Good morning, ladies and gentlemen, and welcome to the AvalonBay Communities' Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Your host for today's conference call is Mr. Jason Reilley, Vice President of Investor Relations. Mr. Reilley, you may begin your conference.

Thank you, Vicki, and welcome to AvalonBay Communities' Third Quarter 2019 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's 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. The 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.

Thanks, Jason, and welcome to our Q3 call. With me today are Kevin O'Shea, Sean Breslin and Matt Birenbaum. Sean, Matt and I will provide brief commentary on the slides that we posted last night, and all of us will be available for Q&A afterwards. Our comments this morning will focus on providing a summary of Q3 and year-to-date results; an update on operations, including some areas of innovation and the operating platform; and then lastly, a review of the development portfolio. Starting now on Slide 4. Highlights for the quarter include core FFO growth of just over 2.5% for the quarter and 3.3% year-to-date. Same-store revenue growth in Q3 came in at 2.7% or 2.9%, including redevelopment, with most regions clustered in the 2.5% to 3% range. Year-to-date same-store revenue growth stands at 3.1%, or 3.2% including redevelopment. We completed a $90 million community in Seattle this quarter at an initial yield of just over 6%, $335 million so far this year at an average yield of 6.3%. We purchased 2 communities totaling $135 million in the quarter, including our third community so far in Southeast Florida, where we also have one development underway. We sold 4 communities in Q3 totaling $260 million, including the last few assets in Texas that were acquired as part of the Archstone transaction. Lastly, in late September, we entered into a forward contract of $200 million of equity, which will be settled over the next year and will help fund the remaining cost to complete the development currently under construction. And with that now, I'll turn it over to Sean to discuss operations.

Okay. Thanks, Tim. Turning to Slide 5. This chart represents the trailing 4-quarter average rent change for our same-store portfolio and shows the East and West converging to average roughly 3%. During Q3, however, rent change for our East Coast portfolio was 3.6%, 80 basis points greater than the 2.8% produced by our West Coast assets. The last time our East Coast portfolio outperformed the West from a rent change perspective was Q4 of 2010. During Q3, the East Coast portfolio was led by a 4.6% rent change in New England, up 50 basis points year-over-year; and 3.8% in the mid-Atlantic, up a very healthy 140 basis points year-over-year. On the West Coast, our Pacific Northwest portfolio produced like-term rent change of 4.1%, which was essentially unchanged year-over-year. Northern and Southern California delivered rent change in the 2.5% to 3% range, each down more than 100 basis points year-over-year. Turning to Slide 6. I'd like to highlight a few of the components of revenue growth in the first half and the second half of this year. As indicated on the chart, we expect relatively stable rental rate growth, which is the primary driver of same-store revenue growth throughout the year. However, as I mentioned during our Q2 call, revenue growth in the first half of this year benefited from the burn-off of lease-up concessions from new entrants into the same-store pool, a reduction in bad debt and healthy revenue growth from our retail portfolio. In total, these components contributed an incremental 70 basis points to rental revenue growth during the first half of the year. We don't have much of a tailwind from those same components in the second half of the year, and the benefit we are realizing is being offset by the impact of rent caps in L.A.…

All right, great. Thanks, Sean. Our development activity continues to be a strong driver of both NAV and earnings growth even this far into the business cycle. As seen on Slide 11, we currently have $975 million of development that is currently in lease-up or has recently been completed across 10 communities, with a weighted average initial stabilized yield based on today's rents and expenses of 6.1%. We believe these assets would be worth roughly $1.3 billion in the private market, generating $325 million in value creation on completion, which translates directly into corresponding growth in NAV. Slide 12 illustrates the future NOI growth we expect as we complete all of the development currently underway. On the left-hand side of the slide, you can see that at stabilization, we anticipate $60 million in NOI from the $975 million worth of assets shown on the previous slide that are currently in lease-up, plus another $103 million in NOI from the $1.8 billion in assets that are under construction but not yet in lease-up, for a total of $163 million in future NOI to come. And as shown on the right-hand side of the slide, this activity is almost completely match-funded between our recent forward equity deal, free cash flow and cash on hand. In addition, the projected sources of capital as shown does not include proceeds from pending asset sales or condominium unit sales, which we expect to realize in Q1 2020 and which exceeds $100 million remaining to fund. With initial yields well above our marginal short-term cost of capital, this development activity is projected to contribute meaningfully to earnings growth over the next 2 to 3 years. Speaking of condominium sales proceeds, Slide 13 provides an update on our mixed-use building at Columbus Circle in Manhattan, which has been…

Okay. Thanks, Matt. So in summary, apartment markets remain quite healthy, with most markets in balance producing consistent revenue growth of 2.5% to 3%. For the first time, as Sean mentioned, since late 2010, the East Coast is performing either in line or slightly ahead of the West Coast. We're investing aggressively in our operating platform, leveraging scale, technology and capabilities to grow margins by driving efficiencies in leasing, maintenance and utility costs. We expect our investments in these areas to stabilize over the next several quarters. And we continue to create significant value through our sector-leading development platform, an activity that's consistently delivered 30%-plus value creation margins over this 10-year expansion cycle and combined with our practice of match-funding should contribute meaningfully to earnings growth over the next couple of years. And with that, Vicki, we are ready to open the call for Q&A.

[Operator Instructions] We'll take our first question today from Nick Joseph with Citi.

Sean, you highlighted the rent growth conversion. With what we're seeing today, what are your expectations for the East and West Coast from here? Do you think we'll see sustained rent outperformance from the East Coast over the next 12 months?

Yes. Nick, Sean here. Good question on that topic. I mean, there's a number of factors out there that kind of relate to the outlook for demand and supply as we move into 2020. On the supply side, if you want to think about it, where we're seeing some benefit on the East Coast going into next year for the most part was in New York City where supply is coming down, projected to be roughly in half in 2020 as compared to deliveries in 2019, 2018. So we expect a little bit of benefit there that may be muted, to some degree, obviously, by the rent regulation. The first half of next year, we're going to see some impact from that as it bleeds through. As you know, it started midyear, so we have the back half of '19 and the first half of '20. We'll see a little bit of dilution from that. But from a pure market fundamentals perspective, if you’re going to look at it that way. The New York City looks pretty good. Boston, we are going to see more supply in the urban submarkets of Boston next year. And then as you come down to the Mid-Atlantic, for the most part, things will be roughly at par from a supply standpoint. And if you pivot to the West Coast with the same question, we're expecting more supply in Northern California across all 3 markets, San Francisco, the East Bay and San Jose, and a little bit more in L.A. So if you think about sort of the supply side of it, assuming the demand side was relatively stable, and there's a number of reasons why you'd expect it to potentially decelerate a little bit from a job growth perspective, et cetera, based on macroeconomic sort of factors, those are the markets where we're probably going to see some change, either to the upside or the downside, based on the deliveries. The one interesting component I'd point to is sometimes, it's not all just embedded in the jobs data that we see or the supply data that we see. So in the Mid-Atlantic, as an example, it's had a nice tailwind this year. Jobs and supply has been about what we expected, but federal procurement's up quite a bit and that tends to bring a lot of contractors to the region. So some of those factors have come into play. So net-net, you'd have to look at it sort of market by market. But there are good reasons to expect the East Coast to continue to perform well based on what we see. Whether it's at par or above the West Coast is yet to be seen. So I don't know if you want to add anything to that, Tim?

Yes, no, I think that's all right, Sean. Yes, I think -- Nick, I think one of the things that's sort of remarkable is just how tightly clustered all the markets are. While East is slightly outperforming the West, I think what's really striking to us is that it does seem like all the markets performing within 50 or 100 basis points, which I just can't remember a time in the cycle where that's occurred. It just seems like we're pretty close to equilibrium, almost across the board, which again is kind of remarkable when we think about how supply sort of moves up and down through the course of the cycle in any one market. So it's -- I don't know if there's a firm house view that East or West is going to outperform next year as much as -- the markets are basically in balance and approaching equilibrium from our view.

That's very helpful. And then just on the Upper West Side condo sales, for the 40 signed contracts, what's the average sales price?

Nick, it's Matt. I don't want to give too much detail, but we do have 40 signed contracts. The average price of those particular units is about $2.750 million, and they're in different parts of the building.

And we'll go to Rich Hightower with Evercore.

So just a question on some of the tech spending that it looks like you guys are ramping up on. I know you expressed this in terms of basis points of NOI growth impact. But could you maybe translate that into sort of an old-fashioned ROI? What incremental spend do you expect to roll out? And what's sort of the estimated ROI on all of that if we take all the categories together?

Yes. Rich, this is Sean. I want to give you just a little bit on that in terms of where we are. A number of these things that we're doing, particularly -- I'll just focus on the leasing and maintenance side for the moment because they're pretty far along as compared to, say, the development communities, they'll have their own independent capital budgets that are differently looked on each one -- or each one kind of on a per-home basis. But in terms of sort of the backbone of it on the leasing and maintenance side, the expected investment to deliver the kind of margin enhancement we're talking about, which is roughly 100 basis points, is about $10 million. So for a $10 million investment, you can run the math pretty quickly, on a 100 basis improvement in operating margin, that's a pretty good ROI.

Okay. Yes, we can do that. And then maybe secondly, just in terms of -- I think there was an uptick in R&M expense last quarter in a couple of markets. And I know this is part of the larger conversation that we're having in terms of technology and efficiency spending. But maybe just, if you could, talk to labor expense growth, not only as a function of the tight job market in general, but also the function of new supply in your markets. How do those 2 factors sort of interplay with the labor expense growth in some of those categories?

Sure, yes, happy to address that. And maybe a couple of broad comments to begin with. One is when you look at each quarter here, things can be pretty lumpy. So we tend to ask people to really consider focusing on sort of where we are from a year-to-date basis since there's a lot of different things that are happening. So when you look at the quarter, as an example, there's a lot of lumpiness in R&M spend. Q2 -- late Q2, Q3 is sort of the peak for when you're completing maintenance projects given the weather, particularly in some of the markets in the Northeast, as an example, and even here in the mid-Atlantic. And so there tends to be greater spend there. Obviously, there's seasonal patterns to turnover that relates to R&M. On the marketing side, as an example, we had a substantial call center credit Q3 of last year. So if you went and looked at Q3 numbers for OpEx over the last year, marketing was down about 21%. That's why there's a big increase this year. So you have to kind of look at it over a period of time. But to address your specific questions around labor, to give you some sense, for us, as an example, on the payroll side, and we're starting to see some efficiency there, year-to-date, we're up 270 basis points on payroll. About 140 basis points of that just relates to benefits and workers' comp and things like that, that are very lumpy in terms of claims activity and things like that versus 130 basis points is really the sort of organic underlying growth related to the associates in the field. And if you consider that wage growth, pick a source, is running anywhere from, say 3%, up to (sic)…

We'll go to Rich Hill with Morgan Stanley.

A couple of things. Getting back to rent regulation, we've heard some mixed commentary with some of your peers. So I was wondering if maybe you could think about the impact on revenue breaking down California and New York City, or if it's too early to sort of think through that detail.

Rich, this is Sean. And when you say breakdown, what are you looking for? Just kind of what the expected impact is this year or next year?

Well -- well, really next -- yes, so I thought the color in your pitch book post earnings was really helpful where there was an offset. So that was helpful to understand. But I'm trying to understand -- do you think California or New York is more onerous? We sort of look at New York City as being more onerous. And obviously, you've talked about decreasing your exposure in that market. I think the market was thinking California at that 5%-plus inflation wasn't that big of a deal. It sounds like it's having some headwinds. So I'm just trying to quantify that offset and how much of it's driven by California versus New York.

Okay. So yes, let me give you just a brief summary on each one to give you some perspective. So what we talked about on the last quarter call as it relates to New York is that we expected the same-store impact in the second half of 2019 to be about $1 million. And about 80% of that is derived from loss of all fee income that we could generate for application fees and things of that sort, as you may recall. So it will reduce the growth rate in the New York/New Jersey region by about 25 basis points for the full year, and the growth for the full year in the same-store portfolio is really about 6 or 7 basis points. But since it's all concentrated in the second half, the impact is about 10 or 11 basis points. So for New York, that's for the second half of this year, we would expect a similar impact roughly in the first half of next year until you get to the second half of 2020, where you have year-over-year comps that are a little more stable. Because you have an impact in the second half of '19, the impact will be in place the second half of 2020. So then projecting it beyond that, it's a little bit of a mathematical jigsaw puzzle in terms of different things that you expect, where you are in terms of legal rent today across your portfolio, et cetera. So I do think you're going to get different answers from each of the REIT owner/operators as it relates to their assets and the potential impact. So not surprised that you're hearing different things about that, but that's sort of how it looks in New York. And keep in mind for us, as it…

No. That's, I think, the transparency that I was certainly looking for. One quick follow-up question. And I apologize if you mentioned this on your prepared remarks, maybe I missed it. And I recognize you don't give quarterly guides. But it looks like the full year guide implies some pretty healthy growth in FFO year-over-year in 4Q '19. Is there anything specific driving that, that we should think about?

Rich, this is Kevin O'Shea. We typically do see a ramp in core FFO as we progress through the year because of our developmental focus. Specifically, as it relates to the ramp from 3Q '19 to 4Q '19, the sequential growth in excess of core FFO is being primarily driven by seasonally lower operating expenses and by development NOI from lease-up communities. So those are the 2 main drivers of the impact.

We'll go to Jeff Spector with Bank of America.

I have a follow-up question on supply. You mentioned New York City next year, I think, in your -- for your exposure down 50%. Can you put some numbers around some of the West Coast markets you discussed that you said -- you mentioned some -- I guess, qualitatively some comments around supply, but do you have any stats?

Yes. Sure, Jeff. This is Sean. Happy to do that. So on the West Coast market specifically, we are expecting basically flat deliveries in Seattle. But in terms of Northern California, I mentioned supply deliveries across all the market. It's about 1,000 units more in San Francisco, about 1,800 in East Bay, about 1,500 in San Jose. And then in L.A., it's about 2,800 units. A lot of it concentrated in and around downtown, Koreatown, Hollywood, West Hollywood, a little bit on the West side. And in the other markets, happy to go through some of the submarkets with you offline, if that's helpful. But those are kind of really the big chunks.

That's helpful. And we've seen slippage year -- each year for the last few years. Is there a chance that any of that slips into '21? Or is the supply more front-loaded first half of '20?

No. It's pretty -- it's spread relatively evenly across the quarter. And so to your point, based on what we've seen historically, we would expect some of that to slip, absolutely. Our rule of thumb has been somewhere in the 10% to 15% range based on what we've seen sort of historical experience, so to give you some perspective. And I'd say more delays in kind of the urban high-rise products more so than the suburban woodframe.

And then just one follow-up on demand. I know you talked about, obviously, unemployment is low, and so job growth has slowed. But wage growth for your renter has been strong. So how are you thinking about that in terms of pushing rents? I don't know if you can give any comments on maybe what you're putting out for renewals over the next 30 to 60 days out.

Yes. This is Sean. Happy to jump on that, and Tim and others can chime in. But yes, historically, when we look at it, wage growth is most highly correlated with rent growth. Job growth is sort of the #2 variable in that equation. And so we are seeing people come in with healthy wage gains. What we tend to look at is for the people that move into our apartment communities January of 2019, what their income level is relative to those that will move in, in January of 2020 and how much is it moving, as an example, that's kind of how we measure it. We don't necessarily get income levels from every renewal. But people are seeing healthy wage growth. It's certainly in line with what we're seeing in the raw data, whether it's the BLS data or the ADP data. I kind of referenced kind of 3.5% earlier when we're talking about wage growth. But in the ADP data, professional services, financial services, et cetera, tech, those numbers on paper are being close to 6%, 7% wage growth. That may or may not include some of the stock option and some things of that sort. But we're seeing healthy wage growth. And certainly, that influences how we think about it. But yes, to the extent there's supply in the market, they have choices, so it really comes down to how we think the demand/supply environment looks. Right now, in terms of renewal offers though, to answer the specific question, we're talking about stuff in the mid high to 5 -- high-5% range, mid- to high-5% range for November and December in terms of where renewal offers are going out. And renewals have been relatively flat all year, kind of in the mid- to high-4% range. And I would expect that to be the case as we continue to move through the fourth quarter as well.

Jeff, it's Tim. Just maybe one thing to add. I think you're right. In terms of our population, the income growth's been quite decent relative to maybe the 3%, 3.5% for the overall population. I think one other thing to consider is what's happening on the for-sale side. Affordability has becoming -- become more challenging as -- up until the last quarter or 2, where the Case-Shiller have been outpacing rent growth. So I think that, that's helped rental demand, some of the margin. You're now seeing -- I think Case-Shiller had a print this morning right around 2%. You're now seeing sort of for-sale inflation, housing inflation, start to fall more in line with rent growth. So overall, I think our outlook is it's a pretty balanced housing market, not just across each of the geographic markets but between for sale and for rental. You're starting to see relatively flattish movement in homeownership rates, might be up one quarter, down the next quarter. So it's -- it really is remarkable just in terms of the overall housing market, just kind of how in equilibrium it is right now. And maybe that shouldn't be a surprise sort of 10 years into an expansion, but it's about as stable as I can remember seeing it.

Austin Wurschmidt with KeyBanc Capital Markets is next.

You guys have spent some time talking about the convergence and like-term rent change across kind of the East Coast and West Coast, but this is really the first quarter this year that we've seen that like-term effective rent change be below where it was at this time last year. And I wouldn't think some of the headwinds you've talked about to same-store revenue growth related to other incomes and lower bad debt would necessarily show up in that figure. So I'm just curious what's driving that moderation and how should we think about that moving forward.

Yes, Austin, this is Tim. I think it's just demand overall. I mean, you've seen an economy sort of downshift from 3% growth to roughly currently 2% growth. Job growth's 1.5% range now, running about 2 million jobs, versus we were in the mid-2s before. So household formation has been pretty good, but I think it's just overall economic activity being down a little bit. The supply, as Sean mentioned, has been relatively stable. Obviously, there's shifts from market to market. But overall across our market footprint has been relatively stable. I think just economic activity and job growth is down a little bit. That's probably what's impacting the margins for us.

And so it's safe to assume that's mostly on the new lease side, because you've talked about kind of that mid- to high-4% range for renewals being fairly stable, so just traffic overall is down a bit?

Yes, no, this is Sean. I mean, I wouldn't think too much about traffic because traffic is something that we can either engineer up or down, depending on how much you spend and things like that. I think if you look at really what's happening with rent change where you're seeing lift, the lift is in the Mid-Atlantic. And as I mentioned, job growth has been about the same, but there's been a substantial increase in procurement from the government. That brings in a lot of contractors. That gives you a little bit better lift than we might have anticipated. But where we're down in Northern and Southern California is more just a function of demand because the supply is pretty much what we expected. And if you see where it is, it's pretty widespread, so you can't just point to one particular market or submarket and say that's kind of driving it. It's pretty broad, which generally is more macroeconomic-oriented.

Okay. Appreciate the thoughts. And then just a second one for me is, Matt, you provided a good bit of detail on kind of the limited spend you've got within the development pipeline here. But I'm curious, what does that figure on the remaining spend look like once you commence the remaining starts you've targeted for 2019? And I think you've got north of $1 billion being completed in 2020. So can you -- if you factor all of that in, what's kind of that future spend look like?

Yes. I'll speak to that quickly. And then I don't know if Kevin wants to add anything. Obviously, we haven't provided any guidance in terms of what our starts might be next year. I think this year, we're expected to start $400 million or $500 million additional here in the fourth quarter. So some of which has been spent already, but most of which has not. So I guess if you project it out to year-end, you'd probably add that and then you'd take out spend that we would incur over this quarter on the stuff that's currently underway. So it might tick up a little bit. But as I mentioned, we also have not only condo sales, but pending disposition asset sales proceeds coming in the first quarter as well that aren't even in those numbers.

I mean -- Austin, this is Kevin. One way to think about our business is we're kind of starting somewhere close to $1 billion a year in development, spending about $100 million, $150 million or so on redevelopment. We're spending about $100 million in the investment side of the house every month. So it certainly moves around a little bit. But if you're just trying to get a general sense of kind of what that flow of investment activity looks like for us, it's -- probably a ballpark number is somewhere in the $100 million a month in terms of investment spend.

Next is Nick Yulico with Scotiabank.

This is Trent on with Nick. Matt, going back to The Park Loggia condos, you mentioned the average sales price so far is a little lower than the average targeted sales price for the building. So perhaps some higher-priced units still left to go and some softness in the higher-priced market. What kind of sales trajectory do you anticipate, whether on a monthly or quarterly basis?

Yes, sure, Trent. So first of all, it's going great. Over the past 6 months, we've been running 27 visits a week, Corcoran Sunshine is marketing them for us. Their average across all the deals they're marketing in Manhattan is 7 visits a week. So we're getting a lot of traffic. It really helps that the product is there, and people can actually see it. And we're close to being able to have people buy and settle, so if they're not buying off of plans, they're not buying -- and particularly going into next year, they're not going to be buying and having to wait a significant amount of time. So yes, I mean, I think when we launched, we said we figured the average price, across the whole building, was roughly $3 million a unit. The ones we've sold so far are $2.75 million. So you're right, I mean, that average is skewed a little bit by some super premium units at the very top of the building. And those will sell when they sell. So it's hard to predict or project when those might sell. And they will move the needle a little bit. So what we've sold so far on average, there's been a nice balance across the building, but a little bit more kind of at the bottom of the building than the top so far. We hope to be able to continue a reasonable pace. We think we've got a compelling value proposition to the market. Obviously, we'll have to see how it goes. Right now, where we stand is we are -- any day now, we expect the plan to be declared effective by the attorney general, which is a process that, frankly, we thought would take 2 or 3 weeks. It's probably more like 5 or 6. And then we have to go to getting the tax lots recorded by the city assessor's office, and that process is taking a little longer than we had originally anticipated. So the market response and everything has been as we expected, kind of even as of the beginning of the year. It's just taking us a little longer to get to the legal place where we can start settlements because of that 2-step process of the AG and then the city assessor's office. And there's -- I guess there's a backup at the city assessor's office, so that's taken just a little longer than we had thought projected going in. But again, we're well on track for settlements first quarter. And we continue to make sales at that pace of roughly 4 to 6 a month, and we've seen that -- we haven't seen any slowdown yet in our sales pace even here through October.

That's very good detail. Maybe just sticking with that a little bit on the retail space. It looks like you're making progress on that as well. Can you talk about the new tenants being added, or maybe how you're viewing the overall mix and what you're targeting on the remaining available space?

A little bit. Sure. I mean, we have Target, as I mentioned, I think should be opening any day now. Our tenant on the second floor -- our first tenant on the second floor, financial services. I think they're getting ready to open here before the end of the year as well. We have one additional ground floor space that's leased to a high-quality credit tenant that should start their build-out here probably in January. And we've got a couple of tenants we're talking to, actually in pretty far advanced negotiations, about the remaining space on the second floor. Different use groups. One is kind of a restaurant use group and the other is more of a fitness use group. So we have some interesting options there. And then we'll see about the remainder of the ground floor space. We continue to get interest from various folks. So it's kind of an interesting mix of different tenancies. We do think Target will attract further interest just because they're going to drive a lot of traffic. Obviously, that location gets a tremendous amount of street -- pedestrian traffic anyway. But so again, things are proceeding nicely. We are getting nice interest. And the NOI from that is going to take a couple of years to phase in as those final spaces get leased.

Okay. And maybe just one more, if I may. With the development rights increasing to over $4.2 billion, how are you, I guess, viewing that development pipeline if that pilot initiative you mentioned about, an amenity-light community, if that's successful, does that change how you're looking at where to develop or how to develop? But maybe some color on that would be helpful.

Yes. This is Matt again. It's probably a little too early to say. We do have one community under construction that's kind of our pilot test case for it, and we're going to see what the market response is. We're going to validate kind of what those margins look like. So the way I would think about it is it's another tool in the toolkit. We haven't really underwritten any of the deals in the pipeline to that model. But I think it could improve, particularly on larger sites where we might have multiple phases. It gives us the opportunity to segment the market a little more and provide kind of different price points and different service offerings, which can help on the development economics. And if it's validated, it could open up other sites for us over time.

We'll go to John Kim with BMO Capital Markets.

Your expected development yield on your development pipeline has been trending down below 6%. I'm wondering if this is a reflection of higher cost, the mix of the project or have you changed any of your rental assumptions at all.

Sure. John, this is Matt. I mean it is a reflection of the basket that's under construction in any given point in time, some of which is product, geographic mix. So that will tend to move around a little bit over time. It is, in some respects, a reflection of we are 10 years into the cycle. And certainly, as we've said for a while, construction costs have been growing faster than rents, so it is getting harder to find deals and deals on balance might be a little tighter, although there's still very strong value creation in the stuff that we're completing as we talked about. And by the way, our cost of capital is down quite a bit over the last 2 or 3 quarters as well.

Got it. Okay. And then a follow-up on the limited service offering that you're testing out. How do you think this will impact returns? Do you foresee this being a lower-growth product with a higher exit cap rate offset by lower costs? Or do you think basically the IRRs would be pretty similar to your standard product?

It's really too early to tell, John. I mean, again, we view it as there's a customer segment out there that's probably being underserved today because 99% of the new product that's built is being heavily amenitized. And the concept is to provide the same apartment itself, high-end finishes and strong layouts, but just less of the other trappings, the bells and whistles that our research would suggest. There's lots of customers that want a nice apartment but don't necessarily value all those other things, which have a lot of first cost and a lot of hidden costs over time as well, which maybe are underappreciated by the market. So it's hard to say how that might impact valuation or cap rates. I don't see any reason why rent growth would be significantly different than the rest of the market. And it does seem like asset valuation is primarily just driven by the cash flow it can generate. So not sure I would expect anything significantly different there, but time will tell.

Is there another developer or developers out there that you are emulating for that product? Or are you the leader?

Yes. I mean, it does require some upfront investment in technology to enable it and some back-of-house service. So for example, one of the reasons we think we can do this profitably is because it really leverages our call center down in Virginia Beach. So we may not have an on-site presence for leasing. Some of that is tech-enabled, but some of that's also that they can call the CCC and interact with somebody that way. So I'm not familiar with others that are trying this yet.

John, I guess -- this is Tim. I guess, what I'd add to that, and still most of the production is coming from merchant builders. They tend to be a little more risk-averse. And if they've got a customer, an institutional buyer is accustomed to buying a highly amenitized building, they're less likely to sort of take that risk in terms of doing something different. But as Matt mentioned, we -- in our own customer research, we have plenty of customers that are paying more today in our existing assets than sort of they value because they're not necessarily using all the amenities or all the services that we're providing. And we've done enough research to know that they would like something less, but they want the -- they don't want to compromise, say, on the quality of their unit and the quality of the finishes. So it's really just even taking the existing customer base we have today and continue to segment it and provide them something we think that's a better match for what they value.

It is also one of the advantages we've talked about, about being such an active developers. We do have the ability to create the product that may be more in tune with what certain segments in the market will value as opposed to just being limited to buy what somebody else has built.

We'll go to John Guinee with Stifel.

Great. A quick question. If you look at your retail, I think you said maybe a $10 million stabilized NOI and you cap that at 5%. So you say that's worth $200 million. It looks like your basis in the multifamily now condos is about $426 million or $2.5 million a unit. Is it safe to say that you break even on this when it's all said and done, if you value the retail at $200 million?

No. John, this is Tim. I think our expectation, I think we've shared before is that we thought that was between $100 million and $150 million of incremental value a year. So no, we do expect to make money. If the retail were valued at $200 million -- Matt mentioned, the average unit that's sold today is about $2.75 million, but that's not where the average unit is priced today. So based upon current pricing, there is incremental profit over and above a breakeven scenario.

Great. Okay. And then a follow-up. On your furnished units, are you going from 0% to 5% in a couple of years? And what's the big change of heart to decide that furnished units have merit?

Yes, John, this is Sean. I mean, a couple of things. One is, in terms of why it has merit, as I mentioned in my prepared remarks, we do a fair amount of consumer research. And we identified about 10% of the market actually that has some level of interest in a furnished apartment home either expressed interest or would consider it. And so -- and we've -- just anecdotally, we've had that -- people come in, looking for furnished apartments. So -- but we have tested that in the last 18 months across a sample of communities in our portfolio. We are seeing some pretty steady demand, and therefore, we do think it's a profitable opportunity. So to be able to scale it, we'll have a team together here to do that. And getting to that 5% mark could take, yes, 2 or 3 years depending on the pace at which we decide to go. So as we scale it from where we are today, which is, call it, 300 to 400 units type of thing to something that will be more substantial, it probably won't grow in a linear fashion, it probably get to about 1,000, and then we would go much faster.

John, maybe just to add a couple of things. I think there's a couple of other things that work and, one, just changing consumer preference, particularly among those under 35 who just don't want to own as much stuff as or don't need to own as much stuff as perhaps as generations past. So I think that's a piece. And I think another piece of it is, there just aren't that many companies that have the scale that we do that can actually make a business out of this. So if you're a fund that owns 5,000 or 10,000 units, you're probably not going to make a big investment into this business versus somebody that owns 80,000 or 100,000 units. So I think it's kind of a combination of those 2 things that's created what we think is an appealing business opportunity.

We'll go to John Pawlowski with Green Street Advisors.

Sean, on Page 5, the like-term effective rent change, if you swapped out the East Coast versus West Coast and just showed urban versus suburban, what does the 2019 recent trajectory look like if you zoomed in on that?

Yes. So if you're looking just for our portfolio, John, as compared to the market overall?

Just AvalonBay suburban versus urban portfolios.

Yes. So suburban versus urban, were flat on a year-over-year basis at 2.7% when you look at it from that perspective. And that has changed, and that doesn't include all the assets because they're classified in different ways. There's infill suburban, there's suburban. So this is true definition of strictly urban versus strictly suburban and throwing out TOD and all those kinds of things. So it's not going to line up with the 3.2% for the full quarter. But if you look at the pure urban and pure suburban, the way we would define it, they're similar. Now in the past, obviously, that's been very different over the last 4 quarters, but it has converged as well. So as Tim indicated, whether you're looking at AB, you're looking at urban or suburban or you're looking across the different markets, sort of a similar pattern of conversion across all those variables.

Okay. Tim, curious to get your thoughts on how you are thinking about the trajectory starts moving forward. Any way to tug-of-war between the improved cost of capital that Matt alluded to? And then perhaps some flashing yellow lights in the economy and just which 2 of those variables are weighing out in your mind right now?

Well, John, I mean, it's one of the reasons why we de-match (sic) [ match ] fund. So to the extent you're match funding, in some ways, it's not that different than your stabilized portfolio. You've got the risk -- right of the assets that you -- 80,000 apartments that you already own, but those are completely funded and financed. But the same is pretty much true everything that we start from a development standpoint. So if anything, I think it -- as you get later in the cycle, it just puts us more in position of -- what we've talked about in the past, just be flexible, try to have as many option contracts as you can to give yourself flexibility potentially to either to drop a deal or to renegotiate a deal or to push it out. And we don't have any land inventory to speak of. So we could always, if we had to, sort of buy land and sit on it. But right now, when you're talking about 6% projected yields against where our incremental marginal cost of capital is, we think it's still -- we think it still makes sense and that asset values still well above replacement cost in most of our markets. So it's more -- it's been more of the opportunity set. We've been adding about $1 billion a year in new development rights, and we've been starting about $1 billion. And I probably would focus on that, probably as much as anything when that pipeline starts to maybe start to dry up because we're just not seeing value in the land markets.

Hardik Goel with Zelman & Associates is next.

I've just got 2 for you. Matt, you've been a veteran of multifamily development for a long time. And I just wanted to get your thoughts on how you see the regulatory environment today versus maybe 5, 10, maybe even 15 years ago across all markets, not just California. And maybe talk about which markets are the greatest barriers on a regulation standpoint versus which ones are the best.

Sure. There's some interesting crosscurrents there, and you see it obviously in the other side of it, which is the rent control. And in many ways, it's the regulations that have created in many of our markets part of the environment that's provided for the supply constraints that, in turn, have driven rent growth to be well in excess of inflation over a sustained period of time. The barriers to entry are still very, very high in California. The CEQA process, particularly if you're starting something from scratch, the amount of money you have to have in a project, by the time you get it through, if anything, the dollar investment has gone up, which, in turn, makes it very difficult for merchant builders to hang in there through that time period. The legal challenges that we see. So the barriers in California, I think, are as high as ever. They may be higher in L.A. now with JJJ passing a couple of years ago and some of the labor requirements that have been put on top of that. If you think about like around here in the mid-Atlantic, I'd say the barriers of this cycle wasn't lower than prior cycles. And some of that, frankly, is better land use planning as some of the local jurisdictions here have really focused on transit-oriented development. And frankly, from a public policy point of view, one of the benefits have been less rent growth in this cycle, hasn’t been great as a landlord, but maybe it improves the economic competitiveness of the region in the long term. So some crosscurrents there. And then in some of our very constrained markets in the Northeast, they're just different crosscurrents, both directions. In New Jersey, there's kind of a onetime, once every 20-year opportunity to get a little more supply in the suburbs, inland suburbs because of some affordable housing, litigation and regulation, which gives -- having some teeth, and we've been able to take advantage of that and get a bunch of sites in some submarkets that haven't seen much supply for generation. So you may see a little bit more there over the next 5 or 10 years. Conversely, in Boston, suburban Boston, where we've had success for a lot of years, is what they call Chapter 40B there, which is a similar provision that forces small towns and jurisdictions to take a certain amount of affordable housing, which we then integrate into our market rate communities. The 40B, a lot of the suburban Boston jurisdictions have met their obligation now. So if anything, we've seen -- we saw more supply there over the prior couple of cycles than we may see over the next cycle because of that. So it really does vary from region to region.

I guess, one thing to add, and maybe it's implied in Matt's comments, the regulatory barriers are just higher in the suburbs than the urban areas, maybe with the exception of L.A., as Matt mentioned, certainly true in the Northeast, certainly true in California. What has been remarkable this cycle is urban markets have generally been an economic barrier, a financial barrier, not a regulatory barrier. And that's certainly been the case. And one of the reasons why you've seen -- why we've seen elevated supply in our markets this cycle versus prior cycles because it's made financial sense. And oftentimes, it's been having some best use relative to condominium, relative to office, relative to hotel. I think this cycle, condos have only accounted for about 5% of multifamily supply. In prior cycles, it's been closer to 1/4 of new supply. So I think there's been a few things that are a bit more unique about this cycle, but I think it still continues to be largely the suburban Northeast, California markets that are toughest to penetrate from a regulatory standpoint.

That's probably the best response I've received to that question. And just my second one is pretty easy, just splitting out the blended lease-over-lease -- rent by new and renewal and maybe talking about pricing power in the fourth quarter, realizing that it's a low leasing volume quarter.

Yes. In terms of Q3 specifically, in terms of the breakout, as I mentioned, it was a blended 3.2%, 4.6% on renewals. And per my comment earlier, it's been pretty stable all year. We expect it to be also relatively stable in the fourth quarter. And then on move-ins, it was 1.7% during the quarter. And that typically is a metric that, from a seasonal basis, tends to drift down as you move through Q4 and Q1 and peaks as you get into kind of late Q2, early Q3, and we don't see any reason for that pattern to be any different going forward over the next few quarters.

Drew Babin with Baird is next.

This is Alex on for Drew. Just one quick modeling question for us. Looked like a pretty sizable quarter when it came to asset preservation CapEx. Of our run rate, the current year-to-date pace, it looks like year-to-year growth could be over 18%. Obviously, rising costs and some seasonality at play here. But I was just curious what's driving that growth. And if you have any color you could provide us on how we should expect that to trend in 4Q and into '20?

Yes, Alex, this is Sean. Similar to what I talked about on maintenance projects, there tends to be seasonality at the CapEx as well. The way I'd probably think about it from a modeling perspective is that 2019 maintenance CapEx is probably going to be in the range of 5% to 6% of NOI. There's a piece of that, that we call remerchandising that is sort of a refresh of amenity spaces and such that you could probably say has some return to it, although hard to quantify. But if we use that 5% to 6% of NOI as sort of a run rate that's about right. It will be a little bit lumpy from year-to-year, but that's sort of how we're looking at it.

We'll go to Alexander Goldfarb with Sandler O'Neill.

Just 2 quick ones for me. First, upfront, I didn't hear it but maybe it got lost. Your OpEx for the year, your guidance of 2.1% to 2.7%, you're trending 2.8% for the year. So what are the items in the fourth quarter that are going to bring it down? Or is the trend sort of what it is but within your overall FFO guidance, you're able to manage the higher OpEx?

Yes, Alex, this is Sean. We haven't changed our guidance. And so as I mentioned earlier, every quarter is a little bit lumpy. Q3 was lumpy for a number of reasons related to R&M projects that are done in certain seasons of the year. I mentioned marketing was up dramatically because of a substantial credit we received last year, when marketing was down 21%. Insurance renewal bleeds through. Payroll, we continue to see good reductions in FTEs as a result of the initiatives I mentioned. So I would say, at this point, we're pretty comfortable with where we are.

It's Kevin. One more thing to think about as you evaluate for the year-over-year growth rate in OpEx is just, obviously, you need to look at what happened in the prior year, and last year, in the third quarter of '18, we had an increase on comp with year-over-year growth in OpEx of 50 basis points. So that's probably a key driver of the 4.2% this year. So I think there's -- the lumpiness that Sean alluded to, not only in terms of what we spend, but it's sort of what happened in the prior year. So you need to kind of incorporate that into your modeling.

Okay, that's helpful. And then second is just going back to the new initiative you're trying on the sort of amenity-light and people-light properties. I understand the point about amenities. You walk the buildings, and certainly, there's a lot of space that doesn't get used. But I would think that part of what makes the REITs different from others, especially you guys, to be able to charge premium rents is sort of that in-person customer service. So in your testing, is there no diminishment of what the tenants will pay relative to not having the people around them, they feel they're being catered to? Or how do you make that trade-off between the premium rents versus giving people that experience that they're absolutely being catered to if they have a maintenance request or have a package request or anything like that?

Yes. No, Alex. So I'll respond to that one, and anyone else can chime in if they like. But we've done a fair bit of work on this in terms of consumer research both through surveys, focus groups, shadows, a lot of different things. We engaged some consultants to work with us on this. And what you'd find might be a little surprising, which is if you think about kind of consumerism today, what people experience, whether it's buying a car today, whether it's shopping through Amazon, whether it's a lot of other things, they kind of want to be able to do things when they want to do it on their own as opposed to being dependent upon someone else holding their hand all the way through. And for the most part, they actually don't want that unless they specifically need it for a purpose. And so all of our consumer research has said that, like, from a leasing standpoint, do they want to come in and meet a salesperson, spend an hour touring the community with the salesperson and kind of sell to them along the way. For the most part, the answer is no. They want to see everything they can online. And if they want to schedule a tour, they want to go there when they want to go there, regardless of the office hours. They really don't want someone to show us -- or show them around, except for one segment, kind of a mature social segment. So that's it. And then on the maintenance and service side, it's more what's the right level of service. You're absolutely correct that some segments want the 24-hour response and the white glove service, but there is a decent chunk of the market that doesn't necessarily value that and may be perfectly fine with they have a -- pick something, if the dishwasher isn't working today, they don't cook a lot, they're fine if it's a 24 to 48-hour service. As long as you give them the option to tell you how important it is for them to have that thing fixed and are responsive to their demand, then that works just fine. So I think it's just segmenting the market in a more fine way so that the people that really do value those things are paying for it and the people that don't value those things aren't paying for it. And as I mentioned in my prepared remarks, absent the amenity space, which not only has capital cost, but pretty heavy recurring cost for OpEx and CapEx and sort of the on-demand service as opposed to the continuous services, how responsive, they can see rent that's 10% to 20% lower than a brand-new building down the street, and there's definitely a segment of the market that would prefer that option. So I don't know, Tim, do you want to add?

Yes. No, I think you hit it at when I was going to jump in. I mean, a lower rent is part of the value proposition here. And I don't think necessarily low-touch necessarily is -- necessarily means low levels of service. I think you can have high level of service with high-tech and sort of a low-touch kind of offering. So I think it depends on the issue, Alex. But part of the value proposition is absolutely that they would pay a lower price than a comparable community that would have more -- be more amenitized and more fully staffed.

We'll go to Linda Tsai with Jefferies. Linda Tsai;Jefferies;Analyst: The technologically driven efficiencies you're driving in leasing and maintenance, apologies if you've discussed this previously, is this across the entire portfolio or just a portion? I'm just wondering how much opportunity this is to reduce expenses further through these types of initiatives.

Yes. Linda, this is Sean. The expectation is that we would deploy it across the portfolio. You might have slightly different nuances across certain buildings, depending on the customer segment that's in that building. So as we were just talking about the limited service offering, that would be one extreme. There'd be another building, maybe as a high-touch, very high rent buildings, that could be the other extreme. But we expect to deploy a lot of it across 95% of our portfolio, where people have the option to self-serve as sort of the default. But if they would like a tour, they can schedule one at a time that's convenient for them and things like that. So we're taking advantage of the opportunity across the entire portfolio, and we may just see different usage of certain services or need for leasing, et cetera, based on the customer profile of each one. Linda Tsai;Jefferies;Analyst: And then on The Park Loggia, could you talk about the different -- how different the retail rents are between the 4 levels shown on Slide 13? And then what's the average term for the leases you've signed?

Linda, this is Matt. The rents are very different between the 4 levels. I think we provided some high-level thoughts about that maybe a year or so ago on a call, but you're talking about -- the highest rents are on the ground floor with the Broadway frontage. The second floor might be 40% to 50% of that rent. And then the basement and subbasement would be -- maybe the basement's a little bit less than that and the subbasement's quite a bit less than that. So it really does vary based on the specific space. The lease terms are generally long-term leases. I think one of our anchor lease, the first 2 leases were -- I don't remember exactly. I think they were probably 20-year terms, I think, with some extension options beyond that. I probably can't get into terms for specific leases. But generally speaking, they've been relatively long term. Linda Tsai;Jefferies;Analyst: And then just a final one. The demand for fully furnished apartments, can you -- or can we assume the economics are more attractive for leasing these units if there are fewer of these units available across the market?

Yes, if there's less supply of those units. There certainly would be a premium associated with the furnished products, of course.

[Operator Instructions] We will now go to Haendel St. Juste with Mizuho.

I just want to follow up on Linda's question. Can you talk about the premium you're looking for or maybe give us some sense of required ROI? We're talking about a lot of furniture here. And also curious if you are thinking -- so should we expect that to be expensed, capitalized?

Yes. Haendel, this is Sean. So just a couple of things. We've been testing a variety of different premiums. What I can tell you that's out there is if you went to a third-party operator, Marriott has a product, some others do, typically, what you'd find is the rent for furnished unit relative to the base rent of a typical unit that's comparable would be about double. That's a company that is taking inventory risk and signing different leases and things of that sort. We are dealing with inventory risk. And so we probably think about that a little bit differently. But I wouldn't be surprised if we said we could generate, say, 50% premiums above the base rent for a unit to that customer to include the various services, maybe some bundled utilities; and the cord cutting, you may not need to provide cable; in some cases, you do. And then as it relates to your specific question around the furniture, that will be capitalized, but then depreciate it over probably a 5- to 7-year period. At this point, we're depreciating it over 5. We think that's a reasonable proxy. We've been talking to others, including some of the student housing rates in terms of what to expect in that area seems to be 5 to 7 is sort of the expected range for useful life. So it's going to come back at 20% a year or so...

Yes. Haendel, Tim here. Just to be clear, in terms of the premium, if you get a 50% premium, some of that would be for the furniture. Some of that would be -- for premium base with the short-term nature of these leases tend not to be -- on average, tend to be less than a year or 24 months, which our average resident stays. I think to date, it's been closer to 6 or 7 months. Sean, so there is a return sort of for that additional vacancy exposure that's factored into that 50% premium as well.

That's helpful. Because I was thinking some of those numbers sounded more like shorter-term corporate units, but I appreciate that color.

Yes. No, I think that's right. I think some of the premiums when you hear, it's like twice -- 2x, a lot of times, that is a very, very short term certainly...

Yes, there's like the operator that might be taking a 12-month lease, but they're leasing it 30 days at a time type of thing. We would certainly have some of that business, but just we want to manage the exposure appropriately from a lease expiration profile standpoint. And so far, we've been serving customers that are interested in something that's slightly longer.

Got it, got it. Okay. Appreciate that. And then I wanted to go back to some of these earlier comments on supply. First, in L.A., it seems like much of the supply coming online is more focused downtown. So curious what you're thinking about -- and thinking about for your more suburban SoCal portfolio, you're a bit more in the Pasadena, Burbank, Orange County. So I'm curious how you're thinking about the performance of your more suburban portfolio versus, say, downtown L.A.? And then maybe some similar commentary on Boston where, again, your portfolio is a bit more suburban versus the urban core there, where the supply seems to be coming on more.

Yes. Sure. Happy to talk about that briefly. Maybe starting in reverse order. In Boston, correct, most of the increase in supply will be concentrated in and around, call it, the core urban submarkets. Majority of our portfolio is suburban in Boston. We continue to develop a number of suburban communities that are performing quite well. So in that environment, we would expect our portfolio to hold up relatively well given most of that supply is concentrated downtown. In terms of L.A., and your specific comments about L.A., yes, I mean, the supply is and it's heaviest in Koreatown, but then Woodland Hills, Warner Center, kind of Hollywood and Mid-Wilshire, South Central, there's a little bit actually and then some in Culver City and down by the -- along the coast, as I mentioned. So in terms of our portfolio, a little bit of exposure in Hollywood. We don't have anything in South Central or Koreatown. We have 2, 3 assets in Woodland Hills, Warner Center, but that market has seen -- that submarket has seen a fair amount of supply over the last decade, and it's done relatively well. Most of the assets we have there are more affordable price points, which tend to perform quite well in the face of new supplies. So in terms of L.A., I think we are positioned pretty well given where the supply will be delivered in 2020.

We'll go to Nick Joseph with Citi.

It's Michael Bilerman. I just had a few follow-ups. The first is just back to the retail at The Park Loggia. Out of that $10 million of forecasted NOI, how much is represented by the 45,000 square feet of leasing? Effectively, how much of the $10 million have you secured?

Michael, it's Matt. I think it's probably roughly half, maybe a little bit more than half, I think, based on...

Well, we had about $1 million in our third quarter numbers really.

Yes. That didn't include 1 tenant.

No. And we're -- it's a little bit early to kind of give guidance in terms of what will feather in through calendar 2020. But most of it is a lot of the target in place.

Right. Arguably, that's -- I mean you went through the rent differential between second floor and basement. And so while you're 2/3 leased, clearly, it's a lower overall rents relative to the street, where you still have the 9,000 that you're marketing, that's why I was just trying to get a picture of...

Correct. Michael, correct. I mean the lease rates is managed before all of the math depending upon what floor you're on. But I think it's -- the range is it's below $100 a foot to well over $400 a foot if you're on the parts of the ground floor. So it's -- I don't think that's what we have pro forma-ed into the balance of what's on the first floor. Some of the better parts of the first floor were already taken, but there is more high-value space left to be leased in that building.

Right. And that's why I was trying to get to the cash flow impact of what's been done and what's to come. So I take it 50% is a reasonable number then to use. And then part of that is -- do you have intentions to -- I mean, originally, this was supposed to be a JV on the retail or even a sale. Now that you're doing -- selling up the condos above, where is your mindset on selling or JV-ing the retail portions because arguably it would not be core anymore to the company?

Yes. Mike, I think at some point, we would likely sell this. And it's really just a question of when we -- how to optimize the value and when we'd actually sort of pull the trigger on that. So -- and then there is a tax issue just in terms of balancing it versus the -- any profits that we might have on the condo proceeds. And just to -- given that this is now a taxable transaction, we'll try to manage it to minimize taxes.

And then if you think about -- someone had asked earlier about development funding, as you go into 2020 in terms of capital that you will need, you squared away all of this year and you also have the equity forward that you put in place as well. I guess how should we earmark arguably that capital now sitting in the building upon which you'll start selling the condos? Are you going to earmark that next year? And I guess how should we think about that capital coming back to be able to fund developments you intend to hold?

Sure. So Michael, this is Kevin. You're right. I mean we do anticipate receiving next year proceeds from the sale of condos. That will be an important component of, call it, our equity need for next year's funding activity. There may or may not be additional asset sale, disposition activity beyond that and beyond refinancing debt. We're likely to look to the debt markets as well. As you know from our leverage profile today and our target leverage, we typically target 5 to 6 turns of leverage. We're below that now at 4.7 turns. So kind of when -- we haven't put our budgets together for next year, but certainly, I think it's fair to assume that we've got some scope to increase in leverage a little bit given how attractive debt capital markets are today.

And then on the AI initiatives on Slide 8, is Sydney really responding this quickly to people's requests?

Yes. You can kind of program that to what you desire, so it can be instant or it can be as long as you want. Typically, instant isn't good in terms of the feeling people get, so it's typically within about a minute, Michael.

All right. Last one is you made the decision earlier this year to stop the quarterly guidance to effectively focus people on the long term because you are in a long-term business. I would say the reactions due to quarterly results since then, in the first, second and now in the third quarter, have been more volatile in terms of your stock price performance relative to the index. Now I know it's hard to separate out the results themselves from things because there are some factors at play. But help us understand, I mean are you going to reconsider? Is this a 1-year trial? And I guess how do you think about the short-term volatility that may be created with less information on a quarterly basis versus the long term?

Yes. Michael, Tim here. It's not our expectation that we change our practice at this point. I hear what you're saying. And there might be little bit more volatility because people's projections maybe a little bit more of a -- just a wider -- a bigger beta just around different sell-side projection on this. But again, we're trying to focus and we really do manage the business for the longer term, and we really think about more annual plan. That's how we talk to the Board, that's how we talk amongst ourselves as leaders in the company, and that's our intent to continue going forward.

Just to add one thing, Michael. I mean I understand we're not providing the quarterly workflow and FFO numbers anymore. But to your comment about providing less information, apart from that, we still provide, as you can tell from even this call, just a robust level of detailed information on the business. And every 6 months, we go through a very detailed reforecast, which is akin to what we do internally here in managing the business ourselves and communicating to our Board. So there is still just an awful lot of information that we do try to provide transparency to investors. What we're not doing is providing the specific earnings number on a quarterly basis. And -- but we do think we give more than enough information for investors to derive their own estimates as they do before.

Yes. No. And I would concur with that comment. Your transparency and the time that you spend, I mean we're already in 1.5 hours on this earnings call, is very much appreciated and I think differentiates the company over the long term. I was just making a note that since you've changed the quarterly policy, your stock has reacted a lot more volatile relative to the index. Unfortunately, the last 2 quarters have been much more negative, that just to think about whether you're achieving the right output with the change on quarterly numbers, that's all.

Fair enough. Thank you, Michael.

And there are no other questions, so I would like to turn it back to Tim Naughton for any additional or closing remarks.

Well, thanks, everybody. As Michael just mentioned, we're about 1.5 hours into this call. So we'll give you a quick goodbye, and we'll look forward to seeing you at NAREIT here in just about 2 or 3 weeks' time.

Thank you very much. That does conclude our conference for today. I'd like to thank everyone for your participation, and you may now disconnect.