AvalonBay Communities, Inc. (AVB) Q4 2017 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen and welcome to the AvalonBay Communities' Fourth Quarter 2017 Earnings Conference. At this time, all participants are in a listen-only mode. Following remarks by the company, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, today’s call is being recorded and now it’s my pleasure to turn the conference over to Mr. Jason Reilley, Vice President of Investor Relations. Please go ahead sir.

Thank you. Laurie, and welcome to AvalonBay Communities' fourth quarter 2017 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 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, the 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 the review of our operating results and financial performance. And with that I'll turn the call over to Tim Naughton, Chairman and CEO of AvalonBay Communities, for his remarks. Tim?

Great. Thanks, Jason, and welcome to our fourth quarter call. With me today are Kevin O'Shea, Sean Breslin, and Matt Birenbaum. Sean, Kevin and I will provide management commentary in the slides we've posted last evening and then all of us will be available for Q&A afterwards. Our comments will focus on providing summary of the fourth quarter as well as full year results, and then a discussion of our outlook for 2018. Now let’s start now on the slide 4. Highlights for the quarter and the year include the core FFO growth of just over 6% in Q4 and 5.3% for the full year. Same-store revenue growth came in at 2.2% in the fourth quarter or 2.3% when you include redevelopment. And for the full year came in at 2.5% or 2.6%, much to include redevelopment. We completed a record $1.9 billion in new developments this year and started another $800 million. And lastly we raised about $2.6 billion in an external capital, principally through debt and asset sales at an average initial cost of 3.6%. Turning to slide 5, the $1.9 billion of development completed this past year, created roughly $600 million in value. The average projected yield, which is based upon current rent roles and estimated 2018 expenses at 6.1%, well above prevailing cap rates for this basket of assets, many of which are located in low cap rate urban and infill submarkets. Turning to the slide 6, in terms of portfolio management, we acquired three communities and sold six others this past year. The acquisitions were focused on expansion and under allocated markets including the purchase of our first asset in the Southeast Florida market in Boca Raton. 2017 dispositions were focused in the Northeast and we will continue to recycle capital into new development opportunities. Turning now to slide 7, we made progress in other important parts of the business this past year as well, including customer satisfaction where we ranked number one nationally among apartment REITs for online reputation for the third consecutive year, associate engagement, where we're named to Glassdoor's top 100 places to work, and number one among all real estate investment companies in the U.S. And in the area of corporate responsibility where our multiyear focus on environmental, social and governance issues has earned this recognition in the U.S. and globally as leaders in this area. Let’s now turn to slide 8. Our previous development platform has contributed to healthy outperformance in cash flow growth this cycle. Over the last seven years on an annual compounded basis, we’ve outperformed the sector in core FFO growth per share by 300 basis points which equates or translates into 4,000 basis points on a cumulative basis during that time. Similarly over the last nine years, dividend growth per share has outperformed the sector by 320 basis points on an annual compounded basis, which also equates into about 4,000 basis points cumulatively during that nine year period. Let’s turn to slide nine, and our outlook for 2018. Some of the highlights for outlook include core FFO growth of 3.6%, driven part by same-store NOI growth of 2% and development starts of $900 million and completions of $700 million at share. NOI of development communities is expected to be roughly $52 million at the midpoint, down from $59 million in 2017, as unit deliveries will be down significantly this year. Turn to slide 10, which summarizes the major components of our core FFO growth. At 3.6%, core FFO growth is expected to be down about 170 basis points from 2017 with internal growth from the stabilized portfolio contributing about 50 basis points or roughly one third of that decline and external growth from stabilizing investment in lease-up activity, net of capital cost contributing the other 120 basis points or roughly two thirds of that decline. Again a drop off in unit deliveries in ’18 is driving much of that reduction. I want to turn now to some of the key assumptions and drivers for outlook this year. Starting on slide 11, and I won’t go into a lot of details here, but as we do, as we enter 2018, it's with good momentum and the expectation of stronger economic growth. We expect to see stronger GDP growth this year with the economy is benefitting from synchronized global expansion and simulative affects of tax reform. In the corporate sector, higher profits, the repatriation of cash and accelerated cost recovery schedules should translate into healthy increases in capital investment. For the consumer, rising confidence combined with better wage growth and record wealth should stimulate consumption in 2018. So U.S. economic growth is expected to be driven by both the business community and the consumer this year. The biggest risk, perhaps to the economic outlook may come from any unintended consequences related to Fed tightening another policy. Slides 12 to 14 drilldown on these economic themes in a bit more detail, I'll skip over them to slide 15 to briefly address demographics in the housing market. So on slide 15, you can see the demographic trends should continue to support apartment demand for the next several years. The key target age cohort, those aged 25 to 34, it doesn’t peak until 2024, another six years. And delays in family formation, subcutaneous report rental demand, these trends maybe offset apart by stronger consumer confidence, and the fact that the leading edge of the millennials are now entering some of their prime home buying years. As a result, we do expect housing demand need more balance after several years of strongly favoring rental, and perhaps even favor for sale in single family at the margin in 2018. These trends can be seen on the next slide, slide 16 where it's clear that the per sale expansion has momentum without the increases in demand, production and pricing. Meanwhile, multi-family has seen rent growth decelerated recently to 2%, 2.5%, 3%, and starts flatten or actually fall over the last few quarters. As the few charts on the bottom indicate, it does appear that capital to some extent is imposing some discipline on the market as financing new construction to become challenging or more challenging over the last few quarters. This should translate into fewer deliveries in ’19 providing the apartment sector with some relief on the supply side next year. I’m now going to hand it over to Sean who will discuss demand and supply fundamentals and our markets and our portfolio outlook for ’18. Sean?

All right. Thanks, Tim. Turning to slide 17, to provide some insight on demand. We expect to see modestly lower job growth across the U.S. and in most of our markets during the year, which is being constrained by an economy that’s basically of employment. On a positive note, given demand for workers remains at cyclical highs approaching roughly 6 million opened positions across the country at year-end 2017 rent growth is expected to continue to accelerate throughout the year. Moving to slide 18, we expect new deliveries across our footprint to be relatively consistent with what we experienced in 2017. The slide indicates that modest increase in supply in 2018, but similar to the past few years we expect high labour markets, training municipalities and other factors to result in some deliveries being pushed into 2019. In terms of the regions, deliveries are projected to increase in both Southern California and the Pacific Northwest. Pacific California is the first time in cycle deliveries have exceeded 2%. And for the Pacific Northwest deliveries will be equalled to roughly 4% of stock for the second consecutive year, which is beginning to put down work pressure on rent growth. With the exception of New England, which reflects to reduce deliveries in the Boston market, the volume of deliveries in our other regions is expected to be pretty comparable to 2017. And moving to slide 19, supply continues to be most pronounced in the urban submarkets, a trend we expect to continue through 2019. For 2018, the increase in supply across our markets is mainly a result of the expected increase in deliveries in urban submarkets. Supply in suburban submarkets is projected to be 1.8% of inventory relatively consistent with 2017, while urban submarkets pick up from 2.9% to 3.5%. Turning to side 20, we expect same-store rental revenue growth to be between 1.5% and 2.75% resulting in a midpoint of 2.1% or 40 basis points below the 2.5% revenue growth, we generated during 2017. Both regions are expected to decelerate in 2018, with the most material reduction expected in the Pacific Northwest, is the combination of slower employment growth and an increase in deliveries takes the toll on performance. On a positive note, we’re starting to see a modest improvement in fundamentals in Northern California, particularly in San Jose as deliveries begin to taper off, so there could be up some upside to that region during 2018. Moving to slide 21, we expect same-store revenue growth rates to remain relatively stable throughout 2018 consistent with the levelling off trend we started to experience in the second half of 2017. And now turning to slide 22 to address development, we completed a record of $1.9 billion last year, which represented about 3,800 apartment homes across our markets. For 2018, while we have about $3 billion in development underway, which includes roughly 6,500 homes, only 1,800 homes are schedule to be delivered during the year. The reduced volume of deliveries, which is 50% to 60% of what we produced in the past couple of the years is a function of the mix of business underway and the expected construction duration at the time we started those jobs. As Tim mentioned earlier, the reduced volume of deliveries translates into a 120-basis-points reduction and the contribution to our core FFO growth rate from external growth activities. Looking forward to 2019, we expect deliveries to be more in line with 2017 volume. So with that, I’ll turn it over to Kevin to talk a little bit more about development underway and the balance sheet. Kevin?

Great. Thanks, Sean. Looking at ongoing development activity from a volume and balance sheet perspective on slide 23, while new development in certain supply constraint markets were continued to generate attractive profit margins, development elsewhere had become more challenged. As a result, development starts have declined from around $1.2 billion per year for much of this cycle to less than $1 billion per year in 2017 and as projected in 2018. Consequently the total amount of development way has declined from its peak in 2016 and is expected to remain relatively stable at around $3 billion or about 10% of our total enterprise value. As we pursue development more selectively in our markets, we remain focused on carefully managing our risk on such ways by limiting the amount of land that we owned for development. As you can see on slide 24, over the past 2 years we have kept our land inventory below $100 million. At $68 million at year end 2017, our current land inventory is at the lowest level in over a decade and represents a mere 20 basis points of our total [indiscernible]. In addition, as we've discussed before, another way in which manage risk from ongoing development is by substantially match funding long-term capital with development underway. This allows us to lock-in development profit and substantially reduce development funding risk. As you can see on slide 25, we were approximately 75% match funded against development underway at year end 2017, consistent with our objective of being roughly 70% to 80% match funded against this book of business. To further reduce risk on development profits, we also put in place 10-year treasury hedges totaling $300 million of the blended 2.4% swap rate as compared to a 10-year yield of approximately 2.7% today. We intend to apply these hedges to newly issued debt in 2018. On slide 26, we show our liquidity and several key credit metrics as of year-end 2017. These remain strong and reflect our continued financial flexibility. Specifically at year end, we enjoyed excess liquidity of about $200 million relative to the capital that is remaining to be invested in development. In addition, net-debt-to EBITDA remains low at 5.0 times, interest coverage remains high at 6.9 times and our unencumbered NOI ratio with an all time high of 89%, reflecting the benefit of our having payoff significant amount of secured debt in 2017. As shown on slide 27, our balance sheet management efforts over the past few years have produced a remarkably well laddered debt maturity schedule that will serve the company well in the coming years, specifically via substantially addressed our near term debt maturities and we've also been able to stagger debt maturities efficiently over the next 10 years. So the debt maturing in a single year does not exceed the amount of our dividend based on a reasonable growth rate. In addition, approximately $1.9 billion over 25% of our overall debt has a final maturity date that is more than 10 years from year end 2017. As a result, we had a weighted average year's debt maturity on our debt portfolio of 9.9 years versus the sector average of 6.4 years. We believe this underscores our differentiated balance sheet flexibility as we move through the remainder of the cycle. And with that, I will turn it back to Tim.

Well, thanks Kevin. Just a few concluding remarks before opening up for Q&A. So overall 2017 was a productive year. We completed almost $2 billion in new development, the most ever, generating $600 million in net asset value. We reduced near-term maturities and enhanced financial flexibility as Kevin just mentioned. And for the seventh consecutive year, we delivered above average sector growth in core FFO per share. In 2018 we expect to see stronger economic growth and healthy rental demand, but apartment fundamentals are likely to moderate as new deliveries are expected to reach this cyclical peak. Same-store revenue growth is expected to be down by about 40 basis points, as Sean mentioned, some 2017 to the low 2% range. And development should continue to contribute meaningfully to FFO growth although at a lesser rate in the last couple of years. And lastly, we’ll manage liquidity in the balance sheet to pursue this growth and our risk measured way as we move into the later years of the current cycle. And with that, Laurie, we’ll be happy to open the call for questions.

[Operator Instructions] And we’ll go first to Nick Joseph at Citi. Please go ahead.

Thanks. Maybe starting with development, you mentioned a low land inventory and development as a percentage of enterprise value towards the cycle low, I know in 2018 starts are expected to increase a little relative to last year. But what would you need to see the meaningful growth of development pipeline or should we expect to remain around this level for the remainder of the cycle?

Hey, Nick, I’ll start with that. This is Tim. If you look at our volume over really '17 or projecting for '18, it’s in the $800 million to $900 million range in terms of starts. That’s down a little bit more than 30% from the '13 to '16 time period. And what we’re really looking to do is right size it relative to what we can fund without the benefit of the equity markets, just given the state of - just yield stocks right now, and perhaps maybe being out of favour over the near-term. But we are looking to state -- we think we can fund that amount on a leverage neutral basis just remove the free cash flow debt and reasonable level of asset sales. So we do expect it to be in the $800 million to $1 billion range over the next, and call it three years. We’re continuing to focus on use of options just give us flexibility. And if you look at almost $4 billion of development right pipeline, we only got about $40 million tight up and pursued costs beyond the land costs. So we’re really controlling, but its $4 billion with $40 million investment. So it’s - I think, it’s in a remarkable position where we are in the cycle in terms of the flexibility that gives us to continue to pursue with still accretive growth for the company at least for the near-term. So the bottom line, I think, it would take the equity markets to open up and have a view that perhaps a cycle has a lot longer to run in just next two years to three years.

Thanks. And then just on Seattle, you’re projecting to be one of your strongest markets, but also decelerating the most this year relative to last year. Just want to get some more colour on that and if you expect Seattle to have more software in there if you think it could decelerate for a different care when do you kind of look out over the next few years?

Yeah, Nick, this is Sean. I’m happy to talk about that. In terms of Seattle, it’s been close to high flier market for a several years now as supply has been increasing, so as job growth and it set blistering pace of job growth for the last several years. But that has expected to continue to slow in the 2018 - 2017 is around 25,000 jobs, is projected to produce closer to 30,000 jobs in 2018, and at the same time though we’re talking about supply increasing from roughly 3.5% of inventory of to sort of in the mid-4s. So you are going from 9,000 units to almost 12 and it's pretty widespread across those markets or sub markets within Seattle, except maybe the North end. So, we're starting to see signs of deceleration there already market rents across the markets as well as what we're seeing in our portfolio indicate the deceleration, I would say sign of the cliff, but based on what we've seen, we would expect this to slowly decelerate throughout 2018 absent some major pull back in terms of employment there, so based on the forecast that we have for employment that’s where comfortable to us.

Thanks. And then, I know you won’t give '19 guidance obviously, but would you expect just given the amount of supply still kind of in the pipeline for that market, and actually see job growth meaningfully increase. Is that the market most at risk across your portfolio of kind of downside potential for this year?

For this year, in terms of our portfolio, keep in mind, Seattle’s only around 5% of the portfolio, so it's not going to move the needle in a meaningful way. In terms of the nature of the deceleration of the magnitude of it, certainly that’s what expecting is the most deceleration from Seattle. We think we projected that reasonably appropriately, but as I indicated, it could fairly follow up more of job growth came in and much weaker. The supply is pretty much big based on what we know. And as you look in the 2019, it’s still pretty elevated at roughly 3.5% of supply. So our expectation is we’ll continue to decelerate in 2018 and if you see job growth in 2019, similar to what’s projected for 2018 with a level of supply will continue to soften in 2019 as well.

Thanks.

Yeah.

We’ll move next to Rich Hightower at Evercore ISI.

Hey, good afternoon, guys. Couple questions here, to follow-up on the supply question, this would apply to Seattle or any market, but I just want a quick clarification on Avalon’s methodology and how you guys forecast supply. On our side, we look at actually metrics or whatever, and we've got delivery dates according to their data, but that might not be perfectly reflective of what is competitive at any given point in time. Can you guys just clarify how you guys think about projects that are in lease-up that maybe aren’t fully delivered per definition and then how that is reflected in your internal forecast just to we understand the differences?

Hey sure, Rich, this is John. I am happy to start and if Mat has anything to add, you can do that as well. But we're pretty thorough in terms of our assessment and handicapping of supply each one of our regions, markets and at the sub market level. And we really come at it from two different approaches, first is the little more of macro, if you want to describe it that way, which is for all the data that we can from active metrics, regional resources, such as that to identify what they have laid out in terms of which specific projects, where they are expected delivery duration et cetera. In addition to that, we also go to some regional sources like delta here in the D.C. market as an example, [indiscernible] advisor, I think it is in Seattle, in terms of their assessment to local market. So we're getting all the input from the third-parties that we can to identify communities. And then in addition of that, we have sort of a ground up aggressively with process if you want to call it that way, which involves both our development and our RS teams. The development teams provide a pipeline to our market research function listing every single community within their region that’s in different stages of detailed planning or the construction process. So they’re picking up everything when first pipeline application as an example to building permit et cetera, and they lay that out and handicap it in terms of nature of the product type in the submarket in terms of what they expected construction duration would be, and then based on the local municipality, how they expect to deliver those units if it’s by four, if it’s by building in the case of guarding deal somewhere et cetera, et cetera. Then the final path in the grassroots process is it standard over the operating team and they, in particular look at the expected delivery schedule of near-term deliveries because that’s either who they’re competing with today for customers or the advertising has kicked in because they’re going to start preleasing within some reasonable period of time, 90 days to 120 days as an example. So the grassroots effort is a combination of development and operations the macro view is all third-party advisors and then our market research team assesses all of that, put this together for us, and then based on historical error rates in terms of people projecting x% of deliveries in a certain market, we know what they’ve actually done in the past in terms of market deliveries, we may handicap that a little bit. And particularly this cycle has been important where deliveries have been delayed across our footprint due to labour challenges, local municipality and their constraints et cetera. So we’ve a long way to answer, but it’s a pretty thorough process.

Yeah, Sean, that’s a great answer. Thanks for the color there. Also on the topic of development, so I know that as of the date that a project begins for you guys, your yields are pretty closely locked in at that moment in time, but if you think about the forward development pipeline maybe projects that haven’t started and especially in markets where maybe you haven’t seen a lot of rent growth over the last few years while development costs keep going up in those markets, how do you think about yields trending prospectively on some of those projects? And then conversely how do you see market cap rates trending in those same markets now that we really see evidence of Fed tightening and rising rates in general?

Hi, Rich, it’s Matt. I guess I can try and answer that one. You’re right, when we start a deal we are always talking about today’s rents, today’s expenses, today’s costs, and then we don’t remark the deal until we got usually about 20% to 25% leased. And in general, on the deals that are in lease up and the deals that have completed, the rents have continued to be per forma at least, not by as much right now as they were early in the cycle, but they still leading by per forma a little bit. On the deals that have not yet started entering the development price pipeline, we are up - we do update those kind of an ongoing basis, we think that whole basket today is probably around the mid 60s, yield wise. But you’re right, in some markets there will be downward pressure and some occasionally -- that’s why we see us remove deals from the pipeline from time-to-time with right to deal off. But as Tim mentioned, the fact that we’re controlling that $4 billion of business with only $68 million gross of land owned and those were all short-term starts where we have a pretty good visibility and so what the ultimate economics are going to be. The other $3.4 billion of that pipeline is controlled through kind of longer-term options where we only got $40 million invested cumulatively in all of that. That does give us the ability if the economics erode to the point that it’s no longer attractive. We would have another conversion with the land seller or we try and redesign the product, if we have that ability to do that or in some cases it may be watching away, so not all that $3.8 billion is going to make.

Right, that makes sense. And then my question on market cap rates just in the context of interest rates going up generally?

Yes, I mean you would have thought between interest rates going up and frankly every short-term NOI growth prospects coming down, if that might have had an impact on cap rates, but so far we haven’t seen it. It will be interesting to see here. Now certainly deal volume last year in the first half was down, in the second half, it picked up quite a bit and was almost on par with the second half of '16. So and the deals we saw recently probably exceeded our expectations in terms of cap rates. There are certainly a lot of capitals to looking to buy assets, there are sellers, I think it's going to be very active first half for transaction volumes, so we’ll have a lot more data then, but as we sit here today we have not seen that.

Okay, thanks for that.

Moving next to Nick Yulico at UBS.

Hi, good afternoon, this is [indiscernible] on for Nick. So just looking at your same-store revenue growth projection, few geographies are expected to have growth under 2%. So what would it take for you to get more positive across these markets and perhaps New York and D.C. in particular and the trends that you are seeing in these markets thus far in 2018?

Yes, it's a pretty simple answer, which is better job growth. Supply is pretty much big, so you know what the supply side looks like, so now it’s a function of demand. So in general, as I mentioned in my prepared remarks, we're expecting job growth to follow-up in most of our regions, but to the extent that reverse itself when we started to see greater job growth across these markets, which would involve increase the labor force participation rates, greater immigration and something else to allow that since we're pretty much of full employment today. That would start the total rent growth a little bit better.

Okay. Thank you. And so again you've only recently announced your plan to enter Denver in the South Florida market, you've already made an acquisition in each. So bigger picture, how are you thinking about planning to grow your footprint in these areas and what opportunities do you perhaps in the more immediate term call it next year or so?

George, this is Mat. We -- ultimately overtime, we do expect to grow our presence in those markets through acquisitions and development. And as we mentioned, I think, on the last call, we may also wind up providing capital and partnering with other local developers who may have deals that are closer to ready to starting, then organic development, we would be sourcing kind of from day one as a way to kind of bridge that gap. So, and we do think there is opportunity; certainly there is opportunities to buy assets in both of those markets. There is a lot of newly build product which merchant builders have delivered that's available free and clear of debt, where we can fund that through 1031 exchanges. So a very tax efficient way for us to move capital, rotate capital out of some of our legacy markets into those expansion markets, so certainly we are looking to buy this year in those markets. And then we are also looking both for development sites and potentially development partnerships. And I would expect to see we may have some of that business here in the next 12 to 18 months.

All right. Thank you very much.

And we will go next to Juan Sanabria at Bank of America Merrill Lynch. Please go ahead sir.

Thanks for the time. Just on the supply side, I guess what’s your level of conviction that 19 deliveries were in fact began and specifically the Northern California, I see you guys are forecasting an increase. Is there a particular market that’s driving that to be an outlier, and if you could just comment on the construction money, because in the presentation you commented on bank and non-bank lenders kind of listening those standards?

Yeah, Juan, this is Sean. I’m happy to chat about that and then Kevin maybe also wanted to try that on the banking side. But as it relates to the level of conviction of supply in 2019, we’re projecting that now at 1.7% of inventory, which is a decline of around 30,000 units or so across our footprint relative to 2018. Yeah, that’s based on the process that I described earlier on the call. So most of what would be delivered in '19 is pretty well known now given the construction cycle that occurs across our markets. This really a chance that call it putting the wrap job across the footprint, could start here in the first quarter this year that are not known in terms they would not have been picked up. And our pipeline as it relates to pipeline application process or building process building pulled or something like that, that was missed basically. But I said margin of areas probably pretty low, so directionally, it's certainly correct whether it comes out of 17 or 18 or 15, who knows. But I’d say it’s directionally appropriate order of magnitude yet to be seeing. And then as it relates to Northern California, if you look at it, we’re already starting to see deceleration and deliveries in San Jose. We delivered around 5,000 units there in 2017. And that’s declined to about 3,500 in 2018 and sort of level off there in 2019, in terms of the east bay's '18-'19 pretty level about 3,500 units. San Francisco is actually expected to increase a little bit, which is consistent with what I mentioned earlier in terms of most of the increases in supply that we see across our footprint are result of supply being delivered in the urban submarkets. So we would expect that to be the case in San Francisco, the consistent with the broader theme. So like I see some release in San Jose, pretty consistent in east bay than little bit of comp off in San Francisco in 2019. And then on the banking side, just anecdotally and Kevin can make comments as well. We’re still having conversions with many of our private peers at ULI and other events that Matt myself or Tim attend and it's certainly still some stress in the system in terms of construction lending; one from a pricing standpoint given what’s happening at the short end of the curve, can have boosting pricing overall. But then also as Matt was alluding to deceleration and wide growth, higher costs, the squeezing margins. So it's certainly pressure there in terms of loan to cost as well as spread in terms of overall assets side. Kevin, any thoughts on that?

Well, I mean, I think, what we’ve heard is and it’s consistent with what you described Sean, first of all, as you know, we don’t use construction financing in our business. But from our interactions with those sponsors who do and conversions with bank, clearly it has become an awful lot harder for local developers to obtain construction financing, particularly the less more capitalized or if the project is in a more supply challenge market. To a great degree and there is a requiring more recourse imposing wider spreads, more conservatives, leverage levels, higher amounts of investor equity and just to have greater emphasis on who’s sponsor is. So at the margin that is starting to squeeze out some potential supply from the system and making deals harder to cancel.

Great, thank you. And then just on your development deliveries for '18, you had some slippage in '17. Is there any level of conservatives or slippages built into your 2018 delivery assumptions in terms of the timing and contribution to the NOI line?

Jaun it’s Matt. I think it's basically what we expect. We do update our schedules every quarter. And our performance in general has been quite good over long period of time. We did have some challenges last year. There is lot fewer deals that are actually starting lease-up in '18 and in '17 and the risk is usually in getting that firstly about getting those initial sign offs from the fire marshals and others. So I think we're feeling pretty good, it's what we expect and there is a lot. They're just a lot fewer deals, so it seems like, in my mind it's probably lot less margin for error there than it was last year.

Thank you.

And we'll hear next from Austin Wurschmidt of KeyBanc Capital Markets.

Hi, good afternoon. So as far as Southern California, that stands out as another market with a notable increase in new supply in 2018. And I just be curious how that broke out between the three markets that you have exposure to and whether or not you seen concessions pick up and any of your specific sub markets that are most exposed to competitive new supply?

Yes, Austin, this is Sean, happy to take that one for you. It's in the supply in Southern Cal, yes, we do expect to increase year-over-year from 1.6% of inventory to about 2.3 to 70 basis points. As I mentioned in my prepared remarks, just first on this cycle is exceeded 2%. We don’t think it's going to last one frankly because supply in '19 is projected back down at about 1.2% of inventory. There is a number of things potentially driving that and the pipeline make it more constrain in certain markets like Los Angeles, which has, as you may know, passed the JJJ ordinance, which is imposed new affordable requirements and other things on developers that make the economics quite challenging. But in terms of what’s expected for 2018, the biggest groups is really in LA, we are going from about 9,000 units to 15,000. Orange County is up about 1,500 units to about 7,400, and then Santiago about 2,400 units to about 6,000 in total, which is fairly heavy amount for somewhat smaller markets. In terms of your question about concessions and such, it's in the sub markets where we would have expected it, so at Santiago it's not significant at all, but for the most you see it in Downturn Santiago in terms of the concentration of supply, and therefore more concessions. In Orange County, it tends to run in Irvine, Anaheim and a little bit Huntington Beach where you see concessions, but again we're not talking about significant levels here. And then LA, it's -- where it’s a little bit to play heavy so you see some concessions in Downtown LA, for sure, which is where a heavy amount of supply is being delivered and we'll continue to be delivered in 2018, and then that includes Korea town as well. So, Downtown LA create sound, there is a healthy amount of supply there and then the other concessions that really kind of in the West Hollywood, Hollywood, Mid-Wilshire portion of LA. So we're not material in terms of maybe what we saw when we opened some deals in San Francisco last year, but I'd say in terms of any concession activity that slightly above the norm, those are bit of submarkets that become mind.

So the fact that you’re not seeing a lot in sort of the University City, Glendale, Burbank type areas. Is that what gives you the confidence that same-store revenue growth could remain fairly stable despite the fact that you’re see in this notable uptake in new deliveries?

Yes, I mean, I think where the deliveries are both concentrated we have little exposure, it's the basic answer. So we’re seeing concessions in Pasadena has resulted deliveries in Glendale? Yes. Is it going over to Burbank given the nature assets we have in Burbank which are pretty affordable value oriented communities, no; those are the some of the best performing assets we have in LA right now. They’re doing 6% kind of numbers. So if we had five deals in Downtown LA and Koreatown, I’d be concerned; if we have lot of existing assets in sort of Hollywood, Hollywood that might be a little concern, but we just finished lease-up on West Hollywood job and it worked out just great. It’s a terrific asset, rent cements substantially both pro forma and part two location of the product, the design and trade in the building et cetera. So we feel pretty good about where we are given what’s happening in that market. And the fact that job growth there is expected to be relatively flat year-over-year, it’s down slightly, but compared to some of the other markets, it’s pretty wide spread and we forget about the submarkets in which we operate.

That’s helpful. Thanks Sean. And then next question, as far as development, you started a new project in sort of the suburban Baltimore region, you completed an asset there, I believe, last year. And I’m just curious what kind of the appetite to grow exposure to the Baltimore region?

Hi, this is Matt. We like Baltimore and we are - we have had very little exposure there over the years, in fact, the only same-store stabilized assets we have in the Baltimore Metro or similar assets in Columbia, Maryland. So if you look at it, it was so much surprising us, if you look at the long run rent growth tree, you have four kind of sub-regional markets in Metro, D.C. -- Baltimore is actually number two right behind Washington and ahead of Northern Virginia and suburban Maryland over a long period of time. So we would like more exposure there, we finished the deal on Hunt Valley couple of quarters to go. This is done quite well. We do have the deal that we look to start this year, actually in Downtown Baltimore. So and it’s also among - markets in the Mid Atlantic, it’s the one that’s probably seeing the lease supply. So while demand has been okay, not phenomenal, the demand supply balance is probably been better there and favouring more or so in our than D.C. Maryland or Virginia.

So how would you see that market shaping up parameters wise in terms of your exposure within the Washington D.C. Baltimore region?

We have a particular type work, but I can see growing to 2% to 3% of our total portfolio from less than 1% today overtime, if you look at five years from now.

Thanks. And then last one for me. Can you just share where the two land partials you acquired in January were located?

Yeah. I think one of them was they both deals were playing to start in the next quarter or two. I believe one of them was in suburban Massachusetts. And ...

I'll back to you on that one.

Yeah, we’ll come back to you on that one.

No, no, that’s fine. Do you assume a start in a development start in southern South Florida or Denver within that $700 million to $750 million you've targeted for this year?

We're not -- we do have some deals identified and some that are kind of percolating along, so there is that possibility.

And in that case, it would be with the sponsor. It wouldn't be certainly be something that we would acquire within this year. So …

Okay. Thanks for the time.

And we'll go next to Dennis McGill at Zelman & Associates. Please go ahead.

Hi, guys, thank you. Just one question on the trajectory of the same store sales as you go through the year, have a little bit of a dip down in the fourth quarter and realized there is a tight band throughout the year. But just hoping to maybe get some clarity on how you're thinking about that? And why there would be a slip at the end of the year if you're starting to see some elevation on the supply side?

Yes, Dennis, it's not a whole lot really to talk about. I mean, it's really a function of the individual assets to make us the same store pool and how they perform quarter-to-quarter, delivery through too much into that. So like to the extent that we see a better job growth given the supply does start to fall off in the fourth quarter of 2018 when you look at it quarter-by-quarter across our footprint, there is some upside but there is nothing rally to read into that.

Okay. And then just one clarification, can you just explain noncash write off logistics of that on the New York City Land parcel?

Sure. This is Kevin. We, in the fourth quarter, we acquired the land on which are Morningside Park's community in Manhattan is located from the [indiscernible] and pursuant to the ground lease that was occupied since we completed the project in 2009. We acquired it for $95 million and doing so. We extinguished the ground lease that has some fair market value resets and didn't otherwise have a buyout option. So essentially, you think it was a pretty attractive acquisition of land from a long term perspective with probably levered IRR in 6% to 7% range, initially a little bit alluded because we get the opportunity to limited ground lease that have a $2.3 million run rate. But we have some prepaid rents associated with that and we will be eliminated ground lease to go it off.

Okay, that's helpful. Thanks guys.

And moving next to John Guinee at Stifel. Hi sir, please check your mute button. And I'm hearing no response from that line. And we'll go next to Vincent Chao at Deutsche Bank.

Hey, good afternoon, everyone. Appreciate the commentary on sort of the assumptions that are met in your outlook in terms of job growth and wage growth that's helpful to all the supply in your market. So I was just curious in terms of home ownership rates, are you embedding any additional increases in home ownership rates relative where we ended '17?

Yes, Vincent, this is Tim. I just say, as I mentioned in my remarks, we are expecting housing demand to be more balanced than it has been in the prior years of this cycle where was predominantly rental housing. As I mentioned, we could see just how the fundamentals this year favoring for sales slightly as you know. If you're looking across age cohort say home ownership rates have ticked up. I wouldn’t be surprise as we see that continue here for the next, at least for the next few quarters the prospect of interest rates rising, I think maybe get some people off the sideline, potentially who may have been thinking about it. And certainly whenever you have the kind of confidence levels that you’re seeing right now and the kind of that could stimulate some for sale. So almost implicit in roughly 2% rent growth versus housing prices, I think, growing sort of mid single-digit, we expect a single family all things being equal, single family and for sale demand little bit stronger than the real side.

Okay. Thanks for that. And then just on the expense side of things. Kept your - since your expense outlook unchanged basically year-over-year, maybe quite a bit different from equity residential yesterday. But I’m just looking at the line items for the full year, it does seem like there were some items that have been normalized would put some upward pressure on the same-store expenses relative to 2017. I was just curious what the offsets might be to allow you get to that?

Yes. It happened there run through sort of the outlook for CapEx. As we provided in the earnings release, the range is 2 to 3 with the midpoint 2.5, basically on top of what we did in 2017 as you noted. Probably taxes are going to make up 60% of the increase in total OpEx. They’re going to be up about 4.5%, just give you some perspective. It’s about 34% of our OpEx structure. Another 30%, its payroll, which we expect to increase at about 3.2%, the markets probably stronger than that to be honest, but we’ve reduced some bodies in certain regions for a number of different reasons to try and give you a little bit more efficient. So we’ve taken a little bit of pressure of payroll. The last 10% or so is from repair and maintenance and other categories, but there are offsetting reductions in a number of other categories, to give you some sense, for example, utilities, which is actually zero, selling offset, but zero growth rate that we’ve made a number of investments in sustainability over the last couple of years whether it’s LED or other types of investments that are continued to payoff and we expect to continue to invest in that this year in the form of solar and other projects. But we’re also seeing some offsets in terms of the marketing line items. The mix of marketing, however, engaging in terms of SEO search et cetera, cost per lease down about 10% year-over-year, cost inter costs were down. We’ve implemented online tour scheduling over the course of the last 12 months. And now about 41% of all of our tours is getting online, that’s up about 1,000 basis points year-over-year. That -- it doesn’t sound like it would be meaningful, but when you’re paying about seven bucks a phone or call or two bucks an email for a call centre to answer the phone or reply to an email that has the pretty fast based on the volume that you’ve got. And those are the marketing things in terms of survey costs we brought in house and things of that sort. And then in addition to this year, we’re running some lease management pilots where we’re replacing bodies onsite with people on a call centre where we can scale that activity. So there are number of things like that can sort of add up to offset to some of the pressures we’re seeing in the labor market and on property taxes and other places.

Okay. So just, and then thinking about those sort of smaller buckets, the utilities and the market the other ones that you've really highlighted those seem really could be negative again here in 2018 it sounds like?

It’s a possibility of setting on how things play out, but they offset some of the pressure for sure that we’re seeing in this category, yes.

Got it, okay, thank you.

Yes.

And we will go next to Drew Babin of Robert W. Baird.

Hey, good afternoon. Question on capital sourcing, the $1.25 billion in guidance is the $300 million interest rate hedge, I mean, indication of the size of the debt issuance potentially this year. Can we expect that the balance of that is mostly comprised of most of dispositions and should the stock price evaluate?

Hey Drew, this is Kevin. Well, just a couple of comments. First we, we do typically as we did this year, provided an overall prospective on the amount of capital we expect to source, net of internal cash flow and as you point out that’s about $1.25 billion this year. We historically and it’s a matter of practice, don’t break that down any further, we did disclosed $300 million of hedging activity in recent years as the prospect of interest rates increasing has become more pronounced, we have had a bit of a practice of hedging a portion of our anticipated debt issuance. So it's not necessarily one for one relationship. And so, but, stepping back and looking at that $1.25 billion, as you know, we roughly have three sources that we typically tap, common equity, asset sales and unsecured debt. Common equity markets are pretty unattractive for us as we - as you can tell and we all are cumulatively appreciate of. The other two markets so remain pretty attractive, Matt already talked a little bit about the transaction market. The unsecured debt market continues to be attractive. So our expectation and our capital plan contemplate that one on the $1.25 billion role. We denominate in the form of asset sales and unsecured debt, but we haven’t disclosed exactly the components of those items.

Okay, understood. And then on the expense overhead side, it looks like those expenses are a little higher than the most forecasted between property management G&A and investment management. Which of those three has been the primary driver behind that?

Yes, this is Tim. In terms of the outlook and for G&A next year there or this year, I'm sorry, 2018, there are number of areas that creates on a unique headwinds for the year, some which maybe non-core by the way, but in area of compensation, we actually have couple of seniors exit or retired now with the goal that actually accelerate some LTI and then just the best thing impact are some past multiyear LTI rewards that just start have start to accumulate plus some litigation related expenses versus last year that we are anticipating we have in the budget. That accounts about half projected increase in 2018 over '17. You know, I guess the other thing I’d say is we are -- even though that we are getting sort of later in the cycle, we architecting and invest in the business in terms of capabilities, we’ve been building the data analytics capability over last year too, and just a stabilization of that provides some pressure as well. And I guess, last I say, when you look at our over course of cycle and where those metrics are, they are actually, it's actually quite good, G&A is running about 16 bps, which is at the low end of the REIT sector, probably management overhead, which you asked about is running about 2.5% revenue to spend again sort of quite favorable and growth this cycle has been on the area 50% to 70% of our top line growth has been, which is always an objective of ours, keep it at or below, below top line growth. So it’s coming from a number of different places, but a number of things are kind of unique this year that are creating a little bit higher than average G&A growth.

All right. That’s helpful. Thank you.

And we’ll go next to Conor Wagner at Green Street Advisors. Please go ahead.

Thank you. Can you please tell us new lease and renewal growth in the fourth quarter and then your assumptions for those underlying your 2018 guidance, please?

Yeah, Conor, it’s Sean, happy to do that. In terms of Q4 of '17, which is for our 2017 same store bucket, rent change was 1.1%, and that kept rise renewals that fourth rate and then move in down about 2%. And then in terms of the outlook for 2018, the way that we think about it give you some census basing growth potential in the portfolio is around 75 basis points right now. And we expect life term rent change to be about 2%, which is down about 20 basis points from the full year number in 2017. So, kind of put those two together flat they can feel off a little bit of pick up in the session is that how you get to the midpoint of our guidance.

All right. So then the occupancy assumption is flat?

It’s flat. Yes.

Okay. Thank you. And then maybe on where renewals are in January and you’ve been sending them out in February?

Yes. In terms of January, to see this, January rents change is running around 1%, which is about 50 bps above or where in December. And then we are trending in terms of January expected growth, total rental revenue growth in the 2.3% to 2.4% range. In terms of renewal offers for February-March, were in the mid 5% range, there is about 50 bps flow last year.

Great. Thank you very much. And then, I think, Matt you mentioned earlier a mid-6 yield on what you currently have in the development right pipeline. And I just want to understand the underlying cap rate there because it looks like some of your recent deals have been maybe a little bit more suburban. What do you estimate the cap rate spread is for prevailing market cap rates on the development pipeline right now?

On the stuff, it hasn’t started yet on the development right pipeline?

Yes, or they can expect to start in the next year?

I mean, I think a lot of that is in the near term, most of the starts are into suburban kind of podium and wrap, which is probably high for us, cap rates are kind of mid 60s, it's about a 160 basis points spread.

Yes, Conor, I would have said same, it’s up four and three quarters versus low to mid sixes in terms of projecting development yield.

And I would add also that just -- if you look at the four deals we just started in this past quarter, those actually averaged the six fix deal underwritten, and again vocationally probably very similar kind of high four type cap rate on that basket.

Okay. Thank you. And on the development rates picked up in the fourth quarter, you guys are pretty active. Did you see any move there in pricing or any adjustment when you were all those - I know it's right, so maybe it’s a little bit different equation, but was there any move on pricing or any adjustments from the seller standpoint?

Not necessarily, it was an interesting mix of business. And usually by the time they hit our release as a development, right, we’ve already been working on them from anywhere from two to three months as long as in some cases a year or more so. When you look at how that building broke down, about a third of it is actually Northern California RFP, public private partnership type deal. So those probably are a little bit more flexible in terms of the pricing and that may reflect not kind of hard edge market pricing if you will. About a third of them were Southern California, one of them is entitled. The other we do expect to start this year. So I think land pricing there was still pretty aggressive. And then about a third of them was kind of a lot of our bread and butter suburban Boston, Baltimore, Suburban Baltimore, Suburban Long Island kind of infill stuff. And I'd say pricing there hasn't gotten crazy, so it didn't run up quite as aggressively, but actually one of those deals is a deal that we have looked at several years ago where I think the pricing did drift down a little bit, maybe we're starting to see a little bit of that.

Thank you very much.

And we'll move next to Rich Hill at Morgan Stanley.

Hey, thank you guys. Just want to move back to maybe the demand side of the equation that you've talked about job growth and understanding the guidance of 1%. I'm curious, are you starting to see any population migration trends in your portfolio? And how is that reflecting which markets you're participating in? I know you've talked about Denver and Florida market as growth, but I'm curious if you can talk about population migrations.

Sure. This is nice if I can speak to you a little bit and then Tim or Sean, they want to chime in as well. Certainly our markets historically have been characterized as market that have international immigration and domestic actually out migration and that's been true for 3 years. This cycle, particularly early in this cycle, some of our markets actually saw domestic immigration, which was pretty unusual other than maybe Metro D.C., which has have that history over a longer period of time. Where we're sitting today, it's probably back to the historical norm, which is domestic out migration international immigration. And that is one of the attractions frankly for the expansion markets both Denver and Southeast Florida have strong domestic in migration as well as some international immigration particularly in Miami. So I'd say that's kind of what we're seeing today is trends reverting very much to what they've been for the past 20 or 30 years.

Got it, and so just a follow-up to that, if I may. What gives the job growth story going again in your opinion?

I think we're late cycle. The only thing really it gets it going again is later participation rates going up which is starting to happen at the margin, but it's well publicized. We don't necessarily have the right skills and the labor force to fill the jobs that are unfilled today. So I think it's -- to be honest other than maybe marginally stronger job growth is going to be a correction before you start seeing materially higher job growth rates. It does wage growth, doesn’t -- maybe we won't see for productivity growth, but I think it does mean we like to see stronger job growth. And we make that summer household formation too, which we haven't seen the deconsolidation, if you will, that we actually seen the maths of housing consolidation, kind of in the earlier to expect it. So there is still some drop, there is still, when you look at that kind of potentially wage growth, there are some drivers in the economy that could suggest we could grow from $1 million household formation $1 million to $2 million to $5 million with a lot of the economists are projecting in the next couple of years.

Got it, and understood the household formation argument. So maybe just going back to the supply side of the equation, it looks like to us creation value is still more attractive than the replacement value. So what stops the supply pressures? It looks like -- all the numbers we’re looking at just supply requesting. It is just because developers are getting a little bit more cautious on where we are on late cycle, you’re seeing at tightening the lending standards and all of that leads to little bit less supply than we were seeing previously as we clear the supply that was put in place three years ago. Is it as simple as that?

I think there is some dynamics between per sale and rental, right, I mean, if we’re looking at -- we’re saying household formation for about $1 million a year, we’re seeing production of about $2 million, when you factor in also lessons of 300,000 or 400,000 units, we’re still probably demand maybe outstripping supply to margin that’s mostly evident and what you’re seeing for a single family housing prices today being -- growing at more than a inflation versus on the rental side, we’re growing basically at inflation type level. So, I think, the same the dynamic between for sale rental ownership rates have started to tick up a little bit. Housing is more balanced, and we’re back to kind of one-third, two-thirds mix that we think we’re sort of customer seeing in a normal housing market where about third of that multifamily virtually all of that’s rental by the way and about two-thirds that are single family and virtually all that is for sale.

Got it, so, just normalization market for the most part?

That could so, yes.

Okay. Great, guys. I may ask some additional questions offline, but thank you.

And we’ll go next to John Kim at BMO Capital Markets.

Thank you. I had a question on dispositions your average holding period on assets sold last year declined under 10 years and prior to that it was about 13 years on average for the nine years prior to that. Is there anything we should read into this as far as how quickly you’re willing to trends for assets?

Hi, John, it’s Matt. Not really, I mean, it really is just based on individual asset characteristics. So I mean it’s going to vary each year based on kind of both our geographic goals and, I mean, the one constrain we have is our capacity to take tax gains. And so you may see us starting to find assets that have lesser tax change and sometimes those are assets with lesser holding period just because some of the assets we’ve developed on the long time have been depreciated and have a huge value creation at the beginning, so but there is no specific strategy around that one way or the other.

On recent dispositions where they skew it more towards developed assets or acquired assets?

Well, I mean, we were doing both because we have the fund assets, which were all bought, most of what we own in our portfolio is -- as a podium portfolio almost the vast majority of it is assets we developed other than the Archstone asset that was the one big kind of acquisition other than one-offs we’ve done over the years. So it does tend to be on the wholly on side more of the assets being sold, half of the assets we’ve developed.

Yes, John, just add to that, we have been selling, particularly last couple of years, but I think we’ll probably continue in that peers, largely assets in the Northeast where per say all that’s been self developing. We can have a pretty deep development pipeline there and just sort of managing overall portfolio exposure. We should expend to spend continuing growth takes on some recycle, some capital out of those markets.

Okay. And then one, to turn back to slide 22 of your presentation and the development delivery being skewed more towards '19 versus '18. I think you’ve said some of this due to interaction delays, most of it probably planned, but do you think there is a risk that this is happening more in the market to your competitors and that’s not baked into for supply forecast on slide 18?

Yes, John, it's Sean. I spoke to slide 22 and what I noted is that’s planned schedule for those deals that are under construction, which is based on the mix of business whether its garden, mid rise, high rise products and the expected duration associated with those jobs when I started construction. So there is no real anticipated delays as it relates to that portfolio pretty much on schedule. And as Matt noted earlier, in terms of the delivery some of that modules that have already started to deliver, that start maybe in the third and fourth quarter of '17. So there is virtually no delay risk there, it would just be new deliveries, which wouldn’t take until Q2 or Q3, so given the mix of business, we feel pretty confident about what that is, and it's not based on delays from '17 to '18, that's just as scheduled.

Yes, and I mean this is pretty [indiscernible] to our particular pipeline. This is not reflective of the market as a whole. It's that what you're asking. I mean we will be delivering quite a bit more in '19 than '18, Our expectation is the market, our market flow see less deliveries in 2018, just happens to be when the deals we having to have in the pipeline and how that moves through.

Alright, okay. Thank you.

And we'll go next to Alexander Goldfarb at Sandler O'Neill.

Hey, good afternoon, thank you. Just some quick questions for you. First Kevin, on the $150 million of debt prepay, is there a timing or rate associated with that, so what quarter and what rate as we're modeling at?

Sure, Alex, you've got probably $75 million or $76 million that is scheduled to mature another $70 million or so that is sort of elected to payoffs. And the cadence, I don’t have the cadence throughout the year, I think, probably it's going to be, they look at some each year. Probably will be skewed toward the front half, but it’s $150 million overall, the blended rate is kind of just underneath 4%, because some of them are just maturing, but we do have a couple deals that are elected to play offs that have interest rates between 7% and 8% where it is actually a modest prepayment penalty and a pretty positive NPV associated with that as you would expect.

Okay. And then on South Florida, and I think you mentioned the same for Denver where you made partner with the local entity to provide the capital to allow them to develop. What would be the yield differential that you would be looking at there versus on your wholly owned developments?

Hi, Alex, this is Matt. It’s a good question. Every deal is different, so it will depend a little bit on the allocation of risks and responsibilities, but our goal, we do in that kind of business with ultimately to have an option to buy the partner out of completion, so we would ultimately take the asset in as a wholly owned asset. And the yield on that at that point, it's probably somewhere between a third and a half of the way between an acquisition and development, that’s kind of the way we're thinking about it.

Okay, so meaning closer to -- so it's closer to an acquisition yield versus closer to a development, the other peer thing up third to half way?

Yeah, again, depending on how they are coming in and what kind of risks the sponsors taken versus we’re taking that. Yeah, I think that’s, we feel like the way we think about it is, there is kind of three different buckets of risks and developments, there is entitlement pursue risk, there is construction risk and there is lease-up risk. And in these types of deals, we would continue to own the lease-up risk, we would not own the entitlement risk and we wouldn’t really owned very much of the construction risk if any so depending how you want to price each of those risks.

Okay. And then just finally, and if I miss this before, I’m sorry. Your pipeline is now $3.8 billion and it was $3.2 billion at the end of third quarter. You only bought $35 million of land. So what was the delta that drove the shadow pipeline up by almost 600 million?

Yeah. The way that math works is the -- it’s not about the land owned, it’s about the development sites under controls. So we started the quarter at $3.2 billion, we started for $100 million which would have taken us down to $2.8 billion, but then we added $1 billion in development rights, all of which were kind of options, none of which were land that we bought in any of those new development rates. So that’s how you get to $3.8 billion.

Okay. Thank you.

[Operator Instructions] And we’ll go next to [Indiscernible].

Yes, sorry to keep this going. I just wanted to clarify around supply given some of your comments about '18 and '19. Specifically in '18 again you kind of have all access data saying we peak in 1Q as seen and then things started getting better for the rest of the year. I mean although you're saying '19 is better than '18, should we also be kind of thinking about a steady progression or steadily improving demand versus supply environment as '18 progresses or you kind of think -- you're thinking differently from what I think the actual data seems to be telling everyone to believe?

Yeah, [indiscernible], this is Sean. Just to be clear, I think, we said anything about peak in Q1, but if you look at the cadence of supply quarter-by-quarter through '18 it doesn’t start to decelerate until Q4. Just to give you our breakdown and little more precisely and we probably normally are but Q1 is about 61 basis points, Q2 and Q3 around 65 basis points and it falls off about 55 basis points in Q4, and then further decelerate as you move into 2019. So there are a couple of markets where you see supply fall off more steadily, but those are the numbers across the footprint through the fourth quarters of '18.

Okay. That’s helpful. Thank you.

Yeah.

And it appears we have no additional questions at this time. So, Mr. Naughton, I’d like to turn the program back over to you for any additional or concluding remarks, sir.

Thank you, Laurie, and thanks everybody for being on the call today. And we look forward to seeing you in the coming months at various conferences. Have a good day.

And ladies and gentlemen, once again, that does conclude today’s conference. And again I’d like to thank everyone for joining us today.