AvalonBay Communities, Inc. (AVB) Q2 2012 Earnings Report, Transcript and Summary

Jason Reilley Timothy J. Naughton - Chief Executive Officer, President, Director, Member of Investment Committee, and Member of Finance Committee Sean J. Breslin - Executive Vice President of Investments and Asset Management and Member of Management Investment Committee Thomas J. Sargeant - Chief Financial Officer and Executive Vice President

Robert Stevenson - Macquarie Research Jana Galan - BofA Merrill Lynch, Research Division David Toti - Cantor Fitzgerald & Co., Research Division Derek Bower - UBS Investment Bank, Research Division Eric Wolfe - Citigroup Inc, Research Division Andrew Schaffer Richard C. Anderson - BMO Capital Markets U.S. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division Philip J. Martin - Morningstar Inc., Research Division Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division David Bragg - Zelman & Associates, Research Division Michael J. Salinsky - RBC Capital Markets, LLC, Research Division Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Good afternoon, ladies and gentlemen, and welcome to the AvalonBay Communities Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference call, Mr. Jason Reilley, Senior Manager of Investor Relations. Mr. Reilley, you may begin your conference.

Thank you, Matthew, and welcome to AvalonBay Communities Second Quarter 2012 Earnings Conference Call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with the forward-looking statements and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon's press release, as well as in the company's Form 10-K and Form 10-Q filed with the SEC. As usual, this press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion. This attachment is also available on our website at www.avalonbay.com/earnings, and we encourage you to refer to this information during your review of our operating results and financial performance. And with that, I will turn the call over to Tim Naughton, CEO and President of AvalonBay Communities for his remarks. Tim?

Thanks, Jason, and welcome to our second quarter call. Joining me today are Sean Breslin, EVP of Investments and Asset Management; and Tom Sargeant, our Chief Financial Officer. We each have some prepared remarks and then the 3 of us will be available for questions. I'll start by addressing our financial and operating results for the quarter, as well as our current assessment of apartment fundamentals. Sean will then provide some color on portfolio performance and transaction activity for the quarter. Tom will discuss recent capital markets activity and our updated financial outlook for the year, and I'll finish up our prepared remarks with an update on development activity and how the development platform is projected to enhance growth and net asset value as the cycle matures. Starting with financial and operating results for the quarter. Last night, we reported FFO per share of $1.34, which is up over 18% from the same quarter last year and represents the fourth consecutive quarter of approximately 18% growth in FFO per share. Overall, operating performance for 2012 continues to track largely as expected, and Q2 quarterly FFO beat the midpoint of our guidance by $0.02 per share, primarily due to lower-than-expected community operating expenses. Of this $0.02, about half relates to savings and utilities expense and office operations, while the remaining half is timing related. Q2 revenue performance was in line with expectations. For the quarter, earnings growth was driven by strong operating performance from our existing portfolio, as well as the delivery and lease-up of newly developed communities. For our same-store portfolio, year-over-year revenue growth was 5.8% and NOI growth was 7.1%. Revenue growth was healthy in all of our regions, with the strongest revenue growth coming, once again, from Northern California and Seattle. Turning to fundamentals. Operating performance continues to benefit from healthy demand-supply fundamentals despite the recent downshift in economic activity and job growth that occurred in Q2. While job growth moderated last quarter, rental housing demand is benefiting from declining homeownership, increasing household formation and strong demographic trends. In addition, the supply of newly completed apartment homes remains below historical averages experienced over the last 2 decades and significantly below the '70s and '80s when demographics were last still favorable for multifamily housing. Looking more closely at employment, job growth in the U.S. has been moderate and uneven, thus far, in 2012 with strong growth of 225,000 jobs per month in Q1, followed by slower growth of about 75,000 per month in Q2. These results put the U.S. nearly on pace with initial third-party forecasts of about 1.5% or 2 million new jobs in 2012. However, for the third consecutive year, renewed concern over European fiscal and banking challenges and the recent focus on the U.S. fiscal situation appeared to have weakened business and consumer confidence, reduced the rate of economic growth and tempered hiring activity. Looking ahead, while many economists now project slower growth in the second half of 2012, most continue to expect the U.S. to remain on a moderate growth trajectory over the next several years, generating around 1.5% to 2% job growth or over 2 million jobs per year from 2013 through 2015, including about 600,000 jobs annually for the prime rental cohort of 20- to 34-year-olds. For AvalonBay's markets, job growth has kept pace with national trends, with Northern California and Seattle exceeding expectations, with growth in the 2.5% to 3% range, and Southern California and the peripheral markets outside of New York, such as Long Island, Fairfield County and Northern New Jersey falling below expectations at less than 1%. Looking at other dynamics affecting demand, the apartment sector continues to benefit from a decline in homeownership, which now stands at 65.5% nationally and is down 370 basis points from the peak. This trend is even more pronounced across the AVB's footprint as the average homeownership rate in our markets was down 560 basis points from peak and now stands at just over 55%. Despite the significant reduction in housing prices we've seen across the U.S. over the last few years, affordability remains an issue in many of our markets as the average home price to income ratio is at 5.6x or roughly 75% higher than the U.S. average of 3.2x. In our markets, we see little evidence so far of increased strength in for-sale housing other than maybe Boston and Seattle, where there was an uptick this quarter of move-outs for home purchases. Overall, for our portfolio, move-outs related to home purchase remain well below long-term averages. Currently stands at 14.5%, which is up only marginally from the same quarter last year. In addition to falling homeownership, rental housing demand has benefited from improvement in the rate of household formation, which experienced a year-over-year increase of 1 million households in Q1, the largest increase since 2006. And while household growth has improved recently, it is still below the longer-term average of around 1.4 million. In fact, many economists have projected that the lower level of net household formation experienced over the last 5 years has resulted in pent-up demand on the order of 1.5 million to 2 million households, with many of these figuring to be in the 25- to 34-year-old prime renter cohort, as this age group has almost 1.5 million more people living at home than historical trends would suggest. As this pent-up demand materializes, it should provide additional stimulus for our broader housing recovery. We believe a recovery that creates rising demand for housing will be similar to the recovery in the mid-90s, in which both the for sale sector and multifamily rental sector benefited from increasing household formation and rising demand, and that a recovery for sale housing will likely proceed along a gradual path in most markets, anchored both by more prudent lending standards and more cautious consumers. Turning to new supply. Completions in our markets remain below historical norms at approximately 0.8% of apartment stock in 2012 as compared with the 15-year average of around 1.0%. The D.C. Metro area is our only market with above-average levels of new completions in 2012 with 7,000 new homes, representing 1.8% of apartment stock concentrated in the back half of the year. Looking into 2013, completions are projected to rise towards 15-year averages in most markets. However, new deliveries of multifamily housing stock will still be at levels at around half that experienced in the '70s and '80s or during the period when the baby boom came of age and multifamily housing demand last benefited from a strong demographic tailwind. As a result, the last 15 to 20 years may not be the best benchmark when evaluating levels of supply that might be absorbed over the next few years. Given demographic trends and the resulting changes in housing preferences, it would be reasonable to conclude that absorption of multifamily rental supply will be stronger than what was experienced over the last 2 decades. Nevertheless, we will see elevated supply in a few markets, particularly Metro D.C., San Jose and Seattle. Of these markets, strong job growth in Seattle and San Jose should provide adequate demand to absorb new deliveries plus employment forecast for the Metro D.C. area suggests deliveries may result in weaker apartment fundamentals and operating performance relative to the balance of our portfolio. So in summary, despite an expected slower pace of growth in the second half of 2012, apartment fundamentals on balance remain healthy and are expected to remain favorable through a combination of modest economic recovery and improvement in household formation, compelling demographics and reasonable levels of new supply. These trends were reflected in our updated 2012 outlook in which we increased the midpoint of the range by $0.06 per share and are now projecting annual growth in FFO per share of almost 20% this year. With that, I'll pass it to Sean, who will provide color on our operating performance and transaction activity.

Thanks, Tim. As Tim mentioned, I will make some comments about the trends in portfolio performance and then shift to the transaction market and our specific acquisition and disposition activity. Turning first to portfolio performance. Same-store NOI for the second quarter increased 7.1% on a year-over-year basis, driven by revenue growth of 5.8% and operating expense growth of 3%. On a sequential basis, Q2 same-store revenue increased 1.5%, reflecting continued positive momentum in apartment fundamentals with a 1.8% increase in rental rates, offset by a 30 basis points reduction in economic occupancy. Our Northern California and Seattle regions posted the strongest sequential revenue gains at 2.6% each, while the mid-Atlantic and Southern California regions posted the lowest growth rates at 0.5% and 0.6%, respectively. As I mentioned, economic occupancy declined 30 basis points sequentially to 95.8% as we adjusted our pricing parameters to push rents during the quarter. Moving to regional performance. Revenue growth was solid in all regions, with the strongest year-over-year growth coming from Northern California and Seattle at 10.2% and 8.8%, respectively. In Northern California, strength on the tech sector continues to drive robust job growth and apartment demand. And from a supply perspective, the delivery of new apartments in Northern California is still relatively insignificant. As Tim mentioned, we expect more supply to come online in San Jose, particularly Northeast San Jose, as we move into 2013. However, we don't expect to see much of an impact from new supply throughout the remainder of 2012. The Seattle economy also continues to perform well, benefiting from growth in not only the tech sector, which is being supported by Microsoft, Facebook, Google and other small tech businesses, but also from retail trade, which is being driven in part by Amazon's expansion in the market, along with aircraft manufacturing at Boeing. New supply will come online next year in Seattle, but it is highly concentrated in the downtown or near-downtown submarkets where we have very little presence. As for the rest of the country, the Southern California, New York and New England regions posted revenue gains of 4.5% to 5.5%, while the mid-Atlantic region grew by 3.6%. In Southern California, the economic recovery continues to lag with job growth of only 0.4% for the 6 months ended June 30. The soft demand has been partially offset by very, very low levels of supply. In fact, new supply in the Southern California region is projected to be the lowest of any region in our portfolio at approximately 0.5% of stock through 2014. In the New York region, Manhattan, Brooklyn and Manhattan accessible areas of Northern New Jersey continue to perform well, supported in part by high-tech employers opening offices in the region. Meanwhile, our communities in the outer portions of the New York Metro area, including Westchester and Fairfield, have lagged due to weakness in the financial services sector. In Boston, job growth is being fueled by the high tech, medical and education sectors and has reaccelerated to a pace north of 1% for the 6 months ended June 30. Shifting now to operating expenses. 3% year-over-year increase in operating expenses was driven by payroll and benefits costs, marketing and insurance, which are partly offset by savings in bad debt and utilities costs. As we have mentioned in the past, operating expenses can be somewhat lumpy from quarter-to-quarter based on a number of different factors. So judging operating expense growth on a year-to-date basis tends to give you a better picture of where we are headed. On a year-to-date basis through June 30, operating expenses for the same-store portfolio increased 0.8%, with increases in insurance, property taxes, payroll and benefits and maintenance being offset by reductions in 3 main areas: first, bad debt, which is a result of not only an improving economy but in new collection strategy we implemented at our customer care center in Virginia Beach; second, utilities, including the benefit of the mild winter but also investments we've made in the area of energy efficiency and sustainability last year; and thirdly, in the area of marketing, some of which is timing related and will be incurred in the second half of the year. As we look forward into the second half, the portfolio is well positioned as we move -- as we look ahead. Economic occupancy for July is trending at 96%, about 20 basis points north of our second quarter average, and availability is currently 5%, down 75 basis points from our average availability in Q2 and 50 basis points below where we were at the same time last year. In terms of July activity for renewals and new move-ins, committed renewals are in the high 5s, while new move-ins are in the low 5s, consistent with second quarter trends. August and September renewal offers went out in the high-5% to mid-6% range. Based on year-to-date results in current portfolio trends, our revised outlook for 2012 reflects same-store revenue growth of 5.5% to 6%, with the midpoint of 5.75% being consistent with our original guidance. The Northern California and Seattle regions are projected to continue to outperform, while the mid-Atlantic markets are projected to lag behind the rest of the portfolio. In terms of operating expenses, we expect full year operating expenses in the same-store portfolio to increase between 1.5% and 2.5%, about 100 basis points below our original guidance. We now expect full year NOI growth in the same-store portfolio will fall between 7% and 8%. Now I'd like to shift topics and make a few comments about our transaction activity and the transaction market. First, in terms of dispositions, we sold 2 wholly-owned communities during the quarter, one in Oakland and the other in Chicago. These properties were sold for a combined sales price of $174 million at a blended 5.3% cap rate, generating an unlevered IRR of 11% over a 15-year holding period and an aggregate economic gain of about $66 million. In addition, we also sold one Fund I community in Chicago for $34.5 million. With the disposition activity in the second quarter, we completed our exit of the Chicago market. On the acquisition front, we acquired one property during the quarter, Eaves Cerritos, which is a community of 151 homes located in the Cerritos submarket of Los Angeles. The community was acquired for $29.5 million. In addition, we executed a binding agreement to acquire our joint venture partner's 70% interest in Avalon Del Rey, a community of 309 homes we developed in 2006, for a purchase price of approximately $67 million. As a result of this transaction, we will gain control of 100% of an attractive asset and unlock our promoted equity interest, which previously received no cash flow. We expect to close the transaction at the end of this month, which will bring year-to-date acquisition volume for AvalonBay to roughly $120 million. In terms of the transaction market, while overall trading activity in the U.S. is up about 10% compared to last year, activity in our markets is actually down about 15%. The reduction in the supply of available assets combined with healthy apartment fundamentals and plentiful capital has continued to put upward pressure on pricing. And in some markets, particularly on the West Coast, inventories are low enough that we're starting to see a bit of a scarcity premium on assets that do trade. Cap rates on the West Coast currently range between 4% and 5%, with urban and the high-quality suburban assets trading at the low end of that range. Cap rates on the East Coast range from 4.75% to 5.75% with the exception of assets in the attractive boroughs of New York City, which can trade anywhere between the high 3s and the high 4s, depending on how you value any tax abatement. Buyers are indicating that their unlevered IRR targets are in the 6% to 7% range for core assets and 7% to 8% for core-plus to value-add opportunities. As you may recall, our initial outlook contemplated $350 million to $450 million of dispositions and $450 million to $550 million in acquisitions for AvalonBay. In addition, we expected Fund I dispositions of $150 million to $250 million. Although the transaction market tends to be seasonal as activity weighted towards the back half of the year, we have also been highly selective about acquisitions in light of current pricing levels and reduced volume. As a result, given year-to-date activity and our view about current pricing levels, our revised outlook for the year now reflects a net neutral trading position, with wholly-owned dispositions and acquisitions each falling into a range of $250 million to $350 million for the year. In terms of fund activity, we have accelerated some Fund I dispositions given attractive pricing levels, and now expect Fund I dispositions to range between $250 million to $350 million for the year, an increase of $100 million from our initial outlook. In addition, we have targeted the opportunistic disposition of select Fund II assets and expect to dispose of 1 to 2 properties with an aggregate value of between $40 million and $100 million. With that, I'll turn it over to Tom for an update on the balance sheet and our capital markets activity. Tom?

Thanks, Sean. This afternoon, I'd like to cover a few topics. First would be our capital-raising activity under our second continuous equity program. I'd also like to talk about how this activity prepares the balance sheet and other key credit metrics to help support the investment activity that Sean and Tim has noted. And then, finally, I'd like to talk about our sources and use of capital for the year and our updated financial outlook. With respect to capital raising, we raised approximately 200 million under our continuous equity program through July. These shares were issued in June and early July at an average share price of about $140 a share, and complete the $500 million program that we launched in 2010. Issuing equity under this format is an important part of our integrated capital management program or ICM. This program allows us to cost effectively match fund permanent capital concurrently with or in advance of committing to new investment activity. And this alignment ensures adequate liquidities in place to complete the new development underway and also mitigates capital market and funding risks. Separate from these equity issuances, the company repaid a $15 million mortgage in accordance with its scheduled maturity. And combined with the secured and the unsecured debt maturities of $228 million in the first quarter, we have now retired $242 million of debt year-to-date. The equity raised and the debt reduction served to delever the balance sheet and support accretive new investment that will drive future NAV and FFO per share growth. This capital activity also serves to reduce our exposure to what appears to be asymmetrical downside risk present in the global economy and capital and credit markets. Looking at our liquidity and key credit metrics, we continue to enjoy great liquidity and access to capital. At the end of the second quarter, we had no borrowings out under our $750 million credit facility, and we had $430 million of cash on hand. With about $940 million remaining to fund for the development and redevelopment underway and short-term debt maturities of just $200 million, we have sufficient liquidity on hand or contractually available to fund near-term investment and financing commitments. So overall, our changes in our sources and uses of capital for the year are quite modest. Our initial outlook contemplated sourcing $800 million in new permanent capital. That new capital and cash on hand was targeted to fund $800 million in development, net acquisitions of $100 million and $450 million in debt repayments. Thus far, in 2012, we've sourced $200 million in equity capital and retired $242 million in secured and unsecured debt. Total development funding remains on track, and we now contemplate being largely net neutral on acquisitions and dispositions, which reduces this funding need by approximately $100 million. Our current plan is consistent with our original capital sourcing plan, and although the timing of the capital raised may change based on capital market conditions and our decision to maintain sufficient liquidity to fund 2013 development activity. A lot of numbers quoted here, but they underscore the flexibility we enjoy in both the type and the timing of our capital-raising activity and are supported by our key credit metrics. And just to point out a few of these, as of June 30, debt-to-total-market capital is about 20%. Net debt-to-EBITDA was about 4.7x. And our unencumbered NOI had increased to 73%. Interest coverage for the quarter was about 4.8x. Before I turn the call back over to Tim, I'd like to make a couple of comments about our revised outlook for 2012, and in coming up with our midyear re-forecast, we took into account a number of key variables,, including updated employment growth projections, expected operating performance and projected investment capital sourcing activity over the balance of the year. We now expect third quarter FFO per share of between $1.38 and $1.42 and we expect full year FFO per share to be about -- or between 5.39% and 5.53% -- $5.53 per share. The midpoint of our FFO guidance would represent a year-over-year growth rate of about 19.5% and the second consecutive year of strong double-digit FFO per share growth. Importantly, the strong growth is not being driven by financial leverage, as we continue to reduce our leverage through the cycle. Instead, our earnings growth is driven by durable and attractive operating environment and by a focus on enhancing value for shareholders through a development platform that is match-funded with permanent capital. And as Sean noted, same-store NOI growth is projected to be in the 7% to 8% range for the year and we're on track to start over $1 billion in highly accretive new development. So to recap this outlook, we've increased our FFO estimates by $0.06 per share, primarily driven by operating expense savings, a shift in the timing of financing activity and partly offset by reduced acquisitions. With those comments, I will turn the call back over to Tim.

Thanks, Tom. I'd like to take a couple of more minutes just to provide an update on our development activity and close with some thoughts on how we view the economics and value creation from our development platform during this cycle. Turning first to recent development activity. Altogether, we currently have 20 communities under construction, located across 6 regions, with a projected capital cost of over $1.6 billion. This reflects the completion of 4 communities with a projected cost of $250 million and the commencement of construction of 4 communities with a projected cost of $310 million in Q2. The average projected yield for communities under construction today stands at around 7%. Year-to-date, we have started 5 communities totaling $430 million and we anticipate starting another 9 communities totaling $700 million by year end, bringing total starts for the year to roughly $1.1 billion. And by year end, we expect to have approximately $2 billion under construction. Meanwhile, we continue to expand the company's development pipeline with another 3 projects totaling $275 million added in Q2 and almost $600 million in development rights added year-to-date. We now have 33 communities in our shadow development rights pipeline, representing $2.8 billion in future development opportunities in addition to the $1.6 billion under construction. As for our lease-ups, performance continues to be strong. We currently have 10 communities in lease-up, and for these communities, the average lease rent is about $80 higher than pro forma, resulting in projected stabilized yields of approximately 40 to 50 basis points greater than pro forma. There's something [ph] I'd like to share some thoughts on our development platform and how it contributes to our ability to grow net asset value over the long term. Since the company first went public in the early '90s, we believe that a carefully managed and properly funded development platform will provide a distinctly attractive way to enhance net asset value for our shareholders over the full business cycle. This is because development offers the opportunity to invest in new communities at stabilized yields that are historically, on average, 150 to 200 basis points higher than the prevailing cap rate at which existing communities can be acquired. As many of our long-term investors know, the value created by our development platform is often obscured by traditional earnings metrics such as FFO multiples. This is even more pronounced at a time when we are ramping up volume and development economics are particularly attractive, as is the case today. In fact, currently, we have almost $1.5 billion invested in mostly non-income-producing assets in the form of construction in progress, land held for development, pursued [ph] cost and recent completions that are not yet stabilized. In addition, when this investment is ultimately converted into stabilized income-producing assets with yields in the 7% range, valuations that rely on simplistic FFO metrics during this part of the cycle distort estimates and do not properly reflect the true intrinsic value of the company. However, longer-term analysis of our track record reveals more clearly the benefits of our development focus. In addition to decisions about market selection, capital allocation, as well as our management efforts, we believe that our focus on development is an important reason why we've been able to deliver outside annualized growth and NAV per share over the last 10 years of 11% as compared with 7% for our peers. It's also the reason why over the same period we've been able to generate outperformance in shareholder returns, annualized of 16% versus a peer average of 12% and grow our dividend by a total of 40% while the peer average has declined by 16% over the same period. Today, the profit spread on new development is at or near an all-time high, both in absolute and relative terms. Currently, the spread is 200-plus basis points or about 50% higher than the cap rates at which similar quality product can be bought in our markets. By capturing the spread on the approximate $4 billion and construction starts since 2010 and planned through 2013, we anticipate creating around $20 in incremental NAV per share across the earlier part of the business cycle through our development platform, enhancing the attractive returns we'd otherwise expect to provide to our shareholders by investing in some of the best apartment markets in the country. So in summary, our portfolio continues to deliver strong NOI growth across every region. Our lease-up communities continue to outperform expectation. With strong operating development platforms and a balance sheet position to fund our growth, we remain well positioned to deliver outside earnings and NAV growth over the next several years. And with that, operator, we'd like to open up the call to Q&A.

[Operator Instructions] Your first question comes from the line of Rob Stevenson with Macquarie.

You talked about upping the sales pace of Fund I to $250 million, $350 million this year. When you get done with that, what does that leave you in terms of dollar value of assets and number of assets in Fund I?

Rob, this is Sean. In terms of Fund I activity, we did up the range, and I believe we have about 17 assets left in that fund. We plan to exit to be somewhere, depending on what gets executed or doesn't get executed, somewhere in the range of 3 to 4 assets. So it'd bring it down to somewhere in the neighborhood of 13, 14 assets, somewhere in that vicinity, which would represent, have to look at the numbers, I think it's probably around, it's about $400 million or so left to go, which would be spread over the rest of '13 and '14.

Okay. And I mean from a timing standpoint, is there any reason why you wouldn't sell more sooner rather than later from your standpoint as long as the market conditions allow?

Sure, Rob. Good question. A couple of comments on that. First is the majority of those assets have secured debt against them, so we do factor in the prepayment multi-costs so we're looking at when the debt matures, what the cost is as one part of the decision-making process. But we also have some assets in markets where NOI growth is still pretty robust. And so we'll take a look at sensitivities about what we think that NOI growth might look like relative to the change in cap rate that could occur and sort of determine the optimal time to sell those assets. So sort of blending both of those things. The prepayment penalties, as well as the asset specific NOI growth and potential valuation changes.

Okay. And then, Tim, given all your comments on the development pipeline, what are you guys seeing today in terms of any inflationary pressure on the hard cost for future developments as you try to underwrite your back half '12 and '13 starts?

Rob, we have seen a little bit of pressure on the cost in the construction side, and I think we talked a little bit about this last quarter. I think what we're seeing today is still consistent with that, where costs have maybe come back about 1/3 from how much they had declined from the prior peak. So costs depending upon the market and product type of costs were down 15% to 25% from the peak. Today, they're down maybe 10% to 15%.

And are you seeing pressure in any particular place, whether or not it's steel, oil products, et cetera?

Well, we had been seeing pressure in some commodity costs. We've seen some relief in certain costs lately, but I don't know that it's pronounced and concentrated in any one area at this point.

Okay. And then land cost, and just along the same lines, I mean what are you guys -- you guys continue to tie up sites. I mean, is it for anything that's going to be ready to be constructed on, in the next couple of years? I mean, how aggressive is pricing for land today?

For the most part, the answer is no, we haven't been tying up sites lately that are going to be ready, say, over the next year that are entitled. I'd say the majority of them require some kind of entitlement or re-entitlement. As we've mentioned on our last couple of calls, sites that are ready to go tend to be bid up in auction oftentimes to merchant builders who are looking to accelerate fee income streams, if you will. And so we really have shifted our focus in increasing -- in our increasing and shifting our focus towards sites that are likely to be optioned, take 2 to 3 years to get through the process where the competitive dynamics aren't quite as intense.

Your next question comes from the line of Jana Galan with Bank of America Merrill Lynch.

Last year, I believe, Avalon started to see rents start to slow maybe in August, and I was wondering if you're seeing anything in the data you track that would suggest that, that occurred in June or July this year?

Jana, this is Sean. What you stated is true. Typically, we start to ramp up rents in the first quarter and push them through the summer months and just depending on what year we're in, things will move around a little bit. But we're not seeing much of a different trend this year in terms of sort of the sweet spot of the year, if you want to consider that the right phrase. I think what we're seeing this year is consistent what we've seen in years past in terms of the window throughout the year that we can push around.

At And I think you gave us a low 5% on new leases in July. Do you have that number for April, May, June?

The numbers for July which were renewals in the high 5s and move-ins in the low 5s are relatively consistent with what we saw moving through the second quarter.

And then maybe just on, if you look at -- evaluate potential acquisitions, is it -- and also just assets or land, are you looking in all markets or only ones where you currently have a presence?

In terms of both acquisitions and land, we're only looking for assets and opportunities in our existing markets. We're not looking to extend our footprint at this point.

Your next question comes from the line of David Toti with Cantor Fitzgerald. David Toti - Cantor Fitzgerald & Co., Research Division: Just quickly. Are you seeing any change in yields in the development in progress at this point? And if so, what are the mechanics of those changes?

David, Tim here. When you ask about changes in yields in development in progress, are you talking about the ones that are actually in lease-up, is that your question? David Toti - Cantor Fitzgerald & Co., Research Division: Yes. I guess the lease-up and then any expectations you might have for the starts in the second half of this year and into next year. I know you sort of mentioned an aggregate, but I assume that number is moving somewhat.

Yes, just to refresh everyone's memory, when we state development yields, they generally don't change from the time which we start construction until the time we start leasing, which oftentimes is 9 months to over 1 year. And generally, what we have been seeing over the last year, 1.5 years, is that rents have been moving consistent with overall market rents during that period of time. So I was quoting that rents were up $80 on those deals that we started to lease up. That's about 4% -- 4% or 5% up from the time that we actually started construction for that basket of assets. So generally, we would expect communities that are going to be starting to lease up here over the next couple of quarters to reflect rents that are up a bit from how we underwrote them at the time we actually started construction. David Toti - Cantor Fitzgerald & Co., Research Division: Okay. So there's still somewhat of a net-up trend is sort of what I'm hearing?

Certainly, there is for the 10 communities that are at lease up. We would expect the same would be true just based upon the transfer contingency in the marketplace, as Sean outlined, in terms of new movements and renewals that we're seeing. David Toti - Cantor Fitzgerald & Co., Research Division: Okay, that's helpful. And I just have one other question. Relative to the occupancy loss that you mentioned, and I know you sort of attributed that to the rent growth or the sort of aggressive rent pushing in the quarter. What can we sort of expect for the next couple of quarters as we go into slightly weaker seasons? And it would appear that you're sort of hitting the limit in terms of how hard you can push without really materially losing occupancy. Can we expect to see some sort of dial back on those new and renewal growth rates or sort of a flattening from current levels? Or even some downside?

David, this is Sean. As I mentioned, the August and September numbers are going out in the high 5% to mid-6% range. And as we go throughout the year, when we go through and handle revenue management, it is, if you think of the process sort of weekly, the pushing and pulling based on different markets in terms of where we can push rents, where we need to pull back to gain some occupancy and that continues to happen throughout the entire year, frankly. But as I mentioned earlier, we tend to push seasonally where you can see it from the first quarter through the early part of the third quarter, to get through August and September. And then new move-in changes tend to back off a little bit. So that seasonal pattern would be the same this year would be our expectation. But based on the renewals that are going out and the fact that, as of right now, we're basically sitting at economic occupancy of, call it, 96%, which is above the second quarter average and availability is down to 5%, which is the lowest point of the year, we would be pushing hard as we look forward here on new move-ins to see where that limit is and then dial back. So it's hard to give you a specific conclusion at this point other than the portfolio is well positioned today to push hard through the next quarter, and we'll see how things respond.

Your next question comes from the line of Derek Bower with UBS.

I was just wondering if you could just talk about any markets where you're seeing Bs starting to outperform maybe some of your A class?

Derek, this is Sean. Typically, what we see over the cycles, and this is going back quite a ways, is that as you get into particularly the earlier part of the upcycle, As tend to outperform Bs. And then when you get to a point where supply starts to materialize, it tends to soften the growth rate on As to a certain degree. But if you look at sort of currently where we are over the last 4 quarters, for our portfolio specifically, As have outperformed Bs to the extent of about 230 basis points on the east and about 180 basis points on the west. Now one thing to keep in mind there is that our sample size in terms of the B portfolio is relatively small. So we do look at third-party benchmarks whether it be REITs or Axiometrics to see what's happening in the market in general. And the trend seems to be consistent when you look at the third-party providers in terms of their results versus ours, where in most markets As are outperforming Bs. But you have to sort of dig under the covers a little bit to figure out whether it's just a class difference that's really driving the performance or whether it tends to be specific submarket locations as well. So it's sort of a blanket statement that last 4 quarters As are outperforming Bs. But regional differences also drive that as well.

Okay. And there's no real pockets where you're seeing Bs really outperform As at this point?

Not necessarily in our portfolio, but again it's a pretty small sample size. I mean, we look at the third-party data, some of the exceptions are Bs seem to be doing better in L.A., San Diego and Long Island. But the differences aren't necessarily that material.

Okay, got it. And then just lastly, can you discuss the -- I don't know if I missed this, the move-out for financial reasons and maybe state what those were in the Northeast and Northern California?

Sure. In terms of, you're talking about rent increases specifically, for the whole portfolio, second quarter was about 18%, which is actually down about 100 basis points compared to last year. It is up above long-term averages, which are closer to about 10%. And in terms of pressure from a regional point of view, there's not material changes year-over-year. Southern Cal is up a little bit, a couple of points. New York, New Jersey, the mid-Atlantic were down 4% or 5%. In terms of your specific question about Northern California, it's running close to 27%, 28% and is well above its long-term averages. But we continue to have plenty of traffic coming through to support higher rent growth. And one of the things that we are seeing is just the profile of our residents and the incomes that they're generating. If you look at some of the high-growth markets now in Northern California and Seattle, take Seattle is an example, if you look at new lease income on a year-over-year basis in the second quarter, households moving into our apartments, their incomes were up 14% on a year-over-year basis in Seattle, which is pretty strong, and we're seeing strong growth in Northern California as well. So even though we are seeing people make decisions to move out due to financial reasons, a market like Northern California, that tends to happen where you have people that have moved closer in to San Jose or, say, San Francisco that start to get priced out, and they do move out to some of the East Bay markets where they can take BART or some of the South San Jose markets as well, which provides them with easier access now that the 87 Freeway is open. So we do see a sort of a laddering effect or a domino effect in terms of people moving out. But the core of the group coming in is coming in with pretty high incomes, and it's being supported by the level of traffic that we need to hold the occupancy.

Your next question comes from the line of Eric Wolfe with Citigroup.

Tim, you talked about how development spreads are today, about the highest they've ever been, I think you said near all-time highs, and about the large value creation around development. I'm just curious how long you think this opportunity can last before either land and construction prices get bid up or enough supply delivers to keep rental rates down. I'm just curious if you look at the next couple of years, how long do you think you can keep getting these types of spreads?

Well, Eric, it's always a function of just the competitive dynamics as well as what's happening more broadly in the economy and what's going on with land and construction costs, so it's an interplay of a number of different factors. I can't say the deals that we're putting under contract today and they're getting through due diligence, they are exhibiting similar economics to those deals that are actually under construction, both in terms of average cost per unit or projected cost per unit and yields. Generally kind of in the 6 and -- call it, 6.75% range, maybe low 6% range on the West Coast and 7% range on the East Coast, roughly averaging around high 6%. So it depends a bit on the cycle. In the '90s, we were able to develop accretively from the time we went public in late '93 all the way through to 2001. So we had about a 7-, 8-year run there. I would tell you in this last cycle, it more or less mirrored the economic cycle where it was maybe 4 years where we had a nice run from about '04 to '07.

Got you. That's helpful. And then, Tom, you alluded to this in your remarks, but when I think back to your equity raise last August, the main reason for it was to prefund your development pipeline. So I was a little surprised that you finished your ATN this quarter. So I'm just curious, one, are you going to start another ATN? And two, do you think we're still in the type of environment where you need to prefund development activity?

Eric, in terms of the -- let me take the last question first. In terms of the environment, I wouldn't say that the capital markets have settled enough where we feel like we don't need to keep cash on the balance sheet. One of the reasons that we keep cash on the balance sheet is somewhat of a shock absorber. In the past, you remember we'd run up the line and we'd pay it off with this great offering. And basically, delivering capital just in time of its need, and we don't feel like we're back in a stable capital market environment where we can deliver capital just in time. So overall, I think you can continue to expect that we're going to keep some cash on the balance sheet and a lot of flexibility. In terms of the just completed CEP, we can't speak to another program at this time. What we can say is that we like the CEP format. We believe it's a good fit for our business. It fits it especially well, giving us an ability to continuously match equity capital with a steady flow of new development spending. So for all the businesses that have a need for something like a CEP, I think ours is uniquely matched to it. So that's probably all the comments I should make about our equity program.

Your next question comes from the line of Alex Goldfarb with Samuel O'Neill (sic) [Sandler O'Neill]

It's actually Andrew Schaffer here. First, I'd like to go back to the development yields. And I was wondering if your internal required returns have increased on these new developments over the last 3 months given the macro uncertainties?

This is Tim. No, not really. I mean, when we do look at -- we look at a couple of different return metrics. We do look at initially yield, and that's generally what we talk to the investment and analyst community about. But we also look at IRRs. So we have targets for both, and they tend to be -- they are tied very much to our cost of capital and where we view we're at right now both from a real estate cycle and the capital market cycle. Given that -- given Tom's remarks that we've largely been matched funding, we don't always see a need to increase our target yields as long as we're not mismatching the funding by 1 year or 2 years from the time we're actually making the commitment.

Okay. And then secondly, I want to talk about the kind of mix in Washington, D.C., and I was wondering if you've seen any reduction in the percentage of your tenants that work for the government?

Andrew, this is Sean. Not anything material that showed up in our resident profile reports that we look at that would be worth talking about in detail. Not at this point, no.

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

Just talk about the same-store revenue forecast of 5.5%, and looking back at your history and at other peak periods of good fundamental activity, you're doing almost or more than 100 basis points better than that. These are like arguably the best times ever in the multifamily space. Why do you think that you're not achieving the same level of internal growth that you were in past cycles?

Rich, Tim here. I think there's probably a couple of reasons. One, I think this last downcycle wasn't as deep as the prior downcycle, that's for one. So typically the peaks are somewhat of a function of the prior trough.

You did 6 3 in '07 and 6 6 in '06, so you arguably had some tough comps and yet you still did much better, I guess?

I'm sorry, I missed the point.

The point is, if you're saying that your comps were easier or harder this time around, it wouldn't have been the case in 2007. You had a pretty tough comp and you did better in terms of internal growth than you're projected to do now.

Yes, but the trough was actually deeper in early 2000s and then as you came back to the peak in 2006, it usually has a bigger bounce since there'd been a -- it was a shallower trough this last time. That's one thing, and I would say inflation is just lower too and rents aren't any different than any other kind of consumer product or durable good where they're oftentimes seem somewhat tethered to levels of inflation. So 5.75 is arguably 400 basis points or so above where inflation levels have been. And I think that spread is actually pretty compelling relative to even past trends that we've seen.

Okay. That's fair. And then my second question is, at the beginning, Tim, you said as the cycle matures in reference to your development and how you're going to add value, but is there any connection between the maturing cycle and you as a company moving to a net neutral in terms of acquisitions and dispositions whereas you previously were projected to be a net acquirer, and hence maybe more of aggressive mindset. Is there any connection between those 2 or is it -- are the 2 mutually exclusive?

Well, I mean, clearly for us, development is a better use of capital today than acquisitions. And as cap rates have continued to get bid down and yet our development yields are going up arguably, development's a better use of capital. But for us,, whether we're net acquirer or a net seller, it's also somewhat a function of other sources of capital and how disposition is priced relative to other sources of capital, with debt and equity being as attractive as they are right now relative to where we were back when we were putting together our plan. For us, it's just argues to be more neutral than a net acquirer today.

Your next question comes from the line of Tayo Okusanya with Jefferies. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Most of my questions have been answered. I just wanted to know the 4 new pads that were bought in second quarter, where those developments are going to be happening and what you expect to be total cost on yield on those developments?

Are you talking about the new development rights, I'm sorry? Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: The new development [indiscernible] the 4 that were done in 2Q.

You're talking about the land acquisitions that we referenced? Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Correct, the land acquisitions, sorry.

I don't have the actual land acquisitions right in front me to tell you exactly where they're at. I have the development rights that we secured in Q2, which we had 3 development rights. And those were in New Jersey and Southern California, but I don't have the land parcel in front of me.

Your next question comes from the line of Philip Martin with MorningStar.

With respect to the development pipeline, based on the estimated return assumptions, can you provide some bit of insight as to the rent-to-income dynamics or metrics and the single-family home affordability metrics associated with that pipeline? I'm assuming it's similar to your aggregate portfolio, but I just want to check that out.

This is Tim. Generally, on the development and the Class A and the more expensive or higher rent communities, generally, the rent-to-income is actually lower than the portfolio average. So the portfolio average is, call it, 20%. We're just underneath that today. It maybe 17% or 18% for the development portfolio. And for the more moderate income communities, it may be closer to, call it, 22%, 23%. So that relationship tends to hold up through the -- over time across markets and through the cycle.

Okay, okay. And then secondly, is AvalonBay experiencing, in anyway, a change in trend in aggregate or by market in a request for breaking the lease? Are you seeing any trends and an increase or decrease in renters wanting to break a lease for whatever reason?

Philip, this is Sean. The answer is no. There's no material change, and we have sort of a category that reflects people using lease breaks, skips, evictions, et cetera and it's been pretty flat. They're running about 5%. It's actually down 1% year-over-year. Certainly, down from the peak that we had during the great recession where we saw more of that, people breaking leases and either skipping or having to be evicted due to financial reasons. So we're pretty stable over the past year, though.

Your next question comes from the line of Paula Poskon with Robert W. Baird. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Just 2 questions. First a follow-up on Derek's question about move-outs. Are you seeing any change in move-outs for home purchase?

Paula, this is Sean. In aggregate, the answer is no. Second quarter is about 14%, 14.5%, I think as Tim mentioned in his prepared remarks. It's up about a point year-over-year, but not terribly material. Regional, we are seeing some differences by region, of course. I think also as Tim mentioned, Boston has trended up a bit. It's up about 5% on a year-over-year basis as is Seattle and San Jose, which is somewhat to be expected in the incomes that are generating -- or excuse me, in the markets that are generating better income growth and capital gains being invested in homes versus some other markets it's trending down. So net-net, for the overall portfolio, it's about the same but there are differences up and down from region to region. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: And also on the Rockville and Andover developments that delivered a quarter early, what drove that accelerated delivery? And are there any other projects that are trending ahead of plan?

Paula, Tim here. It's not unusual that we finish 1 month or 2 early from our original schedules. As we just get into the production part of the construction schedule we're really -- all the site work is done, all the amenities are done and you're just really -- you're really just finishing buildings. Oftentimes, you pick up some time as the subs just get familiar with the product and cycle times just come down. So it's not unusual. But it's usually 1 month or 2. It's usually not 4 or 5 months just to put it in perspective.

[Operator Instructions] Your next question comes from the line of Bill Hutch [ph] with Citi Global Markets.

Just going to the development pipeline for a second. You talked about the different regions and then you mentioned development yields on the East Coast, I think around a 7% and on the West a 6%. How are the development yields by region? And do you weight towards more the East Coast because of those higher development yields or how do you look at sort of planning development for future?

Yes, it's a fair question. Really, each region, each market, each deal really has a unique target yield in terms of how we look at development. Typically, the West Coast has been characterized by higher growth markets and so you generally get more of your return through growth as opposed to the initial coupon, if you will. So oftentimes, whether it's a cap rate on an acquisition or a yield on a new development, 50 to 100 basis points is not unusual at all where those with pro forma out to. And would also be consistent with our targets. So if a typical development yield just had a target IRR of, call it, 10% on the East Coast, it may come through 7% on the initial coupon, then 2.5%, 3% on growth. And on the West Coast, it may come -- come through 6% on the initial coupon, then 3.5%, 4% on cash flow growth over time. So it's really that, that drives it more than anything. And I think you asked about the specific yields across regions. In New England, they'd be in the 7%-plus range; New York would probably be more like West Coast, 6%, 6.25%, typically in terms of urban. New Jersey would be more similar to New England, 7% plus; mid-Atlantic is probably mid- to high-6s. And then on the West Coast, California markets would be in the 6% range; Seattle, more like mid-Atlantic, call it 6.5%, 6.75%.

Okay. And then lastly, I think you mentioned $20 increase in NAV for the company in the development pipeline. How much of the development pipeline does that encompass, is it the 1.6?

No. I was referencing the $4 billion that were already started since the beginning of the cycle, call it 2010, and we're anticipating starting before by the end of 2013. So of that $4 billion, if you've got 50% sort of profit embedded in that or projected to have be embedded in that, that's where you get the $2 billion -- you get about $2 billion, roughly on a 100 million shares gets you to the $20 per share.

Your next question comes from the line of Dave Bragg with Zelman & Associates. David Bragg - Zelman & Associates, Research Division: Can you talk first about the spread that you are seeing and have seen between the renewal increases that you send out and what you achieved. For example, I think on the first quarter call, you said that you were sending out renewal notices above a 7 for July and then you just said that you achieved in the high 5s. So could you just put that in historical context for this cycle and your expectations going forward.

Dave, this is Sean. In terms of spreads, overall, to put it in the context, historically, those numbers run anywhere from 60 to 70 basis points. But it does depend on where we are in the cycle. So if we're pushing harder sometimes in the market, they'll get a little bit wider and vice versa. So it's hard to pinpoint it precisely. But I think if you use somewhere in the neighborhood of 75 to 100 basis points on average, that wouldn't be off terribly. David Bragg - Zelman & Associates, Research Division: So you're saying that you'd expect it to narrow again from what you saw in July? So I think you said that you're sending out notices for August, September in the high 5s to low 6s. So you'd expect it to be within 75 basis points of that?

For August and September, it's high 5s to mid-6s is where they're going out. And based on availability where we are now, et cetera, I think, we'll certainly come off of that. But it's yet to be seen as where we'll end up. So I can't really give you a precise range. I can just sort of give you what we've experienced in the past. David Bragg - Zelman & Associates, Research Division: Okay, that's helpful. And the other question is just on the acquisition market. You mentioned that you're having a tough time finding acquisitions, and at the same time, we'd note that you seem more concerned about the outlook for the D.C. market than some of your peers. So could you just talk about your experience as it relates to transactions in that market. How far off are you on deals in D.C. that you're bidding on? Or are you even bidding on deals in D.C. right now?

In D.C. Metro, overall, we are looking at opportunities. I wouldn't say that we're really bidding on them though. When we lay out our plan for the year, we take a look at where we are in the sort of fundamental apartment cycle for each market, where pricing is and what our expectations are for NOI growth in the near term and the long term, of course, but particularly the near term, and try to decide whether we think it's an opportunistic window to acquire assets in one market versus another. And at this point, based on what we've seen in pricing trends, we have not been an active bidder in the D.C. region. So that will change probably at some point, but that's not one of our target markets at this point in time. David Bragg - Zelman & Associates, Research Division: Okay. And therefore, have you seen any evidence in that market yet about -- that suggests that cap rates are expanding?

Not necessarily, no. Like I said, we're not bidding heavily, but what we have seen seems to be relatively aggressive, particularly on the private side where borrowing costs are still very, very inexpensive by historical measures. So people seem to still feel pretty good about D.C. overall. And most of the supply that's coming into this market hasn't started delivering yet. They'll be delivering in the last half of this year, going into next year. And that's when you may start to see some adjustment, but yet to be told. It depends on how the demand side holds up and what NOI growth looks like.

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

Just on the development, as you're looking at new development right additions, where are you seeing the better opportunities today? Is it more urban or is it more in the suburban side? And also is it becoming harder to get land entitled? Are you seeing any pushback there?

Mike, Tim here. First on entitlement, no, not necessarily seeing that it'd be any more difficult than it normally is in our markets in part because there's really nothing else going on in terms of the other asset classes or other property sectors. It's still -- on the title side, it's still a long road in our markets and an expensive proposition, but we're not seeing the kind of antigrowth sentiment you might expect to see sort of at peak times in the cycle. In terms of the most attractive opportunity, I'd say it's more of a mix than it has been. Clearly, in the last decade, urban infill outperforms suburban in most of our markets, and I think that has attracted a fair bit of capital, and you are seeing some of the development opportunities start to stack up in those kind of locations. So in certain markets, it's caused us to pivot a bit in terms of looking more at the suburban opportunities. But if you cut across all of our markets, I'd say it's more of a mixed program between urban and suburban. And as we said many times before, we're agnostic in terms of how we create value in these markets. We believe in the structural advantages that our markets have. But at times, it makes sense to play in certain submarkets versus others. And so the same is true with respect to how the development opportunities we choose.

Okay. Second question. Is your 6 months into now rolling out to 2 new brands, are you seeing any difference either in traffic and the ability to push rents across, now that you have 3 brands? Are you seeing actually a little bit of a benefit as you convert some of the Avalon Communities to Eaves and AVA brands. Are you seeing any kind of benefit to the existing Avalon brand from it?

Yes, Mike, Tim again here. I think it's going to be a while before we really can talk about the financial benefit of the branding strategy. I think what I can tell you is that in the assets that we have rebranded or brought to market in the case of the new brands, Eaves and AVA, it really appears that both the customers and prospects alike are reflecting the target customer that we have targeted for that brand and thought that's really the first test for people coming in the door and the people actually leasing. We actually type them relative to how they answer particular questions. But to the extent they hit that -- they fall in those target customer segments that the brand was intended for, that's the first sign you look for in terms of whether or not you're going to be able to deliver value through the brand framework, if you will. And so far so good on that with respect to both AVA and Eaves. We have a little bit more operating experience so far with the AVA brand than we do the Eaves, but both brands seem to be resonating with both prospects and customers at this point.

And the final question, just as you're active out there, both looking to buy as well as sell land on the development front, are you seeing any changes in underwriting in terms of growth rates as you're bidding up against people on developments and on properties?

I think in terms of target returns, probably, probably matching some of the drift-down that you've seen on the acquisition side. I think Sean mentioned core deals, unlevered IRRs in the 6% to 7% range. That's probably, I don't know Sean, 75 to 100 basis points inside of what people were looking at a year ago. I think you're probably seeing some similar trends, particularly on the entitled side, Mike, for development opportunities. So if guys were chasing 11% unlevered IRRs, maybe today they're chasing 9.5% to 10% unlevered IRRs on development.

Your next question comes from the line of Karin Ford with KeyBanc Capital Markets.

My question on Southern California, Los Angeles and Orange County, I guess, we're sort of right at the bottom of all of your markets from a sequential perspective. And you mentioned, I think, in your remarks about job growth. Are you getting disappointed, concerned about the recovery there in Southern California? And I know it's been a target market for investment for you, you bought there this quarter, are you rethinking, trying to add additional exposure to Southern California as a result?

Karin, just in terms of recent performance, to make a few comments there, and then if Tim wants to chime in on the investment side, that's fine as well. But we have been, probably, as our peers have been, somewhat disappointed in the job growth numbers that have been coming out of Southern California in general. You mentioned L.A. and Orange County specifically, trailing 6 months job growth has been less than 50 basis points, like 24%. The forecast is for it to tick back up in the second half of '12 and end the year closer to about 1%. L.A. pretty broad, broadly diversified economy, driven heavily by the ports, which is really a retail trade activity. And so we need to see some acceleration in some of those demand drivers before we can get better apartment demand, of course. I mean, what has been helpful there is on the supply side, has been close to 0 for the most part. There is a couple little pockets where there is some supply but it's been at very, very low levels. And in terms of portfolio performance, that's helped offset some of the softness in demand. I mean, a good thing is turnover numbers are not terribly different in those markets from where they were. We are seeing a little bit of an uplift in home sales in Orange County as they burn through some of the inventory, and single-family inventories are pretty low levels now. So we're starting to get to a point we're starting to see some price movements. So for example, in Orange County, home sales are up about 20%. And in our areas of Orange County, the submarkets we're in specifically, there tends to be even less inventory than the county on average. So that's going to continue to put some pressure, I think, and start to see escalation in pricing in those submarkets. So we're starting to see signs that things are working in our direction, bad debt coming down, et cetera. But just we need more of a broader economic recovery for it to sort of kick in. So all the signs are there, the green shoots as people sometimes say. And hopefully, we can see it come around. I mean, we did get some good news out of San Diego in the second quarter with 2 carriers came in, which is about 6,000 people in San Diego, which is a pretty big number. One of those was originally from Washington State and will be permanently parked in San Diego now, which is helpful. So we're starting to see some signs. It's just the whole picture hasn't come quite together just yet.

We have no further questions at this time. I'll now turn the call over to Tim Naughton for any closing remarks.

Well, thank you, operator, and thanks for being on our second quarter call. I hope all of you enjoy the rest of your summer, and we look forward to seeing you some time in the fall.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.