarter, which is very much in line with historical standards. Delinquencies were about 3% of rental income in the third quarter, which is very much in historical range and actually about equal to the third quarter of 2007.

October was even better, well inside of our third quarter number. We also had a good contribution in the quarter from our lease up properties. As we told you in our original guidance for 2008, we expected our lease up properties, which are not yet in same-store, to make a positive impact of $25 million to $35 million for the year and those assets are in plan to meet our expectations.

As you saw in our press release, our third quarter 2008 FFO results came in at the high end of our range. This was due to an on-budgeted land sale gain and G&A savings. We had a negative impact to FFO of $0.02 per share from our condo business due to weaker condo sales this year than last and impairment charges on halted deals.

I would like to address guidance for the fourth quarter and full year 2008. In the press release, we provided fourth quarter 2008 FFO guidance of $0.60 to $0.65 per share. The transaction dilution of $0.02 per share is not due to negative cap rate spread, but because through September 30 we sold approximately $800 million of rental properties and bought only $340 million. In the third quarter alone, we had $329 million of disposition, but no acquisitions.

As we stated in our release, we have lowered our acquisitions guidance for the year to $400 million from $750 million and left our dispositions guidance at $1 billion. As David Neithercut said, we believe it is very prudent to maintain liquidity despite the short-term dilution. This is our good dilution.

We also have a positive impact from the repurchase of certain of our public debt, partially offset by higher interest expense. I will address our debt purchases in more detail later in my remarks.

The higher interest expense includes the impact of the August $550 million loan and the impact of higher floating rates. We have tightened our full year 2008 FFO guidance range to $2.48 to $2.58 per share. Previously, it was $2.45 to $2.55 and has not changed our midpoint. On page 25 of the release, we have listed these and our other assumptions driving our 2008 guidance.

Now, I would like to discuss our liquidity and source and uses of capital for the next few years, but first a bit of background. EQR's guiding philosophy is that property management and investing activities are the stars of the show. We create value for our investors through buying, selling and developing the right assets and managing them well, not through excessive financing.

This has always been true, but even more so in these times. Sam Zell said to us recently, for the time being we are running this company for the benefit of widows and orphans. We run our balance sheet with that in mind.

Now, to start with our sources and uses of capital for the fourth quarter, our cash balance at 9/302008 was $530 million, as you can see on our disclosure. Our line availability was $1.3 billion, giving us total liquidity of $1.8 billion.

We also are going to receive 1031 disposition proceeds of $200 million. This $200 million now sits in the restricted deposit line item. It does not sit in the $530 million cash number I told you just a moment ago or in the $1.8 billion total liquidity amount, but it will be in our hands by yearend.

We expect cash from fourth quarter dispositions in addition to that $200 to be another $170 million. So, total sources in the fourth quarter of $370 million. As per uses, we will spend about $240 million in the fourth quarter of this year, about $160 million on debt payoffs and repurchases, and about $80 million on existing development projects. So that gives us total uses in this quarter of $240 million.

The result of all that is the cash balance at year end of $660 million; line availability of $1.3 billion, and total liquidity approaching $2 billion for 2009. In 2009, we expect to spend cash of about $1.15 billion. $1.05 billion, or 1,050,000,000, will be spent on debt pay-offs and scheduled amortization. Another $100 million will be spent on existing development projects and miscellaneous other investment activities.

So, summarizing, at December 31, 2009, cash on hand will be minimal; line availability will be approximately $750 million. That $750 million of availability is before any proceeds from property sales. A conservative assumption as Freddie Mac and Fannie Mae continue to loan money into our sector allowing sales transactions to occur. As David mentioned in his remarks, we will continue to sell assets at attractive pricing.

Moving to 2010, we expect to spend $450 million in that year, $400 million on debt pay-offs and scheduled amortization, $50 million on development funding. Here I would note, our $500 million term loan initially comes due in October 2010. It has an extension option which we can use to make the final effective maturity date October 2012. It is not included in our refinancing needs for 2010.

So at December 31, 2010, we would expect cash on hand to be minimal and line availability to be approximately $300 million. Again this is before any disposition proceeds in 2009 or 2010.

In summary, we believe our cash on hand and line availability will allow us to meet all of our funding obligations through 2010 with no refinancing required, and still have $300 million of availability on our line at the end of 2010. Going beyond 2010, we would expect to finance ourselves in the agency debt markets, through life insurers and other traditional lenders to our sector, through our disposition activities and eventually through capital markets that will at some point reopen.

Now let me address another key aspect of liquidity, and that is the quality of our bank line. We have a $1.5 billion line of credit with a diverse group of 25 banks with high credit quality. We do not rely on any one bank for a material amount. We continually monitor the credit quality of the banks in our line and we will be pro-active in trying to replace banks that have issues.

Many credit agreements, but not ours, contain clauses that allow the banks not to fund the borrower's general financial condition or if the overall economic climate is materially deteriorating. These are referred to as material adverse change or MAC clauses. Our line agreement does not contain a MAC clause, and the facility does not mature until 2012. We have substantial headroom under all of our hour financial covenants.

As I said before, our 2009 and 2010 projections are before any proceeds from asset sales. That is unlikely to be true as Fannie Mae and Freddie Mac continue to finance buyers in this sector, and we continue to sell assets, though, at a slower pace than earlier in 2008.

Also, unlike companies in almost any other line of business, debt financing continues to be available to our company in size and at attractive rates. We have spent time with Freddie Mac and Fannie Mae in their offices in the last two weeks, and continue to believe they are open for business, albeit at higher spreads and with more conservative underwriting than before.

Also, we continue to maintain relationships with high-quality life companies, traditionally large lenders to our sector, who have been largely priced out of the sector lately due to Fannie Mae and Freddie Mac, and that we expect will again become lenders to us.

Life companies have called on us recently and we continue working to broaden these relationships. We have been aggressive at Equity Residential in maintaining excellent liquidity. You can bet that we will continue to be very proactive. Taking all this into account, we think our liquidity position is outstanding.

I want to remind you of a loan transaction we talked about on our last call. In August, we closed a $550 million loan with Fannie Mae. The loan had eleven and half year term of which ten and a half year was at a fixed rate, and the final year is floating. The all-in effective interest rate is approximately 6%.

Consistent with what we said last quarter, the costs of pre-funding our 2009 maturities with this loan did reduce FFO by one penny in the third quarter and will reduce fourth quarter's FFO by a penny as well. Being proactive in funding our future maturities, and having substantial liquidity from our recent aggressive disposition drive, despite some short-term dilutions solutions, has allowed us to take advantage of opportunities in the dislocated capital markets.

In the third quarter, we purchased $28 million of our June 2009, 4.75% unsecured notes, at a discount to yield 6.1% to us. This was done primarily as a cash management matter. Better to take a 6% yield now, and let cash we would have used to pay this debt off anyway languish at lower money market rates.

We have also been active purchasers in the fourth quarter of other of our public debt, and we will have more to report here on the fourth quarter earnings call. We will not discuss specifics of these purchases at this time as it will place the company at a competitive disadvantage in executing further of these trades.

It is suffices to say that these purchases are being done at very attractive yield to maturity to us, and will add some $0.04 per share to fourth quarter after F FO, as we mentioned in the earnings release while not materially change our debt duration. So, let me finish by emphasizing that we believe we have a strong balance sheet and sufficient liquidity to whether the uncertainties in the credit market, and that management is committed to being aggressive in maintaining the company's liquidity and credit strength.

Now, I will turn the call back over to David.

David Neithercut

All right. Thank you, Mark. Before we open the call to questions, I would like to make a couple of final points. First, as Mark as explained in quote a bit of detail, from a liquidity standpoint, we are in very good shape. Mark and his team have been very pro-active in addressing this and our shareholders will benefit from their efforts.

Also, Alan George and his team have continued to sell assets and build liquidity. In fact, in the nine quarters, beginning, fourth quarter of 2006, through and including the fourth quarter of 2008, we will likely be a net seller of $1.75 billion of assets. In doing so, we continue to execute our strategy of existing slower growth markets and concentrating our capital in high barrier markets, that will create households and jobs at a faster rate than the national average.

Fred Tuomi and David Santee's teams are well along the learning curve of our revenue management tool and our new operating platform which will produce superior operating results for us going forward.

Meanwhile, a tough economy can not change the demographic picture of this country, which continues to be extremely favorable to the apartment business. The economy will reduce the supply of new apartments, and as an owner of high quality apartment products in core markets across the country, we have absolutely no problem with that.

As a result, our shareholders and our employees can expect us to not simply whether this storm but to emerge from this economic downturn stronger than ever. So with that Nicollet, we will be happy to open the call to questions.

Question-and-Answer Session

Operator

Yes sir. (Operator Instructions). First question comes from Dustin Pizzo with Banc of America Securities.

Dustin Pizzo - Banc of America Securities

Thanks. Good morning, guys.

David Neithercut

Good Morning, Dustin.

Dustin Pizzo - Banc of America Securities

David, given your exposure in the New York market, can you just quickly talk about what you've seen there during October since a lot of what's been going on in the financial services sector has taken place after the end of the quarter.

David Neithercut

Sure. Fred, why don't you go ahead and take the question?

Fred Tuomi

Sure, Dustin. New York is important to us as you know, and what we see right now today is a very stable environment believe it or not. I mean, we are 96.8% occupied today, 6% exposure, and have this very solid, stable string of demand, but things are changing. The primary thing that is changing is we have diminished pricing power.

As you know, in the last of couple years, we could price that well based on new lease and renewals. And that is certainly not the case now. People are much more price sensitive, they are shifting around, they are transferring to cheaper units, they are negotiating tougher on renewals and prices are coming down because of that.

In certain pockets, some of the competitors, especially the local private owners are getting nervous and they are putting in concessions. The OP or the owner paid broker paid has changed to our detriment where we have to pay more of these broker fees. The way we see it right now is; today we are very happy, especially in Manhattan. Quarter-over-quarter, we are up 8.5% on revenue and sequential, was strong at 2.8, so things look good on the ground today. However, the headwinds are definitely there and we anticipating a more diminished slowed down in the fourth quarter and into next year depending on the job situation.

Given the way the New York portfolio is structured, when does the bulk of the leasing take place? Have you centered on that? Is it springtime?

Dustin Pizzo - Banc of America Securities

Okay, and given the way that the New York portfolio is structured, I mean, when does the bulk of the leasing take place there? Have you guys centered it on springtime or…?

Fred Tuomi

It's got a little bit of seasonal bulge not as dramatic as other markets, but the turnover is lower. You're running a lower turnover, so it's not as much of the whipsaw type of market, but yeah, there is more activity in spring and summer and it slows through the winter.

Dustin Pizzo - Banc of America Securities

Okay. And, then David, just going back to the asset sales. Of the one that you completed during this quarter, do you know what percentage had assumable debt and what the average rate was on that debt?

David Neithercut

I don't believe any of that debt was assumable Dustin.

Dustin Pizzo - Banc of America Securities

Okay. And then as you think about the other side on acquisition, what would it take from a pricing perspective to get you more excited today about the acquisition market?

David Neithercut

That's hard to say. As Mark noted in his remarks, we are very focused on liquidity, and while we believe there could be opportunities out there and I wouldn't be surprised to see more opportunities particularly as the year comes to an end. I think that for the time being we're going to sit patiently on the sidelines.

I might never say never, but I think until we get a better view of the capital market situation and continue to have confidence that the market will remain reasonably active, I would expect us to be relatively inactive on the acquisition side.

Dustin Pizzo - Banc of America Securities

All right. And then, just lastly, I mean some of the recent published reports we've seen seem to indicate that some of the lands values have fallen as much as 50% for the garden properties, 30% for mid high-rise properties. So can you just comment, I mean, one, have you seen this at all? Obviously, where you guys are developing are some of the more high barrier entry to markets. Second, if that is taking place, where do you think replacement values are trending standing in that way?

David Neithercut

Well, certainly, we've seen downward trends in land values. But again, as we talk about property values and land values, there hasn't been a significant amount of velocity in either one of those sectors. But I will tell you that our guys, as I mentioned, they continue to look at deals and underwrite opportunities around the country and they've suggested on the land side prices are down this year 10% to 20% on the types of the assets that we've been looking at.

We're also seeing continued reductions in construction costs, and our expectation for 2008 is those costs will also be down about 5% to 10%. So, clearly, replacement costs are heading down.

Dustin Pizzo - Banc of America Securities

Okay. Thank you.

Mark Parrell

You bet.

Operator

Your next question comes from Michael Bilerman with Citigroup.

David Tody - Citigroup

Hi. It's David Tody here with Michael. Couple of questions. Not getting into too much detail, can you provide a little bit of color on the buyers of your assets, what is generating their interest?

David Neithercut

It hasn't changed I think much over the past year. It's the local and regional investor. Again, as I mentioned, what we sold in the third quarter was a $30 million average ticket, and what we hope to sell in the fourth quarter will be a $20 million, if not lower, ticket.

The removal of sort of the strong, heavily leveraged institutional bid from the marketplace has opened the market again to the local and regional player. In fact, I was told the other day Alan George, our Acquisition, EVP, mentioned to me that we're working with a local player on some assets. We said, I haven't bought anything in the past five or six years because I thought pricing was getting kind of crazy, and now I think pricing is beginning to make sense.

So again, the local and regional player, very small price points, and again, Freddie and Fannie financing a very large market share of these dispositions. Okay, Nicollet, do you want to go to the next question?

Operator

Yes, sir. Your next question comes from Jay Habermann with Goldman Sachs.

Jay Habermann - Goldman Sachs

I just was curious. I mean, in your comments, you talked about, obviously, the increases in rents from renewals, that sort of a decreasing trend in terms of growth, and then also new residents, sort of the price sensitivity and willing to pay less. But in the press release, you commented on significant headwinds and talked about Q4, as obviously we look forward to 2009. Can you give us a sense of just what you're seeing now and sort of contrasting it versus 2001 and 2002?

David Neithercut

Well, that's a good question. I'm not sure that we're ready to compare what we're seeing now to 2001, 2002, because, I guess, we're not really seeing it yet. We're beginning to see it build. And so, I think it'd be pretty mature to make some kind of comparison.

But again, we thought things would slow in the fourth quarter, they certainly are. We are starting to see things perhaps slow even more than what we had thought as we begin to go into 2009.

Jay Habermann - Goldman Sachs

Okay. And then, just want to follow-up on the point that you talked about in terms of liquidity. You do have significant maturity in 2011. Is the goal really to use asset sales or just simply to use the line of credit to take care of near-term maturities? Are you expecting to delever over the timeframe or is it really just paying down near-term maturities with using a line of credit?

David Neithercut

Great question. So when you look at the 2011 maturities and you see a fairly large number, I see both disposition proceeds and I see potential additional secured debt activity as the most likely ways for us to address 2011 maturities until the larger capital markets open back up. So I would expect our leverage ratios to remain about constant, and I say that because as we sell assets, what we're doing on the other side is doing development. So we're adding assets to the books.

So, our average asset level is about the same, and in fact, net debt for us has been constant for about five or six quarters, because as we've been disposing off assets, we've essentially been using those proceeds to fund our development pipeline.

Jay Habermann - Goldman Sachs

Okay. Also, just sort of broader calls from banks to begin lending, I mean have you seen any improvement at all? Fannie and Freddie have been there, but have you seen any improvement more broadly in the market in terms of just lending?

David Neithercut

No, I haven't to this point. I've spent some time in New York. Certainly, the climate there, as you know, is very negative. I think our banks are right now trying to repair their capital ratios, trying to get in better shape.

I do have a view that over the next year or so there will be more availability in terms of a term loan bank market to real estate companies like us that are conservatively financed. I say that because I think the banks are going to be moving all the bad assets off their books, getting a lot of new capital from the government and will have at some point some need to lend. Whether that's six months or a year and a half from now, I have no idea, but the goal needs to be for everyone to get as close as they can to a lender who has some manner of government support.

And that's why we are fortunate in our sector to have Fannie and Freddie providing liquidity to us. But I have not seen the banks improve as of late.

Jay Habermann - Goldman Sachs

Last question, just remind us of potential dispositions over the near-term, what constitutes sort of non-core at this point, and you'd be willing to even expand that into just core assets where, again, sort of anticipating the deleveraging?

David Neithercut

Well, again, I think the focus, Jay, continues to be on exit from what we consider to be our non-core markets, particularly at those lower price points. So I think that until we can get through that, I don't think we'll turn to our core markets. I will tell you that, at some point in time, we'll begin to maybe change the complexion of our portfolio in some of our core markets, but really our focus now is continue to exit those markets that we've already identified as non-core assets.

Jay Habermann - Goldman Sachs

How much is there?

David Neithercut

I think we've got $1 billion plus or so more to do there.

Jay Habermann - Goldman Sachs

Great. Thank you.

Mark Parrell

Also, those tend to be at a price points, just values, $20 million or less that are easier for Fannie to finance and that people are more interested in purchasing at this point in the cycle.

Jay Habermann - Goldman Sachs

Okay. Great. Thanks.

Operator

Your next question comes from Lou Taylor with Deutsche Bank.

Lou Taylor - Deutsche Bank

Thanks. Fred, you had talked a little bit about some of the tactics that New York residents were pursuing in terms of going to cheaper units. Can you, or maybe David, just expand on that a little bit in terms of what are the tactics you're seeing residents do in this kind of stress environment in terms of just going to roommates or moving to other cheaper units and where are you seeing it the most prevalent?

Fred Tuomi

Yes. In New York, in particular, which covers Manhattan and New Jersey Gold Coast, we're seeing some interesting things, [but to some extent]. One is that people are looking for the more value, lower cost units. Smaller studios and one bedrooms are highly occupied right now. A lot of steady demand for those smaller kinds of cheaper coupon rates apartments.

Then, also, what you're seeing is the lower price or the more value larger two bedrooms are also a hot ticket right now. People are taking roommates, you know, one, two, three roommates. They're doubling up there sharing rental costs. Interesting though, at the high end, the penthouse, all of our penthouses right now are occupied in Manhattan. So the high rollers are there, they're not buying the expensive condos. They are staying put and they our high ticket apartment. So we are glad to see that.

The only part we have a little bit of a difficulty renting is the fully amenitized, higher floor, two bathrooms and the large one bedrooms. Those are a little more difficult in these times, so we have seen a little more price pressure on those. Another tactic we are using is extending out to more of the 24 month leases which were difficult to get people to take before, and now we are going to pushing some of those more now.

Also, our new additions to the third quarter same-store which is our Park Collection, which is the Upper West Side near the Park, we've got very small units in those. They are small studios, very small one bedroom. We have renovated them with some beautiful, really cool modern kitchens. They are small, I would say a kitchenette. But they are in very strong demand. We are releasing them as soon as we get them ready, and that's been a good juice for our revenue this quarter.

Lou Taylor - Deutsche Bank

Okay. How bad are the markets? What other markets are seeing this kind of resident creativity here?

David Neithercut

Its broad based. We have seen this before in other economic slowdowns. This is a natural reaction for people to want watch their personal budget, with a little bit of uncertainty, consumer confidence down, uncertainty about jobs etcetera. People do lots of things to reduce their costs. What we see in our numbers is a reflection of that. Our transfers are up, meaning a intra-property transfer. People are transferring maybe from a larger apartment down to a smaller or perhaps going from one bedroom alone to a two bedroom with roommates or families. We have heard of families moving in together.

Also, just statistically, we have seen on our larger two bedrooms and three bedrooms, the number of occupants per apartment have been creeping up. So, over the last 12 months, that has been a steady climb of a couple of percentage points. It's actually almost equivalent to one whole person per three bedroom apartment on the increase. So that's a natural reaction. We've seen it before. Good times, people like to live by themselves, in challenging times they are willing to take a roommate.

Lou Taylor - Deutsche Bank

Okay, great. And then second question is for Mark. In terms of your unencumbered asset pool on a dollar basis roughly how big is that pool?

Mark Parrell

About $750 million give or take an NOI leading to a value in our minds of about $11.5 million to $12 billion right now.

Lou Taylor - Deutsche Bank

Okay, and in terms of your debt covenants, how high can you go in terms of encumbered assets?

Mark Parrell

So, without tripping our debt covenants, it would be $3 billion to $4 billion more of secured debt before we would trip our covenants. I'm not sure our rating agencies frankly would show that much patience. They've been very supportive to this point of our drive to continue to have of lot of liquidity, and I think they like the fixed rate coverage being so good or fixed charge coverage being so good. But at some point, you're just going to have so much have secured debt that you would get some agency pressure well before you hit your covenant limit.

Lou Taylor - Deutsche Bank

Great, thank you.

Marty McKenna

Nicollet, do we have another call?

Operator

And your next question comes from William Acheson with Benchmark.

William Acheson- Benchmark

Thank you. Good morning guys. Getting back to the property sales, when during the quarter did most of them take place? Is it earlier in the quarter, middle of the quarter, any in September?

David Neithercut

Well, you're getting down to the details Bill.

William Acheson- Benchmark

What I'm trying to shoot at here is…

David Neithercut

I will tell you Bill that nine of them occurred on August 22. How about that for detail? Nine of the 11 on August the 22nd.

William Acheson- Benchmark

Okay, and which leads to the second half of that question. Do you think pricing would have changed materially if these were to have taken place say, after the middle of September when kind of like the world changed?

David Neithercut

I don't know the answer to that question Bill. I will tell you that the assets we sold in the third quarter were sold in aggregate at about 99%of how valued them in the first quarter of 2007, which we sort of think was kind a potential high water mark. Would things have changed much? To use your word, material, I don't believe so.

I think frankly, if things were going to change materially, I am not sure we would be a seller. So, I think we will see what happens in the fourth quarter, and we will report back to you in February as to what we saw in the fourth quarter. How that changed and how that impacted our actual disposition volumes.

William Acheson- Benchmark

Okay. On the development lease, some of it looked a little bit slow. Can you give us some color on what sort of concessions you are offering and where yields are going?

David Neithercut

Sure. As we've have noted, our new residents coming through the door on our stabilized properties are negotiating pretty hard. And so it's not a leap to suggest that people walking through the door to lease a new development wouldn't be going through the same process.

So, the rates that we are receiving on our lease-ups are off of what we had expected. The amount of absorption is obviously dependent on property by property. We are probably giving half a month to a month of concessions on our development deals, but clearly the absorption there and the rates at we are yielding are not what we had hoped.

William Acheson- Benchmark

Bella Vista, maybe it was somewhat over occupied in the second quarter? It was 97%, and went down to 93% for the third quarter. Anything in particular there?

David Neithercut

You can't read much into Bella Vista. That was Phase III. There are two other phases there. That's now all operating as a single apartment property and you can't really draw any conclusions from the one phase.

William Acheson- Benchmark

Okay, I got you. Then lastly, it looks like just looking at your guidance in here, backing into a 1.5% year over year same-store growth rate for the fourth quarter, sequentially, NOI was down a tick in the third quarter. Is that likely to be the trend for the fourth quarter?

Mark Parrell

Hi, Bill. It's Mark Parrell. Yes. We expect sequential revenue in the fourth quarter to decline when you look at our sort of sequential set. So that is what we saw three months ago and we continue to see now. It's important for you to think also about total operating income for just a moment and understand that you got lease-up income and other things that are going to keep the cash in the bank number pretty constant. But the sequential number that we report next quarter is likely to be negative on the revenue side.

Mark Parrell

Okay. Thank you.

Operator

Your next question comes from Rob Stevenson with Fox-Pitt Kelton.

Rob Stevenson - Fox-Pitt Kelton

Good morning, guys.

David Neithercut

Hi, Rob.

Rob Stevenson - Fox-Pitt Kelton

David, in this environment, do you start pulling the plug on redevelopments or rehabs on units, figuring that you are going to start seeing the leak down in terms of pricing? And so given your liquidity, and how you want to keep that up high and it's not a good spend of money right now?

David Neithercut

That's a great question. One that we talk about a lot in our investment committee, but this kind of put things in perspective. We spend around $30 million on our rehab business. So it's not been a huge business. We're looking at a lot of rehabs. One of the questions we ask at investment committees when we have those discussions are is now the time to turn these units into units that now cost $150 or $200 more.

We do have that discussion. We have recently approved some rehab because we do believe with the test we have done that there isn't enough depth at that higher price point. But the thing about the rehabs and what's nice about them is you can turn them off at any moment, right?

If all of a sudden we decide and we determine that we are not getting the appropriate premium for what is probably averaging now about $10,000 of door that we are putting into them, you can just stop. So, we are going to continue to consider them and underwrite them, but we are very thoughtful about how deep the market is in demanding 300 more units of $150 or $200 higher price point.

Rob Stevenson - Fox-Pitt Kelton

Okay. And then, are you guys seeing any material change in terms of the attitude on real estate taxes, given the budget shortfalls on a lot of states and municipalities?

David Neithercut

I think it's hard to sort of make that call, but we're always worried about real estate taxes. It is a very large, uncontrollable line item. But we've done a pretty good job of managing that and we will be very aggressive in dealing with appeals in every year going forward, just like we have been every year in the past.

Rob Stevenson - Fox-Pitt Kelton

Okay. And then, you were talking about acquisitions not being attractive enough at the moment. If your stock price stays down where it is today, its back to sort of 2004 levels, is that a more attractive use than acquisitions?

David Neithercut

It certainly would be, yes, but right now we're looking at it not so much whether or not how attractive the acquisitions are, but what's the most appropriate thing to do relative to the liquidity problems in the capital markets and the appropriate way for us to stay liquid.

Rob Stevenson - Fox-Pitt Kelton

Okay. And then, last question, you've got a situation, a potential lame-duck session of Congress and homebuilders, the realtors and a bunch of the other housing guys, trying to push through and get $20,000 or $25,000 tax credit and some mortgage stuff and everything in there. Are you guys doing anything active to sort of fight that, or you think that has a great deal of impact on your operations as it rolls into '09 if something like that gets passed?

David Neithercut

Well, I guess you're talking to the Co-Chair of the [PAC] Fundraising Committee, the National Multi Housing Council. So I can tell you that the National Multi Housing Council is up there, beating this back as much as we possibly can, and we're trying to raise money to provide them the financial support necessary to do that.

I can't tell you exactly if they do this or they do that what impact it's going to have on our business, but clearly, we are not in favor of and are trying to fight back these charitable contributions for down payments and all those sorts of things. I think that we're getting some traction in Washington against this notion that everybody needs to be in a single-family home and that the flexibility and optionality provided by rental housing is very good for a lot of our citizens, if we turn a lot of good renters into really bad homeowners.

I'll tell you supply is down. So there are going to be issues, I think, in Washington about trying to get single-family homebuilding going again. I'll just tell you that we'll be up there, trying to make sure that it's done in a rational, sensible manner.

Rob Stevenson - Fox-Pitt Kelton

Okay. Thanks, guys.

Operator

Your next question comes from Michael Ko with UBS.

Michelle Ko - UBS

Hi, it's actually Michelle Ko. I was wondering in your release you mentioned that some of the markets are experiencing significant headwinds. I was wondering if you can comment on which markets specifically you're seeing more impact than others.

David Neithercut

Sure, Michelle. It's the usual suspects over the last several months, it's the housing supply markets of Florida. It continues just to hang out at the bottom at very low levels, maybe even declining a little bit more. You got Phoenix, it had a very tough summer and not much of a winter uptick because of the single-family overhand. Inland Empire has actually done better than those considering the environment, which is still a very tough environment. So it's the housing bubble market we're most concerned.

Michelle Ko - UBS

And do you expect the same markets to be the hardest hit next year or are you anticipating other markets?

David Neithercut

I think those will continue to be a challenge, because it's going to take more time to work through that single-family dislocation. It's going to take longer recovery. You add on top of that the general economic slowdown and job losses across sectors other than real estate and construction, then that's going to make that turnaround take even longer.

The rest of the markets are performing fairly well. They will be affected by the general and the global economic slowdown, but not to the extent of these housing markets.

Michelle Ko - UBS

Okay, great. Thank you. Also I was just wondering if you could give more details around some of the asset sales that you had in the quarter in terms of specific markets, in terms of cap rates, if you could, or if you could give us a sense of how cap rates might have moved over the last three months for A versus B assets?

Mark Parrell

We sold two deals in October, one in Sacramento, one in Fresno, at about a 6.5% cap rate on a weighted average basis. Those assets were about 28 years old on average. Clearly, cap rates are up. I'll tell you that cap rates are kind of product, they are up as much as 50 to 100 basis points, and there has been a pretty meaningful movement in that over the past 60 or so days.

Michelle Ko - UBS

Okay, great. And then, lastly, if you could talk a little bit more about LA and Orange County, the occupancy seem to decline quite a bit in the third quarter. I was just wondering if you could give us more insight into that.

Fred Tuomi

Los Angeles had a decent year, but I wouldn't say a stellar year for Los Angeles, primarily because we had some pockets of supply. Normally, you don't have many apartments to deliver there, but we had 6,800 in '08 and we're expecting that to drop to 2,000 next year. But to take those units on at a time when you have general economic slowdown and the real estate issues coupled with that that was enough to make some of the submarkets, especially along the 101 Freeway, Warner Center, San Fernando Valley, those were hit pretty hard by those lease ups, lot of concessions and a little decline in occupancy.

However, the other markets like the Mid Wilshire, and the beach cities, Long Beach area, very strong. In Koreatown, NoHo, even with supply, we're doing it very well there. So its kind of spotty in Los Angeles. I think next year, we'll improve a little bit because of the drop off in supply, but then the wildcard is going to be the impact of the general economic slowdown, but the entertainment business is doing okay.

In terms of Orange County, it's done very well and we had 20,000 job loss followed by the 27,000 this year and expectation maybe more loss next year because of the meltdown of the subprime. But it's performed better than I thought. We have very good occupancies there through the summer. Today we're 96% occupied with very good exposure in Orange County. We have a little bit of a supply issue there as things slow. Irvine Apartment Company puts in a lot of units. They're [concessing] rate now. So we've got a little bit of local competitive pressure, but Orange County is actually better than I expected.

Michelle Ko - UBS

Okay, great. Thank you.

David Neithercut

You're welcome.

Operator

Your next question comes from David Bragg with Merrill Lynch.

David Bragg - Merrill Lynch

You've made it clear that you're out of the acquisition market right now, but maybe if you could just help us understand, as your investment team continues to monitor opportunities, how are you adjusting your thinking in terms of your targeted returns and maybe frame that within the targeted unlevered IRRs of 9% that you mentioned for you 2Q acquisitions?

David Neithercut

Well, again, we're not really buying anything and we're not developing and not taking land down to build anything. So I guess, we really don't have targets today. But I will you those targets will certainly be up. With a lack of buyers out there, we could buy a product we believe at a 100 plus basis points higher IRRs than we might have some time ago.

David Bragg - Merrill Lynch

Okay, that helps. Just one other question. Could you provide a little detail on your land exposure, maybe break that out for us generally by markets?

David Neithercut

Sure. We have exposure in the Bay area, and I would say that that exposure is probably a third. I just want to just frame just the land exposure of the company; it is $367 million less than 2% or around 2% of total assets. It's pretty immaterial for us especially compared to a lot of other real estate companies. That said, a third of it is in the Bay Area, there is some in Southern California, a little bit in D.C. and New York City. Those are the primary areas of concentration.

David Bragg - Merrill Lynch

Great. Thank you.

Operator

Your Next question comes from Anthony Paolone with JPMorgan

Anthony Paolone - JPMorgan

Thank you. I just have one question left here. The four, I think it was $0.04 you mentioned in the fourth quarter coming from any gain coming from retiring some debt securities. Was that in the previous guidance or is this something that got out added just given what you have done or what you plan to do?

David Neithercut

It's new. All of those trades were executed during the month of October. So that $0.04 is the result of everything that occurred this month.

Anthony Paolone - JPMorgan

Okay. Thank you.

Operator

And your next question comes from [Sameer Patil] from FBR Capital Markets.

Sameer Patil - FBR Capital Markets

Just one question about expense controls. Is that something you will be able to sustain, the low interest growth in 2009 to offset weaker trends?

David Neithercut

This is David. We have tremendous visibility into our expenses. Keep in mind that between payrolls, property tax and utilities, that makes up about 66% of our entire spend. Most of our property levels spend, we have tremendous procurement programs, we have online catalog so to speak for all of our property folks that allow us to maintain consistent pricing and monitor that spend. So I think we are in a good position to keep a firm grip on our expenses next year.

Sameer Patil - FBR Capital Markets

Okay. Thank you.

Operator

And your next question comes from David Harris with Arroyo Capital.

David Harris - Arroyo Capital

I have got a couple questions for you if I may. Going back on your prepared remarks, you made reference to high rates of tenant retention, and you are not seeing much of a loss or in fact a diminished volume of loss to home ownership in home sales. The latest data would actually indicate that some of the sales are picking up, with buyers responding to lower prices, particularly in some states like California with foreclosures. You are not experiencing that?

David Neithercut

This is David again. What I do is, I kind of look back all the way to Q1 of '07. And probably the most material change that we've seen in home buying is in the Inland Empire. But still, the last two quarters are still at Q1 early '07 levels. So, there is nothing that's going off the chart.

Consequently, places like South Florida, Phoenix, who used to be in the 18% range of our move outs are down into very low single digits. So, across the portfolio we are still 300 basis points below our Q1 move out percentages for home buyers. So, there is some moderation in some of these markets in places like L.A, Denver, where you are starting to see a little activity but nothing that is moving the meter.

David Harris - Arroyo Capital

Okay, I mean, I know you are backing off making too much of a definitive forecast into '09, but is it your expectation that with lower prices and an expectance by sellers that we are living in different environment where you are going to see these volumes of higher tenant move outs to purchase homes in some locations?

Fred Tuomi

I think that that's possible, but I think as David noted, there are some markets in which they haven't begun to budge to do that.

David Harris - Arroyo Capital

Okay, then and one final question. I think back a year ago, I don't think it may have even been this call a year ago, you talked about your in-house economists having a no recession forecast in his thinking. What was the latest thinking from the in-house? Sorry I had to ask that one.

David Neithercut

Our in-house economist for those who don't know is Mr. Zell. Look I'll tell you, I think Sam is probably more pessimistic than he was but continues to be more optimistic than most. He has urged us to not underestimate the impact that these lower oil prices will have on the consumer. Anybody who's filling up their gas tank now knows its $20, $25, $30 less than it was not too long ago.

You add that up in a month and that's real money for consumers that are trying to de-leverage, so he has encouraged us not to underestimate the impact of that. Again, he's probably more pessimistic than he was but remains more optimistic than most. I guess he and I have talked about that it's never as good as you think and it's never as bad as you think.

David Harris - Arroyo Capital

Just to state my point and it's not a cheap shot. His forecasts are at least as good as anything I could have come up with but I'm just interested to hear what his lately is.

David Neithercut

And his bank account reflects that.

David Harris - Arroyo Capital

Absolutely. All right. Thanks, guys.

David Neithercut

You bet. Nice to hear from you again David.

Operator

Your next question comes from Michael Salinsky with RBC Capital Markets.

Michael Salinsky - RBC Capital Markets

Hi, good afternoon. As you went through your sources and uses, it seems like development spending over the next couple of years is going to ramp down significantly. Is that more a function of just the overall market fundamentals, asset, land pricing? What's the driver behind that? Because as you supply tapers off here over the next couple of years you would think in 2010, 2011, 2012 would be pretty good years to deliver into.

Fred Tuomi

There is a two part answer to that. First just on my sources and uses, Michael as you go through it is based on no additional development starts, besides what you see disclosed on our development page. So, again, we're spending as these deals are very capital intensive upfront. As you get into 2011, they are basically completed and there is just less funding to be needed.

The second part of the question is an excellent one, and I think David is going to have more thoughts on that, but we do believe that there will be an excellent point time to deliver the product, kind of through and on the other side of the slowdown and we continue to think about development as something we want to do, but again, as we try and maintain liquidity inside the company, as it is a very capital intensive process for us.

So you are right to see our sources and uses taper, that's exactly what's happening. It is based on our current spend for the deals listed on that page as David told you. We haven't purchased any other new deals. So, there isn't any forecast inside my numbers of us buying anything more and spending any more money on development, but I guess at some point that certainly could occur.

David Harris - Arroyo Capital

Secondly, you talked about the transaction markets, and you also talked that things have changed slightly in the past 60 days. Where is the greatest demand for assets right now? Is it still on the value add or are you seeing more and more people looking for distressed assets? Where is the demand coming from?

David Neithercut

I think that the assets that we have been selling have been these lower price point assets, where I think there could be some parts of a value add opportunity. But, again, I think creating pretty good leveraged income streams for these local and regional players.

Again, there is not a great deal of demand out there right now. There is a lot of money that's sitting on the sidelines. The product that we've been selling in the markets in which we've been exiting, I'm sure people have underwriting to some value at certainly not distress. The assets we're selling are not distressed. One hears about a lot of demand for distressed assets. People apparently are raising capital for distressed assets, but I haven't seen anyone actually buy any yet.

Again, what we've been selling have been, I think, generally stabilized, perhaps assets that have some value-add opportunity but are creating pretty good long-term leveraged cash on cash returns for global and regional buyers.

David Harris - Arroyo Capital

Finally, you talked that you're out of the acquisition market right now. But just given the performance of your stock year-to-date versus that of your peers and some of the compelling valuations out there, would you look at maybe a portfolio transaction or such?

David Neithercut

Thinking about acquisitions, thinking about portfolios, even thinking about development, I expect there to be interesting opportunities. But again, they're all very capital intensive at a time in which the capital markets are in a great deal of uncertainties. So you need sources and uses. And for the time being, we're protecting our sources, continuing to look at the potential opportunities, and I'm sure there will be some.

But again, one can only begin to act on those when one has a clearer picture and more confidence about the future of capital market availability.

David Harris - Arroyo Capital

Thank you.

David Neithercut

You're welcome.

Operator

And you have a follow-up question from Michael Bilerman with Citigroup.

Michael Bilerman - Citigroup

Hi, guys. Just dropped off before. Just quickly, Mark, how much dollars did you spend on the debt buybacks, just trying to think about your sources and uses?

Mark Parrell

I guess I quoted in my script. I think it was about $140 million. We didn't spend all of that. Some of that is spent on other things. I've certainly got a couple of things I've thrown into that number.

Michael Bilerman - Citigroup

And that was what was spent, but you're still anticipating spending a little bit more from that?

Mark Parrell

I'm sorry Michael, what was that?

Michael Bilerman - Citigroup

You're still expecting to spend a little bit more in the fourth quarter?

Mark Parrell

I have put into that number a whole bunch of different things. So I'm intentionally camouflaging that just a little bit, because, again, you can sort of solve backwards from that sense. So to be honest with you, the number I gave you of uses was $160 million and that includes some debt payoffs of '08 stuffs and debt payoffs of '09 stuff, regularly scheduled amortization plus the buyback. I did not budget for any more than we've done today.

Michael Bilerman - Citigroup

You talked about some small write-offs, and obviously you have a pretty (inaudible) balance relative to your peer set. Just want to get a little bit more color on the development that you decided not to pursue. What was sort of driving that and how did your return expectations change when you sort of value it?

Mark Parrell

Well, it just obviously went up. And so, without suggesting what their return expectation needed to be, but the new one just couldn't be met, that we had an opportunity to walk away and not take land down. It would have been tied up some time ago and went ahead, and again, in the third quarter, incurred about $880,000 impairment charge as a result of that, and we will do that in good markets or bad.

Before we take down land we ask ourselves, go through that exact same process and we'll go through it in the fourth quarter again. We're monitoring the spending that we've got on every transaction that we're "pursuing" and make sure that that level of spending is appropriate and stand down from those deals that no longer makes sense.

Michael Bilerman - Citigroup

And how many deals was it in the third quarter?

Mark Parrell

Two.

Michael Bilerman - Citigroup

And total cost of this project would have been?

Mark Parrell

Cost of those projects, I don't know off the top of my head, $150 million or so.

Michael Bilerman - Citigroup

And this was where you had gone hard on land or where…

David Neithercut

No. These were just generally modest deposits, if any, and mostly just the third-party costs that one incurs in going through the preliminary due diligence process.

Michael Bilerman - Citigroup

Great. Thanks, David.

David Neithercut

You bet.

Operator

Your next question comes from [Dan Litt with LaSalle Investments.]

Dan Litt - LaSalle Investments

Hi, guys. I just wanted a little more color on the Inland Empire. You saw revenues up 13. FX reported Riverside County was down 5%, but they only have 640 units. I'm not sure what to make of that. Can you just talk about the submarkets in the Inland Empire and if there is a large differentiation in growth between them?

David Neithercut

I'll let Fred answer the question, but I think you touched on a very important point when comparing one company's performance to another. So my guess is you're talking about how they happen to perform on their two assets in whatever submarkets they happen to be versus us with a much larger portfolio across more submarket. So go ahead, Fred.

Fred Tuomi

We have 4,355 third quarter same-store units in the Inland Empire. And it has, as I mentioned, performed a little better than I was expecting. We saw a good demand stream and actually an increase in occupancy through the core of the summer. And as the schools came in session up there, we actually had a little surge that we're happy to see that.

But it is submarket specific. You're seeing some pockets of supply coming in. They delivered not many, 1,500 units, but in a weak market that can be disruptive. They are clustered. It is pretty much further East in the county. They are in Corona, Rancho Cucamonga, other areas a little more inflated, certainly in Chino from so many supply issues.

So it all depends on kind of a submarket basis, but overall Inland Empire is at risk going forward till the job losses are more broad-based now other than just real-estate, and then with the logistics and distribution business, but we're happy to be 95% occupied and 7% exposure today.

Dan Litt - LaSalle Investments

Can you maybe give us some sense of the difference in revenue growth the farther you are East or West?

David Neithercut

Again, if you go further East in the county, you're going to hit more pockets of supply and a consumer looking for a cheaper ticket. So I think you're going to have a worse chance holding rents in those areas.

Dan Litt - LaSalle Investments

Right. But I mean, is there a sense that revenue in those areas would have been down 5% or that was sort of an anomaly given their two assets?

David Neithercut

I can't comment on that.

Dan Litt - LaSalle Investments

On your assets did you see revenue declining to that magnitude or was it generally more towards the 1.3 you saw for the rest of it?

Fred Tuomi

The 1.3 was positive for the quarter. Since then we've seen a little diminishing pricing, but again occupancy has been strong. It really depends asset by asset, location by location.

Dan Litt - LaSalle Investments

Okay. I just had one other question. The $0.04 in the fourth quarter for the repurchase of debt, is that gains on that or is that interest savings?

Mark Parrell

Gain. The interest savings separate is not very substantial, Dan. That relates to the '09 debt maturities. They are two separate things.

Dan Litt - LaSalle Investments

Okay. Perfect. Just wanted to clarify that. Thank you.

Mark Parrell

Thank you. You're welcome

Operator

Your next question comes from Haendel St. Juste with Green Street Advisors.

Haendel St. Juste - Green Street Advisors

David, can you go back and clarify your comments on cap rate changes for the Sacramento, Fresno assets? I didn't hear if they were from peak pricing or those were more…

David Neithercut

I appreciate you asking the question because I guess I must not have been cleared. I said that those deals were sold at about a 6.5 cap rate, and then my comments about cap rates were more global, about cap rates, in general, across our core markets.

Haendel St. Juste - Green Street Advisors

And within the past?

David Neithercut

I'll say on our second quarter call, Haendel, I talked about cap rates for better quality product in our core markets having been up 25 or 50 basis points, and now I'm suggesting at 50 to 100.

Haendel St. Juste - Green Street Advisors

Okay. And now that's reflecting through current, not through just the end of September, because obviously the world changed dramatically in the last 30, 60 days. I'm trying to get a sense of…

David Neithercut

That's correct. Now that being said, we didn't tell about some deals in Manhattan selling at a three hand. So, there are always going to be exceptions, so I'm just telling you just in general, we're thinking what was 25 to 50 might be 50 to 100 today.

Haendel St. Juste - Green Street Advisors

Okay. To continue on that line though, what's is your assessment of the current bid/ask spread both for smaller deals, around the 20 to 30 million that you've been focusing on selling and the bigger ticket deals around the 100 or so which you have quite a bit within your portfolio?

David Neithercut

Well I guess we've managed to continue to sell an awful lot of products in that $20 million to $30 million price tag in our non-core markets at prices that have held up exceptionally well I think relative to how we valued them as far back as the first quarter of '07.

It's really unknown I think on value of the higher ticket item because you just are not seeing deals trade plus $100 million. So I'll tell you that, I've told my own Board that while we've seen a lot of sales of our smaller properties in our non core markets selling at prices very similarly how we valued them some time ago, there is not enough activity for me to be able to tell you with the same degree of confidence that you could extrapolate that into the rest of our portfolio, but that being said, there are anecdotal sort of intelligence we get here and there about deals trading. As they say, a place like Manhattan with a three handles in its cap rate. But you're just not seeing large deals trade.

Haendel St. Juste - Green Street Advisors

I understand. More getting towards in the more normal environment the bid/ask spread is around 5% to 10%. We are certainly hearing that that's much wider, maybe 20%, 25% in the current environment , so I was trying to get more of an idea as to what you may be seeing real time on it?

David Neithercut

I can't give you the specificity that you want but I will tell you that we have seen us track transactions, the types of assets and the types markets that we'd be interested in buying where we are not in the best and final. And before you know it, they are knocking on our door asking if we'd like to talk to them about some reduced price.

So I certainly think that sellers at that price and that quality of property price have expectations that are not likely to be realized in this going be realized in this marketplace. And as Mark mentioned earlier, when you think about the financing that Fannie Mae and Freddie Mac is providing and how these $20 and $30 million deals are really in there wheelhouse, the ability of debt financing at those larger tickets, I am not sure how that could actually get done.

Haendel St. Juste - Green Street Advisors

One or two quick ones here for Mark. What's your estimate of where life insurers would price comparable to 65% leverage type of debt today?

Mark Parrell

Alright. Let me start by telling you where the agencies would be Haendel if that helps. So, I think on a five-year deal, they probably be 300 over.

Haendel St. Juste - Green Street Advisors

How about on a 10-year deal?

Mark Parrell

10-year deal, I'd say 250 over gives you coupons, I'll call it, 580 and 640. And, again, the life companies have been very interested in doing more business with us. A lot of conversations have been very constructive. That said, you are approaching the end of the year, a lot of them have used up their allocations, so I don't know how good our pricing would be right in the next month or so, but what I expected is that number would be 50 basis points or so higher.

I think all the numbers I gave you, I should qualify by saying these are rack pricing. Not the way EQR would get priced. We'd be inside all those levels. Also I see analysts as they compared us when we make statements about interest rates on the phone. I am going to do the same when they compare it to other companies.

My quotes assume IO and 3360 and other things that generally cause the rate I quote to you to be perceived as higher. And I suggest, again, when I give you a 300 and a 250 rates, someone else may honestly see the same loan at 285.

Haendel St. Juste - Green Street Advisors

Okay, got you. And any estimates of what unsecured would cost you in today's market?

Mark Parrell

Honestly, the way I have heard it described is we are trading on appointment basis to do unsecured debt and I think it would trade on more of the coupon than on a spread basis and I think it would be a 10% plus number for 10 years money. That is not a reflection again on equity residential, simply a reflection on the state of capital markets.

Haendel St. Juste - Green Street Advisors

Certainly. I understand. Thank you for the color guys.

Operator

And there are no following questions at this time.

David Neithercut

All right. Terrific. Thank you for dialing-in and we look forward to seeing a lot of you in San Diego next month.

Operator

This concludes today's conference call. You may now disconnect.

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