Equity Residential Q2 2008 Earnings Call Transcript

Jul.31.08 | About: Equity Residential (EQR)

Equity Residential (NYSE:EQR)

Q2 2008 Earnings Call

July 31, 2008 11:00 am ET

Executives

Marty McKenna - IR

David Neithercut - President and CEO

Mark Parrell - CFO

Fred Tuomi - EVP of Property Management

David Santee - EVP of Property Operations

Analysts

David Toti - Citigroup

Michael Bilerman - Citigroup

William Anderson - Benchmark

Christeen Kim - Deutsche Bank

Dustin Pizzo - BOA Securities

Jay Habermann - Goldman Sachs

Rich Anderson - BMO Capital Markets

Michael Salinsky - RBC

Rob Stevenson - SPK

Alex Goldfarb - UBS

Richard Paoli - APG Investments

Haendel St. Juste - Green Street Advisors

Operator

Good morning my name is Whitney and I will be your conference operator today. At this time, I would like to welcome everyone to the Equity Residential second quarter earnings conference call. (Operator Instructions)

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

Marty McKenna

Thanks, Whitney. Good morning and thank you for joining us to discuss Equity Residential second quarter 2008 results. Our featured speakers today are David Neithercut, our President and CEO and 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 the 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 will turn it over to David

David Neithercut

Good morning, Marty. Good morning, everyone. Thanks for joining us today. We are extremely pleased with our operating results for the second quarter and for the first half of 2008. Our occupancy has remained solidly in the high 94% to 95% range. Our same store net operating income growth for the second quarter was 4.9% and for the first half of the year was 4.8%. These levels were both at the high-end of our expectations.

We are clearly benefiting from the changes we made in our portfolio over the last few years as for the first half of the year the same store net operating income growth for assets acquired over the last several years exceeded 8%. We are also benefiting from much-publicized problems in the single family home market; problems which do not appear to be improving any time soon and problems that while helping us in our fundamental rental business are negatively impacting our condominium conversion business which we will discuss in just a moment.

So, we're very happy with our operating results thus far in the year and we're just extremely proud and Fred and David are too very proud of the people that are hard working out there that are delivering this for us every single day on our assets across the country.

Looking forward, in almost all of our markets we expect to continue to see steady increases in rent levels from our existing residents that renew their leases with us. However, in many of our markets our new prospects are beginning to resist the current and increasing levels of market rents we've enjoyed over the past quarter. This has caused us to bring down the top end of our full year same store revenue expectations.

So, while we currently expect that every one of our markets outside of Florida to deliver positive same store revenue growth for the year, that growth will now be just modestly below our original expectations. Now, that combined with extremely strong expense controls that we're experiencing from our new platform should still produce full year same store net operating income growth generally in line with our original expectations and we're very pleased with that.

We've also brought down the top end of our FFO range and is not due to operations because as I said same store NOI growth is expected to be in line for the year, or rather due to larger than budgeted losses in our condominium conversion business and the dilution from pending debt transaction that will refinance our 2009 debt maturity and Mark will address both of these matters in his remarks. Mark?

Mark Parrell

Good morning everyone and thank you for joining us on today's conference call. We are pleased to report strong results for the quarter. I want to talk about our great same store operating results, our second quarter 2008 FFO results, and describe our capital markets activities in the quarter, as well as review our outstanding balance sheet and ample liquidity. I will also talk about our same store and FFO guidance for the remainder of 2008.

We are very pleased to report same store NOI growth of 4.9% for the quarter and 4.8% year-to-date , both of which exceeded our expectations in the high-end of our guidance range. For the quarter, our same store revenues increased 4% over second quarter 2007, driven by a 3.7% increase in average rental rate, solid occupancy at 95% and an increase in other income.

We will see moderation in these growth rates in the second half of the year in many of our markets. With the moderation more pronounced in the markets that continue to feel the pains of the single-family housing market slowdown, specifically Florida, Southern California, and Phoenix. We are especially pleased with the continued success we've had through our cost control initiatives in keeping our operating expense growth low.

Same store expenses were up 2.4% for the quarter, and 2% year-to-date. Important categories like payroll grew at inflationary or lower levels and insurance costs grounds and maintenance all declined. Other less controllable expenses, predominantly higher utility cost up 10% quarter-over-quarter or $2.4 million and higher property taxes up 5% quarter-over-quarter, or $2.1 million, offset some of these expense savings.

We are also very pleased with the 13% quarter-over-quarter decrease in our property management expenses while G&A only increased 2.9% The combination of our technology driven initiatives, improved staffing practices and a more concentrated portfolio has allowed us to harvest these expense reduction and we believe we can continue to generate additional efficiencies as our technology and platform mature, but importantly while we have focused on expense controls, our overall resident satisfaction scores and a percentage of our residents satisfied with the condition of their home upon move-in are both higher.

This is what we hope to achieve when we set out several years ago to modernize and invest in our operating portfolio or platform, more revenue, less cost and more loyal customers.

Given the current conditions in the economy and credit pressures on the consumer, we thought it appropriate to update you on bad debt. Our bad debt was 0.6% of revenues in the quarter. This is very much in line with historical standards. Delinquencies were about 2.3% of rental income in the second quarter, which is very much in the historical range and actually lower than the second quarter of 2007.

Before I move on to our second quarter 2008 FFO results, I want to take a minute to highlight the performance of our acquisitions from 2005 and 2006. All of these units are already in our same store numbers. These are almost 19,000 units performed incredibly well in the quarter with over 6% revenue growth, sub 2% expense growth and NOI growth of almost 9%.

As you saw in our press release, our second quarter 2008 FFO results were in line with our expectations. The release contains an explanation of the quarter-over-quarter variance and so I will not repeat it here, but I would like to provide some color on a couple of items. We had a negative impact to FFO of $0.04 per share from our condo business. We did not meet our sales expectation for the quarter. We also took a charge of approximately $3.2 million in response to changes in the status of litigation relating to our condo conversion business.

We believe that the adjusted reserve provides a closer approximation of the company's aggregate exposure as we see it today. Overall, interest expense was down $5.5 million quarter-over-quarter. There is a bit of complexity in analyzing this variance as interest expense, the share count reduction due to our debt finance share buyback and our lower rate of preferred distributions are all linked.

Taking the interest expense line item in isolation, the $5.5 million decrease was driven by an $11 million increase in interest expense in the quarter, due to the 2007 buyback, which was offset by lower floating rates of interest in the quarter of about $5 million, lower prepayment penalties of about $3 million and about $4 million lower due to increases in capitalized interest.

Interest expense was also driven down by $6 million due to our use of excess sales proceeds to pay down debt. To really understand the change in interest expense, you also need to take into account the $0.04 increase in FFO per share due to the reduced share count. When you net the share count reduction against the incremental $11 million in interest expense to finance the buyback, the result is neutral to FFO. I am very pleased to talk about our outstanding balance sheet. We currently have approximately $145 million in cash, and approximately $1.4 billion available on our line of credit.

In our release, we announced that we have locked rate on a new $550 million Fannie Mae secured loan. The loan has an 11.5 year term of which 10.5 years is at a fixed rate and the final year is floating. The all-in effective interest rate is about 6%. We expect to receive the funds in late August. We were very pleased given the state of the credit markets to add this liquidity to our balance sheet. The interest rate on this new Fannie Mae loan is lower than the rate prevailing on our 2009 fixed rate maturities and the new loan will be accretive long-term.

During 2008 however, the cost of pre-funding these 2009 maturities will reduce FFO by $0.02 per share. We believe that having ample liquidity to meet all of our 2008 and 2009 funding obligations as well as having the financial flexibility to take advantage of opportunities in the marketplace makes the short-term cost worth it. Based on our revised transactional guidance, we anticipate line availability of 1.4 billion at December 31, 2008 and unrestricted cash of about $340 million.

For 2009, we have $985 million in debt maturities. We expect to meet all of these maturities plus our 2009 development fundings of approximately $300 million out of cash on hand after receipt of the Fannie loan proceeds and through the use of existing line of credit. If we undertook no other capital markets activities, we would finish 2009 with approximately $400 million availability on our line.

Taking this all into account, we think that our balance sheet is in excellent shape. Consistent with our strong operating performance and conservative balance sheet, fixed charges, interest expense plus preferred distributions were down on a quarter-over-quarter basis by $9.5 million or 7% and our already strong credit metrics improved across the board.

I'd like to wrap up my remarks by addressing guidance for the third quarter and full year 2008. In the press release we provided third quarter 2008 FFO guidance of $0.61 to $0.65 per share. While operating performance will be good our third quarter FFO results will be negatively impacted from our continued losses in the condo business, some dilution from out new Fannie loan and slightly lower property NOI due to the timing of dispositions.

We have lowered the top end of our full year FFO guidance to $2.55 from $2.60. For a new revised range of $2.45 to $2.55 per share, reconciling to our new guidance midpoint of $2.50. On the positive side of the ledger, we have better property operating results than we initially expected, primarily due to strong expense controls. This positive is offset by the negative impact of $0.02 per share, from the cost of pre-funding our 2009 debt maturities and $0.04 per share negative impact due to condominium conversion related losses.

David will speak in more detail about the outlook for the conversion business in his remarks. The main driver of our FFO number however will continue to be the positive performance of our same store portfolio, expected to contribute an incremental $40 million to $50 million in FFO this year and the lease up of our development and other non same store properties, which are on track to contribute $25 million to $30 million in FFO this year. We expect 2008 FFO to be in the solid middle of our guidance range.

On page 25 of our release, we have listed the assumptions driving our 2008 guidance but I want to highlight a few of them. We have revised our revenue guidance range for the year to 3% to 3.5% from 3% to 4% reflect moderating overall growth as well as more softening in Florida, Southern California and Phoenix.

We have revised our same store expense guidance to 2.25% to 2.5% for 2008 to reflect our terrific expense performance to date and our expectation that this performance will continue. We have revised our NOI growth range for the year to 3.5% to 4%. While second half revenue growth will be below first half, we will still produce good NOI results due to our excellent expense controls and good, still moderating revenue growth in Seattle, San Francisco, Denver, Portland Oregon, New York City, and Washington DC offset by continued weakness in Florida, Southern California, and Phoenix.

As I mentioned before, G&A expenses were up a modest 2.9% quarter-over-quarter. We have spoken before about our commitment to having an operating structure that is appropriate in size to our transformed portfolio. We have lowered our G&A guidance range for the year to $46 million to $48 million from $48 million to $50 million and we are hoping to come in below $47 million for the year.

Overall, we continue to feel good about trends and operating expenses, G&A, bad debt and delinquencies and are working hard to produce good operating results in 2008. We have a strong balance sheet and ample liquidity to weather the uncertainties in the credit markets and to take advantage of any compelling opportunities that may present themselves.

I will now turn the call back over to David.

David Neithercut

Thanks Mark. I'd like to talk a little bit about transaction activity. As we've been noting for quite sometime now that activity remains very slow across our core markets. Investment brokers are telling us that they actually have many listings today as they ever had, but a lot of buyers are on the sidelines so there remains a fairly sizeable bid that spread out there today and the brokers are therefore closing far fewer deals than they have in a long, long time. Cap rates have certainly backed up.

For high quality assets in the better markets they've increased may be 25 basis points to 50 basis points and cap rates on lesser quality assets in less desirable markets have probably moved up 50 basis points to 100 basis points. As I mentioned several times due to increasing bottom lines and extremely reduced deal volume, it is very difficult to determine exactly how much rising cap rates have actually impacted absolute prices.

Well, consistent with what we have told you in the last several calls we continue to be a seller of assets as we execute our strategy and moving out a slower growth of non-core markets assets and we continue that in the second quarter when we sold eight assets nearly 2000 units. These had an average age of 21 years old, we sold them for 5.6% weighted average cap rate and realized a 10.9% IRR during our holding period.

We sold three properties in Dallas, two in Denver and one each in Portland Maine, Atlanta and Seattle. I will tell you that the Denver and Seattle sales represented opportunities for us to take advantage of a very strong market to sell older assets in less desirable sub-markets at attractive cap rates.

As a point of reference unchanged in cap rates and how that's impacted property values, I will tell you that the assets that we sold in the second quarter, traded for 108% of how we valued them back in early 2007. Of the $448 million of assets sold in the first half of the year, in total traded for 106% how we valued them in early 2007. Well, after having been fairly quiet on the acquisition front for the last year or so, we did acquire four assets in the second quarter 2008.

We acquired a portfolio of three assets, totaling 1200 units in suburban DC from a single seller. It's $189,000 per unit on average about $200 per square foot, we believe we have underwritten those at a 6% cap rate and have underwritten 9% unlevered internal rate of return on that investment.

We also did buy a single asset in Pembroke Pines, Florida in Broward County outside of Fort Lauderdale. The transaction that we think represented a very interesting opportunity for us. We bought two separate and distinct phases of a failed condominium conversion. This is Class A product that we underwrote and we acquired and intend to rent, operate it as a rental property, bought that for $147,000 a unit at $146 a square foot, at this location Class A product we are very pleased with that and also believe that we had an inbound cap rate of 6% and have underwritten a plus 9% unlevered internal rate of return.

In the press release information we've updated our guidance on transaction activity for the year. We continue to expect to sell a $1 billion of assets this year. We now expect to acquire $750 million of assets for the year and we were about half, about 50% towards those goals in the first half of the year.

We currently have $300 million of properties under contract to sell, significant money at risk and hard with all contingencies waived and expect to close those over the next 30 or so days. We currently have only one asset under contract to acquire at this time, but as I said earlier there are a lot of properties being offered in the market today. We continue to underwrite deals in all of our core markets and we expect to see more opportunities as the year winds down to buy assets of pricing that make sense for us.

So at the present time, through the acquisitions we made in the second quarter, we are not yet at a point where we've had to make the decision I talked about in the last call of having to stop selling or to start buying or to consider a special dividend. In fact, our expectation at the present time is that it would be highly unlikely that we would have to consider a special dividend this year.

Turning now to our condo business. As we noted in the press release, we materially changed our outlook on the condo business for the year. You may recall that on our first quarter call in early May, I noted that it was very possible that we would have a loss for the year in this business and that will indeed be the case. This loss is the result of several primary factors. The first, certainly fewer closings than we had previously forecasted and we're closing fewer units because buyers concerns about catching a falling knife with respect to prices. Frankly, more stringent financing requirements which are making it difficult for our prospects to qualify for financing. The loss will be a function of the reserves that Mark mentioned during his remarks, as well as ongoing legal expenses and the write-offs that we'll experience from marketing cost on suspended conversions.

So what steps are we taking for the business for the balance of the year? Well, we will continue with the conversions of assets in process, and those are four deals that have today undersold inventory of only 249 units, and that's as of this past Monday. One deal in Chicago, one in Seattle, one in San Jose, and one in Los Angeles. As I've noted in the past, traffic of these properties remains reasonably strong, in fact, last week we averaged 21 pieces of traffic at these four deals. We just got a lot of lookers that we need to turn into buyers and I am confident that we will.

Also as noted in the press release materials, we will suspend the conversion of our two most recent assets - that one is being Martine in Bellevue, Washington and the other being the Hamilton in Beverly Hills, California. We will put them in the rental pool where we expect them to perform very well for us.

Lastly, as we have for the last year or so, we will closely watch our costs to ensure that they remain in line with this level of activity. That said, I want to tell you we continue to believe that the conversion business has good long-term prospects for us and we expect to be in the business for quite some time.

Along with acquisitions, development continues to be a very important way for us to allocate capital as we move out of low barrier markets and into high barrier markets in search of higher total returns. At the end of the quarter, we have projects under development totaling $1.5 billion. Now this is down from $1.7 billion at the end of the first quarter, because we completed four assets totaling $353 million - first being the West End apartment deal in Boston; a Crown Tree Lakes deal in Orlando; a Reunion at Redmond Ridge in Seattle; and a City Locks project here in Chicago.

We also did add a couple of projects to our deals under construction, the first a property that we bought 60% complete of the construction process, and that is the Mosaic at Metro, its in Hyattsville, Maryland, 260 units of deal we've been working on since mid-2007 and we've been very much part of the construction process up to this point. We expect to stabilize yield on that deal in the mid 6s, it comes with very attractive 30-year financing at 5.14% and frankly we believe we're getting a development yield by taking only lease up risks which we're very comfortable with. This is the classic transit oriented development; it is a great location, immediately adjacent to a metro stop and just a couple of miles from the University of Maryland. We are very excited about that transaction.

We are also excited to have started our Redmond Way project in downtown Redmond, Washington. This is the 250 unit project that is within walking distance to the Redmond Town Center, and near Microsoft's new $1 billion campus that is currently under construction and is expected to house 12,000 new employees very shortly. We are expecting a stabilized yield in the mid 6s on that transaction as well.

We also continue to have a pipeline of development opportunities in excess of $2 billion in various stages in planning and diligence. We currently own the land again for about half of those projects with the balance being under contract or a letter of intent.

For the second quarter, we've started $255 million of development that does not include the Mosaic transaction that we've recently acquired that was 60% complete. We have several projects that could start in the second half of this year, which would increase our starts for the year by another $100 million to $200 million, but I will tell you we will consider these additional starts very carefully, because we are mindful of the importance of liquidity in this uncertain time.

That being said, I will tell you that we very much believe that in our core markets, well located, well conceived assets delivered in 2010 and beyond will perform well. This is due to very favorable demographic trends as well as a likelihood of very little new product being built in the near future with construction loan market all but shutdown, and I do mean all but shut down. So as a result, we are going to continue to pursue and underwrite new development opportunities and hope to consistently start $500 million or so of new deals annually.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Michael Bilerman with Citigroup.

David Toti - Citigroup

Hi, this is David Toti here with Michael. A couple of questions with regard to the development pipeline. Can you talk about at what point margins will begin to compress when contingency budgets have been eaten up by cost increases and declining rental assumptions?

David Neithercut

I will tell you that all of our projects under construction are well on budget. In fact the deals we have completed have been completed in generally under budget. So, the deals we're working on we're not seeing increasing costs. And then stuff that we are working on today, we are frankly seeing our costs moderate somewhat. As it relates to the rent upside, rental side, certainly our projects today are probably not renting up with the same velocity of the same rates that we had expected and we are probably what had started with expectations of mid s yields will be maybe more low s yields. We are satisfied with how they are progressing in the marketplace, and we are very confident in every single one of them, they are worth far more than what it cost to build.

David Toti - Citigroup

Great and then in terms of the shadow pipeline and the projects that you are looking at, how would you characterize any change in your underwriting assumptions there?

David Neithercut

We certainly have higher expectations for yields and those deals that we currently haven't yet bought the land. I can assure you that we'll be having conversations with land sellers as to changes in purchase price.

Michael Bilerman - Citigroup

Hey David, this is Michael speaking.

David Neithercut

Yes, Michael.

Michael Bilerman - Citigroup

You talked in your opening comments about new tenants resisting some of the increases that you are trying to push through, but existing tenant taking the increases as you give them. Can you talk a little bit about the dynamics of whether there are any regional differences in terms of the ability to push rent and how do you think that trends given the turnover that is occurring?

David Neithercut

David you want to answer that?

David Santee

Sure. This is David Santee. As we continue to implement LRO, we have complete visibility in to the ebb and flow of rents within a particular market. So, even while South Florida as an example was in decline you still had a lot of gain/loss built into the overall lease structure of a given property or sub-market. So, even though the existing current market rents were at level, you still have existing residents that are below those levels. We have the ability to bring those rents up even 1%, 2%, 3%. So, last year and even this year while South Florida was in decline, we achieved well above two plus percent over new increases.

Michael Bilerman - Citigroup

Thank you. That's helpful.

Operator

Your next question comes from [William Anderson with Benchmark]

William Anderson - Benchmark

Yes, thank you. Good morning gentlemen.

David Neithercut

Welcome back.

William Anderson - Benchmark

Thank you very much. It is great to be back. Looking at your average second quarter market sequential revenue growth rates, and I get these from public sources and then comparing them to what you've reported in your top five markets you beat by an average of 175 basis points sequentially. So, I am confused or really interested in the decrease in revenue and NOI guidance to get to the new midpoint of your range for revenue and NOI, you would have to report an average for the second half of 2.75% growth in revenue, and NOI that's an awfully large drop from the 4% and 4.9% figures in the second quarter. Do I have this right?

David Neithercut

Yes, you have the right implication and we certainly hope we will do better than that but again as we discussed the weight of Southern California and Phoenix and Florida are not insubstantial and that is what our numbers have reflected, plus just general caution about the way this year is playing out in terms of the economy and the employment picture.

William Anderson - Benchmark

Okay. Now, I would assume that since the third quarter is the prime leasing quarter that this kind if infers that the fourth quarter could be rather weak indeed?

David Neithercut

Yes. Third quarter numbers we have are in our minds better than what we would expect the fourth quarter number to be.

William Anderson - Benchmark

Okay. I know you guys are not probably going to want to talk about '09, but if you have a very weak fourth quarter and this is the first quarter is going to be down there as well.

David Santee

You are right. We don't want to talk about '09.

William Anderson - Benchmark

All right. Let see, looking at the acquisition disposition, cap rate spreads in your guidance page, the spreads down 50 basis points, can you tell us, which moved more? Did acquisition cap rates go up or did disposition cap rates move more? What was the…?

David Santee

I would tell you a little bit of both, Bill. We are able to sell some of the deals, I mentioned in Seattle, Denver very attractive cap rates and we are able to buy some product, the Florida deal and Washington DC portfolio, we thought we are in track of inbound cap rates. So I think we were able to narrow that delta by working both sides.

William Anderson - Benchmark

Okay. Last question on condos, the estimated number of sales down by 50%, but maybe I am looking at the wrong numbers here but the pre-tax estimated losses works out to a swing of minus 10 million to minus 15 million from the first quarter, that really infers some really big negative changes in pricing.

David Neithercut

Well, let's just give you a little bit of color there, so that we all start with the same number because certainly the litigation adjustments that we discussed, the $3.2 million has got to be factored into those numbers. So that is where you got to start because the entire difference there, part of it is operations and part of it is just litigation related stuff.

William Anderson - Benchmark

Okay. Thank you very much, guys.

David Neithercut

You bet, Bill. Thank you.

Operator

Your next question comes from Christeen Kim with Deutsche Bank.

Christeen Kim - Deutsche Bank

Hey, good morning.

David Neithercut

Good morning.

Christeen Kim - Deutsche Bank

Could you speak a little bit more about some of the moderation in Florida, southern Cal, Phoenix, is it more a single-family home supply you are seeing competing in the rental pool? Is it job losses on the construction front or is it something else entirely?

Fred Tuomi

Christeen, this is Fred Tuomi. I think, in general I would say it's a job loss situation. Job losses drive a weakening demand; and conversely job growth is our best friend in terms of demand increases on the upside. We are still not seeing direct verifiable competitive impact from the single-family overhang in these markets, but I do believe it is the softening from the job losses. Most of that job losses from the real estate sector, which I think is pretty much at the bottom.

Christeen Kim - Deutsche Bank

Is the move out to home purchase ratio continuing to drop in those markets or has it somewhat dropped at this point?

Fred Tuomi

We've seen another significant drop in the move outs for home purchasing overall with a couple exceptions being like Central Valley California and Northern Virginia. They are only two markets that increased.

Christeen Kim - Deutsche Bank

Okay, great. My second question is in terms of the buyer pool, has anything changed in terms of the buyer mix or their ability to get financing?

David Neithercut

Are you talking about our disposition of our income producing property?

Christeen Kim - Deutsche Bank

Yes.

David Neithercut

We continue to sell assets to small local regional investors, and generally they continue to be financed by Freddie and Fannie. I will tell you that the $300 million of deals that we have currently under contract with money at risk there, both being financed by Fannie Mae and rates are locked.

Christeen Kim - Deutsche Bank

Do you have a sense of whether their appetite for multi-family lending has changed given the current circumstances?

Mark Parrell

No. Our view is that and we've had discussions with them and we've seen the evidence. Based on our rate lock, their interest, and their excellent pricing of the sale, the buyer financings we've seen, and Fannie and Freddie are alive and kicking. We've had conversations with them over the last week. They continue to be very efficient and well-priced suppliers of debt capital to the multi-family sector. Certainly, some of the news around those names was disconcerting, but what we have seen and what we have observed leads us to believe that they are very strong in terms of their support of the multi-market at this point.

Christeen Kim - Deutsche Bank

Great. That's helpful, thank you.

David Neithercut

You're welcome.

Operator

Your next question comes from Dustin Pizzo with BOA Securities.

Dustin Pizzo - BOA Securities

Hi, good morning, thanks.

David Neithercut

Good morning, Dustin.

Dustin Pizzo - BOA Securities

God morning, guys. David, just on the decision to slowdown on the acquisition front a little bit, is it a function of the disposition outlook slowing? It sounds like that's not it, or are you more taking the stance now that pricing is probably going to improve six to nine months from now as you see some of that distress that you talked about, so kind of why put money to work today?

David Neithercut

Well, I'd tell you that the acquisition started 12 months ago. The second quarter represented the first acquisitions that we have made in nearly a year. So, we did find several opportunities to buy what we thought were some discounted deals. I'd say we continue to be out there looking and I wouldn't be surprised if as the year progressed we didn't continue to see some opportunities. I think we're seeing on the acquisition side is we don't need to be in a hurry, patience will prove profitable for us.

Dustin Pizzo - BOA Securities

Okay. Then it looked like you saw a couple of busted condo deals this quarter. Do you envision more of those hitting the market? Have you seen any of that recently?

David Neithercut

Yes, and I will tell you that our condo guys are going to spend a lot of time going forward looking at opportunities to play in that market. I think that we're uniquely positioned not only because of our ability to operate and manage but just the knowledge and experience that we've got in our condo group to take these things on. So, I believe there are going to be opportunities for us to buy units and operate them at premium yields. There is a promise for sometime and then perhaps realize a profitable exit, a retail conversion exit somewhere down the road.

Dustin Pizzo - BOA Securities

Okay. As you think about the potential pricing on types of deals like that or more generally even on the rental side on the acquisition, it sounds like yourselves, a number of other large players, you have plenty of available capital all sitting there saying "Hey, we are waiting, we think there is going to be this distress." Do you think that because of that we may not ever actually see that distress just because of the second pricing comes in, you see the money jump in and take advantage?

David Neithercut

I think that's a question how much distress will there really be. I will suggest you that we've not seen a lot of distress today. Mark and his team speak to lenders on a regular basis to find out what distress they may be seeing on multi-family assets in their portfolio. They have none. Freddie and Fannie have extremely low default rates and then it's a very short watchlist. So we've not seen any real opportunities and your point is well taken. There may not be the discounts available that people are hoping to see.

Dustin Pizzo - BOA Securities

Thank you.

David Neithercut

If that is in fact the case and the NAV that we've been talking about are only that much more solid. Whitney?

Operator

Your next question comes from Jay Habermann with Goldman Sachs.

Jay Habermann - Goldman Sachs

Hey, guys. Good morning.

David Neithercut

Hi, Jay.

Jay Habermann - Goldman Sachs

Hi. You mentioned obviously the decelerating revenue growth environment. Can you just talk a bit more? I know you mentioned G&A potentially coming in $2 million lower this year, but what other cost controls you have and clearly [Internet] has been a benefit. Any other additional cost measures you can take?

David Santee

This is David Santee. Currently we're very focused on our energy costs. We're in the beginning throws of implementing an application called EnergyCAP that will give us tremendous visibility into energy costs, rates, as well as focusing more on bulk purchasing strategies, as well as entering into the green initiatives as far as incorporating our residents into energy conservation. At the same time, we continue to rely more and more on the internet, and hopefully as sometime next year we can exit print all together.

Jay Habermann - Goldman Sachs

What sort of impact do you anticipate the measures taking?

David Santee

Well, keep in mind that utility costs are only 16% of our overall expense formula and 50% of those utility costs are water, sewer and trash, and those utility costs we already recoup 80% of those costs. So what is left really is to focus on our gas costs and our oil costs primarily in the Northeast at our larger master meter buildings.

Jay Habermann - Goldman Sachs

David you mentioned there is a lot of product currently on the market today, can you give us a sense of which market and in sense of pricing how much do cap rates still need to adjust you mentioned the 25 basis points to 50 basis points through the A assets and 50 basis points to 100 basis points for the lesser quality. Do you still think cap rates need do adjust much more?

David Neithercut

Well, it goes back to the point that Dustin made. The brokers are telling us that they're handling as much product as they ever have, that not a lot of investor appetite until a lot of deals are not trading. So, either sellers have to see their cap rates go up or buyers are going to have to be willing to see their expectations go down. This is a classic situation whenever there is some potential inflection point with that bid/ask spread widening. I think that there is a lot of capital and I would not expect cap rates to move too terribly much from these points and I will tell you that is because I don't think construction costs or replacement costs are going to change all that much. I think that it has to be a very important starting point when people are thinking about values and cap rate as what is replacement costs in these core markets in which we've been investing and I think cap rates in transaction pricing will often be a function of that.

Jay Habermann - Goldman Sachs

Okay. And just last question, can you give any updates in terms of New York City. I mean currently layoffs have been a big concern and just more broadly on concessions in the market, beyond New York City, but in the other markets?

Fred Tuomi

Yes. This is Fred. New York, the Manhattan market downtown still continues to be rock solid. Occupancies are 97%. Pricing is moderated a little bit in terms of being able to exercise pricing power but our renewal increases are still strong in the 5% plus range and that we are not seeing a lot of competitive situations on concessions. Now, in the downtown market, near our 71 Broadway assets, we did see some concessions over the last couple of months pop up, there is a 200 units being leased up there. They are doing maybe a month free, maybe a little bit less and they're also doing what we call OPs which are owner pay the broker fees which is common in Manhattan.

So, we have little spot price wars on that type of issue. Overall, there is I would not say that there is a downfall in pricing or concession, coming into the Manhattan market. On the upper west side, we have some new acquisitions that we are bringing into market there. On renovations, there is leasing very robustly at prices higher than we even underwrote last year when we bought those assets and our Trump deal continues to do extremely well.

A little bit different story across the river in Jersey City. There as I told you in the first quarter, we saw some new units come in, there is about a 1000 units that we had to combat with a lease up. Those units are leased up and stable on occupancy but pricing has stayed lower than we expected on the Jersey side of the river. So there you are seeing some concessions, you are seeing some rent reductions and we are not able to get the premiums that we had on some of our [view] units, but still occupancies have recovered back to the 96 range, renewal increases are strong, but just not the robust pricing on the Jersey side.

Jay Habermann - Goldman Sachs

How about markets like Northern Virginia or Boston?

Fred Tuomi

Okay, those are two great markets. Boston is a fantastic market for us right now. Exceeding our expectations and I expect that to continue through the year. We are rock solid on occupancies there, we are 96%, we are getting 4% plus rent increases there. Our lease ups there just went in the stellar fashion, very little. We are under budget on concessions in our lease ups there at the West End and overall Boston is a good story.

The job situation there has not gone negative. I think Boston's poised for a strong finish this year. Virginia and DC the same thing, I was expecting some trouble there because of the supply issue and the condo issue there, which is pretty staggering, but you know what, the economy is producing jobs, there is positive job growth this year. It surprised even Economy.com folks that we talk to on a regular basis, and again occupancy is 96 for today. We're getting 5% plus rent renewal increases and Virginia I don't see anything really slowing us down there.

Next year might be a little bit softening because of the supply that is coming in and the condo reprograms that are going to hit us there. Again, Virginia, DC, all the indicators are good. Again, we expect a slight moderation in the new leased pricing, but certainly not a problem market.

Jay Habermann - Goldman Sachs

Great. Thank you.

David Neithercut

You bet, Jay.

Operator

Your next question comes from Rich Anderson with BMO Capital Markets.

Rich Anderson - BMO Capital Markets

Hey, good morning.

David Neithercut

Good morning, Rich.

Rich Anderson - BMO Capital Markets

Just back to this condo reserve, could you tell me why you need to take out a reserve for units that were sold in 2007 and back? Why do you have to do that?

Mark Parrell

As there is a pending litigation as I said in my remarks.

David Neithercut

What happens in the condo conversions, Rich is after you sell the final units and you transfer the control of the association to the homeowners' association. There is some period of time in which everything gets worked out. We try and proceed towards releases from them as quickly as we can, and we got some situations where we are going back and forth with some homeowners associations and we felt it appropriate to increase that reserve. Generally those discussions are about construction warranties, roofs, siding things like that and we do have some ongoing discussions and we thought it appropriate to increase that reserve.

Rich Anderson - BMO Capital Markets

That is my next question, so there are structural issues as well that you are dealing with?

Mark Parrell

Yes, there are assertions by the folks that we sold units to that some of the structural issues, that there were structural issues at the asset.

Rich Anderson - BMO Capital Markets

Okay. Turning to the same store, you sound very upbeat about the first half obviously, you're beating your expectations and everything is so great, but then you turn around and express and dial down the second half. I am just curious what is inflection point? What created the change in body language from the same store perspective?

Fred Tuomi

This is Fred. This is a tricky timeframe with the middle of the year, we are looking back, we are very satisfied and pleased with the performance to date. I don't take anything away from that, but looking ahead, given the situation that the economy is in, the fact that we're losing jobs, the GDP growth is slowing, jobbers' claims are increasing, I think it is prudent to expect some moderation in the rate of growth of our new lease pricing. We have softened some of our markets. The trouble markets on the single-family I think are going to be more troubled because of the job loss and the lack of demand there, the more competitive issue on pricing, the pressure on the consumer or the cost of living. All that mixed in there, we're looking where we are today and we're happy, but we are starting to see that this economy is going to have to wear on the consumer and on the demand side of our businesses at some point.

Again South Florida, all of Florida is going to be continued to be flat and bouncing at the bottom where it is at. Some areas are declining, some areas are just stabilized. We did hit a positive year-over-year growth for the month of June in South Florida as we predicted, but it is pretty much going to stay there, maybe bounce between zero and slightly negative for the rest.

Southern California as we mentioned, still an area where the demand softening concerns me. The job losses in Orange County are well known, over 25,000 last year, some more this year. We are seeing a slowing of demand and more price competition and price resistance as there is some rotation going on in Orange County and in Inland Empire, people once they lose their job they've got to figure out the next stage of their life. Then counterbalanced with markets such as Boston, DC area, Denver, San Francisco, Seattle all still very solid. Again our original expectation was continued growth of the rate of change there and we are just seeing if that growth rate is moderating with the national economy as to be expected I think.

David Neithercut

We also tell you that our July and August numbers were not and our August stuff is very preliminary, we are not as strong as we had hoped. So besides the macroeconomic picture because you asked a great question and we certainly are very aware of that, our own internal numbers are not signaling the strength we had in the first half of the year.

Mark Parrell

I just want to reiterate the point too that David mentioned, we have this built-in or existing residents still staying with us longer, till the turnover is down, and they are taking renewal increases. Our average renewal increase for July was 4.5%. Might be 2% in Florida but we are getting 8% in some of our good markets and many in the 4.5% range. So, we are able to maintain the core business well, it is just the new lease pricing, on the new leases we are doing, we expect to moderate going forward.

Rich Anderson - BMO Capital Markets

I liked the preliminary August numbers since we are still in July but I will leave that one alone.

David Neithercut

I can’t hear you.

Rich Anderson - BMO Capital Markets

I said I liked the preliminary August numbers since we are still in the month of July, but I said I will leave that one alone.

David Neithercut

Well, you know what your leases are.

Rich Anderson - BMO Capital Markets

I am just being an idiot.

Mark Parrell

You will be alone on that one.

Rich Anderson - BMO Capital Markets

David maybe you can talk sort of your bigger picture and when you think about where you are now and the cycle that you've been through in the past, obviously this downturn in the fundamentals of multi-families , call it that, aren't really in comparison to what we've seen in past down cycles, say in the 2002 to 2003 timeframe, do you have a sense that we are nearing a bottom in terms of the internal growth prospects of the business or do you foresee things maybe getting worse before they get better?

David Neithercut

I am not talking about a downturn in our business; we delivered very strong results and expect to deliver very strong results for the year, Rich. Far from a downturn.

Fred Tuomi

Downturn from previous years, I should say that.

David Neithercut

Well, but still an upward trend. I mean still on a very positive upward trend. We are 95% occupied generally across the portfolio, very little new supply, home ownership coming down, single-family home financing extremely difficult to get. So, we would like a great deal about our business today.

Rich Anderson - BMO Capital Markets

Okay. So then that is good. Now what about the future? Do you think that things if you look at all the pieces of the puzzle that there is more bias for an upside move next year and the year after versus a downside move?

David Neithercut

Well, it's hard to tell, but I think demographics are very solidly in our favor. Unlike previous economic downturns, when we either had a extreme oversupply situation, or most recently in 2002, when we were getting killed by people having the ability to buy single-family homes with essentially no money down and ridiculously low teaser rates, none of those things are happening today. We are not oversupplied; people are not moving out to buy single-family homes and in fact in many instances are coming back from single-family homes. We are 95% occupied and demographics are very favorable.

So, we like the prospects for the next few years and I am not suggesting that a challenging economy and job loss is not problematic for us but I think that you will see in this time the multifamily space operate far better than you have in the past.

Rich Anderson - BMO Capital Markets

Okay, thank you. And last quick one. Anything tempting about the passage of the [Reita] legislation?

David Neithercut

No. Not particularly.

Rich Anderson - BMO Capital Markets

Okay. Alright, thank you.

David Neithercut

You bet.

Operator

Your next question comes from Michael Salinsky with RBC.

David Neithercut

Good morning.

Michael Salinsky - RBC

We talked in great detail about on the revenue side. Looking at the expense side through the second quarter of the year how have taxes come in versus your expectations?

David Neithercut

I am sorry. Your question was as to property tax?

Michael Salinsky - RBC

Proper taxes, yes, I mean we've seen some of the municipalities running pretty big deficits here; you've also been very active on the acquisition in front over the past couple of years here. So how are those coming in, the reassessment, essentially?

David Santee

This is David Santee. Our original assumptions were coming at the four to five ranges on property taxes. It looks like closer to the five, mainly from valuation pressures in Georgia and Texas. Everything else is pretty much meeting our original expectations.

Michael Salinsky - RBC

Going back to the second quarter results and also in light of your commentary on July and August trends, how quickly did trends decelerate through the second quarter, maybe from April to May to June?

David Santee

This is David again. What I would say is through the first really up through June, everything was very strong, all the fundamentals were very strong. I'd like to look at other external metrics and we saw a pretty significant fall offs in June from our ILSs, that's Rent.com, Apartments.com. Our commissions that we paid to Rent.com were 30% below last June. And then this is the critical period of getting settled for the fourth quarter. We start to look at actually our day-to-day week-to-week leasing velocity and towards the end of June and even into July; we didn't see things materializing in a way that they materialized last year.

So its just less robust activity, markets like Phoenix are not coming back as quickly as they have historically. South Florida is not coming back as quickly as it has historically. Orlando the same thing, so, there is just sluggishness, if you will to coming out of the summer dip.

Fred Tuomi

I'd say that mostly in the single-family pressure markets, like we mentioned, Florida, Phoenix and then areas of Southern California. The other markets that are not under the single-family pressure and not seeing the extreme job losses related to that, we didn't see that kind of fall off and are continuing on.

Michael Salinsky - RBC

Okay. David in your comments you talked about the commitment remaining to the condo business and you also talked about buying property down in Florida, there was a busted condo deal. Just given the commitments you have, would it be possible that you would look to maybe buy a couple of busted condo deals to take advantage of the next upturn in the cycle.

David Neithercut

Yes. I had mentioned that previously in the answer to another question. Yes, we're going to have our condominium conversion team begin to look at exactly those opportunities.

Michael Salinsky - RBC

Okay. That is helpful. Finally, given that you mentioned taking down some land opportunities and renegotiating some terms, what is your spend target for development this year?

David Neithercut

The absolute capital spend, starts with $255 million year-to-date and it remains to be seen whether we will start another $100 million to $200 million which we could if we wanted to but we will have to review those as the year progresses.

Michael Salinsky - RBC

Absolute dollars out of the door though?

David Neithercut

It is about $450 million.

Michael Salinsky - RBC

Okay. Thank you.

David Neithercut

You are welcome.

Operator

(Operator Instructions) Your next question comes from [Rob Stevenson with SPK].

Rob Stevenson - SPK

Hello, good morning, guys.

David Neithercut

Hi Rob.

Mark Parrell

Hi Rob.

Rob Stevenson - SPK

David, do you expect the halting of the down payment assistance programs to have any material impact on resident turnover?

David Neithercut

That is a good question, Rob. It is those programs as well as the tax credit programs and my guess is that it could have an impact in some of our markets but I don't expect it to impact us in any material way.

Rob Stevenson - SPK

Were you using that in the condo business?

David Neithercut

Were we using?

Rob Stevenson - SPK

The down payment assistance programs?

David Neithercut

We did have some transactions in which we were using that, yes.

Rob Stevenson - SPK

Okay. Then you guys also talked about lowering the G&A assumption for the year. Is that directly correlated with halting some of the condo conversions? Is that where some of that money is coming from?

David Neithercut

From G&A?

Rob Stevenson - SPK

Yes.

David Neithercut

G&A savings, no.

Rob Stevenson - SPK

Okay. What are the general areas that you guys are doing better at on the G&A side then?

Mark Parrell

Sure. Generally some of those reductions have been payroll-related as we have right sized up here in Chicago to the platform being more concentrated in a lower number of units. Some of that is comparability related items because it is not a very large line item relatively. So you have things like adjustments, when you get litigation settlements, and other things that create some noise in there. We expect a run rate that will be around $47 million. A lot of that is payroll and consulting fees and things that are one-time. Some of those are the things that are one-time items.

Rob Stevenson - SPK

Okay, thank you.

David Neithercut

You bet, Rob.

Operator

Your next question comes from Alex Goldfarb with UBS.

Alex Goldfarb - UBS

Thank you. Just wanted to go to the three assets that you bought the portfolio sale in Maryland. The 6% cap rate, is that a current in-place cap rate with a management fee in CapEx?

David Neithercut

Yes.

Alex Goldfarb - UBS

Okay. Can you just give some color on where that cap rate started in the negotiations?

David Neithercut

I guess I don't have. Hopefully it started at 7, but I don't know exactly where the conversation started with this particular seller, Alex, but that is obviously where we agreed.

Alex Goldfarb - UBS

Okay. So you don't know where they were originally asking?

David Neithercut

Oh, what they were asking? I don't know but I am sure they were below that and I am sure we offered above that.

Alex Goldfarb - UBS

Okay. Just trying to get a little color. Next question is just going to the debt side. How much more room do you have to issue secured debt and stay within your current ratings?

Mark Parrell

A substantial amount, and it is a good question, because we do as a matter of practice putting aside covenant compliance. We did talk to all three rating agencies before we did the Fannie Mae loan. They have comfort with this. Certainly I think the ability of our company to refinance itself in advance and get rid of any risk of refinance is very valuable to our creditors, secured or unsecured. Because I think they value that quite highly, Alex, when we spoke to them. Second I would say we have a great amount of distance. The covenant is at 40% and we are at 20%, so we could incur a substantial amount more of unsecured debt on the order of several billion dollars worth where we would actually trigger the covenant.

Alex Goldfarb - UBS

So was that within your current investment grade rating Fred?

Fred Tuomi

Well, we are BBB plus BAA1 and A minus, so I think there'll be a good distance to fall. Again, I think our numbers again more than a billion dollars for sure, and I can not guess at the rating agency's exact break point. But, it's pretty significant from where we are right now. I will tell you that, we do have a preference to issue unsecured, and if the market gives us an opportunity that is well priced, we would consider it.

Alex Goldfarb - UBS

That is actually my next question. Just want to go to that. What held you off from issuing earlier this year when the markets were open?

Mark Parrell

Oh, I'd say it is a terrific question. Part of that thought process was again you are unsure of how much in excess sales proceeds we would receive. So I wanted to understand how much I would get frankly from the transaction side of the house, before making some determination about how much we needed to borrow for 2009. So as that became a little clearer to us and I had a little bit better idea of where we stood, it became clear to us that if there was an opportunity to go and do an unsecured or secured deal now, that might make some sense. So that happened a little bit after that window you are speaking of that some of our other peers took advantage of. So just chronologically that was our thought process.

Alex Goldfarb - UBS

Okay. So, if I understand you correctly, if that window reemerges, then even though you did this secured Fannie deal, there is a good chance that you may go out and hit the other wall.

David Neithercut

Well, first of all I would say, our guidance does not include doing additional financings and carrying anything else. I will further say, we are going to just be very opportunistic about it. Right now we don't need to do anything, and that is the comfort we wanted to give our shareholders. Is that we are sufficiently capitalized for the indefinite future, and so we wanted to let people know that. So I would say you got to look at the circumstances at the time and if the opportunity was more compelling, we would certainly consider it.

Alex Goldfarb - UBS

Thanks a lot.

David Neithercut

Thank you.

Operator

Your next question comes from Richard Paoli with APG Investments.

Richard Paoli - APG Investments

Hi guys.

David Neithercut

Hi Rick.

Richard Paoli - APG Investments

Just two questions. One on turnover. Is it safe to assume that residents are staying longer, and is that a moment to turnover for this quarter? On an annualized basis, good enough.

David Neithercut

Rich, on an annualized basis our turnover is 61%, which is dead-on compared to last year, we are actually about 80 basis points below. I will add additional color to that. Within that turnover range, about 10% of that turnover is, people that transfer from one apartment to another in the same community. What we have seen through the first half of this year is a tremendous increase in people that take advantage of our coast to coast program, meaning moving from one equity property to another equity property. That is up about 200% over last year. That affords them the ability to relocate whether it is a job loss or job transfer, without incurring lease break penalties. So our net turnover's about 54%, 53%.

Richard Paoli - APG Investments

Where is that versus historical norms?

David Neithercut

Compared to last year, about 150 basis points lower.

Richard Paoli - APG Investments

Okay and one another question. With respect to the number of leases that have been signed this year, in terms of pace. Some of your competitors in the past have used especially, now that they have got more sophisticated pricing models to really load a lot of the expirations in to the high traffic months and may be you can just give us a breakdown, even an amount with the 25% quarter. What would you say that mix is? Do you just have fewer leases expiring in the December quarter and then the first quarter of ‘09 coming up?

David Neithercut

I would say it is more pronounced as you move from north to south. So in the south, it is fairly an even spread although there are more leases expiring in the summer months, as you go north you have a greater percentage of leases expiring in the middle of the year versus the winter ends of the year. Currently our top two months of lease expirations are August and September.

Richard Paoli - APG Investments

Okay. Last question, are you doing anything because you have greater flexibility with LRO to entice residents to lease longer? What is the maximum leases that you are offering now, it varies by community, but are you looking to see if you think things decelerate that you want to lock residents in for a longer period of time and just get a little more certainty?

David Neithercut

Typically 90 some 80 some percent of our leases are 12 months leases. It all comes down to how long you think this headwind will last. There are markets that require us to offer two year leases like New York, but we don't have any plans to offer leases beyond 12 months.

Fred Tuomi

LRO does price the apartments based on the length of the lease term and generally the better pricing is at the longer end of the term cycle, so consumers will naturally select the longer terms.

Richard Paoli - APG Investments

Right. Okay. Thank you.

David Neithercut

You are really welcome, Rich.

Operator

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

Haendel St. Juste - Green Street Advisors

Good morning.

David Neithercut

Good morning Haendel.

Haendel St. Juste - Green Street Advisors

David, with all the work you have done with the balance sheet and what you are seeing in the acquisition environment, can you give us a sense as to your current thoughts on Cap allocation today, where do you feel the best opportunities are?

David Neithercut

Well, I felt that there were particular opportunities today, no doubt we will be hitting them, but we do have a lot of cash on hand and an unfunded line and the capacity to use it when we believe the opportunity presents itself. We are just at a point today where we don't believe we need to be in a hurry, that we can be patient, and see what happens as time progresses.

As I mentioned in my prepared remarks, we would not be surprised to see more opportunities as the year progresses and if we think that they are right, we will not hesitate to jump on them and so we are just going to see how things unfold, but we are not seeing a great deal of opportunities today.

Haendel St. Juste - Green Street Advisors

How about stock buybacks, how does that rank in terms of prioritizing your?

David Neithercut

Well, we had been very aggressive buyer of stock back in 2007 and today with the capital markets, the way that they are, we felt that the most prudent thing to do for our shareholders is to preserve liquidity. I will tell you, we continue to believe that the stock trades at a meaningful discount to NAVs. But today with the capital markets in the place that they are and the incremental leverage we took on in the stock buyback in ‘07. We think preserving capital is the appropriate way to go.

Haendel St. Juste - Green Street Advisors

Can you give us some additional color on maybe some of the markets you are looking to sell out? What types of buyers, source of funding, if there is any self financing for those assets you have under?

David Neithercut

Well, there is no seller financing. I will tell you that, we've sold $480 million of product this year, and I think but for just a one exception or so, Fannie and Freddie have financed everything. Our buyers have been local and regional players who in ‘05, ‘06 and ‘07 were boxed by the larger institutional guys. So it is really been an opportunity for the local and regional players to get back in the ball game and Freddie and Fannie have been competing heavily to finance them.

Haendel St. Juste - Green Street Advisors

Okay, well, thank you.

David Neithercut

You are very welcome.

Operator

There are no further questions at this time.

David Neithercut

Well, we appreciate very much everyone's time and interest in the company, and we look forward to seeing you all soon..

Operator

This concludes today's Equity Residential second quarter's earnings conference call. You may now disconnect.

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