Equity Residential (EQR) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Equity Residential Third Quarter 2013 Earnings Conference Call and Webcast. [Operator Instructions] This conference is being recorded today, Thursday, October 31, 2013. I would now like to turn the conference over to our host, Mr. Marty McKenna. Please go ahead, sir.

Thanks, Lilly. Good morning, and thank you for joining us to discuss Equity Residential's third quarter 2013 results. Our featured speakers today are David Neithercut, our President and CEO; David Santee, our Chief Operating officer; and Mark Parrell, our Chief Financial Officer. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the Federal Securities Law. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of such an event. And now, I'll turn it over to David Neithercut.

Thank you, Marty. Good morning, everyone, and thanks for joining us today. Last night, we reported operating results for the third quarter and first 9 months of the year which were very much in line with our expectations. We also provided guidance for the entire year for same-store revenue growth that was right on our original numbers of 4.4%; for same-store expenses that will come in at 3.3%, the high end of our original expectations, as our worst fears about real estate tax increases came true; and same-store NOI of 5.1%, a bit below our original midpoint due to these higher expenses. As expected, San Francisco, Denver and Seattle continued to lead the way with very impressive quarterly and year-to-date performance. And as we discussed on our last call, in late July, new supply in Washington, D.C. is beginning to impact our numbers. 2013 has been a tremendous year for Equity Residential and we're very pleased with the exceptional portfolio we created and with our operating results, thus far, this year. We remained focused on core coastal markets and expect that, with the benefit favorable demographics and the high cost of single-family housing in our markets, to produce very good revenue and FFO for years to come. And last night, we also provided guidance for same-store revenue growth for next year of 3% to 4%. And note, that our same-store set of 2014 will include the nearly 18,500 units that we acquired in the Archstone transaction. Not surprisingly, our revenue growth estimates for next year are impacted significantly by having nearly 19% of our 2014 same-store revenue coming from the Washington, D.C. market, which we expect to produce slightly negative revenue growth next year. More importantly, however, we expect many of our other markets to continue to deliver strong, above trend revenue growth in 2014. To take you through what we're seeing across our markets today and how we're thinking about next year, I'll turn the call over to our Chief Operating Officer, David Santee.

Thank you, David. Before I jump into preliminary 2014 expectations, I'd like to briefly discuss our Q3 operating results that, when combined with our year-to-date performance, puts us exactly where we thought we would be when we gave full-year guidance last October. As reported last night, our Q3 revenue growth of 4.1% was a result of continued strong fundamentals across all of our markets. Occupancy of 95.7% for the quarter, was down 20 basis points year-over-year. However, this is more about our, higher-than-we-would-have-preferred-occupancy, last year, and entering this year's peak leasing season in a position of greater strength. Year-to-date, our occupancy is 10 basis points above plan and increased 10 basis points, sequentially, which creates a solid foundation going into Q4. Renewals in Q3 remained strong, averaging 5.4% and continue to be driven by the Northwest markets with San Francisco, Seattle and Denver all realizing achieved renewal rates that were above Q2 results at 9%, 7.5% and 7.4%, respectively. Forward-looking renewals for October and November achieved, to-date, results remained above 5% for the entire same-store portfolio. Apartment turnover was down 30 basis points for the quarter and 20 basis points year-to-date as pure residents moved out due to price and/or renewal increases. Move-outs due to home-buying for the quarter increased 90 basis points year-over-year consistent with prior quarters, representing an incremental change of only 87 move-outs across the entire portfolio. As discussed last quarter, both inter- and intra-property transfers remained 11% higher year-to-date, representing a much higher resident retention than the apartment turnover statistics might represent. Base rent increases quarter-over-quarter were 2.1% and were greatly influenced by a decline in Washington, D.C. rents of 3.2%. However, based on how we see the market today, we would not expect Washington, D.C. revenue to turn negative on a quarter-over-quarter basis until midyear.…

Great. Thank you, David. On the transaction side, as noted in the press release last night, we've sold $4.36 billion of assets through the first 9 months of the year and expect to sell 1 or 2 additional assets in the fourth quarter, which will bring us to $4.4 billion of disposition for the full year, and that compares to our most recent guidance of $4.1 billion. The increase in guidance is the result of having sold one of our largest single properties this past quarter. And that was in the Mission Valley submarket of San Diego, where we sold 1,410 units in 62 buildings, over 75 acres. This asset traded for $360 million. A confidentiality agreement prevents me from saying what the cap rate was on this deal, but I can tell you it was well below the average cap rate than what we've sold everything else year-to-date. While this was not a must-sale for us in any regard because we, frankly, we like Southern California, a garden asset of this size and age is not terribly liquid and we thought it prudent to monetize our investment while there was a strong demand for Southern California assets and a continued low interest rate environment. So we started our process that produced the bid that we thought made sense for us and are pleased that, that bid delivered an unleveraged IRR of nearly 12% -- 12% over a 16-year holding period. Other asset sales continued our market exits from Tacoma, Phoenix and Atlanta. In a very busy quarter, on the development side of our business, with 3 starts totaling $366 million, bringing our year-to-date starts to nearly $500 million. We also began pre-leasing 4 projects and, during the quarter, we sold 2 land sites. In addition to the $500 million…

Thank you, David. I want to take a few minutes this morning to describe the changes we made to normalize the FFO and some of our other guidance for the full year and give you some color on our recent capital markets activities. For the year, we have provided a revised normalized FFO guidance range of $2.83 per share to $2.85 per share. This is slightly higher than the guidance we gave you in July and it's pretty much right on target with the guidance we gave back in February. The improvement since our July guidance is due to the loan payoff that occurred on October 1, as well as the new loan closing and additional partial loan payoff we expected to have this quarter, both of which are described in the press release. While these activities triggered substantial prepayment penalties in the fourth quarter, they also lowered fourth quarter interest expense and other financing costs. Moving to another guidance matter, we increased our annual G&A to $63 million, which was up about $16 million from 2012. The increase is driven primarily by Archstone-related and other onetime items. These costs are specific to 2013 and will not be part of our normal run rate level of G&A. We anticipate 2014 G&A to be substantially lower than 2013, likely in the low $50 million range. We are careful stewards of our shareholder's money and expect in 2014 to reestablish our customary low level of G&A. We've had -- certainly have had a busy few months on the capital market side. As you saw in the release, we are in the process of repaying approximately $1.8 billion in GSE debt, all in a single quarter, and refinancing $800 million of this debt with a life insurance company. Let me take a moment…

[Operator Instructions] Our first question comes from the line of Nick Joseph with Citigroup.

In terms of same-store revenue growth, next year, at 3% to 4%, while it's a deceleration from this year, the absolute growth rate remains historically strong. Without giving guidance, but looking over the next few years, how long do you expect growth to remain above historical averages?

Well, it's tough to sort of say, but we believe strongly that with the markets that we are now operating in, these urban core markets, and as we look at the demographic picture, the cost of single-family housing in these markets, which is a significant multiple more than average across the country, look at what's happening to what we think jobs are going to be going forward, we think that we are in a position to having a nice and extended run of very strong performance.

Okay. And then, you continue to sell assets in the market. How is the transaction marketing cap rates change with the increase in rates?

Really, not much at all. We think that -- we continued to see maybe slow increases in values of kind of core, core-plus products and have not seen much of any diminution in value of a lesser quality product. This is a very, very -- it remains a very strong demand for both classes.

All right. And then, given what your stock is trading, relative to net asset value, what are your thoughts around share purchases relative to other capital allocation decisions?

Well, I guess I can tell you that having acquired $1 billion, or so, of stock back, it's something that is, certainly, part of our calculus, and will remain part of that.

Our next question comes from the line of Dave Bragg of Green Street Advisors. David Bragg - Zelman & Associates, LLC: You break out that same-store revenue growth outlook into the 2 buckets for us, your legacy portfolio, that same-store portfolio versus the Archstone assets?

We didn't break those out for 2014. I mean -- but based upon performance, there really shouldn't be any material difference. I will say that, when you look at the first part of next year and you look back at the impact to the operations on the Archstone portfolio, just as a result of the announcement, I think that, in the near term, or at least for Q1, we would expect the Archstone properties to do a little better and play catch up from last year. But by the end of the year, their role isn't a material difference.

And so, the Archstone portfolio is overweight D.C., but there's a catch-up opportunity there that will cause it to perform pretty closely to the legacy portfolio?

I guess, our comments, Dave, are sort of market by market, submarket by submarket. So, certainly, because of the overweight of D.C, that portfolio would underperform. But relative to the Archstone assets in D.C. versus EQR, or in Seattle or any other market, we would expect those to perform relatively -- comparably, but for the little bit of pickup we may have in the first quarter, in the Archstone portfolio. David Bragg - Zelman & Associates, LLC: Okay. So you've undergone this transaction, the significant amount of dispositions that you've executed on, yet the stock trades at as wide of a discount as it has in a long time. Can you talk about what steps you are considering taking to close that discount? Maybe elaborate on your last answer, if possible? Or any misperceptions that you think might be out there that are driving this?

Well, I guess, there's nothing more to say about my prior answer, Dave. I think we've demonstrated ourselves as the company willing to acquire stock, we have in the past. And, again, it would certainly be part of our calculus. With respect to just pricing, I can tell you that our team, everyday, sees the kinds of properties that we own and we'll happily own for a long time. Trading today in markets certainly in the 4s and, in some markets, maybe even in the 3s. And so at EQR, trading today kind of in the mid-5s. I think it's quite an opportunity relative towards [indiscernible] trading on a one-off basis out there. So our focus today is just going to be execute, execute, execute. Again, we're happy with the assets we've got. We think they'll remain, I think, an extended period of very solid performance and the stock price will take care of itself. David Bragg - Zelman & Associates, LLC: Okay. Last question is, given the size of the company today and now that you've had time to digest the Archstone assets, how can we think about Equity Residential's opportunities to move the needle via external growth going forward?

So, I'll tell you that we remain a company that has, I think, the capacity to be very opportunistic and the intent of being very opportunistic. We'll continue to sell assets where we believe we ought to, and reallocate that capital into assets in our core markets. We will continue to have a development business. As I said earlier, we'll be a $500 million to $750 million of start per year business. And we'll, again, remain very opportunistic. I think we demonstrated that in 2009 and 2010, and we'll be prepared to do that again. We certainly have got rehabs going across our portfolio that we think, incrementally, will help, repositioning assets across the portfolio. But again, it's -- for the time being, I think it's execute, execute, execute. We've got a couple of billion dollars of starts this year and next year. And also, I think that we've got our hands full and you can expect us to have our nose to the grindstone on those particular subjects.

Our next question comes from the line of David Toti with Cantor Fitzgerald. David Toti - Cantor Fitzgerald & Co., Research Division: Just quickly, what are your expectations for the depth of the reversal in D.C.? Do you see this as being sort of a stark decline? More of a gradual sort of prolonged soft patch? If you had to sort of like think about that market in the next 24 months, what does it look like from a revenue perspective?

Well, I'll let David say a few comments in just a moment. Clearly, there an awful lot of units coming online. Certainly, there remains an extraordinary amount of dysfunction in D.C. And yet, if you look at third parties' expectations of household formation in that market over the next few years, we believe that there will -- these units will absorb. I mean, it won't be pretty maybe getting there, but we think that there will be a lot of incremental demand going forward.

I guess I would add that when you look at the distribution of all these units across the metro area, certainly, a lot of those are downtown. When you start looking at deliveries into 2015, they spread out more to the burbs, which would not be a great as impact to our portfolio. When you add in the Archstone portfolio to next year, many of those communities that we acquired at Connecticut Avenue are virtually insulated from development. So I think it'll just come down to the timing of the deliveries in conjunction with what's going on with the politics in D.C. Another benchmark we just started our lease-up, Belle Pre in Alexandria. We are leasing new units at our pro forma net effective rents and our pace of leases is very robust. I mean the pace of lease-up is exceeding expectation. That can be said for many of our new developments. So when you look back over the last 24 months, base rents have been relatively flat. And then if you go back to 2007, 2008 in the downturn, renewals kept exploding and renewals will offset some of that negative rent increase. And I don't think, at the end of the day, it will be as bad as people think. David Toti - Cantor Fitzgerald & Co., Research Division: Okay, that's helpful. And then my other question, David, is, you've obviously been net sellers for some time. You talked about that very specifically and maybe expected it for a bit. At what point does that reverse? Is it the sort of the potential for an uplift in cap rates? Is it the completion of the disposition strategy? Is it something external that would cause you to reverse and sort of think that there were more opportunities in the market for buying? How do you think about that going into what could be a higher cap rate environment?

Again, we have -- all of our acquisitions, David, have been self funded. So it's really -- do we see opportunities instead of arbitrage, what we can sell versus what we can buy? In fact, I'll tell you that we're working on a deal right now in Southern California that we think we can sort of acquire at a cap rate very similar to the cap rate at which we can sell, something that we think is out in the Valley. So I mean, those -- that's the kind of trading I think we'll do. But as I've said in my -- one of my previous answers, we'll remain very opportunistic. And if there are opportunities to buy and, frankly, they're maybe in Washington, D.C., for instance. I don't think we'd hesitate to take advantage of those opportunities.

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

Did you notice any impact on the D.C. portfolio from the government shutdown in October?

Really, absolutely none. We had made arrangements to work with the government employees should it continue and waived late fees and what have you. But really, we saw nothing that we could -- nothing that was tangible.

But that market has been sort of operating under uncertainty of the sequestration and everything else that's going on. So I mean, it didn't add anything more than I think the weight that, that market had been carrying for quite some time.

Okay. And then David, if you can comment on the performance of A versus B assets in your portfolio in the third quarter, particularly in the markets that saw the increases in supply?

I don't know that we've seen any material differences. I think, again, it comes down to location, location, location. One of our best performing assets in downtown D.C., #1500 Mass, is a 50-year old building. So I can't point to anything that would lead us to think that there's that much difference in the asset class.

And does that kind of hold also for your view for the 2014 guidance?

Yes.

Our next question comes from the line of Rob Stevenson with Macquarie.

David, what's -- with 20% of the portfolio exposure in D.C. now, I mean, is that bordering the upper line -- upper boundary, of your tolerance for any market concentration? Or how do you think about that?

I would say that on an average long-term basis, that probably is at that upper limit. Yes, Rob.

Okay. And then when you're thinking about the -- going through the development pipe -- the development starts over the next couple of years, where's the bulk of those starts going to wind up being? And then are there any sort of ultra big size deals like the Park Avenue asset?

We've got 4 sites in San Francisco -- actually 5 sites in San Francisco, so that would be a pretty good market share. We've also got a couple of sites in D.C. that are kind of on ice at the present time. We've got a very nice site, the Howard Hughes site, down in Southern California. And I think that's generally what you'll see. And then we've got -- and we certainly have some things in Seattle -- in some Downtown Seattle and some South Lake Union sites in Seattle.

Okay. And are any of these, like I said, ultra -- very large assets at the end of the day, especially in San Francisco?

No. They're in the plus -- several are in the plus $200 million range, yes. If that's what you mean.

Yes. I mean, just trying to figure out what's -- when you're talking about $1 billion, is that for starts? Or is that 10 type of...

Well, our focus has been really urban core locations, not suburban, but urban core locations. And those are, by definition, going to be a little more expensive assets. And so you'll see us doing fewer starts, but they are likely to be more expensive, yes.

Okay. And then just lastly, was there any particular rationale for the '14 same-store revenue guidance now versus kind of January or in line with earnings like normal?

A very good question and one that we talked about ourselves. And I guess it came down to the fact that we believe that we had a pretty good handle on it, a good view, that our people across the country, our systems, our process, and the experience that we've got gave us a good enough look at it that -- and when we have that, we felt it was appropriate to share, and that to sit on it for 90 days was not the right thing to do.

Our next question comes from the line from Ryan Bennett [ph] with Feldman and Associates.

Just staying on the lines of development real quick. In terms of your start that you expect over the next year, what's the current yield on developments based on current rents versus where cap rates are in these markets?

Well, in our sort of pipelines, that million -- $1.5 billion or so of pipeline, at current rents we think were low-5s to mid-6s and these are markets all day long, that are in the 4s, and some of these assets could trade in the high 3s on a stabilized basis [indiscernible].

Got it. I appreciate the color there. And then I appreciate all the color on D.C. Just want to know the market that stood out. I know you've been positive on New York in the past, and then it seems like you got grouped into the middle bucket for next year. Just curious if you've seen any pressure on your ability to push rents there recently or anything submarket specific in the New York region that may cause the incremental slowdown?

This is David. I mean, certainly, there are stronger pockets in New York. But I think, generally speaking, we don't see any market-wide slowdown, certainly as you'd move further away from Manhattan. Revenue growth is not as robust. Jersey City is less robust than Manhattan, moving down Fairfield, Connecticut. And we -- so the activity is still in the urban core. And one of the things that we really haven't seen this go around is the moving to Jersey City. I mean, historically, when rents have elevated in Manhattan, we see a pretty strong demand in Jersey City. But we're not seeing this, this go around.

Got it. And then just -- I think you've mentioned the -- move outs due to rent increases was down in the quarter. Was there a particular market trend in terms of where it maybe have been down further or increased in particular markets? Any trends there?

On a quarter-over-quarter basis, as an example, Denver sticks out in my mind. That was down -- compared to Q3 last year, down 600 basis points. I'm just kind of scanning the markets. That's probably the most notable, I would say. Everything else is maybe 100, 200 basis points.

Our next question comes from the line of David Harris with Imperial Capital.

Let me have another crack at the share buyback question. If I remember correctly, you are amongst the most active of share buyback companies, and your Chairman was very vocal about being capital -- good capital discipline. I applaud you and him for that action. If I think back, then, was your decision to buyback principally driven by discount to net asset value? And how are you thinking that, that might be any different in today's environment?

Well, I guess, it was. I mean, we just looked at what we thought the fundamental underlying value was of our assets and looked at what that was relative to our stock price and thought that the stock market was trading those assets at a significant discount. And again, as I've mentioned several times already today, we own assets today that there is an extraordinary demand for by institutional investors that are paying cap rates in the low 4s and perhaps even high 3s, yet our stock today is trading at an implied cap rate that is representative of a lot of the assets we've sold in commodity markets over the past 9 months. So again, we pay a great deal of attention to that, we pay a great deal of attention to that as we buy assets, as we start new development transactions. So I'll just -- not sure what more I can say on that matter except that we do paid a close attention to it. And as you noted, we were amongst the most aggressive back when an opportunity presented itself some time ago.

All right. You have re-uped your buyback and your share issuance programs after the Archstone deal closed. I think it was around second quarter. Has the board reviewed capital allocation, in particular, with regard to share buybacks recently?

Well, I guess, the board reviews most everything when we gather on a quarterly basis.

When was the last quarterly meeting?

In September.

September, okay. And then another question here on Archstone. Now you've got your arms a little bit more around the portfolio. Is there any thought to revisiting corporate leasing and condo activity, again, as we look forward?

I guess I'll let David address the corporate leasing side. On the condo side, there has not been. But I do believe that we will see good condo demand for the kinds of properties we own in a not-too-distant future. Now what action we take as a result of that remains to be seen. I would not expect us to play in the manner in which we did back in the early -- the middle 2000s around what we did in Florida and Arizona, but I do believe we're certainly seeing interest of condominium people looking for land sites. We're seen more potential demand there. So I think that, that is something that we'll see, as I said, in the very near future. Now with respect to corporate leasing, David?

With respect to corporate leasing, spending my first 10 years in this industry at Oakwood Apartments, taking corporate leases feels good when they come in, but there's a long tail when they move out. And one of our goals, over the past 12 months, is to continue to add more strategy around when and where and how many corporate apartments we take. It certainly does not fit into our branding expectations of creating long-term loyal customers. And so I think we have been trying to wean ourselves off that drug, so to speak, and we'll continue to evaluate on a transaction-by-transaction basis.

What do -- what these corporate leases represent as a percentage of the portfolio today?

In our portfolio today? Gosh, I mean, again, you have to kind of define what you mean by corporate leases. There are many -- in New York, we have lots of missions and types of apartments like that, that have been with us for 10 years or so. So it's very -- it's not as easy just to say we have this many corporate units. But we're definitely trying to get out of the short-term block of business type corporate function, especially in the world -- or the era of Airbnb. Airbnb is creating some very unique challenges for owners in, especially in New York City and Seattle. And that's something that we have to keep in front of us.

Okay. I mean, if we use broad terms of definition, are we talking 2% or 3%?

I would say probably closer to 4%.

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

Mark, did you say, I don't remember -- I don't know if you said it explicitly, but did you say that you get -- you breakeven for the $150 million of prepayment costs in 2017 with lower -- assuming the lower interest rates?

Rich, so what we did is we took a look at what rate in 2017 we would need to refinance the debt at.

The remaining debts.

Yes. I kind of regret the $800 million being refinanced now at 4.2%. And that rate is a little less than 4%. So if prevailing rates where 4.25% and higher, we would -- this decision we just made will be a good one financially for us. And if it was -- if rates were 3%, then it wouldn't be. But we did think that, that was a good way to kind of hedge out. That's a big exposure for us in '17, we have a lot of debt due in that year. We also had all these other things we were trying to balance out. So that was the analysis.

Okay. And then do you think that this is kind of the last of the kind of reset activities that you might have related to capital markets transactions for Archstone? Or will there be more to come?

No, I think we're done. I mean, the important message to kind of get across here is we needed to get our hands on $9 billion of capital to fund Archstone, and we did $4 billion plus of that through the dispositions that were right on -- on the numbers we thought, right on NAV. We raised $3 billion through the equity market and $1 billion directly and $2 billion through Lehman and we think that blended price was good. And we needed to make the debt stack make sense. So that other $3 billion or so that we assumed had a duration, Rich, of like 2 years. And so we had a bunch of debt on assets we hopped on 10 or 20 years that has a duration of 2. And by doing what we did this quarter, we have fixed that and we can move forward. And I think the capital structure is balanced.

Okay. Turning to the 3% to 4% revenue growth. Can I just -- can you characterize that for me? Is that kind of what you would get next year from like a loss-to-lease perspective if nothing changed in the markets, and so kind of like a static view? But if market rents increased, that number would go up? Or is that a view of what -- how markets might behave incrementally next year as well?

So Rich, this is David. So we don't use loss-to-lease. Basically, we look at the value of our rent roll in December and pretty much multiply that times 12 and divide it by 2013, and that gives us our embedded growth. We're going to assume that occupancy remains, for the most part, steady. And so that embedded number is 1.9%. So if the value of our rent roll remains constant all through next year, all other variables are constant, then we do a 1.9%. As -- beyond that, it's really a market by market looking at our rent trend reports, kind of estimating what we would expect in rent growth based upon what we've seen this year and what we expect from deliveries and just general strength within the market. And then we take a percentage of that number to get a market-by-market number. And then it's just a matter of weighting that -- weighting all those numbers and throwing them into our model.

Okay. So if you said that 1.9% number earlier, I apologize. But do you have a conservative factor baked into that range? Or is that really -- you expect to hit 3.5% next year as you see it today?

Well, I guess the only way that I could answer that is that if you look back over the past 2, 3, 4 years, we've kind of been dead on in our guidance -- in the midrange of our guidance.

Okay. And then just looking at this recurring trend, and this might -- I don't know if this is just a reclassification issue, but I've noticed property management cost seems -- breaking at the same store has been on the decline this year versus last year. What's the reason for that? It's down 9.8% this year.

Well, I'm sorry, you're talking about prop management cost closure or prop management cost split between same store? I want to make sure I understand your question.

Yes, I'm looking at Page 15 of the supplemental. And historically, property management cost this year had been down by anywhere from 4% to 10% relative to last year. Basically, the oversight costs, district management and all that kind of stuff. I'm just wondering what...

Yes, these are the centralization and scaling initiatives that David Santee has led here at EQR. And it has gone very well for us, and we hope to continue to harvest some of those benefits. I mean, we're just much more concentrated now, and all the back-office functions that lead into property management has been kind of evaluated and resized to support that more concentrated portfolio. So that's what we're seeing.

I guess my question is, how do you expect that to trend going into future years?

Well, that's going to be harder to trend at the same rate because as we exit markets and are able to exit the infrastructure of those markets, that's where a lot of that is also rolling off, right? We managed to bring these Archstone assets on -- $9 billion of Archstone assets, sell $4.4 billion of assets, and we'll have fewer people running that larger portfolio. So no way we'll be able to sort of see the same improvement or same year-over-year change as we've seen initially. I have every expectation that David and his team will continue to squeeze as much out of it as they possibly can and you certainly would not expect to see this same kind of run rate.

Do you think there's more synergy type of opportunity left? I assume there is going into 2014 with the Archstone investment?

Well, yes. I mean, we -- our focus for the next couple of years will most likely be on the service side. So there remains opportunities in consolidating operations at the property level. And in addition, we did make some more senior-level changes in the property management organization in the past month that will contribute to below-average growth in property management cost for next year as well.

Our next question comes from the line of Alexander Goldfarb with Sandler O'Neill. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Two questions. Let me first pick up from Rich on the Archstone. In touring with us, I mean, your field folks, over the past several months, a number of them noted that there was some immediate pickup in Archstone where they were just able to do things much better and be ahead of expectations, and yet the commentary that you guys provided was sort of that Archstone was in line with expectations. So is this sort of just a difference between sort of at the local -- sort of very local level versus what you guys see from the Chicago level? Or is it that initially, there was a bunch of pickup, low-hanging fruit, but then as the portfolio became integrated over the course of the year, that most of that low-hanging fruit sort of went away and now it's basically in line with what you're expecting?

So this is David. I guess long answer to the question in 2 directions. First, a lot of the savings that we've realized were accomplished as soon as we plugged those properties into our portfolio and just our operating process. On the other hand, we did bring over all of the Archstone employees, meaning we offered everyone a job, we gave time -- we gave people time to integrate, we've made more selected personnel decisions, and that took from March until the end of July to accomplish that. But again, that was underwritten as well. So we always have higher expectations on our budgets. And I think for the most part, I don't think there's a big difference in what our people on-site are saying and what we're believing as well. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay. And then the second question just goes back to David Harris's questions on the share buybacks. If we look at the share buyback and basically rewarding shareholders from a different perspective, let's just sort of assume that the REITs are what they are, I mean, you guys are not alone in trading below NAV. I mean, you can go to other sectors and everyone's got a similar issue. The buybacks, in theory, should help, but in practicality, whether they move the stock or not, there may not be a direct link. Versus if you guys just increase the dividend even if the stocks remain as is, at least shareholders are getting more money today, more cash flow. So you guys have an AFFO yield of about 3.5, you could, I mean -- sorry, dividend yield of 3.5. You could have -- you have an AFFO yield of close to a 5. Why not just increase the dividend and say -- and reward shareholders for sticking around and holding the stock, versus the stock buyback, not that you guys are necessarily doing it right now, but a stock buyback where you're hoping the market reacts, but the market may not react and current shareholders may not be necessarily any better off because they're still getting the same dividend and maybe the market, just for whatever reason, doesn't want to recognize the discount to NAV that is demonstrated by selling assets and buying back stock?

Well, that was a mouthful. I guess it was an awful lot of theory about -- dividend theory about whether or not you're creating value by giving your -- distributing more to your shareholders or not. We'll just put that aside. We believe that the right way to run the railroad is the dividend policy that we've got right now, which is to distribute 65% of our normalized FFO and to retain some capital for -- fund our development, for incremental investment, for a rainy day, what have you. We think that's the right way to do that dividend. We are -- we will be making a presentation to our board at our next meeting about changing the manner in which we pay that dividend. Again, this is all subject to the board approval. But thinking about paying that dividend more pro rata across the year as opposed to smaller payments in the first 3 quarters and then a true-up in the fourth quarter. But I guess I'll just say, as I said again, we certainly appreciate and recognize the discount of what we're trading today. I think we've taken the appropriate actions in the past and demonstrated that we think that way, and we won't hesitate to do that going forward. We think that's the right thing to do. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay. No, I mean, I just said because you guys can fund developments through dispositions, and as you indicated, the development pipeline will be coming down. So there's -- it would seem like the company -- the free cash flow generation is definitely manageable. And if there's less need of it, hence, thinking that maybe it could just go back to more to shareholders. But yes, we look forward to the next board meeting, I guess.

Our next question comes from the line of Ross Nussbaum with UBS.

It's Nick Yulico on the line. Turning back to the revenue guidance for next year. I was hoping you could provide some of the major factors that get you to the bottom, middle or top end of that range? I mean, is the big sensitivity where job growth settles up?

This is David. I mean, we've never really factored in job growth. We build our expectations from the ground up, what's going on the neighborhood of our communities. Certainly, if we had an environment of more robust job creation, we would feel much better about that, especially for 2014 considering that will be the peak of new supply.

Okay. Because, I mean, the reason I asked is because there's this feeling that there's pent-up household formation that could happen in this country, but we're not creating enough jobs to get that household formation. So it sounds like what you're saying is when you're looking at your guidance for next year, you're basing it on what's going on in your market now where job growth at the national level has been anemic even if it's strong in the west. So I'm wondering, is that correct and that your sort of -- if job growth goes back above 200,000 a month on a national level, does that mean that, that's likely additive to revenue guidance -- revenue next year?

I guess I would say that when we run the numbers, we look out the next 12 months. We either feel like there could be a catalyst or not. And we kind of feel like there's not and that job growth will continue to run in the 150,000 range and anything above and beyond that will be favorable to our business.

And we'll get -- and then we'll help get the 3 million additional 20 or 30 year olds that are living with mom and dad out of the house and get those missing households back into the marketplace.

So that's not factored into guidance, that's an added benefit?

We look at the economies and sort of see it operating today, not robust growth, 150,000 or so jobs a month, maybe 170,000 or so, I guess what they've done year to date, and just kind of roll that forward. But we also do -- as David said, we really look at this neighborhood by neighborhood and submarket by submarket and give our best guess. And if -- let me tell you, if we took 7.2 unemployment down to 6.5, and that's -- that job growth significantly changed, yes, that will be certainly be helpful on the upside, and it sure would help in Washington, D.C.

Okay. Just one other follow-up. I think you said earlier that you categorize the Northwest as the market next year that would be above 5% revenue growth. Specifically, which cities are falling in the Northwest? And what is the percentage of NOI from the same store that's in that over 5% bucket next year?

So that would be the combined results of Seattle, San Francisco and Denver. And if you want the same-store percentages, I'll probably refer you to Page 9 where we're telling you what the portfolio looks like at 9/30/2013, not same store, but in its totality, because our total unit count, same store as versus total units owned are going to be very similar. So you could see that San Francisco there is going to be 12% or so of our next year same-store NOI, for example.

Our next question comes from the line of Andrew Rosivach with Goldman Sachs.

This is Jeff on the line for Andrew. I'm just going back to D.C., about 33% of our portfolio you bought from Archstone was in D.C. by NOI. And you've highlighted that D.C. will be your weakest 2014 market. Did the Archstone operating income meet your acquisition underwriting?

Yes. I mean, I don't think we thought any differently about D.C. when we underwrote the Archstone portfolio than we thought about our own.

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

David, on the current pipeline -- the development pipeline today, where do you see yields coming in at? And how is that comparing to underwriting as you start leasing on a few of those? And then as we think about starts additionally in the back -- in the fourth quarter and into '15, where are yields penciling on that relative to recoverable acquisitions are today?

Well, again, of our -- the products we have under construction -- let me back up. What we have delivered and delivered recently has done very well and will meet or exceed our expectations. And some of those deals are in the 8s, okay? So those are the things that we would have bought very low land prices back in 2009, 2010. So those have probably exceeded our expectations, and many of those are in the 8s. What's under construction today, so that which we will deliver very soon, is in the mid-5s, and some of those are even in the low 8s. The pipeline, so those being assets we have not yet started, at current rents, we think those are low-5s to mid-6s. And again, if one where to trend rents, and again, that's not a terrific science, but we think some of those deals would stabilize in the mid-6s to also mid-8s. And again, as I noted, we are in the market -- in the core markets today. The kinds of quality of assets that we now own and operate in these core markets will trade in the mid-4s, low-4s all day long and some of them probably even in the high 3s.

Great. That's helpful. Second question, obviously, as you've been going through the repositioning process, disposition has been elevated. As you think about dispositions for next year just in terms of sources and uses, I mean, what should be a normalized kind of run rate for recycling for EQR kind of going forward? And then just as a bookkeeping thing, what was the -- where were the 2 land parcel sales? Were those legacy Archstone stuff?

I guess with respect to the elevated levels of dispositions, I can tell you that we are done. We have, for many years, been selling $1 billion, $1.5 billion, maybe even $2 billion, reallocating that capital into our core markets that have been doing so at cap rate spreads between 90 basis points, 60 basis points, as wide as 125. That business is over. What you'll see us do going forward is what I indicated -- we're working on L.A. right now, where we believe for the same cap rate, we can sell an older garden property in the valley and reallocate that into a mid-rise property in a downtown. So you'll see -- I don't know what the volume will be because it will be more a function of what's available and how we think we're going to fund it. But you'll see the spread between what we buy and what we sell narrow considerably, and it will be more tactical. The larger sort of strategic work is done and it will just be more sort of local and more tactical. The land sites we sold, one was the legacy site that we've had for quite a while in Chino Hills in Southern California. And then we sold an Archstone land site in which we had a 23% interest in the San Diego market.

Okay, that's helpful. And finally, David Santee, if I missed this, did you say where renewals went out for November and December?

Let's see. For November, what they went at -- renewals went out for November at 7.4%. And we achieved -- yes, it's a little early to quote our November. But we're already at 5%. I mean, when people get the lower increases, they pretty much sign immediately. So the closer we get to expiration date, the numbers climb. But for December, we sent out a 7.9%. And we have achieved a 4.3%. But again, that number will grow substantially.

The typical moderation is about 100, 125 basis points, if I remember it correctly?

Correct.

We have a follow-up question from the line of Nick Joseph with Citigroup.

It's actually Michael Bilerman. David Santee, the 1.9% static number you gave heading into '14, what would that have been heading into '13 as a proportion of that 4.5% growth?

It was a 2.3%, if I remember correctly.

So as we think about '14 effectively in the guidance, just probably a little bit lighter in terms of rent growth assumptions in '14, what will you have expected heading into '13, in explaining the change?

I guess -- are you asking about '14 or...

Well, I'm just trying to think about if you have -- when you're heading into 2013, you had 2.3% locked in of an 4.5% growth profile. Now as we look towards '14, you have 1.9% set of a 3.5% growth profile. The slight diminution has to come from your expectation on either turnover, rents, renewals, new leases and how all that blends together.

Yes. Well, I mean, a lot of it is just -- it's an entirely different portfolio with different weightings. And I think I said earlier in the comments that Washington, D.C. will weigh down the portfolio. So I think you have to kind of really look at it market by market and the contribution -- of percentage of revenue in each market and then the expected rate of change for next year.

Do you have any sort of details on looking at what your expectation is for renewals in '14 relative to what it was in '13 and whether that's playing a part or sort of what your expectation is for base rent increases versus for new leases versus renewals?

Well, we certainly -- I mean, that's how we build our model. So we certainly have expectations. And a lot of those -- I mean, renewals are pretty much a function of what we've accomplished this year and assuming that you will have rent growth next year at specified levels.

I'm going to come back to the share buyback just for, I don't know, the 5th time. Is there any reason why -- well, 2 parts. One, is there any reason why you haven't done it? You talked in September at a conference saying that the stock was one of the best options that you had, but you hadn't bought any stocks since then. So I don't know if it was a blackout or anything. Is there any reason why you haven't done it yet?

This company has done an extraordinary amount of very successful and very value-creating work this year. And we've had to deal with a great deal of execution risk in getting the Archstone trade done. And really, that has been what our focus has been; making sure that we got the disposition done as we said, at the prices that we had hoped to get, the balance sheet restructuring that Mark has done, putting us in a position where, frankly, we could consider such a thing. And as I said before, and hopefully we can put this matter to bed, at least for this call, that we will continue to consider going forward. So we needed to get ourselves in a position, Michael, where we could do that.

And I assume just given the fact that you're on GGP's board and you're comfortable, I assume, of going direct to a shareholder and buying a block of stock, that should factor into the calculus as well or not?

I mean, I can't say anything about that, so I guess we'll leave it at that.

I mean, I guess with that said, would you be aggressive in going after Lehman and then saying, look, we're...

Michael, Michael, I don't know what more I can say on this particular matter. So why don't we just leave it there?

We'll move on, okay. Last one just expenses. As you think -- as you look towards next year, you talked about your worst fears on the real estate taxes coming true, driving the expense growth to 3.3% for the year. How should we think about the dynamics in '14 between taxes and all the other expenses which you did keep to only have 1.5% increase? How should we think about that trend line into '14?

Well, I think in my comments as I said when you do the calculus on a fixed handle [ph] real estate tax, that being 35% of our total expense makeup and we -- we're going to assume that we have very minimal growth across all the other account lines with some savings in property management, I don't -- I guess I would say next year looks very similar to this year.

Okay, good call on changing the dividend policy.

Our next question comes from the line of Derek Bower with ISI Group.

I just had a quick follow-up on guidance. Could you quantify what the boost to 2014 same-store revenue growth would be from the rehab spend, particularly on the Archstone portfolio?

It's not enough to move that meter.

Our next question comes from the line of George Hoglund with Jefferies.

I was just wondering if you could give a little bit more color on the transaction environment in markets that have been seeing new supply, and more specifically in Seattle, where you've seen some of your competitors buy some of these newly constructed assets?

Well, as David, I think, said in his opening remarks, Seattle has absorbed a lot of new units. It's been one of our top performers and we expect to continue to be a top performer on the operating side. And there continues to be a lot of demand by institutional investors for sort of core-plus and lesser-quality assets in that marketplace. So I guess it's across every market in which we currently operate, and we think the markets in which we no longer operate, based upon what we've seen in selling a lot of assets and commodity markets, there just remains very strong demand for good quality, cash flowing assets like multi-family.

There are no further questions at this time. Please continue with your closing remarks.

All right, thank you very much, Lilly. Thank you, all, today. But before we close the call, I want to say a few quick words about our friend and colleague John Collins. Well, some of you may know but most of you may not know, John has decided to retire after a distinguished 19-year career at Equity Residential. During these last 19 years, John has played a very important role in 80 earnings calls, 40 NAREIT conferences and hundreds, if not thousands, of investor meetings across the country. Today is John's last earnings call with us. Next month will be his last NAREIT conference. And so I ask you all, please don't forget to say your farewells to John in San Francisco next month. On behalf of everyone at Equity, I will tell you we will miss John's wit and his wisdom as he transitions to life's next great adventure. We thank him for his many contributions in making Equity Residential such a great and highly respected company. Thank you, John, and thank you, all, in the call for your time today, your interest in Equity Residential. We'll see you in San Francisco.

Ladies and gentlemen, this concludes the Equity Residential Third Quarter 2013 Earnings Conference Call and Webcast. You may now disconnect.