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BRE Properties Inc (NYSE:BRE)

Q3 2011 Earnings Call

November 2, 2011 12:00 pm ET

Executives

Constance Moore - President & CEO

John Schissel - EVP & CFO

Scott Reinert - EVP, Operations

Steve Dominiak - EVP & CIO

Analysts

Swaroop Yalla - Morgan Stanley

Jana Galan - Bank of America-Merrill Lynch

Dave Bragg - Zelman & Associates

Eric Wolfe - Citi

Jay Habermann - Goldman Sachs

Michael Salinsky - RBC Capital Markets

Andrew McCulloch - Green Street Advisors

Rich Anderson - BMO Capital Markets

Seth Laughlin - ISI International Strategy & Investment

Operator

Good morning, my name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the BRE Properties third quarter 2011 earnings release conference call. (Operator Instructions). I would now like to turn the call over to Ms. Constance Moore, President and Chief Executive Officer. Please go ahead.

Constance Moore

Thank you, Nicole and good morning, everyone. Thank you for joining BRE's third quarter 2011 earnings call. If you are joining us on the Internet today, feel free to mail your questions to askbre@breproperties.com at any time during this morning's call.

Before we begin our conversation, I'd like to remind listeners that our comments and our answers to your questions may include both historical and future references. We do not make statements we do not believe are accurate and fairly represent BRE's performance and prospects, given everything that we know today. But when we use words like expectation, projections or outlook, we are using forward-looking statements, which, by their very nature, are subject to risks and uncertainties. We encourage listeners to read BRE's Form 10-K for a full description of potential risk factors and our 10-Q for interim updates.

This morning, management's commentary will cover our financial and operating results for the quarter, the operating environment and an update on our investment activity, our financial position and outlook for the balance of the years. John, Scott and I will provide the prepared remarks and Steve Dominiak will be available during the Q&A session.

We are pleased with our results for the third quarter. The operating environment particularly in our coastal California markets or apartments continues to be strong and we continue to see momentum in our markets which Scott will address in a moment. We are beginning to see acceleration in job growth across all of our core markets and in fact on a year-over-year all of BRE’s core markets turned positive in the third quarter for the first time since the recession began.

In fact in our eight core markets over a 150,000 jobs were added in the 12 months ending September 2011 and over a 100,000 of these jobs came in the third quarter setting us up for a solid fourth quarter and into 2012. Our operating results came in as we expected and are consistent with the mid-year update we provided last quarter.

This morning my comments will focus on some specific names regarding our investment activity and operations. On the investment side the landscape remains competitive within our markets despite the broader market gyrations. We continue our approach of opportunistically sourcing deals that makes sense from a location and a cap rate perspective. We were active early cycle acquirers during the past 24 months closing on over 465 million of on balance communities and increasing our operating real estate portfolio by 15%.

Our Lafayette Highlands community acquired in the third quarter is our most recent example. The property is within two miles of both the Lafayette and Walnut Creek BART station has one of the best school districts in the nation as an average income of $127,000 and a median home price of $787,000 making our rent half of the monthly cost of owning a home.

We continue to look for well located existing assets that will complement our existing portfolio, but as we've discussed before at this time in the cycle we have shifted our focus to development. To that end we commenced construction on Wilshire La Brea in October and expect to start the Sunnyvale Town Center site this month.

Wilshire La Brea with 478 units and close to 40,000 square feet of retail has a total estimated cost of $276 million. Sunnyvale Town Center totaled 279 units and 22,000 square feet of retail and has an estimated cost of $124 million. With these two starts our current developments under construction will total in excess of $550 million.

Given the pricing power we've had this year at our 5600 Wilshire property just four blocks west of Wilshire La Brea and the continued strength of this section of the Wilshire corridor known as the Miracle Mile. We wanted to take advantage of the market strength in addition to locking in favorable construction pricing and start Wilshire La Brea, so that it would begin leasing at the end of 2013 and early 2014, a timeframe we believe will show continued pricing power given the lack of new supplies.

As one of our legacy assets the current return is 4% and will stabilize in the low 5s but we are confident that this will be an excellent long-term asset for BRE. Our Sunnyvale Town and Country side which will be renamed Solstice is an example of the newer addition to our pipeline.

This is an asset we put under control last summer with a current return of 6% and a stabilized return of 7.75. It will add significant value for our shareholders for years to come. Our Lawrence station project started one year ago and is on schedule to deliver the first units in the second quarter of next year and is on budget with a current return of 5.86% up from the [5.25] at the start and a stabilized return of 6.85.

Our Mercer Island project in Seattle which started this summer is also on time and on budget with a current return of 5% and a stabilized return in the mid five. Development advances are expected to total $30 million to $40 million for the balance of 2011 which would bring our annual total to roughly a $125 million. Beginning in 2012, advances should average $225 million to $275 million per year.

Our pipeline represents 45 years of development activity. On the disposition front, we have a couple of properties under contract for sales in the Inland Empire. We currently expect them to close in the fourth quarter while noting the customary caveats that the deal is was not closed until it actually closes.

With respect to operations, Scott will provide additional color, but overall the Bay area at Seattle continue to record strong revenue growth while our Southern California markets gained momentum during the third quarter. Physical occupancy levels in Southern California increased throughout the summer from 95% in June to 96.1 in September and today they are at 96.4% at the end of October. Our year-over-year third quarter same-store revenue growth accelerated to 3.7% from 2.9% last quarter.

And is tracking slightly below the middle of the annual range we provided in August, implying a mid-five year-over-year growth for the fourth quarter. The driver supporting multi-family fundamentals continue to be the lack of supply, the strong demographics and the increasing propensity to rent.

We can’t ignore the highend unemployment rate in California, particularly in Southern California, but as many have commented recently, the unemployment rate for our primary renter cohort, those with the college education is just over 4% and the ecoboom generation is expected to grow 9.6% in California which compares to only 4% for the nation as a whole, creating a significant pool of potential renters in California, which will contribute to our ability to maintain high occupancy levels and increased rents.

Even with California’s fiscal and economic challenges, the supply demand imbalance in California will support increased market rent. We look at peak level rents from 2008 relative to today’s rents to provide context as to where we are market-by-market in terms of the recovery.

Current rents in Southern California are 8% on average below peak level rent. San Diego was down 5% and LA County is still down double digits. Seattle rents are also 8% below peak levels as this market dealt with significant supply. Today much of that supply has been absorbed and while there is discussion of supply coming in to this market in 2013, revenue growth is accelerating and occupancy remained strong. Bay Area rents are back above peak levels.

Before turning the call over to Scott, I want to review our revenue growth. Our performance is something that we study very closely, and as I look at our annual performance since the beginning of the downturn in 2009, what we see is that during the downturn we actually performed quite well compared to our peers and in some markets outperformed by a meaningful margin. It means our revenue in rents didn’t decline as much as our competition in many of our markets.

As our markets had begun to regain pricing power, we believe we could benefit from a third-party revenue management system. So over the last several months, we have been in discussions with the leading revenue management companies and it is clear that the technology has advanced especially on the renewal front. We are completing the selection process and will provide more details when a decision is made.

And with that, I’ll turn the call over to Scott.

Scott Reinert

Thanks, Connie. We provided a lot of operational commentary at the end of the second quarter call, but because our reporting is so thorough, the comments here are intended to provide some additional color and new information.

Portfolio performed as expected during the third quarter with results very similar to the second. The growth seen earlier in the year continued throughout the summer. The San Francisco Bay area and the other markets continued to be strong as any markets in the country. Most exciting third quarter development was the positive momentum that built in Southern California, specially LA throughout the quarter.

Our Q2 levels in Southern California accelerated each month and ended the quarter at 96.1. New and renewal leases also continued to accelerate each quarter and while the fourth quarter is traditionally slower from a lease transaction volume standpoint, we are positioned well-headed into the fourth quarter. Loss to lease stands at 5.3% across the portfolio, occupancy is currently [96.1] and the availability is at a 6.2%.

Loss to lease at the end of the quarter was roughly 7.5% to 8% in both the Bay area and Seattle. New and renewal leases were signed at an weighted average increases of 8.3% during the quarter. Lack of supply and strong jobs market for our primary renter cohort are the primary drivers supporting these growths.

During the third quarter, the rent increases caused a little more churning in the portfolio than last year and our annualized third quarter turnover in the northern division was 66% compared to 59% a year ago. Loss to lease in Southern California at the end of the quarter was 4.2%, occupancy is strong and availability is tight. Turnover in these markets is slightly down and our third quarter new renewal rates were the strongest of the year.

Move outs for home purchases still remain below historic norm at 10.7%. The weighted average median home price in our close to markets; our close to market is $365,000 and assuming a 10% down payment, the rent on gap in our markets is currently $430 per months on average or 27% higher than current rents, $250 per month or 15% higher than the 28% down payment and this is of course assumed that the buyer has the funds for the down payment and still has the desire to own them.

I knew what we want greater momentum on the jobs front, but with the supply side of the equation in check and demographics in our favor we’re still good about our ability to continue pushing rents. There has been a quite a bit of discussion on other calls about traffic trends, so I want to address that now.

The bottom line that we are seeing very seasonal flowing some of our traffics metrics while others are flat and improving, specifically any visitors to our website continues to grow dramatically year-over-year and though we typically notice a seasonal drop in some of the fall, new gas cars and businesses both are up year over year about 7% and 3.8% respectively. Looking at just the month of October as last October gar cars are up 2.5% and businesses that are flat.

And by the way guest cards and business (inaudible) are the contact to our call centre and the corresponding appointments we are able to set via that context. We think this growth is a result of strategic change that we make with our ILF site, and that has greater visibility and more sights at less overall cost.

Finally our goods traffic is down 5% year-over-year and dot.com expected drop due to our implementation at real availability in pricing which better educates perspective renters and allows them to shop online versus walking in.

Lastly with regard to upcoming renewals, we expect the fourth quarter to be strong but we know – letters going out at 7% to 8% in northern California and Seattle, and approximately 4% in Southern California. As Constance stated year-over-year fourth quarter same-store revenue growth is expected to be out 5.5% portfolio wide with approximately growth in the Bay area in Seattle and 4% to 4.5% growth in Southern California and this job growth continues to build, we are set up well for 2012.

As we’ve discussed before, I joined BRE in January, Connie asked me to provide a thorough review of our systems and process around pricing. She told me she would (inaudible) the right decision for our company. After studying this closely, it’s clear that the third party revenue management vendors have made significant strides in their pricing models particularly around renewals, and as Connie mentioned earlier, we will be announcing our vendor selection soon at which time we will provide a timeline in more detail about implementation.

And with that I would like to turn the call over to John.

John Schissel

Thanks, Scott. I have just a couple of additional comments outside of the operational and investment teams that we have discussed today. In conjunction with our second quarter earnings call 90 days ago, we provided a detailed update of our guidance drivers through the second half of the year. There's been no change to those operating and financial assumptions and Connie provided additional insight into our revenue growth for the fourth quarter.

We did close on a $49 million acquisition during the third quarter and do not anticipate any additional acquisition activity this year. As Connie mentioned, we have two communities under contract to be sold in the fourth quarter, but are not in position to discuss in any greater detail until they have actually closed. We are very pleased with where the balance sheet sits today in our overall capital strength. The actions we have taken over the last 24 months helped to meaningfully de-lever the company and significantly reduce our exposure to any debt maturity pressures over the next several years as we look to increase development activity during this period of time in order to take advantage of the favorable operating environment for owners of apartment communities.

We had a $155 million outstanding under our $750 million revolving credit facility at quarter end, and are currently in the process of renewing it in advance of its maturity next September.

We would expect to close on the renewal by year end or early January, and will communicate more once the facility is closed.

Finally, two other matters on the financials worth noting. If you compare second quarter supplemental information regarding our development properties with the disclosure provided for the third quarter, you will see that after adjusting for a Mercer Island project which got moved up in the construction progress.

Total estimated cost for our land under development and land under contract increased by $12 million and $16 million respectively. This reflects a couple of factors including the sequencing for construction starts that we are managing to which results an increased trended cost as well as refinements to product type on some projects associated with government approval and our ability to improve the overall project economic.

The net effect is up while the costs have gone up so have the estimated yields on these projects. And also note there has been a lot of discussion about expense pressure as we start to turn the corner and head into 2012. And while we’ll a give a wholesome update as part of our guidance next February, I will say that in general, we have been operating under favorable conditions the last several years.

One example is that our year-to-date results for our same store prosperities include over $1.2 million in favorable tax proceeds and while we always review these matters annually and appeal where appropriate, we cannot count on having the benefit of these items next year.

With that, I will turn the call back over to Connie.

Constance Moore

Great, thanks John. And Nicole, we’re ready for the question and answer period.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Swaroop Yalla from Morgan Stanley.

Swaroop Yalla - Morgan Stanley

I was just wondering if you can talk a little bit about some of the other development parcels, the ones in Pleasanton and Anaheim as well as Mission Bay. Also, I just wanted you to comment on the supply picture in San Jose. We’ve been hearing about, you know, some big construction projects being constructed in that area. How do you see that affecting you know your lease-up for loan for Lawrence Station?

Scott Reinert

I’ll comment on both actually. The development parcels first Pleasanton and Anaheim, we have been working to entitle those projects for a lower density products which improves the overall economics. That pushes the start dates out to the latter half of ’13 and the beginning of ’14. Mission Bay remains on-track for starting the second half of ’12. And then Redwood City, which we were able to control at a very favorable pace in ’10, will probably start in latter half of ’13.

In terms of San Jose supply, there is an increase in supply, but it’s important to compare it to historical supply numbers. And from a historical standpoint, we are not overly concerned about the amount of supply that’s coming in to the San Jose pipeline.

Also, I would like to point out that Lawrence Station which we started in November of ’10 will start delivering units in the second half of next year, which is early in the cycle compared to the supply that is coming as well as starting Sunnyvale Town and Country by the end of this year, we should be a little bit ahead of that supply curve.

Swaroop Yalla - Morgan Stanley

And then the second question, I think you mentioned that you anticipate about mid-five’s year-on-year revenue growth in Q4. That would seem about 1% or maybe even higher sequential growth; is that a break from seasonality, I mean we’re hearing from your peers that you know seasonal pressures in Q4 will be there, but are you seeing a break from that in your markets?

Constance Moore

No, I think it’s a combination and a couple of things and Scott you can add to this as well. But I mean we think it’s a combination of we’re seeing – it’s pretty normal seasonal patterns but nothing dramatic on the upside or the downside really. So I would say in a lot of cases it’s kind of flat going into the fourth quarter.

But I think moreover, we’re just really beginning to see the benefits of the lot leases that comes in and renew those leases and so it’s how the math works and so on a quarter-over-quarter basis, we expect that to be sort of around the mid-five which implies a sequential improvement, slight sequential improvement. But again, that’s what’s really picking up the lot to lease. Any other comments on that Scott?

Scott Reinert

You know our renewal increases in October came in at the average for the third quarter, so it feels like we’re just continuing to pick up the growth at and momentum that we’ve that’s been building.

Operator

And we’ll take our next question from Jana Galan from Bank of America-Merrill Lynch.

Jana Galan - Bank of America-Merrill Lynch

I was curious regarding your credit facility; are you planning to change the size as you’re focusing more in development and our terms and rates more favorable than the current one you have in place?

John Schissel

I don’t want to give specific detail because we haven’t closed, but I would say overall the sizing will remain the same. It’s more than enough capacity. The structure will be favorable to what we have today except for pricing which will still be very favorable relative to current terms in the market. But as you might recall, the pricing that we achieved five years ago was top of the market pricing in a different era.

Constance Moore

Although I keep trying to John to get that same pricing, it is probably not likely.

John Schissel

LIBOR plus 47.5 on our grid just in case I forgot.

Constance Moore

Yes and so that’s what our current is and it is not likely to be repeated today.

Jana Galan - Bank of America-Merrill Lynch

I see and then I guess going into just your thoughts on acquisitions if you are changing, if you are seeing any changes in buyer expectations or cap rates, kind of giving trends are improving, but you know lending has been a little bit more volatile.

Scott Reinert

We aren’t seeing any changes in buyer expectations, debt remains available, there is continued downward pressure on the cap rates given the dearth of opportunity in coastal California markets for a stabilized class A assets.

Operator

And we have a question from Dave Bragg from Zelman & Associates.

Dave Bragg - Zelman & Associates

What were increases on new move-ins in October and what was occupancy for the portfolio at the end of the month, I think you provided it for Southern California?

Scott Reinert

The new move-ins for October were down slightly from September at about 3% to the prior lease overall for same-store portfolio and what was the second part of the question?

Dave Bragg - Zelman & Associates

Occupancy for the portfolio at the end of October?

Scott Reinert

At the end of October is 96.1 and 6.2 available

Dave Bragg - Zelman & Associates

And then could you talk more about the turnover during the course of the third quarter. I think you provided move-out by homes, but could you walk us through the other regions for move-outs and what picked up during the quarter?

Scott Reinert

I don't have the data in front of me right now.

John Schissel

It was all over the board depending on the market.

Scott Reinert

The number one reason for move out was that increase. Home purchases I think was at number three. Relocating out of the area and jobs was number two.

Dave Bragg - Zelman & Associates

Okay and if I remember correctly rent increases was the third or fourth reason last quarter, so I think you are suggesting that that picked up during the course of the quarter and contributed to the higher turnover.

Scott Reinert

That's correct. Absolutely, especially in Seattle and the Bay area.

Dave Bragg - Zelman & Associates

And then just lastly on Los Angeles, Connie you mentioned the strength in the Wilshire area, could you talk about the differences that you are seeing across the LA market that sub market as compared to the assets that you have, up north of the city and are you seeing a meaningful difference recently sub market wise?

Constance Moore

Well, I will let Scott, I think I will let Scott talk about that because he has a better handle on the individual sub markets I think Pasadena remained strong, Valencia is firming and coastal you know and some of the steps that we’ve got in the coast in Los Angeles is not in the same store, but that's beginning to firm a little bit, so I think we are seeing overall Los Angeles in general firming.

Again it’s a very big sub-market and you go from the coast to the inland, but I think and clearly the Wilshire and Miracle Mile was struggling a little bit, just given some supply and just there's a large owner there that has the tendency to do a lot of confessions and so it creates a bit of choppiness on that strip, but we’ve begun to see a firming in that market and we certainly have seen it with the elimination of concessions that are 5600 in Wilshire and the sort of the strength in that market.

But the coast remains strong, Valencia is definitely firming I think at the beginning of the year Valencia was a little bit weaker and we've got three assets there as you know and so I think we are beginning just to see a momentum, I mean it is interesting that Los Angles in the third quarter added 46,000 jobs.

So we’re starting to see as I motioned, the third quarter was a big quarter across all of our markets for job growth, but Los Angles was particularly strong. So if you think about for the 12 month ending September Los Angles has added a total of 37,000 jobs, but 46 of those came in September. So we were down through the end of the second quarter and so we’re starting to see some meaningful job growth and I think that’s reflected in some of the firming that we’re seeing in the LA market.

Scott Reinert

I think that’s the key. We finally saw some job growth and maybe a little less of layouts in government cut backs and that seems to have provided firming, but it’s been pretty even throughout our portfolio there. Most of our properties gained in occupancy and tightened availability through the quarter.

Dave Bragg - Zelman & Associates

Just on the point now that you built the occupancy in LA and you are seeing the job growth, what are you doing on renewals that you are setting out for November December expirations?

Scott Reinert

For LA we are sending out November-December 5.5% to 6%.

Operator

Our next question come from Eric Wolfe from Citi.

Eric Wolfe - Citi

You mentioned that your current loss lease was 5.3%, a lot of people to find that sort of differently, but could we interpret that to mean that even if rates don’t climb from here that you could see nearly 5% revenue growth over the next year. Does that mean occupancies stays flat?

Constance Moore

Yes, that’s exactly what it means.

Eric Wolfe - Citi

Okay. And do you have a sense of just for where your rental rates relative to market, are you above and I mean below and sort of you know 5.5% to 6% that you quoted on the renewals that are going on right now. Do you have a sense for where the private operators are putting out? Are you comparable, are they being a bit more aggressive?

Scott Reinert

I don’t know where the private operator is putting out. In my conversations with our other folks, it seems pretty consistent. It’s around 5% right now. Market rent is a pretty difficult number to get your head around with, especially with the use of revenue management systems. I think it’s more about base rents in place and the amenity pricing that changes from day-to-day. So, you can look at it today and it’s one thing and you look at it tomorrow and it’s another. So, we feel like we’re still below peak levels and we’ve got room to run and we’re pushing.

Eric Wolfe - Citi

Okay. And just last question, what industries are you seeing the job growth in your Southern California markets and I guess, just based on, you know, your experience, I mean, do you think that growth is sustainable there or is that, sort of, just a little bit of a temporary phenomenon from sort of industries kind of catching up on headcount?

Constance Moore

Well, remember, Los Angeles has one of the highest unemployment in the state. So, I think it’s just, you know, it’s sort of not declining anymore and I think we’ve seen a leveling off of the government reductions in Los Angeles. So, I think it’s across the board, I mean Los Angeles is a very, very broad market. So, I think we’re just seeing it across all sectors.

Scott Reinert

And particularly, in education and health services, we are showing year-over-year growth. We’re showing it in information, and also in leisure and hospitality.

Constance Moore

I think it’s kind of the usual suspects that we’re seeing for job growth across the country, actually.

Operator

(Operator Instructions). We will move on to Jay Habermann from Goldman Sachs.

Jay Habermann - Goldman Sachs

Question, Connie, on just on page 12 of the supplemental. As you look at the sort of non-same store summary -- and I guess just looking, you know, this is just a broad question, but if you think about sort of acquisitions and sort of versus development you have the list there the acquired properties you have the lease up properties, and if you sort of compute what the NOI yield is, they come out pretty similar, and I guess what I am trying to get at is as if you think about ramping up development, you know closer to that 15% of sort of total asset value, how do you think about the risk of word sort of between new starts versus looking at acquisitions because it seems like cap rates have remained fairly stable, and I guess think about IRRs and the opportunities going forward.

Constance Moore

Well, I’ll let -- can you follow on and I think when you look at the lease-up properties first of all what you are looking at properties in lease-up so they’re certainly not stabilized. And so even though the occupancy looks high on those leased up properties, they’re still burning up concessions. So I want to make sure that you understand leased properties look very different.

I think there is a combination of when I look at -- as I mentioned when you look at our new pipeline if you will, I think there’s Sunnyvale Town Center is a very good example of an asset that has a high current return, but it also has a very stabilized return of seven and three quarters and I think that, that is a significantly wider than an acquisition property.

And so, I think it’s a combination of opportunistically looking for acquisitions, acquisitions become very difficult. A lot of assets don’t sell in California, but you have to be good at both. You can't just be quite and argue. You cannot be just an acquirer or just a developer. You have to have both skill sets, and you can shift. For example, we talked about how aggressive we were in 2010, but literally over the last sort of 18 months we’ve added 15% to our portfolio in terms of existing acquisition. That was the right time and the cycle, but as cap rates have continued to be very competitive for core coastal California assets, arguably was a good time to development and really bring on those assets that had very attractive yields. Steve, would you like to add to that?

Steve Dominiak

The only thing I would add to that -- going back to the general rule of thumb is that typically like a 100 to 150 basis points spread over development cap rates over acquisitions, and if you look at the $465 million worth of acquisitions we have completed over the last 24 months, the day one, year one return is around five, and if you look at the development starts that we started and plan to start soon the current returns are in the road of mid fives but trending into the high sixes and seven. So as Connie said, there is a lot of spread between there is lot of spread between the development return and the acquisition returns which is very compelling given where acquisitions in Cap rates are today.

Jay Habermann - Goldman Sachs

Okay, that’s helpful. And I guess for the $680 million investment in that non same-store, would you expect to see greater than average in a live pick up versus the rest of the portfolio?

Constance Moore

Yeah, absolutely and again a lot of those acquired properties and I think you’ll see some of that reflected in January when our same-store pool changes because our same-store pool only changes once a year and you have seen others where they change a sort of quarter-to-quarter and they are heavily acquired. So none of our same-store includes any of the acquisitions that we had given in San Jose.

So you will see in January where’ll you see a pick-up of our same store and yes I would expect those NOIs it to be higher.

Jay Habermann - Goldman Sachs

Okay. And last question from me on the non-ore markets. I know it’s a relatively small, but if you think about funding on the development going forward, is certainly a source of funds you look toward?

Constance Moore

They absolutely are source of funds. Yes.

Operator

And we have a question from Michael Salinsky from RBC Capital Markets.

Michael Salinsky - RBC Capital Markets

Good morning, guys. Just a quick question, since you mentioned La Brea in the fourth quarter can you give us an update on what the cost projections are for that one.

Constance Moore

I think I said in my commentary $278 million.

Michael Salinsky - RBC Capital Markets

276.

Constance Moore

$276 -- excuse me and that does include about 40,000 square feet of retail.

Michael Salinsky - RBC Capital Markets

Okay. And you expect that to start delivering units in ’14?.

Constance Moore

Late ’13, I think actually, probably late fourth quarter ’13, and then obviously we will be delivering into ’14.

Michael Salinsky - RBC Capital Markets

Okay, you guys recycled on the joint venture assets during the quarter, is there plans to continue to moving forward some of those -- moving forward the additional dispositions or is that just a one-off item.

Constance Moore

No, no I mean that venture was done in April of 2006 and while the venture had a seven year life there is no hard stuff on that, but I suspect as given the improvement in evaluations that our partner will ultimately want to start to dispose off those and so Denver was their first selection until we sold that asset at a nice gain for them and us.

Michael Salinsky - RBC Capital Markets

Okay. That’s helpful. Thank you very much.

Constance Moore

Nicole, before you go to the next question I have a couple of questions. Let me just read them as it were, came in on bre.com. The first one is on the Lafayette Highlands acquisition, are there plans to put live company debt on that asset, and if so, can you provide an update to the color you provided, Eric Wolfe from Citi last quarter, as there's been a observable change in lender competition. So, John, I will let you speak to that.

John Schissel

There are no plans to put any live company data on that. We still see the secured lenders being fairly aggressive, low to mid-fours in terms of quotes either from the agencies or over the life of companies.

Constance Moore

And then we had another question from the same analyst about again the lending in creek and I just want to know that if it was a natural wind down and so I think I just responded to that. Yes, it was just a natural wind down and I think over time the remaining assets and we have seven remaining assets in that venture. I think that’s right. No, four -- yes we had eight in Denver, so now we have seven of those left in Denver and we have three in Phoenix. So, what’s that of the current make up of that venture look like. Okay Nicole, any other questions?

Operator

And our final question comes from Andrew McCulloch from Green Street Advisors.

Andrew McCulloch - Green Street Advisors

Hey, good morning. Connie, I’ll start, you gave some sub-market color for LA can you drill down a little on the different -- on the county sub-markets and also in the Bay and how at East Bay is trending both San. Jose (inaudible)?

Constance Moore

Okay. Well Orange County, I think some of the biggest strikes we have in the platform.

John Schissel

That is a triangle in the Northern part of the county, probably the strongest.

Constance Moore

South County is a little bit weaker.

John Schissel

And San Anna has been a little bit troubling and then the far South County is a little bit --less occupied then say platform trying, but its overall in Orange County right now we are over 96% occupied.

Constance Moore

And the Bay area versus East Bay?

John Schissel

South Bay is very strong. East Bay still continues to maintain very strong occupancy and availabilities are tight there as well. We are -- I don’t have they will go report for me right now, but we are about just little over 6% available in San Francisco overall. Yeah, the peninsula, it’s not fairly (inaudible)

Andrew McCulloch - Green Street Advisors

And then on the revenue management systems, you said they improved how they handled renewals. Just out of curiosity, can you describe what they changed that make you believe the system got a lot better over the last year?

John Schissel

I think, in their early technology, they really didn’t addressed renewals. And so now they’ve got a renewal component that gives you better visibility looking at supply and demand components in the forward looking months. And so, it gives you I think a little better forecasting on what you might be unable to do with your renewals.

Constance Moore

Nicole, I understand, we have a couple more questions.

Operator

Yes, you do have a few more in the queue. Rich Anderson from BMO Capital Markets.

Rich Anderson - BMO Capital Markets

I just want to address the traffic if I may, since you know we kind of been lost over a little bit here since the numbers look pretty good. But you mentioned three elements; you mentioned guest card visits and foot traffic. I know what guest cards are. But what’s the difference between visits and foot traffic?

Scott Reinert

Well, visits are appointments that we set to our call center, so a prospect calls in or emails in and our call center handles that initial contact. And then we measure how effective we are at setting an appointment for folks to come to the property, but a couple of things happen. Sometimes people don’t show up for their appointment and sometimes they just walk-in without having gone through that contact center, so therein lies the differences.

Rich Anderson - BMO Capital Markets

Okay. So visits were flat in October, foot traffic was down 5% in October. Is that right?

Scott Reinert

I think my reference to the traffic being down was for the – that 5% reduction is for the nine months of 2011 compared to the nine months of 2010. I don’t have an October foot traffic number for you.

Rich Anderson - BMO Capital Markets

Okay, that’s too bad. Okay and then a bigger picture referring to Jay’s question on development. I guess you’re making kind of a commitment to four or five years of development activities. Is that what you said Connie?

Constance Moore

Not kind of we are. The pipeline that we have again is because we are limiting our development advances to let’s call it round to $250 million a year then what we’ve got left on that development pipeline represents four to five years.

Rich Anderson - BMO Capital Markets

Okay, fair. So in an age of a lot of uncertainty and geopolitical events and everything else, I understand that the fundamentals look good, but there are some bloom off the rose to some degree you know when you think of the enormity of events that are surrounding us that could impact fundamentals at some point. I am just curious as to how quickly you can readjust to that strategy and if there would be any kind of – how easy is it for you to walk away and not have to sort of suffer any financial losses as a result of flowing down development?

Constance Moore

Well I guess I look at a couple of ways then John and Steve you can jump in. I think first of all, we absolutely expect that there will be some sort of recession or something I just don’t know when it is, I mean so I think we know that there are business cycles. We don’t think that this is going to last forever. So I think the discipline that we are putting on ourselves as it relates to an unknown cycle events that may be coming in the next three to four years is making sure that we don’t have too much under construction and started at any one point in time.

Now we’re going to be having in 2012, because we think we’re early in the cycle and we want to get those properties to be leasing up in ‘13 and ‘14 and ’15, but we still think that we’re going to have some momentum in those markets. But I do think that when you think about how long it takes to either entitle or process site here, we can’t stop and start a development pipeline, it’s too painful, but you can get it to be right sized.

So we spend the last couple of years is one right sizing the development organization and right sizing the development pipeline. So this feels about right and still and actually the $1.3 billion I’ll tell you it’s probably a little heavy, but as we work through 2012 and we sort of continue to and most of the break comes into our earnings stream.

I would tell you that our run rate for our pipeline is probably $800 million and that kind of gets us to a steady state of $2 million to $2.5 million here in development advances and we will continue to add and one of the things that the guys are looking for on the investment side is deals that have what I would say is a little bit more here or there then that we really don’t have an expectation for a start for four to five years. So we build this pipeline out and then we begin to build out the next four to five year pipeline, but there is a discipline around it and making sure that we don’t get too out of our skies.

Operator

And we will now take our final question from Seth Laughlin from ISI Group.

Seth Laughlin - ISI International Strategy & Investment

Just may be a point of clarification. I thought I heard you say rates on move-ins in October fell 3%, was that right?

John Schissel

They came in at 3% overall for the portfolio.

Seth Laughlin - ISI International Strategy & Investment

I beg your pardon, they didn’t decline 2%.

John Schissel

No. They did not decline, they were (inaudible) was up 3%.

Seth Laughlin - ISI International Strategy & Investment

Understand. And may be you can just give us a bit of color on how that would spread across the portfolio?

John Schissel

I am sorry I don't have that in front of me. I would say generally the trends are similar to what we saw in Northern California, stronger than…

Constance Moore

It’s still strong and Southern California is getting stronger.

Seth Laughlin - ISI International Strategy & Investment

Okay. But do you have the feeling that gap is closing between Southern California and Northern California or you think still Northern California’s pace of growth is accelerating relative to Southern California?

Scott Reinert

I would say it’s definitely closing.

Seth Laughlin - ISI International Strategy & Investment

Understood. And then may be just one quick final question, Connie I know you said mid-fives I think for revenue for fourth quarter; I think last call you said may be 6% and I don't know if that's just rounding here, but may be you can comment on what's changed in the last three months that may be you are either more or less optimistic regarding revenue for the fourth quarter?

Constance Moore

John referred to as CEO math. But, I look at it that we've refined it a little bit and a couple of hundred thousand can move the swing 30 basis points in terms of our revenues. So I look at it as kind of sort of between 5% and 6% it’s probably going to hover around that 5.5% so I think coming into the third quarter last time we were probably thinking a little more aggressively that it would be at the higher end and I think it’s just closer to the middle of that range.

Seth Laughlin - ISI International Strategy & Investment

Understood. It’s great and that’s all from me.

Constance Moore

Okay. All right then. This is great and we look forward to seeing many of you in a couple of weeks in Dallas. And thank you very much for listening to this morning’s call. Thank you Nicole.

Operator

You’re welcome. Ladies and gentlemen, that does conclude today's conference. We appreciate your participation today. Thanks.

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