Equity Residential's (EQR) CEO David Neithercut on Q4 2016 Results - Earnings Call Transcript

| About: Equity Residential (EQR)
This article is now exclusive for PRO subscribers.

Equity Residential (NYSE:EQR) Q4 2016 Earnings Conference Call February 1, 2017 11:00 AM ET

Executives

Marty McKenna - Investor Relations

David Neithercut - President and Chief Executive Officer

David Santee - Chief Operating Officer

Mark Parrell - Chief Financial Officer

Analysts

Juan Sanabria - Bank of America

Nick Joseph - Citi

Nick Yulico - UBS

Conor Wagner - Green Street Advisors

Rob Stevenson - Janney

Rich Hightower - Evercore

Ivy Zelman - Zelman & Associates

Alexander Goldfarb - Sandler O’Neill

Vincent Chao - Deutsche Bank

Drew Babin - Robert W. Baird

Tayo Okusanya - Jefferies

Rich Hill - Morgan Stanley

John Kim - BMO Capital Markets

Wes Golladay - RBC Capital Markets

Tom Lesnick - Capital One

Michael Bilerman - Citi

Operator

Good day and welcome to the Equity Residential Q4 2016 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Marty McKenna. Please go ahead.

Marty McKenna

Thank you, Ashley. Good morning and thank you for joining us to discuss Equity Residential’s fourth quarter 2016 results and outlook for 2017. Our featured speakers today are David Neithercut, our President and CEO; David Santee, our Chief Operating Officer; and Mark Parrell, our Chief Financial Officer.

Please be advised that 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.

And now I will turn the call over to David Neithercut.

David Neithercut

Thank you, Marty and good morning everybody. Thank you for joining us for today’s call. 2016 represented the culmination of a very important multiyear process for Equity Residential as we completed the transformation of the company’s portfolio, with the sale of nearly 30,000 apartment units and the return of $4 billion to our shareholders in special dividends in what’s been noted by many as one of the most investor-friendly transaction seen in years. Unfortunately, 2016 also brought about an abrupt downturn slowdown in apartment fundamentals as new supply entered the market at a time of slowing job growth, particularly in the growth of higher paying jobs. And as a result, after 5 years of extraordinarily strong fundamentals, our same-store revenue growth in 2016 came in at 3.7%, down from the 5.1% growth delivered in 2015 and more in line with long-term historical trends.

Now as noted in last night’s press release, we expect revenue growth to continue to weaken in 2017 with nearly all of our markets expected to deliver same-store revenue growth for this year below 2016 actual performance with Washington, DC being the lone exception. Weakness in fundamentals is not the result of much of any change in the underlying demand for rental housing across our portfolio. On the contrary, occupancy remains strong today and is expected to moderate only slightly through the year. Turnover across all markets, when excluding same property movement actually improved last year, dropping to 48%, a 100 basis point improvement over 2015 and consistent with our expectations for 2017. And move-outs to buy single-family homes remains a non-factor in our high cost of housing markets.

Furthermore, while our markets have experienced a slowdown in the growth of high-income jobs, the absolute number of new high-income jobs remains relatively strong. And perhaps more importantly, for the first time since the recovery began, there are abundant signs of wage growth occurring in all industries across the country, which obviously is a very good sign for the apartment business. So as we look ahead to what we see as peak deliveries in many of our markets this year, our teams across the country will work very hard, delighting our existing residents and extending their stay with us, while welcoming prospects and turning them into new residents. And we remain extraordinarily excited about the long-term outlook for our business, portfolio and the company.

So with that said, I will let David Santee go into more detail about our outlook for 2017.

David Santee

Okay. Thank you, David. Good morning, everyone. Before I jump into the numbers, I’d like to first acknowledge the commitment and efforts of all of our employees over the past year. While results were certainly bumpy, it only strengthened our resolve to do better. I know our teams are keenly aware of the challenges before us. And I am 100% confident that they will go above and beyond to deliver in ‘17.

While markets have now returned to pre-2014, ‘15 seasonality, there continues to be strong demand for high-quality apartments in great locations and occupancy remains above historic norms. Today, I will focus my comments on the assumptions that make up our full year forecast on a market-by-market basis. I will provide you with lease-over-lease growth rates, expected renewal rates achieved, any material changes in occupancy and the percent of contribution to same-store revenue growth that together get you to the midpoint of our full year guidance. I will also discuss what we see in the markets today and provide color on the new deliveries and how much or little we expect them to impact us based on our geographic footprint. I can address any 2016 questions in the session –Q&A session afterwards.

So I will start with the markets that we expect to have the most positive impact on our 2017 revenue growth and finish with New York, which will have a negative impact on our performance this year. Los Angeles will contribute around 40% of our growth this year. With job growth remaining steady, we are forecasting lease-over-lease growth of 1.8%, renewal rate growth of 5.4% and a 20 bps decline from 2016 occupancy. These assumptions would deliver 3.6% total revenue growth in 2017. As you know, Los Angeles is the collection of several large submarkets. About half of the new supply in 2017 will be focused in downtown L.A. as we witnessed the creation of a 24/7 downtown for the first time in the city’s history and will pressure our footprint there which represents 16% of L.A. same-store revenue. The remaining new units are spread across the Valley and specifically, Pasadena, which represent 24% of our revenue. There are virtually no new deliveries in West L.A., where we have 25% of our revenue, or in the Santa Clarita or other suburban markets which account for 35% of revenue.

On to DC, DC continues to show acceleration and will contribute 21% of our total same-store revenue growth in 2017. Lease-over-lease growth is forecast at plus 80 basis points, renewal growth of 4.4%, with occupancy essentially unchanged. Full year revenue growth would be 1.8%. While news of the federal hire increase causes us to take pause, history tells us that frozen federal jobs are simply replaced with outside contractors and higher wages. However, the actual order says that the hiring of contractors to circumvent the order is not allowed. Like other initiatives the administration has put forth, there remains more questions than answers on the potential impact to our markets, our industry, both at the city and national level. But we still remain confident that demographics will continue to drive strong demand apartments.

In the DC Metro, 2017 new supply will be slightly elevated from 2016 and approximately a third of those new units will be competing head-to-head with the majority of our entire DC footprint with the largest concentrations in the RBC Corridor and Arlington. The Navy Yard in Southwest DC will continue to deliver units, but neighborhood amenities and services are not following at the same pace, creating a less desirable but more affordable location. The remaining deliveries are dispersed across many popular suburban locations like Tysons Corner, Reston, around the Beltway to Rockford, Gaithersburg and Prince George’s counties, which all should bode well for continuing improvement in the district.

Seattle will contribute about 20% of full year same-store portfolio revenue growth. Lease-over-lease growth is forecast at 3%, renewal rate at 6.2%. With no change in occupancy, our most likely revenue growth for 2017 is 4.25%. With deliveries in 2017 basically the same as 2016, we have yet to see any price pressures as strong demand for rental housing continues to be driven by employers like Amazon and Microsoft. We continue to produce strong results, while expanding their footprint into new business lines or next-generation technologies. The tech stalwarts are also expanding their employment base in the Greater Metropolitan area to better compete with talent, and Seattle continues to have the lowest absolute rents and taxes of any other market in which we operate. No difference in the past 3 years, most 2017 deliveries in Seattle will go head-to-head with our portfolio. Our 4.25% revenue growth reflects our expectation of moderation as a result of increase in competition. Additionally, prohibitions on upfront non-refundable move-in fees that were recently enacted by the Seattle City Council will negatively impact our 2017 revenue growth by 30 basis points. There is still uncertainty around the new ordinance regarding pet rent [ph] that could have a negative impact of an additional 20 basis points that is not captured in our forecast.

Contributing 10% each of full year revenue growth are San Francisco, Orange County, San Diego and Boston. San Francisco finished the year by returning to the seasonal pattern that we experienced through 2013 versus the power years of 2014 and ‘15. Currently, San Francisco is best described as stable, with minimal pricing power on new leases as a result of tax stagnation and new supply. Lease over lease rate is expected to be negative 1.5% as expiring leases continue to roll down from market highs and we forecast a 40 basis point decline in occupancy to 95.7%. Renewal rates of 2.9% will offset the negative new lease rate to deliver full year positive revenue growth of 1%. With deliveries in 2017 up from last year, the South Bay will feel the greatest impact where almost half of the deliveries are concentrated. And we have 30% of total revenues in San Francisco.

The CBD will see 25% of the deliveries and will impact 18% of our [Technical Difficulty]. We would expect our Peninsula and East Bay assets to deliver better results as only about 20% of the new supply will be delivered in these two large submarkets that combined, make up 53% of our total MSA revenue. Orange County continues to have strong demand as a result of solid job growth, but we will see a significant increase in new deliveries in ‘17. More than half will be concentrated at Irvine, where we have 30% of revenue. The balance of new deliveries, primarily Anaheim and Far North Orange should have little impact on the remaining 70% of our Orange County revenue, which is South and Southeast. As a result, lease over lease is forecast at 2.5%, renewal rate at 6% and little change in occupancy that would deliver full year revenue growth of 4.25%.

Like Orange County, San Diego will see increased new supply in 2017, with half concentrated in Downtown, where we have 25% of our revenue. With steady job growth and an expected increase in military spending, we would expect the balance of our portfolio to be modestly impacted by the remaining new supply in the near-term. Lease over lease growth is expected to be 1.8%, while renewal growth remains strong at 5%. New supply causes us to reduce occupancy by 30 basis points off a strong comp of 96.2 that we achieved in 2016. All-in, we expect revenue growth of 3.75%.

Moving on to Boston, over the last 18 months Boston and its urban core have experienced respectable gain since the elevated deliveries in 2015 and a significant drop in 2016. However in 2017, we will see more new units delivered with 50% in the urban core and Cambridge, followed by a 30% Far North of Downtown with the remaining 20% West than South. 75% of our total Boston revenue will compete with these new deliveries. Job growth has been steady in high profile corporate relocations like GE and Reebok are encouraging signs that this round of supply will produce results similar to 2014 and 2015, where demand kept occupancy strong with no pricing power on new leases, but respectable renewals kept growth positive. For those reasons, we forecast lease over lease growth to be dilutive by 70 basis points, but strong renewal rate growth of 3.9%. With a modest pickup in occupancy, full year revenue growth would then be 1.5%.

Finally, New York City is expected to have a negative impact on our 2017 performance. We also see New York as the market that has the highest potential for volatility to the downside with an increased amount of high end units being delivered into an environment where job growth is relatively mediocre and the biggest gains are in the lower paying sectors of education, leisure and hospitality. Financial services are contracting and tech job expansion has stalled. Our expectation of a 150 basis point decline in revenues assumes the decline of 3.5% in lease over lease rate, a 2.1% increase on a renewal rate and a 40 basis point decline in occupancy. Unlike all of our other markets, our expectations for this market has substantial move-in concessions built in. In summary, there continues to be strong demand for high quality apartments in great locations. Occupancy remains above historic norms. However, near-term supply will create geographic pockets that will lose pricing power on new leases in the short-term. David?

David Neithercut

Alright. Thank you, David. Following a year in which we sold nearly $7 billion of assets, 2017 will look slight tame on the capital allocation front. But the investment teams will be working very hard seeking to maximize total return on invested capital in their respective markets. 2017 guidance assumes $500 million of acquisition activity, funded by a like amount of disposition activity at a negative spread of 75 basis points. Now, I want to make it clear that after having backed up the truck last year as we sold nine core assets, there is very little that we believe needs to be sold in 2017. So we will transact if and when we find an opportunity to redeploy that capital into a higher fully return asset. The investment team will also be focused on our rehab activity in 2017, where we expect to spend $50 million this year, covering approximately 4,500 units and would expect our past returns on this capital of 12% to 14% to be achievable again this year.

Last year, Equity Residential completed the highest dollar volume of new developments in our history in five assets, totaling $1.1 billion of project costs. And in 2017, we will also complete nearly $900 million of additional new developments and this will contrast sharply with 2018, when we will complete just one development project, that being what would be the last remaining project underway, our $88 million 220 unit project at 100 K Street in Washington, DC. Clearly, we have throttled back our development activity in the face of rising land and construction costs and declining yields. At the present time, we have two potential development starts this year, totaling only $100 million. Beyond that, we will continue to work on several existing operating assets where we hope to upsize our density in order to build additional units. And have just two remaining land sites in inventory that were acquired and are currently held for future development with a carrying value of less than $60 million.

Now this does not suggest that we won’t continue to look for opportunities to develop more projects and create new long-term streams of income for the company because our teams continued to look for those opportunities every day. But after a terrific long-term run of realizing development yields well in excess of current cap rates and creating meaningful long-term value for our shareholders in the face of elevated new supply and slowing revenue growth, we have opted to take a more cautious approach to development at this time. So I will now turn the call over to Mark Parrell.

Mark Parrell

Thank you, David. I want to take a few minutes this morning to talk about our expense and our normalized FFO guidance for 2017 as well as our capital expenditure plans. And then I will close with a few comments on our balance sheet activity and our sources and uses. So first, on the same-store expenses, we have provided a range of 3% to 4% for our 2017 same-store expense growth. I am going to go through a few of the main drivers of that at the moment. On the real estate tax side, we expect an increase of between 4% and 5%, with 1.8 percentage points of the increase coming from the 421a burn off in New York. Markets with the largest increases in property taxes are Boston, New York and Washington, DC. For payroll expense, we expect an increase of between 4% and 5% as we face pressure to retain our property level employees in a very competitive market. We have also added staff in some markets to provide even better service to our residents and to support tenant retention.

Switching over to utilities, which is our third largest expense category, we anticipate an increase of approximately 2%. In each of the last 2 years, our annual utility expense has declined, so this is a bit of a normalization year. Also, we are seeing some pressure on our repair and maintenance line item. This is due to increases in the minimum wage that impact our outside cleaning and landscaping vendors. We estimate that in 2017 we will incur approximately $1.5 million in additional cost due to minimum wage pressure. And that’s going to add about 20 basis points to total expense growth from these increases in minimum wage.

For the leasing and advertising expense line item, after a big increase of 19% in 2016 versus 2015, we have budgeted leasing and advertising expense to be flat in 2017 versus 2016. The increase in 2016 was driven by increased promotional spending and that included gift cards and owner payment of broker fees and approximated about $1.6 million and was spent predominantly in New York, with a lesser increase across the portfolio in Internet advertising cost. We expect a lot of competition in markets with significant supply and we feel they are maintaining spending levels in this category as necessary for the time being.

Let’s switch over to our normalized FFO guidance. Our range for normalized FFO for 2017 is $3.05 to $3.15 per share comparing our 2016 normalized FFO to $3.09 per share to the $3.10 per share midpoint of our guidance for 2017. I want to hit on a few of the main drivers. First, our portfolio of 15 properties, totaling about 5,300 units that are in various stages of lease-up should create a total of $85 million to $95 million of NOI. As compared to 2016, this is an incremental contribution to our results of $41 million or about $0.11 per share. We are excited about the current cash flow and about the long-term value creation that these assets will bring Equity Residential. We will caution that cash flows during lease-ups can be volatile due to the lease of timing and changes in rental rate and concession estimates. We expect an additional contribution in normalized FFO of about $4 million or about $0.01 per share from other non-same-store properties, so adding that all up, you get a total positive contribution in the non-same-store category of about $45 million or about $0.12 per share.

Second, we expect to have a positive impact of about $0.04 per share from same-store NOI growth in 2017. And offsetting these positive items will be a reduction in NOI of about $48 million or $0.12 per share from our expensive 2016 sale activity, including the Starwood sale. Also on the negative side, we estimate an impact of approximately $0.02 per share from higher total interest expense. We will benefit from the sizable pay downs of high coupon debt we made in the first quarter of 2016, but we will feel a larger negative impact from significantly lower capitalized interest this year as most of our development projects have now been placed into service. We will also have a negative impact of about $0.01 per share from other items which includes lower fee in asset management income. Remember, we did sell Fort Lewis during 2016 and lower amounts of expected interest income. Remember, we expect to have considerable lower cash balances in 2017 than 2016.

In another item of note, we expect lower overhead costs, which we define as G&A combined with property management, in 2017 versus 2016 by about $3 million. We have mostly completed rightsizing our overhead platform to our smaller property footprint. As you can see, the robust growth in lease-up NOI that we anticipate in 2017 as well as the more modest NOI growth of the same-store portfolio is being obscured by the lost NOI from our substantial 2016 dispositions. If you adjust prior periods with these sales and for the related debt pay-downs, our average rate of normalized FFO growth from 2014 to 2017 will be a very strong rate of about 7% per year.

Now on to the CapEx area, in 2017, we expect to spend $2,600 per same-store unit in capitalized expenditures as compared to $2,235 per same-store unit that we spent in 2016. Included in this is approximately $17 million of additional spend. The customer-facing renovation projects, examples include common areas, leasing offices and exercise rooms. As you know, much of the new product that is being delivered into our market is targeted at the higher end renter. We are making sure that our incredibly well-located assets are able to continue to compete with this new product. This increased spend will be reflected in the line Building Improvements on Page 23 of our supplement. We expect this spend to normalize back down over time.

Continuing on CapEx and continuing our commitment to sustainability in all we do, we are planning to increase our spending on projects in the sustainability area by about $8 million in 2017. These projects tend to have very high rates of return on invested capital. Also, the $50 million kitchen and bath rehab program that David Neithercut just discussed should generate strong returns on invested capital. The spending on this program is included in the $2,600 per same-store unit guidance number that I previously quoted.

Now, a bit on sources and uses in the balance sheet. The fourth quarter was certainly a busy one for our finance and legal teams. We replaced our $2.5 billion revolving line of credit which was scheduled to mature in about a year with a new cheaper $2 billion unsecured revolving line of credit that matures on January 2022. We made our line of credit smaller to reflect the reduction in the size of the company and the prepayment of a significant amount of debt during the first quarter of 2016. We had strong interest from our bank group in renewing the facility and we are able to obtain market leading terms. We also issued $500 million of 10-year unsecured notes at a coupon of 2.85% and an all-in effective rate of 3.1%. This is the lowest 10-year issuance we have ever done. We also paid $1.1 billion or $3 per share in a cash special dividend in the fourth quarter. These actions now left the company’s balance sheet and liquidity position in an excellent place going into what appears to be a more volatile period. Currently, we have approximately $60 million in cash and have about $200 million in outstanding commercial paper, leaving availability of about $1.8 billion under our new $2 billion revolving line of credit. At the end of 2017, we expect the line of credit or the commercial paper program to have about $550 million balance.

I am going to give you a quick summary of some of the cash inflows and outflows. Our guidance includes a $400 million debt issuance in the second half of the year. We expect to payoff $630 million in debt as it matures during 2017 and recall about $340 million of debt that matures in later years, so a total of $970 million of debt repayments during 2017. We will spend about $300 million in 2017 completing our development projects, leaving us with cost of only about $40 million in 2018 to complete our current development starts. Acquisition and disposition activity is anticipated to be about equal in amount. And our guidance assumes that dispositions are slightly front-loaded for the year versus acquisitions occurring ratably over the course of the year.

Now I am going to turn the call back over to the operator for the Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we will take our first question from Juan Sanabria from Bank of America.

Juan Sanabria

Hi, good morning. I was just hoping you could speak to the 2017 guidance on the core business of same-store revenue and NOI and just give us a sense of the main variance items between the low and the high end, whether it’s macro assumptions or supply/concessions or whatever color you can provide?

David Neithercut

And by that, do you mean how do we set the guidance range for normalized FFO?

Juan Sanabria

No. For same-store revenue and NOI, what’s the main variance between the low and high-end, what assumptions change?

Mark Parrell

Well, it’s primarily revenue-driven. I would say that in places like obviously, Los Angeles, where we have the largest contribution to growth with the same-store portfolio, we are just assuming more volatility or providing a range for more volatility. New York, same story, New York is probably one of the most undisciplined markets when it comes to pricing and concessions and what have you. So we have assumed a certain level of concessions and rolled down in pricing. But there is more volatility that could happen there than we expect.

Juan Sanabria

Okay, thanks. And then on the supply side, any skew across the top markets between the first half and the second half of ’17, how are you guys thinking about kind of the trends in results from over the course of the year in ‘17?

David Neithercut

Yes. I guess I would say that as we built up the budgets from the ground up, we understood when the bulk of the units were coming, whether its front loaded, spread across, equally across the fourth quarter or if it was more back end loaded. So the pace of those deliveries, are embedded in our revenue assumptions.

Juan Sanabria

But can you provide any color on kind of maybe Northern California, specifically, what – how you expect supply to play out over ‘17?

David Santee

I don’t have that level of detail.

David Neithercut

Suffice it to understand, one, we are certainly aware of the deliveries. And with completion being sort of defined as when the property is finally completed and delivered, we understand when first units will be available and that 60 days, 90 days in advance of that, they will start marketing very strenuously. And so we keep – take all that into account as we pull our numbers together.

Juan Sanabria

Okay, thank you.

Operator

And we will take our next question from Nick Joseph with Citi.

Nick Joseph

Thanks. David, you mentioned New York City had the most variability in terms of potential outcomes and I think you mentioned at the midpoint, you are assuming down 1.5%, but can you talk about kind of the low end and where that – where the downside could be for that market?

Mark Parrell

Well, I think it all comes down to level of concessions. We have certainly prepared for a certain level of concessions. But you are already hearing some crazy stuff like three months and four months free on 12-month leases. I mean certainly, if that becomes widespread across the entire MSA, then you can get to negative three pretty quick. So that’s kind of our worst case scenario on New York City.

Nick Joseph

And how do you think about the use of concessions within your portfolio for New York versus using gift cards and does the same-store revenue guidance at 1.5% assume any use of gift cards or maybe that’s being run through the expense line item there?

Mark Parrell

Yes. So let me just explain our overarching strategy for the company and then specifically, New York. We have always thought to be a net effective rent shop. The only market that we have budgeted significant concessions and its $4 million is New York City. We have – we budgeted the same level of gift cards that we spent last year, but everyone is very clear that, that is a tool that we will only use if absolutely necessary. So our first line of defense is rate, second, concessions and last, gift cards.

Nick Joseph

Thanks. And just one other question, for same-store revenue growth, there has been a deceleration on a year-over-year basis every quarter since third quarter of ‘15, but when you look out to 2017 guidance, do you expect that to stabilize at some point, in the back half of 2017 and could there be a reacceleration?

David Neithercut

Our guidance assumption now assumes a gradual decline in same-store revenue quarterly numbers throughout the year. Nick, certainly it would be great if there was some sort of reacceleration, but that’s not what’s presumed in our numbers.

Nick Joseph

Thanks.

Operator

And we will take our next question from Nick Yulico with UBS.

Nick Yulico

Thanks. I appreciate all the market level detail on the guidance. I guess going back to New York and San Francisco, the assumptions you gave on new lease growth for each market, how does that compare to where new lease growth is – was in the fourth quarter and so far in January?

David Santee

Well, let me say this. This is why – I can give you an example of the fourth quarter numbers, but we know from tracking this for the last 10 years that if the market is even stable, the likelihood of having negative lease over lease growth in Q4 is a likely outcome, because you have a disproportionate of people breaking their leases in Q4 versus regular lease expirations. So just to give you an extreme example, so New York in Q4 was a minus 5.3, okay. But almost every market is negative. So basically, you are re-letting units at – that were at premiums and now you are re-letting them at lower rents. However, you have very few transactions. So you can’t extrapolate the direction of the market from those numbers. So in Q1, it becomes less negative. And then in Q2 and Q3, it’s very positive. And that’s just how the cycle works pretty much every year.

Nick Yulico

Okay. I guess what I am trying to get at is whether or not the guidance for New York and San Francisco is at the midpoint is assuming that both markets get tougher versus what you have actually been seeing on the ground of late, so whether you are actually building – how much conservatism you are building in for these markets this year would be helpful to understand?

David Santee

Well, I guess we look at the quarterly numbers historically. We have to assume some level of rent growth, what are leases doing. In San Francisco for 2017, we assume that new lease rents will be flat over last year, right. So rents will be basically the same as they were last year, but people who have lived with us for 2 years, 18 months, are paying above market rents, so those will roll down. So we have incorporated all of that into our guidance on a quarter-by-quarter basis.

Nick Yulico

Okay, that’s helpful. Mark, just going back to the development starts this year, I didn’t catch that number on a dollar basis, what are the new starts likely to be?

Mark Parrell

Let me just put two things together Nick for you. We have no starts assumed in guidance, so no spend on new starts. We have $300 million that we will spend completing things that have already started that you already see on our development page. David Neithercut referred to two deals we may start. If we do start them, they will have a material impact on guidance. I mean there will be draws on the revolver and slightly higher capitalized interest and it just won’t make a great deal of difference to the FFO numbers for the year.

Nick Yulico

Right, okay. I just but – just for the two developments that could start, what is the dollar amount of total cost for those projects?

Mark Parrell

$100 million on those two deals, Nick.

Nick Yulico

$100 million total?

Mark Parrell

Correct.

Nick Yulico

Okay. Total cost $100 million for two projects?

David Neithercut

That’s correct.

Nick Yulico

Okay. So I guess my – that’s helpful. My follow-up question here then is I mean if you think about it, I mean, you are essentially practically shutting down the development pipeline which means you are – you could have a lot more used potential for your free cash flow as you get out to next year. I mean, what are the thoughts about where that goes? I mean, are you going to increase your payout ratio on the dividend? Are you going to do more share repurchases? You are not going to have much in the way of future capital needs.

David Neithercut

I think we will see at the time, but those two things are certainly would be part of the things that we would strongly consider.

Nick Yulico

Thanks.

David Neithercut

You bet.

Operator

And we will take our next question from Conor Wagner with Green Street Advisors.

Conor Wagner

Good morning.

Mark Parrell

Good morning, Conor.

Conor Wagner

You mentioned that disposition activity could be front-end loaded. What are you seeing on demand and pricing for the assets that you are looking to sell? And without giving away too much, could you tell us how those assets – how they fit in your overall portfolio. You mentioned David that you had sold largely all of your non-core assets. So, I assume these are assets that are in your remaining markets and closer to the average of your existing portfolio?

Mark Parrell

Yes. And as I also noted, Conor, many of which would not be sold if there is not a redeployment sort of opportunity also on the horizon. So I would kind of think about them as more sort of pair of trades, if you will. We have $100 million or so of product that we had hoped to sell last year as part of the larger sort of non-core disposition program that did leak into this year. Beyond that, as I said during our prepared remarks, we have very little identified that we feel like we need to sell, but we do have product identified that we would sell if we could find the right reinvestment opportunity. Just with respect generally to valuations, I can tell you that of all that we sold a year ago or during 2017, we have sold that for about a 3% premium to what we had told our board that we probably could realize on that product. And I think that’s a real testament to Alan George and his team for their ability to attract the market. Those guys are telling us today that values generally are kind of holding in there. That deals with some sort of story or some kind of structure here might be off a little bit on a year-over-year basis, but a great deal of our assets would be right in there, same valuation over a year ago and in some markets, maybe even up slightly from there.

Conor Wagner

And then on that acquisition disposition strategy, do you have any desire to use that to shift your allocation between markets at all? Again, it’s obviously a pair of trade strategy, but is there any portfolio refinement strategy baked into that?

David Neithercut

I don’t think so, Conor. I mean, certainly, we may sell an asset to one market, buy another and another but that’s not be nearly going to change in any material way NOI concentration. So that won’t be conducted with a specific desire to reduce one market and increase another market, but more just in response to whatever opportunities we may see.

Conor Wagner

Okay. And then David in the last night’s release, you noted at the beginning, just in the opening, just the strong demand that you guys are seeing in the potential for great returns in future years. What’s your outlook for employment growth and supply growth in ‘18 and ‘19 and what’s underpinning that constant outlook that you have for your portfolio?

David Neithercut

Well, look, it’s hard to ask me exactly where we think ‘18 supply is going to be, but we do think with land prices up and construction cost up and a lot of more traditional sort of construction lending sources maybe winding down a little bit, but there are lots of reasons to think that ‘18 deliveries will be below ‘17. And just with respect to demand, we just think that demographic picture remains very favorable. The job picture remains very favorable. Rising wages, we as you know operate in markets, which is processing. The family housing is very expensive. So we just believe that we have got a lot of residents that will stay with us and the demographic picture will bring more to the market. So, we remain – we think we have got peak deliveries in 2017. And as we have already discussed in great detail, that’s we are going to have to work our way through that. But on the backside of that, we remain very optimistic on a multifamily business in general and certainly, very optimistic for the multifamily business in our core markets.

Conor Wagner

Thank you very much.

David Neithercut

You are welcome.

Operator

And we will take our next question from Rob Stevenson with Janney.

Rob Stevenson

Good morning, guys. Can you talk about what the current expectation in terms of stabilized yield is for the $960 million in the development pipeline?

David Neithercut

Sure. I mean of the completions that we delivered last year, so that’s about the $1.1 billion. We think these things will stabilize high 5s, low 6s and the product that we believe – and we will certainly complete yet this year will stabilize also in the high 5s, low 6s.

Rob Stevenson

Okay. So the five projects that you guys have completed in California, the three in San Francisco, the one in San Jose and the one in L.A. that are already on your schedules completed, that already is sort of high 5s, low 6s?

David Neithercut

Well, I am not saying it’s already, because they are still in various stages of lease-up but we believe that when they do stabilize, they will stabilize in that ballpark.

Rob Stevenson

Okay. And where is that relative to what you expected at underwriting?

David Neithercut

Generally better. I will tell you that in those – in most of the products we have delivered, we are able to price these land and price construction costs at a different point in the cycle. So, our costs were very attractive. And we have seen, as you know, very strong revenue growth rental rate growth during that time period. So, while even our deals in San Francisco might be exceeding our original expectations, they might be a little off of what we had thought they might be at the beginning of ‘16, but still that will deliver at or modestly above our original expectations.

Rob Stevenson

Okay. And then you talked about $50 million of redevelopment this year, what’s the overall redevelopment opportunity in the portfolio? And is there any ability to bring some of that more forward and accelerate that over the next couple of years to $75 million or $100 million or is it really $50 million is about all you really can do at on an annual basis?

David Neithercut

Well, that’s a very good question, one that we have asked ourselves. But it just there is some capacity requirement, capacity limitations, not just of the number of trades that can do. One of the biggest things driving construction cost out there today is cost of labor. And it’s just, I am not sure that we have the ability to find the vendors that would allow us in these markets to do more than what we are doing. So I guess I would tell you that I think we are probably doing about all we can in any given year. We have had about $50 million or so run-rate for the past 4 or 5 years probably. And I think that’s probably a pretty good run-rate for us just given what we think the limitations are on labor out there in the marketplace.

Rob Stevenson

Okay. Thanks, guys.

David Neithercut

You bet, Rob.

Operator

And we will take our next question from Rich Hightower with Evercore.

Rich Hightower

Hi. Good morning, guys.

David Neithercut

Good morning, Rich.

Rich Hightower

So I got a couple of questions here. I am going to go back to David Santee’s comments earlier in the prepared remarks about first, New York City being the only market where, I think “substantial concessions were built into the forecast for the year.” Are there other markets where concessions are built in but they are less substantial? And if so, can you kind of give a little color around what those markets are at this point?

David Neithercut

I guess, I would say that there is nothing – there are no markets that can come close to what we have budgeted in New York. Seattle, we put in probably $80,000 to really just because of the concentration within a couple of block area on some deliveries, we did a little bit maybe, call it, $90,000 in DC just because of some concentrations in a specific neighborhood. Other than that, there are no significant concessions budgeted.

Rich Hightower

Okay. And so would you also say that the concessionary environment in San Francisco is abated pretty significantly? I guess that’s from the statement.

David Santee

Yes, I mean, look, the lease-ups are still giving concessions, that’s just kind of as a standard operating procedure on new lease-ups. But we are, like I said, the market seems stable. Some people are offering concessions, but it’s few and far between. And we think that now that the market has repriced in ‘16 that there is not really a need for concessions.

David Neithercut

I guess, what we have seen Rich is the ability to maintain net effective lease pricing across most markets even when they sort of soften. And maybe DC is the perfect example. There are a lot of new supplies you know in DC in kind of ‘13 and ‘14 and we remain Dave, there was discipline sort of in the marketplace and we could continue to operate successfully at a net effective rate. New York is something where the marketplace as David said, originally is less disciplined and is one in which concessions can become problematic and we would have to respond. But away from New York, we found the ability to operate on a net effective basis fairly successful.

Rich Hightower

Okay, great, that’s helpful guys. Second question here, so going to Mark’s comments about the balance sheet and how well positioned EQR is in the current environment with respect to liquidity and all the other sort of financing needs you have taken care of recently and he talked about anticipating volatility in the upcoming environment, so does that imply you see better opportunities for capital allocation maybe as a 2018, 2019 type of timeframe, I would also maybe compare and contrast that against the statements earlier about 2018, 2019 being better fundamentally, so where is the source of that volatility and what should we expect in terms of what EQR does about it?

David Neithercut

Well, I guess the volatility with respect to the fundamentals, not necessarily with respect to assets sort of valuations. But again, we have four in the last 12 months, 18 months, I think taken a fairly, but not 2 years, taken a fairly cautious approach to investment. Certainly, I think as indicated by the large transaction we did last year with Starwood and the other subsequent dispositions and the big special dividend that we did. So look, we see a lot of new product coming out of these markets. We think there may be opportunities, should it make sense from a capital allocation standpoint to buy new product, it might make more sense to buy some of that product, rather than develop and take development risk, construction risk, lease-up risk, etcetera. So we are just taking a cautious approach, given all the new supply with respect to capital deployment. And as noted earlier, by having reduced the development up to this point and not having any meaningful spend in ‘18, we do create net cash flow which we could use for some other purposes. And we would not be afraid to use that for those other purposes.

Rich Hightower

Alright. Thanks David.

David Neithercut

You bet.

Operator

And we will take our next question from Ivy Zelman with Zelman & Associates.

Ivy Zelman

Hi guys. Hello.

David Neithercut

Yes. We hear you.

Ivy Zelman

I am sorry I am trying to get off speaker. I am sorry. Thank you for taking my question. And really excellent color on the markets and appreciate you not going to the ‘16 results, because I think everybody want to talk about ‘17 and how you are getting to your forecast. One question I had for you guys is with respect to turnover, I realized I think you said you expect flat turnover and you kind of went through with respect to occupancy by market, so some occupancy flat, some down 20 bps, 40 bps, here and there. One of the questions I had is with respect to appreciating the fragmentation of your business is pretty significant and there is a lot of arguably players that are not as well capitalized or may not be as the tenure of being in this business that are in fact telling us they are cutting prices in New York, for example, not concessions, cutting prices and so one of the things I think about is on a renewal basis, if you are a tenant and with the Internet and all the transparency on pricing, what’s the risk that you will see turnover increasing as people recognize there is better opportunities and then if so, what does that do to NOI with the higher expenses on the turn, so that’s my first question, just want to know what you have built in and why you are assuming flat in overall basis?

David Neithercut

So I guess I would say that first of all, regardless of rate for renewal increases or lack thereof, we are going to try and retain any resident where it makes economic sense. Frankly, the hard costs associated with turnover are very minimal. New York has a lot of hardwood floors, so really you are paying call it, a couple of hundred bucks to paint the apartment and maybe $100 to clean it. So the real cost is in the vacancy. So our goal is to kind of minimize that vacancy. And I would say that when you look at our forecasted numbers and I gave you the breakdown, we forecasted basically 80 basis points lower in occupancy assuming that there could be people that choose to move in other locations because of the lack of neighborhood loyalty. One of the things we talk about is really what is – it used to be in New York City that people are very loyal to the neighborhoods and a very – neighborhoods are very desirable. You have got a big slug of new deliveries in Long Island City. What is the elasticity of our customer and their desire to go further out one more train stop to achieve a lower rent. So for all those reasons, we have kind of accounted for that with 80 basis points lower in occupancy for the full year.

Ivy Zelman

And therefore, assumingly the volatility may be that you will need to meet whatever the pricing maybe at that time and retaining that customer as the strategy?

David Neithercut

Yes. I mean the volatility would not be in rate. I mean rate would not immediately impact us. It would be in additional upfront concessions or significantly lower occupancy.

Ivy Zelman

Got it. Thank you. And separately on transactions side, I think David you mentioned that your – the overall success that you have had and recycling older assets and bringing in newer assets and I think you obviously commend to the team that’s done so, when you think about the transactions that you would have liked to have done or just understanding what’s going on in the transaction market, there seems to be a bit outspread widening and that’s probably more Class A urban and there has been some disappointment in the market that transactions that just didn’t get done that they were hopeful would have got done or when they saw deals where we traded and they were traded 1% to 10% depending on the asset lower, you guys are saying you are not seeing that or maybe you can comment further on that, because that’s definitely – a lot of people are saying in the industry that they are seeing the same thing?

David Santee

I certainly would suggest that we are seeing did ask spreads widening. But I will tell you that the deals there that are getting done, we think are getting done and valuations that are not showing that kind of delta. Now may be deals are being pulled back in the marketplace, which seller is unwilling to sell at that kind of discount. But I also sort of just say just in support of that is that we are still seeing land prices very strong. We are still seeing construction cost going up and seeing no abatement in replacement costs, which are also going to be, I think the driver of underlying value of existing stabilized assets.

Ivy Zelman

Right, very true. Lastly, just can you guys talk about the sensitivity of rising rates and recognizing you are extremely well capitalized, generating strong free cash flow, but just appreciating what can that do to your competitors because some people are just really not as well capitalized and again it’s highly fragmented, so how does that impact the competitive nature of the market for new move-ins and renewals from the way you have modeled ‘17 guidance and what are you assuming I guess for where rates are going to go in your modeling?

Mark Parrell

Ivy, it’s Mark Parrell. I may need to disassemble, we may not have understood your question. Is that a question about balance sheet sensitivity of us and others to changes in interest rates or our customers’ renewal, I didn’t understand that second part.

Ivy Zelman

Well, I guess what I am saying, there is a connection as rates rise, clearly on the transaction side and what the impact is on underwriting assets and whether it’s training or new development, etcetera, but then it also has impact to the competitive markets and how it may be bad players act, so there is the connectivity and I am trying to understand what you think about it broadly and you are forecasting ‘17 your rent growth, revenue growth, AFFO, everything that you are providing to us, how do you think that the rise rate environment impacts the competitive nature of the market as there is some changes in how people act when I think about a good player versus a bad player, do you have that incorporated in your forecast for ‘17?

Mark Parrell

Well, I guess what I will tell you, we have incorporated is the LIBOR, the curve that we do that hike. So we assume LIBOR to be higher and we put that into our forecast for our own floating rate debt. The third increase would be so late in the year it wouldn’t be impactful to us. So we thought about that we will comment say that many of our private, most of our private market competitors are much more highly leveraged than we are and carry much more floating rate than we do debt. So to the extent that you are suggesting the competitive landscape changes, if rates go up suddenly and significantly more than people expect and by that I mean short-term rates, that impact will be profound, I would guess as it relates to our private competitors. And considerably less significant to guys like us, we had around worth 10% to 20% floating rate debt. As it relates to our tenant’s actions specifically, I don’t think we factored that into our thoughts. Well, I think what she is asking is – we will – like we saw in the South Bay and San Francisco early in 2016, the rational pricing to fill the building up to convert from construction to permanent financing. So I think we have – that’s why we have created a much wider range in New York on the concession front, because if people do start operating 2, 3, 4 months free to get their building occupied so that they can then go for permanent financing. I think we have that factored into our assumptions or our ranges.

Ivy Zelman

Got it. Well good luck guys. Thank you for taking my question. Appreciate it.

David Neithercut

Thank you, Ivy. You bet.

Operator

And we will take our next question from Alexander Goldfarb with Sandler O’Neill.

Alexander Goldfarb

Thank you and good morning out there. Two questions for you. Maybe they are both for David Santee. Going back to LA, you said that that’s about 40% of your growth for 2017. And then in your commentary, it sounded I was trying to do the math quickly, like maybe half or so, a little over half of your portfolio are in submarkets away from supply, is that correct? And if not, if you could just break it down sort of how much of your LA exposure is in submarkets facing supply like downtown versus submarkets away from supply?

David Neithercut

So downtown, which would include, call it, Koreatown, Mid-Wilshire, Hollywood, that’s where half of the supply is. We only have 16% of our total LA MSA across those submarkets. 25% of our revenues sits, let’s just call it, in the Marina or West LA. Over the past year or so, there has been significant new deliveries in the [indiscernible], which has pressured West LA and the Marina. Those submarkets are just beginning to recover. And we would expect little pressure from new supply in ‘17. Other than that, the last major chunk is really Pasadena, where we only have, call it three or four properties. And then – but we have properties Far East of downtown LA. We have considerable portion of our revenue up in Santa Clarita, up in the San Fernando Valley. So I think we are good in LA as far as feeling the brunt of the concentration of deliveries and loss of pricing power in the urban core.

Alexander Goldfarb

Okay. And then switching coast to DC, you mentioned the hiring freeze and how that also covers contractors, but there is also – trust me, it was a different phone number, if was the wife, I would have to put you guys on hold. Hey, you got to know who the boss is. So, I think you mentioned that hiring is also impact on the contractor side. But if we see defense clearly seems to be getting favored nation status. So if we do see more defense spending, do you think that’s enough to offset the hiring freeze? And then two, how much of your portfolio is Northern Virginia focused out of your DC portfolio?

David Neithercut

Well, I guess, what I would say is when you look at the makeup of all of the defense employees in D.C., a lot of them are contractors already. A lot of defense employees are contract employees. So, we kind of look at that as just an offset to not hiring at the EPA or what have you. But we certainly feel that an increased focus on defense spending which is just the biggest piece of the pie in DC will be an overall net benefit.

Alexander Goldfarb

Okay, thank you.

David Neithercut

You are welcome, Alex.

Operator

And we will take our next question from Vincent Chao with Deutsche Bank.

Vincent Chao

Hey, everyone. I just want to go back to the commentary about the trajectory of same-store performance over the course of the year continuing to decelerate. It sounded like if I heard you correctly. And if we think about sort of I know that’s a bottom-up analysis of the markets and whatnot, but if we think about just supply and I think most – there is a lot of different estimates out there, but most see the first half being worse than the second half. And then also think about the demand side in terms of job growth which has slowed down a bit here, but potentially could reaccelerate towards the back half of the year. I guess, if I think about your trajectory, does that suggest that you don’t expect any change in the job environment or job growth environment, I should say, towards the end of the year and that you are sort of building in more steady supply deliveries?

David Santee

I guess, I would say that we don’t – we are not forecasting any material change to job growth either to the upside or the downside. A lot of the administration’s initiatives are probably more construction type jobs what have you. I mean, everything else remains to be seen. And that’s kind of how we are looking at jobs. I mean, the unemployment rate is low.

Mark Parrell

Unemployment rate and college-educated is 2.5%, so…

David Santee

Right. So the unemployment rate and college-educated is 2.5%, so I’m not sure how much more you could improve in the next 12 months, I think it’s just another yet to be seen kind of thing.

Vincent Chao

Okay. So that’s the one half and then the supply would be others, so I mean, it does seem like supply should theoretically be easing towards the end, but maybe there is delay in that benefit as those deliveries lease up? But I guess, maybe just another question on the liquidity side or the sources and uses. I thought I heard just under $1 billion of debt repayments planned for the year and then another $300 million of development CapEx, but I thought there was about $400 million of debt planned for issuance and then is the remaining Delta, the CP program that you talked about?

David Neithercut

So, some of that will go on the line remember, we do have $250 million to $300 million on cash flow a year and we will have that again this year after all CapEx. So some of that is offset by that. And then the remainder will be a higher line balance at the end of the year or CP depending on what’s kind of more efficient. So, I do expect this to be more like $500 million or $550 million on the revolver CP program towards the end of the year compared to where we are now at couple of hundred.

Vincent Chao

Okay. Thanks, guys.

Operator

And we will take our next question from Drew Babin with Robert W. Baird. Please go ahead.

Drew Babin

Good morning. Quick question on price, you had mentioned before some leases where rents are probably rolling down to market or you have some legacy leases there above market. Could you quantify that in terms of loss to lease for the whole portfolio and more specifically, New York and San Fran, if you can?

David Neithercut

Well, I guess, I would say we don’t really focus on loss to lease in a yield management environment. I mean, that number can change dramatically from Q1 to Q2 or Q3, but it’s more about the momentum in the market. So certainly, anyone that moved in prior to, let’s just say, June of last year in San Francisco is probably 5% to 7% above market today. So that’s where you get the roll down until you reach kind of equilibrium on that.

Drew Babin

Okay. And secondly, some of the supply data that’s out there suggest that while supply growth looks like it comes down a little bit in ‘18, it’s still elevated relative to ‘16 in New York and so I was hoping I know not all of that likely gets billed, I was hoping you can give us some color on your read on how much of that ultimately gets build on and when – at what point during this year might those numbers kind of become a little more firm?

David Neithercut

Well, I think our ‘17 numbers are firm. I mean in most of our markets that is in our geographic footprint, this is vertical high rise, mid rise product that started 2 years ago. So we again, we reconcile our delivery numbers with axial metric data with our folks in the field, boots on the ground. So I mean I believe we have a very firm handle on what will be delivered in each of our submarkets in 2017.

Drew Babin

I am sorry if I said ‘17, actually I meant 2018?

David Neithercut

2018 got to be pretty firm to-date. I mean in order to build these - in order to deliver anything in ‘18, you have got to generally be pretty much underway in New York City.

David Santee

You had to be moving there today.

David Neithercut

So we do see from a completion standpoint, sort of defining completion, we do see ‘18 in New York a little more than ‘17. But as part of our budgeting process, we recognized that a good amount of that ‘18 will be available for lease, perhaps even in ‘17 and we have accounted for that in our budgeting process.

Drew Babin

Okay, that’s helpful. Thank you very much.

David Neithercut

You’re welcome.

Operator

And we will take our next question from Tayo Okusanya with Jefferies.

Tayo Okusanya

Yes. Good afternoon everyone. Again, thanks a lot for the details for most of the market. I just had two quick ones, the first one, the $500 million guidance for acquisitions and dispositions again, granted it’s not a big acquisition, disposition year, but could you talk specifically about if all that is opportunistic or if there is anything targeted in any of those numbers?

David Santee

Yes, very little. I mean there is almost nothing targeted on that. For some time, we have had just the very, very short list on the acquisition side, but it covers a little bare there at the present time, just given where we see valuations are at the present time relative to wanting to stop, but that we would sell. So I mean that is all I think speculative at this time. If and when we find good trade opportunities to finance that with proceeds from the sale, we will go ahead and do that. But that’s generally been the way we thought about most of that activity even in last year. We had started with an expectation of perhaps selling some to redeploy that would be in addition in a way from the large disposition process. And we did last year, but they were ended up being very little of that activity actually taking place. So we continue to look for products that we can finance that we do think makes sense and the price would makes sense and we believe we can pair that up with appropriate sale, we will go ahead and do that. But we don’t see a lot of that – we are not working a lot of that at the present time.

Tayo Okusanya

Got it, that’s helpful. And then the development pipeline, I noticed with the Irvine, California development project, the stabilization date was to start a couple of quarters, any particular reason for that?

David Neithercut

Well, that was finally pushed out in response to having pushed out the completion of that some time ago. We had a particularly difficult problem with the general contractor there and nearly maybe suffering from the same sort of labor problems that contractors are suffering with across most of our markets. So the construction, the delivery of that was delayed. There was always a hope that that might not necessarily because you start building two different phases might not necessarily require us to actually change the complete – the stabilization date. But now we have done so, so that was really response to a several quarter delay during the construction process as a result of general contractor issues.

Tayo Okusanya

Great. Thank you.

David Neithercut

You’re welcome.

Operator

And our next question comes from Rich Hill with Morgan Stanley.

Rich Hill

Hey guys, I know we are past hour, a lot of time, so I do want to maybe keep my question short. Going back to your comment that you don’t really have anything to sell, I am sure I am putting words in your mouth, but if the right opportunities came about, you would sell and maybe rotate into something else, could you maybe give us some color just what you would find attractive in the current market, is it would you find New York City attractive, if cap rates widened enough, are you looking for markets with less supply, I am just curious what you would consider to be an attractive acquisition in the current market, if it was favorable enough?

David Neithercut

Well, again, it’s attractive relative to that which we want to sell. So I can’t tell you exactly what it might be, but we may find in a market that a reason why we might want to sell in one submarket and redeploy into another submarket or to sell in A and buy B or sell a B. I mean this was a market by market, submarket by submarket exercise, that is a function of what we can sell and where we can redeploy that capital and does that make sense relative to one another.

Rich Hill

Understood. But in an ideal theoretical world, I mean obviously, you have some assets that you would potentially sell, what sort of markets do you – are there any markets that you would specifically be targeting and view more favorably or is it really as dynamic as maybe it seems?

David Neithercut

I would not describe that as a market as much as perhaps as specific assets in a market. So there may be assets that we believe might be an opportune time to rollout of today. And I think that’s not market driven, but more asset driven. So older assets, assets which require capital perhaps so we don’t we want to put into it reasons why we want again, as I said earlier move from reduced that exposure in a certain submarket redeploy in another submarket. Just to make it clear, anything that we had really recognized or identified last year as an asset that we knew that was not a long-term hold for us was rolled up into large transaction we executed as part of the $6.8 billion of dispositions last year. So anything that we identified, anything we did not want to own, we tried to and we are successful in putting that in disposing of it a year ago. So anything now, again as assets, we would be willing to sell this, this is not necessarily something that has to be a long-term capability. But we would be willing to sell this if we could find the appropriate acquisition into which we would redeploy that capital. So again, it’s an asset here, an asset there, that we would be willing to sell and we could find the right thing to buy. And again that’s just a trade in, so that’s all a function of the relationship between what we are selling and what you are buying.

Rich Hill

Got it, that’s very helpful. So I sort of think about that in terms of just portfolio optimization, you would like the markets that you are in, you believe in them long-term, but from time-to-time, there might be an opportunity to sell one asset and buy another asset and you would take advantage of that if you could?

David Neithercut

I wish I have said it so clearly the first time.

Rich Hill

Well, thank you, guys. That’s all I have.

David Neithercut

You bet.

Operator

And we will take our next question from John Kim with BMO Capital Markets.

John Kim

Thanks. Good morning. You discussed spending additional CapEx as a response to new supply and I am wondering if this is market specific or throughout your whole portfolio and also is the $2,600 annual CapEx per unit, is that the new norm for the foreseeable future or just for 2017?

Mark Parrell

Yes. It’s Mark Parrell and $2,600, that amount is just really spread throughout the portfolio. There are some larger projects here and there, but it isn’t – could very over-weighted in one market or another. I did mention in my remarks, we think that $2,600 as an exceptional number and we would expect it to normalize back down to $2,300 or so. So $2,300 a unit is about 7% of our revenue and that’s kind of a number we think is about right and shows very well, relative to a lot of our competitors. This year, it will go up to about 8% of revenue and that’s again, I think our response to competitive pressures and because we got a few low-hanging fruits in some of the sustainability step that we would like to get done.

John Kim

And that can be more weighted towards revenue enhancing this year versus last year?

Mark Parrell

No, I don’t see it as materially different. I think a lot of the stuff that we call rehabs is revenue enhancing, has a return associated with it, of course some of the replacements are just that. Replacements of worn-out equipment and maybe doesn’t have a specific ROI, but certainly the rehabs of $50 million was all approved at investment committee. Those are all deals that have to meet rigorous hurdles.

John Kim

Okay. And then in New York, we have seen a couple of micro-apartment buildings emerge. And I am wondering if you have had any views on this, if you see this as an opportunity, a threat or no impact to your business?

David Neithercut

I guess, I would say that supply is supply. Rental supply is rental supply. And if it competes with us, we own some micro apartments in San Francisco and in Seattle and so have some experience with that and sort of understand how it fits into the marketplace, but I don’t look at it as a specific threat. Just new supply is new supply and it competes with us.

John Kim

Is that a part of your portfolio that you maybe willing to grow?

David Neithercut

Again, as it makes sense, it’s a very high turnover product and so it does require sort of a little bit different sort of management, but we wouldn’t steer clear of it, but we are not – it’s not part of a specific strategy to grow at the present time.

John Kim

Great, thank you.

David Neithercut

You bet.

Operator

And we will take our next question from Wes Golladay with RBC Capital Markets.

Wes Golladay

Good morning, guys. Looking at your base case for demand in New York, are you assuming more of the same financial service jobs contracting flattish information jobs?

David Neithercut

Yes.

Wes Golladay

Okay. And then you have kind of mentioned rising wages to limit employee turnover. Are you seeing an uptick in turnover? And is there any property level impact when this happens?

David Santee

We do our best to retain our employees and there is many levers, benefits, enhanced department discounts what have you. There are a lot of team managers out there that don’t necessarily have skin in the game when it comes to offering wages. And we have seen some how we call them outrageous offers to some people. But for the most part, I think, a lot of our people that work at Equity Residential are very loyal. And what we do see are people leaving for simply more opportunity. The good performers that when you are adding 30,000 units over a couple of years in New York City that creates a lot of new property manager jobs, regional manager jobs and what have you, but we don’t see people leaving for lateral opportunities.

Wes Golladay

Okay. And then last one, have you mentioned where new and renewal leases are going out at, for January and for the next few months on renewals?

Mark Parrell

No, I have not, but I can. For January, we achieved 4.2% on renewals. February, which is almost closed out, 85% are closed out, we achieved 4.2%. And then March, 60%, we still have 50% to be worked, and we are at a 3.9%.

Wes Golladay

Okay, thanks a lot.

Operator

And we will take our next question from Tom Lesnick with Capital One.

Tom Lesnick

Hey, guys. Thanks for taking my questions. I will keep it short since we are pretty late in the call here. Bigger picture and I know it’s early into the new administration everything. But given immigration policy and everything, have you guys looked at migration trends and how that sensitivity applies to your various markets? Is there some sort of demand elasticity that is sharper in some of your markets more than others? Just wondering if you could comment on maybe San Francisco, LA and New York specifically?

David Santee

So, we have begun to dig into our database. We don’t identify the people on visas specifically. But there are other ways that we can query folks with no Social Security numbers or kind of an obvious first run. I would tell you that we are not ready to commit to any numbers. But I think what we have seen so far plays out matches up with our thinking in that Boston and San Francisco are very similar for different reasons, right? So San Francisco is more H1B visa. Boston is more international students. New York is probably in between those two places. So once we validate what we are seeing, we would be in a better position to kind of talk about that next quarter.

Tom Lesnick

Okay, thanks for the call. I appreciate it.

David Neithercut

You’re welcome.

Operator

And we will take our last question from Nick Joseph with Citi.

Michael Bilerman

Hey, it’s Michael Bilerman with Nick. So we spent a lot of time talking about I guess the outputs of your guidance. I am curious into the methodology, the process, the inputs that you used to kind of come up with it. And obviously after last year’s guidance, perhaps, part of it was you are going to delay a quarter which you did. And I think you sort of earmarked a little bit that you are going to come up with a larger range. So how did the process, how did the methodology, how should we think about the guidance you have put out relative to your guidance that you had done last year?

David Neithercut

Well, I think when you look at 2016 we went into the woods unprepared. We thought – we assumed 2016 was going to be a repeat of 2015 and we didn’t allocate the appropriate tools for a significant market downturn like we had in San Francisco. Also, San Francisco made up a very large percentage of our growth. So, the biggest market that contributed to growth at the most significant downturn in a very short period of time. And I think looking back that whether it’s Axiometrics or any other shop, I think people acknowledge that San Francisco went south much quicker and much harder than even those folks expected. So this year, we have given ourselves obviously a bigger range. We – obviously, 2017 is going to be elevated supply, unlike ‘15 that had tremendous job growth and you packed in 1.5 year worth of growth into 1 year. So, I think we started from the ground up, looked at our trends on new lease, our lease-over-lease growth made our assumptions on rental rate increases in each of the markets relative to supply and job growth and how those flow through the year quarter-by-quarter. And I think we have developed reasonable ranges that cover some potential upside as well as looking where the volatility – most of the volatility is like New York and covering ourselves on the downside.

Michael Bilerman

Okay. And was there sort of top once you did all your bottoms up analysis and additional conservatism baked in top-down in your model? I guess I am just trying to really grasp how conservative you have put out this guidance knowing what happened last year? I just didn’t know if there was any sort of methodology changes or data input changes that would lead to a different outcome?

David Santee

No. I mean, we did a sensitivity analysis market by market. We know there is a 50 basis point increase or decrease in revenue what that does to the whole company. And I think we have created the appropriate ranges given the expected activity in the market that gets you to our midpoint.

Michael Bilerman

And then so the streets got your NAV at $70 stocks, hovering around $60, so call it 14% or 15% discount, double to the discount of to where your apartment peers trade, you have a 13 million share authorization, call it $800 million or so, why wouldn’t you be buying your stock today?

Mark Parrell

We have been using free cash flow Michael, as you know, to complete what has been a very successful development work. We are bringing that down and that creates capacity to perhaps do as you suggest as we get through the development that needs to be completed this year. Like I have said repeatedly on these calls that share repurchases are certainly part of what we will consider. We have bought stock back in the past and we will not be afraid to buy stock back in the future. We got limited bites at the apple and when you do, you would need to make it count and we will make sure that if and when we do it, it’s at the right time.

Michael Bilerman

But I guess your stock is hovering around the levels – the low levels of the last number of months, I am trying to get a sense of whether that’s – you know your capital needs are, you can certainly lever up knowing that you are going to have the free cash flow next year, whether this is an attractive enough entry point or do you not sort of see the same discount that the street is seeing?

Mark Parrell

We see the same discount as the street is seeing. I mean nobody is more aware of that than we are this management team and our Board. And when we act, we will let you know. But we won’t – no need I think to say anything in advance of that activity.

Michael Bilerman

Correct, okay. Thank you, gentlemen.

David Neithercut

You’re very welcome.

Operator

And that concludes our question-and-answer session. I would like to turn the conference back over to our speakers for any additional or closing remarks.

David Neithercut

Thank you all for your time. We appreciate it and have a long day and we appreciate your tolerance with us today. We will see you all around the circuit. Thank you very much.

Operator

And that concludes today’s presentation. We thank you, all for your participation. And you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!