Good day, and welcome to Essex Property Trust Fourth Quarter 2016 Earnings Call. As a reminder, today's conference call is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risk and uncertainties. Forward-looking statements are made based on current expectations, assumptions, and beliefs, as well as information available to the Company at this time. A number of factors could cause actual results to differ materially from those anticipated. Further information about these risks can be found in the Company's filings with the SEC. When we get to the question-and-answer portion, Management asks that you be respectful of everyone's time and limit yourself to one question and one follow-up. It is now my pleasure to introduce your host Mr. Michael Schall, President and Chief Executive Officer for Essex Property Trust. Thank you, Mr. Schall, you may begin.

Thank you for joining us today, and welcome to our fourth quarter earnings conference call. John Burkart and Angela Kleiman and John Eudy is here for Q&A. This morning, I will comment on Q4 results, market conditions and investment activities. 2016 was another successful year for Essex even the though operating environment became more challenging with each passing quarter. Apartment supply deliveries with large lease concessions intensified the normal seasonal slowdown in apartment demand that occurs every fourth quarter. These factors underlie our Q4 same property NOI results, which hit the midpoint of guidance range and a $0.01 per share beat to core FFO. I believe that our operations team did a good job of managing the portfolio given these conditions and we greatly appreciate their effort. We have noticed that consensus estimates for our 2017 FFO have risen in the past six weeks, attributable to an expectation that the U.S. economy will strengthen improving the outlook for apartments. Clearly, we agree that a better economy will produce more housing demand. Although the timing of that improving is debatable. As anticipated and discussed on last quarter's earnings call, we experienced a challenging fourth quarter and a slow start to 2017. In the near-term, we continue to experience deliveries of apartment supply with large concessions, particularly in Northern California. Loss-to-lease, which is defined as market rents minus scheduled rent was negative as of year-end and should rebound as we approach our peak leasing season. Therefore, any positive impact from an improved economy is not apparent at this point and therefore likely won’t materially impact our outlook for 2017. Generally speaking, our 2016 expectations for the U.S. economy were too optimistic both in terms of GDP and job growth. With respect to job growth, the most disappointing result last year was the…

Thank you, Mike. The ESSEX team had another solid quarter delivering total same-store revenue of 5.8%, and NOI growth of 7.1% relative to the comparable quarter. Our performance was impart related to our strategic decision to save our occupancy. The team did a great job executing our strategy and increasing occupancy by 70 basis points relative to the comparable quarter. In 2017 to maximize revenue, we will favor occupancy, yet take advantage of market strength as the opportunity presents itself typically in the summer. I'll now comment on the each of the major markets from the North to the South. The economy in the Seattle MD continues grow by the rate well above the national average, fueled by both the major well-known technology employers as well as the developing technology ecosystem that is nurturing numerous system start up and smaller technology firms similar to the ecosystem in Silicon Valley. There are over 30 technology focused co-working office spaces and about 20 accelerators and or incubators. The top nine angel networks and 15 venture capital firm have made over 1200 investments in the Puget Sound area. Employment grew at a rate of 3.7% for the fourth quarter 2016 over the prior year's quarter adding 59,300 jobs. Office absorption was 2.6% with 5.9 million square feet under construction, 46% of which is pre-leased. Numerous leases were signed in the quarter by companies such as Facebook, Amazon, Pokeymon, Snap, Big Fish and Big Titan, with activity focused in the South Lake Union and Bellevue Market. Each of the market performs well with respect to the fourth quarter revenue growth with the CBD submarket achieving 6.6% and the East, North and South submarkets achieving between 8% to 10% revenue growth relative to the comparable quarter. Onto the Bay Area where the economy continues to…

Thanks, John. I’ll start with the brief review of 2016 results then focus on 2017 guidance, capital markets activities and the balance sheet. 2016 was another good year for Essex, we generated same property revenue and NOI growth of 6.7% and 8.1% respectively. In addition, we achieved core FFO per share of 12.4% for the full-year which exceeded the midpoint of our original guidance by $0.12 per share. Turning to 2017, our same property revenue growth of 3 in quarter percent at the midpoint reflects our view that rent growth in our market will moderate to the long-term average following five years of exceptional growth. We also expect same-store revenue growth to be lower than the market rent growth published on 2016 as current in place rent are slightly above market. Our operating growth forecast is 3% resulting in NOI growth of 3.4% at the midpoint. As for the FFO guidance, we continue our track record of driving operating results to the bottom line and are projecting core FFO growth of 5.8% at the midpoint, which is 240 basis points higher than our projected NOI growth rate. A complete list of assumptions supporting our FFO guidance range can be found S-16, S-14 of the supplemental. Moving to capital and funding activities. In 2016, we funded our investment activities with disposition proceeds and joint venture capital in lieu of issuing common stock. We expect to maintain this funding plan in 2017 with the common stock pricing remains unattractive. We are cognizant of changing market conditions and are focused on allocating capital appropriately in Salta. For example, in the fourth quarter, the $185 million acquisition in Valley Village was funded by contributing four wholly owned properties into a newly formed joint venture where we have retained majority ownership and it is what…

Thank you. At this time, we'll be conducting a Question-and-Answer Session. [Operator Instructions]. Our first comes from Jordan Saddler with KeyBanc Capital Markets. Please go ahead.

Hi, it's [indiscernible] here with Jordan. I was wondering if you could provide a little color on your Southern California outlook of 3.5% to 4%. How that breaks off across the various submarkets, you mentioned an Orange County having significant supply this year. So some color on the various submarkets would be helpful.

Sure, this is John. The submarket that what we're seeing going forward is Irvine and downtown San Diego are going to get hit with more supply significantly more than they had this year. So those areas most certainly would be weaker. As we look at the on the job side, the LA market slowed down quite a bit in employment just broadly, but yet supply is kind of in the zone. But the big hits on supply big changes would really be in the Irvine area, we don't really have assets, very many will be impacted by that and then downtown San Diego. Does that give a little bit more color on what you need or are you looking for more?

No, no that's helpful. And then just Northern California, I was curious it sounds like it's going to be a little bit volatile or choppy at the beginning of the year with the deliveries more heavily weighted. How would you expect sort of the quarter-by-quarter trends to spread across throughout the year across Northern California? I mean do you expect it to snap back in the second half of the year or once concession begin to abate or more of just stabilization.

Yeah I would call it more stabilization. But one of the good things last year I used the word choppy I’m kind laughing to that we're using it now. A lot of the impact of the lease ups is really in the market rent, as last year was kind of transitioning in, so things were somewhat choppy. I think going forward it will be softer in the first half as we continue to absorb the supply. As we get into the second half, I think what is going to happen ultimately is some of the concessions are going to evaporate. And so it won't be like a pure snap back, but if you think about it a property giving two months concession, if that goes away as they finish lease up that's effectively a 15% rate increase. And so ultimately as we move through the year, I think the market will move up a few percent, some of the new lease ups are going obviously be reducing the concessions, and so they will see better rental strength, but not necessarily pushing rents up, per say coupon rents. As we roll into 2018, we should be in a pretty solid position for a good year in 2018.

Great. Thanks for taking the questions.

Our next question comes from Juan Sanabria from Bank of America. Please go ahead.

Hi good morning. Still just wondering if you can give a little bit of color on, you talked a little bit loss-to-lease, kind of what you are expecting on new leases, may be across three regions and the spread to renewals you are forecasting. It sounds like you are saying Northern California new lease growth could be negative but, if you could just give us a little on that that would be fantastic.

This is Mike, thanking for joining the call. Our January to March renewals are going out at somewhere around 4% and within that Seattle and Southern California are in the 5% range and Northern California is in the 2.5% range. So that should give you some idea. As to sort of follow-up on what John just said, because again we expect the supply and hangovers John said to clear over the next six months. And from that point market should recover. The issue that we have is that for market rents to recover, it takes time before it really hits the bottom line. And so I think this year is one, first couple of quarters being pretty challenging especially Northern California, but in the several others Southern California submarkets is well. And then as we get into the second half of the year, feeling much better about resumption in pricing power and again, where this weird dynamic where the 1% that are leasing up apartment are effectively setting price for the 99% stabilize donors. So when that clears the market, we think it will be a much different environment. Unfortunately we will be probably at that point in time in July or August and there are just not that many month, that we can turn the corner with respect to the rent that actually get reported, because there are just not enough months left. So, I think those dynamics what we see happening on market rent looks much better in terms how they get the number is the part that we think lags and its causing the little bit getter lag then expected as it relates to same property revenue.

Okay great and then so for concessions, how are you guys seeing about it, I guess Northern California specifically is the level going to be pretty similar 2017 over 2016 for the year as a whole, any color there in terms of how 2017, because just because of the supply is still pretty elevated on an year-over-year basis in 2017 and how you guys have approached that?

This is Mike again, and again it varies dramatically by market, like right now for example in Sunnyvale which is just north of San Jose, there are eight leases ups in the marketplace. And therefore as you would expect, because they are all trying to get 25 to 30 units a month. it's not surprising that there is six to eight weeks of concessions in the marketplace. That is not true for all of Northern California that is that specific submarket and really is derived from the number of lease ups that are competing against one another. Fortunately I think the trend for concessions is getting better, although slowly in the fourth quarter off course you have two phenomenon that are affecting price. One is the normal seasonality in the marketplace where demand drops off in the fourth quarter and the second is the continuation of delivery and supply into the market. So those two factors together I think is what really caused a very weak Q4 relative to other Q4s. So I think Sunnyvale being the key example where we have lots of lease ups in the marketplace. Salta market is probably near that around six lease ups, one to two months free and some of the other submarkets in northern California continuing to improve. So with demand resuming as we approach our peak leasing season, I think that the level of concessions will be starting to scale back as these deliveries come online and by the time we get into the summer, I think we are going to be look at much better scenario in terms of less concessions and better pricing power.

Thank you.

Our next question comes from Gaurav Mehta from Cantor Fitzgerald. Please go ahead.

Thanks. A c1ouple of question on investment activity, I was wondering if you could provide more color on the expected development stuff in 2017 and how are the yield expectations for new starts versus last couple of years?

Well Mr. Eudy is here, so I'll let him handle that one.

We have as many as three starts plan for this year, all of which are land yield that we negotiated two, three, four years ago and titled prior to the current exaction that are being asked for on new deals being transacted with various cities. And relative to the amount of exposure compared to say two years ago, our peak will be stabilized out a third where we were at the peak, if I heard your question right.

That’s helpful. And then as a follow-up you talked about dispo JV as form of expected funding in 2017. So I was wondering the $400 million to $700 million guidance that you have for dispositions does that include assets currently going on JV or is that only for wholly owned dispositions?

The guidance is a net number, so it include disposition. Is that what you are asking?

Yes sorry I didn’t include both dispositions as well as the asset that you will contribute in a JV.

Right. So its 400 million to 600 million in our guidance range of acquisition.

Yes, 400 million to 700 million in disposition. Dispositions probably will include some dispo JV activity, but it will also includes the continuation of calling the portfolio. And so there is a couple of different disposition strategies, one of them is call the portfolio, in other words, the property that don’t perform up to the level that we expect and we expect the underperformance to continue we will sale those assets out right. Then there are some properties that have decent growth rates and decent operations and they will become dispo JV possibilities. One of the things about dispo JV is we can again through management fees and promote and some other savings opportunities, we can get a higher yield on dispo JVs. But we are only going to do that obviously for properties that we want to own for the long haul. And then every once in a while there is an opportunity to sell an asset and reinvest at a higher total return expectations. So we will pursuing all three dispo strategies and it’s difficult to tell you right now how much will fall into each bucket.

Okay. Thank you.

The next question is from Tom Lesnick from Capital One Securities. Please go ahead.

Hey everyone. I guess first off, I know you guys mentioned preferred equity investments that you originated a couple or converted one in 4Q. As you look out to 2017 especially given the development market right now, how do you view the size of that market and how that will trend through 2017, is that a fairly significant opportunity there or is it just kind of one up opportunities.

Hi Tom, it's Mike, I would say that it is market that we see a fair amount of opportunity, we have a goal of about a 100 million, most of that related to apartment development transactions, again these are properties in our core market that we would otherwise like to own, but they don't generally hit the yield thresholds that we would be willing to put our own money into them as a common equity owner. And so we see 100 million as being a goal that is achievable, but there is a lot of transactions out there candidly that are falling below the yield thresholds that will allow that to work and as time goes on we see more and more transactions that the going in cap rates are so low that you can't layer in a preferred equity piece with a 10% to 12% coupon and make the numbers work. So I would say that we have a decent pipeline, we have good reputation in the marketplace, but I don’t think we would be able to for example double the $100 million goal. I think that we will get four or five deals done, it will be around 100 million and that's probably what is likely to happen this year.

That's very helpful. And then I guess bigger picture, how are you guys expecting, I don't know, have you guys done any studies on how immigration policy might impact your major markets over the next four years. Do you have some sense as to the number of H1-B visa residents in your portfolio?

We have a substantial number of H1-B residents in our portfolio, you have this huge purpose in my prepared remarks of talking about the number of open positions within these big tech companies really highlights that issue. The H1-B program in general allows 85,000 H1-B visas to be granted annually, I think that happens on April 1st. I think they are somewhere between 500,000 to 600,000 people in the United States on H1-B visas. I don't know where they are per se, because that is not disclosed so. But it's an important factor and I don't think we know what is going to happen with respect to policy coming out of the new administration for this and a wide variety of things. And so I really can't go there, I can say that from our perspective, we are a big fan of allowing the best and brightest of the world to come into the U.S. and I think that's really important that that happen. I saw a statistic the other day which I think kind of underscores this, which is about half of the U.S. based unicorns were founded or cofounded by immigrants, which seems to be a pretty compelling and amazing statistics. So as it relates to policy going forward, I don’t think we can predict what is going to happen, I’m hoping that the groups of people from Silicon Valley that are meeting with the administration are making the same point that we’re making now. But we’ll have to wait and see what happens.

All right. Thanks. I appreciate the color.

Our next question comes from Nicholas Joseph from Citi. Please go ahead.

Thanks. Just want to clarify your expectations for the same-store revenue growth in 2017. Decided consumer deceleration on a quarterly year-over-year basis throughout the year or does it assume a stabilization in the back half?

We are assuming a stabilization in the second half as the supply pressure abates a little bit more and also the fleet work through the concession that both Mike and John commented earlier.

Okay. So, I know its little early for 2018, but would it be fair to state getting your comments about economic growth and what supply that you might see a reacceleration into 2018?

This is Mike, Nick. You know how we are, we are more conservative. But I certainly would think that 2018 is shaping up to be a very good year. This year the problem is that we start the year with a gain-to-lease or schedule rents are above market rents in Northern California by 3.5% and - I'm sorry by 1.9%, excuse me and overall in the portfolio by 25%. So, with respect to that systems that we have over the last several years from loss-to-lease, we’re not going to see that. And in fact, we’re going to need to rebuild some loss-to-lease. I mean we need market rent growth happen, if its happen tomorrow it would immediately become loss-to-lease and then it would roll into schedule rent over the next year. So, a moving rent does not translate into a move in same property revenue for some time. So, we’re in that rebuilding year in my view and as we get into the summer, I think we’re going to see things look much better and unfortunately it doesn’t really help us that much in 2017. But I think it does help in 2018. So, we look forward to that.

Thanks. Appreciate that. And then finally, what was the gain on sale of marketable securities in quarter?

From time-to-time we have marginable securities that we just sell out. And so that’s all that is.

We have captive insurance entity that has generated a lot of cash and so we have reinvest that cash and so from time-to-time they would be selling securities.

Thanks.

Our next question c is from John Kim from BMO Capital Market. Please go ahead.

Thank you. Mike I appreciate your comments and your color on immigration reform concerns. I know it’s very difficult to answer these kind of question. But I was wondering is the 21,000 job openings by major tech companies is that a recent high or high as far as you can remember. And also is your concern at all embedded in your rental projection for Northern California in addition to the gain that we…

Yes. I mean, 21,000 I think is the biggest number that we’ve found since we've been tracking that and again, up from 17,000, last summer sometime. So, there has been a surge in that. We all know, I think the unemployment rate for college educated people is somewhere under 3%, 2.5% to 3%. And so, obviously, we have a shortage of skilled workers, and that is causing some of the issues here I think in the tech world, because the demand is there for those workers. Those workers are not able to find the jobs for whatever reason. We saw for example Apple’s opened a campus is Austin. We view that as not as nearly as attractive as having those jobs here. In other words, the tech companies may go and build facilities and move jobs to the places where the right types of workers exist. And that could be in the U.S., and we fear potentially, it could be outside the U.S. So, again, this is an important issue to us, and we try to track it fairly closely. And I'm sorry, you've asked another question and I forgot what it was. Will you please repeat it?

I’m just wondering if that was embedded in your Northern California rental projection?

Well, I think it's embedded in the Northern California actual job growth numbers. And yes, again, what we try to do is create a scenario with respect to job growth in our markets; it’s really based on historical relationships to the U.S. So, we know for example that LA is very close to the U.S. in terms of job growth. And we generally don't deviate very much from what the U.S. job growth expectation is in LA because it mirrors the LA in many respects. We actually pushed quite a bit higher in 2016 because we thought there was some lag, and we were wrong because the job growth in LA is almost exactly the same. The job growth in the tech markets tends to be better than the U.S. And so, based on those relationships, we expect it to do better than the U.S. Now, I’d say generally speaking, some of these factors, the shortage of skilled workers to get employment rate of people with college degrees and other factors are really holding back the entire U.S. and holding us back at the same time. So, some solution to that problem, some of those problems is really important to us.

Okay, great. And if I could ask just a quick balance sheet question, what is the net debt-to-EBITDA including joint venture debt? And also, where do you think you could price 10-year unsecured notes?

Well, the net debt-to-EBITDA including joint venture, that won't be a whole lot different, just because our joint venture is only at 28% leverage, so it's very similar to the parent entity. And so, if you're -- in terms of the net debt-to-EBITDA changed from last quarter, it's more of a transaction timing, it's more that we had sold properties, so we lost EBITDA there and then the newly acquired properties just have not had chance to have an EBITDA. As far as where the rates would be, it would be somewhere -- if we issue today, a 10-year bond, unsecured bond, will be in the high 3s to 4%, in that range.

Our next question is from Rob Stevenson from Janney. Please go ahead.

Good afternoon. Mike, why sell 50% of the four older assets into disposition JV, why not sell 90 or something like that, if you’re really a disposition JV?

Why not sell 90?

Percent.

Yes, with that. There are some pretty good reasons for that actually. But, the main ones are we have fees; we have promoted interest. And as we’ve seen, these promoted interests can be pretty substantial over time. And there are -- from a structuring standpoint, we would like to prevent a reassessment, generally speaking under of property taxes. So, there are some pretty important reasons to structure it this way.

Okay. So, the latter was really the driver. You sold another -- you sold Downtown minority shares and then the tax, would you revisit it?

We look at the whole equation.

Okay, all right. And then, given the comments before about starting three developments, I don’t know if any of that’s the next phases of Station Park Green or whatever. But, I looks like, at least from your listing on development [ph], you're guys are starting to run short of land. I mean, how aggressive are you guys at this point in backfilling either through ownership or through option of future development parcels?

This is John Eudy. First off, you are correct on Station Park Green being a piece of the three deals that we think we’re going to do this year. As far as being aggressive, yes, we're on the sidelines and we're looking at a lot of opportunities, and we’re trying to be opportunistic. But no, we're not going to do four to four and a quarter cap development deals to do deal. So, that’s an easier talk than it is an execution, as you know. That said, with the stress in the market, with financial ability being very difficult and the preferred program that Mike talked about earlier, we do think that this is a year where we may be able to strike opportunistically in a few occasions, but we're not going to do it in retail.

Our next question is from Jeffrey Pehl from Goldman Sachs. Please go ahead.

Just a quick one again on investment activities. How are you guys thinking about redevelopment opportunities in your portfolio? And could your redevelopment pipeline grow from current level?

Sure. This is John. We take a very deep look every year at the entire portfolio, sit down in a meeting, go through every asset and every angle of opportunity, whether it’d be unit returns, adding laundry, backyard extensions, complete full renovations like we have at some of the assets. And at this point, I would say, we're pretty much at a stabilized number. If you look at our unit turns versus the total portfolio, we’re somewhere in the 5% to 6% range typically, which implies a 20-year life, somewhere in that zone for the kitchen and bath. On the larger assets, we're putting a few two, three to four through major renovation at any one time. We're pretty much on a sustainable level to continue forward. To accelerate from here, there is few things we're looking at, some opportunities that relate to technology and a few other things but not a lot of acceleration as it relates to major assets or unit turns. We’re probably slow unit turns down a little bit in 2017, just based on market conditions but not huge.

I'll add one more thing to that that is when you have new lease-ups that are submitting concessions at the levels that we’re seeing, it compresses the rehab return. So, it makes it more difficult to make them work economically. And so, we've seen some rollback in terms of the number of unit trends that we’re able to do. That’s a factor that will be a drag until the concessions start burning the off in the marketplace.

And then, just on the development pipeline, how much of that is condo math? [Ph]

That we will have condo math, it would be two to the three deals.

Our next question comes from Nick Yulico from UBS. Please go ahead.

I just wanted to go this -- back to this issue of market’s forecast in rents that you guys have for this year of 3.6% and your same-store revenue growth midpoint below that. I think you gave some reasons, but I just wanted to be clear on why is that occurring this year?

This is John. So, if you look at the -- big picture, if you look at the economic rent forecast , you end up with 3.6%. Right now, we have a gain to lease in our entire portfolio of about 0.5%. So, if you do the math there you end up little bit over 3% and the difference that gets you to the midpoint at 3.5 -- 3.25, is other value added, those types of things, big picture. The practical side is the rents come throughout the year at different points in time where we have lease expirations. And so, some of the leases are going to expire and they have a gain to lease, so they are going down, while at the same time, the market’s moving up. And so, it never matches perfectly. It’s a timing issue that rolls through. But, big picture answer, it really relates to the gain to lease versus the market.

Maybe one more thing to reiterate what John said, using maybe little bit different words. If supply abates, as expected, in Northern California, after the second quarter, we would expect market rents to grow. But again, that won't show up in revenue until -- it won’t be fully priced into revenue until the middle of 2018. So, in other words, you can see market rents grow but the impact on same store revenue is delayed to some extent, just to know operationally how this works.

So, it seems like this is an issue of -- sort of a timing issue in the first half of the year where you face this pressure and then things get better in the second half of the year. Is that the way to think about it?

Well, I think that that is part of it, that’s given the fact that we have all this delivery of new supply in the first half of the year in Northern California, which is the primary concessionary market. The second half looks much better than the first half. But more fundamentally, in terms of looking at loss to lease, I think I said on last quarter's call that at September 30, 2015, we had about 7% loss to lease and by September 30, 2016 we had about 2% loss to lease. So, of the reported revenue over that period, 5%, the difference between 7% and 2% came from loss to lease. So, when rents are going up, you are building loss to lease and it’s not been reported as rental revenue. When that flips around on you and rents are going down, you start eating in your loss to lease, and it makes your results look much better than they really are when you look at market rents.

I guess the question is whether -- and I think it's definitely helpful to get all this market level forecast you guys give. But as we think about the last couple of years, you’ve been outperforming the market forecast on rent growth. And now, this year, you are underperforming a little bit. And you’ve kind of got this original number of the market rent forecast, it kind of felt like that was a guidepost to where your results could be this year and yet ended up being little bit optimistic, I guess. Do you think about maybe changing that kind of messaging going forward or…?

If we had to do over again, yes, I think we would change the messaging. I mean, we don't like the market to be surprised with respect to anything that we do. But candidly, Q4 was part of the problem and that Q4 was much weaker than we thought it was going to be and the deceleration that happened. Again, you had the combination of seasonality plus lots of concessions in the marketplace. So, Q4 was just a really tough quarter. And so, I'm not sure if we replay the whole thing again. I am not sure that we would have come to the right conclusion, because I would have thought if we had 2% loss to lease at September 30th, as I just said, I would have thought we still would have some gas in the tank with respect to going into the New Year. And again, I think that as we get into the peak leasing season, what goes away quickly, tends to come back. And so, maybe we'll get a little bit stronger bounce back as we get into the peak leasing season. But again, I think Q4, the underperformance and the issues that we had in Q4 are part of this issue.

Our next question's from Alexander Goldfarb from Sandler O'Neill. Please go ahead.

I'll still say good morning out there, I think we've got another few minutes. Mike, on the JV capital front, has there been any change from the JV partners for their appetite to invest in your market? And then, if there has been a change, if you could just talk about where they may be either more interested in investing or less interested in investing?

I'm going to let Angela handle that one because she's probably the point person in touch with most of the institutions on that. Angela?

Thanks, Mike. Hey, Alex. In terms of the demand of institutional investors in our markets, that has been actually steadily increasing. The change is really in the type of products and their return profile. So, for example, three four, years ago, there were -- a much stronger demand in development and correspondingly higher return threshold. And more recently, the focus has moved toward more of a core, core process type of investment. And as a result, the IRR, our return hurdles have also decreased. But, the net dollar interest in our products still remained at a high level and has continued to stay strong.

Okay. But Angela, they're still happy to invest in Northern California as much as Seattle and Southern Cal, or are they focused more on one specific geography versus the others?

They're happy to invest in all of those markets because they're not-- they're very long term in terms of -- these funds are 7 to 10 years. And so, they're not as focused on a one-year supply concern with say Northern California. They definitely understand and then believe in the trade of technology as the engine and driver of growth, not just with West Coast but for the U.S. economy. And also, given the thirst of transactions available in the West Coast, they have demanded just as much as in North Cal, SoCal and Seattle.

Okay. And then, just second question is, again, looking at Seattle, that market just continues to impress and you guys have a sort of the same type of growth as Southern Cal. So, despite all of the supply and all the stuff like union contraction et cetera. Do you have any concerns about that market or in your view the decoupling that you’ve witnessed between San Fran and Seattle will just continue for another year or two?

This is John, Alex. Actually, we respect the amount of supply coming into the marketplace, the market has performed really well. There has been a lot of job growth out there. At the same time, there is -- the supply is something to be alert to, we see some supply coming in at the east side. I can tell you our east side portfolio performed very well in the fourth quarter as it relates to revenue, as I mentioned in the remarks. But at the same time, slowed down somewhat significantly as it just relates to just really achieved economic rents. And that’s typical for the season but it was a little bit more than normal. So, we’re going to wait and watch as we roll into really past Super Bowls Sundays when leasing kind of picks up much more and see how that market performs. I think we’ll hit our numbers, but it’s slowing down a little bit from where we were before, and I think we have the right outlook.

Our next question is from Tayo Okusanya from Jefferies. Please go ahead.

Good afternoon. First of all, just thanks for all the detail on calendar on the call, that’s really appreciated. I just wanted to focus a little bit more on some of the acquisitions and disposition activity. I think the schedule on S-16 gives some basic pricing information. But, I was hoping, maybe you could just talk in terms of cap rate, where some of these 4Q and 1Q transactions were done especially the JV and generally what kind of cap rate just being in most of your major markets?

Yes. Tayo, it’s Mike. And they are very consistent with what my comments were in the prepared remarks. The JVs and the non-core assets were in the 4.5 cap rate range. So, they tended to be a little bit older assets. And the Jefferson Hollywood deal that was closed was in the 4 cap rate range. So, very consistent with what we talked about. I think in every case, we’ve hit our internal NAV estimates for these assets. And so, again, we haven't seen very much movement in cap rate. We certainly had some noise. I think we had two or three buyers on the Jefferson deal, so some backed out. But, obviously -- and interest rates were our concern out there. But, all you need is one buyer to go through and complete a transaction. So, there is different sensitivity levels to interest rates out there. And there is still as Angela said, quite a bit of interest in West Coast department product.

Got you. Okay. That’s helpful. And then just another quick one from me. I mean, apart from kind of the whole situation with integration reform, everyone's freaked out about it, tax reform under the Trump administration. Could you a talk a little bit about how you guys are thinking about that? And if it could have any material impact on you in regards to your dividend or anything of that nature?

That's a great question, Tayo. I'm not sure I'm equipped to exactly answer it, because again these proposals are dramatic in terms of is 1031 exchange is going away, are we going to be able to write-off all of the non-land purchase price, buildings that we buy, and how will that relate to -- do you really even a reelection if the corporate tax rate is 20% and you have all these other write-offs. I mean, these are all questions that candidly I can't answer at this point in time. We're just going to have to wait and see. As we get closer to having something written, we promise you we'll be studying it. But right now, we've looked at it but it's just too unclear to draw any conclusions from. And we have lots of other things to do, at least right now. So, as soon as we feel like it's coming down the road and we really have to focus on it, we're just going to spend our time on other things. But, I got to agree with you, it's potentially very significant in terms of its breadth. I have a feeling that it won't be anywhere near as [indiscernible] comes out. I think it's like the story is going to be much worse in the pipe. But I don't have any reason to know that that's going to happen.

Our next question is from Wes Golladay from RBC Capital Markets. Please go ahead.

Hello, everyone. Looking at Seattle, do you think that could be the next San Francisco or is there just enough job demand to absorb the supply?

Hey, Wes; it's Mike. That's a great question. We have been -- as you know, we've been a little bit reserved on Seattle for the last couple of years because we're so concerned about the supply. The flip on Seattle is that it's much more affordable, rents are lower, incomes are still pretty high, and so it's -- I suspect it's taking some of the jobs that would otherwise have landed in Northern California; they're going to the Seattle area. So, what I think we’re seeing here is the market reacting to conditions and affordability specifically and moving some of that job growth to Seattle. For us, it remains a market that has too much supply, could be let’s say to double down in. Because candidly, I wish we knew with certainty exactly how these things were going to roll out. And obviously, if you look at the quarter and look at the guidance, we obviously don't know exactly how they're going to roll out. But, there is a multi-family supply, the stock of 2.3% expected for 2017; that's a lot of units; that's a lot of multi-family units. And it concerns us. So, you haven't seen those expand a portfolio in Seattle recently, and that is the reason. So, we'll probably see on the sidelines; we're not settling in Seattle either. Although we might sale an asset or two in that area that will be part of the calling process. But that percentage of the portfolio is somewhere around 18% of the portfolio; we feel pretty comfortable with it. And we'll continue to write it out. But it's a little bit concerning to us.

And what’s the behavior of the development during -- are they being rational to this point?

No, developers have a much different view of the world than a stabilized donor. This is what causes our problem, because the developer and we’re developer too, and I’m not saying industry [ph] is not rational. However,…

[Multiple speakers] have 10,000 units in the pipeline.

Relative to San Francisco may be, the developers out there.

Yes, maybe, but we have the same dynamic, I mean -- and we’re like everyone else is a developer. When we have a building, we want to fill it up as soon as we can, because what we're trying to do is we're trying to minimize free rent over the whole building over that initial period of stabilization. And the way to do that, like or not, is to offer some big confessions or the net effective equivalent of that. And whatever that takes, that fills up your building and then you become a stabilized owner and then you're back with everyone else throwing rocks at the guys that are giving 4 to 6 on the street. So that’s the dynamic. And until that goes away, it has -- as we've seen, it has an impact on pricing over the broader marketplace. For example in Northern California, we’ve had enough of this concessionary environment in San Francisco and San Jose that it really started to affect even the markets that were protected initially, like the East Bay for example. And then, again the same thing can happen in Seattle. Right now, the Downtown is two to four weeks in concession and Capitol Hill has four to six weeks in the other part of Downtown and four weeks in Bellevue. So, I think the concessions in that one month period, people generally don’t want to move in great numbers, to get one month concession, but you start bumping that to two month, and you will find that people will move. I think that the thing that really helps Seattle given the level of supply is this just continued to knock the cover off the ball with respect to job growth. The expectation for next year is we have Seattle at 2.7%, which is quite a bit of slowing from the 3.7% it did in the fourth quarter. If it continues at 3.7%, I think we have probably no problems in Seattle; if it goes down to what we have on S-16, which is 2.7%, I think they are going to see more concessions and more concessions will lead to once again the lease-ups setting price for the stabilized owners, and that’s the scenario we don’t want to be part of.

Okay. And then, last one, looking at Northern California, I know a lot of these are just going to be baked in by t the time we get to the second half. But how do you see the new leasing participants playing out? You mentioned it could be good but are we talking here may be 5%, high single-digit, what type of snapback are you looking at, in your base case, assuming your employment projections are achieved?

It’s less than that. I mean, realistically, what we would expect in the portfolio overall is in the 3% to 4% range. But, what you're going to see again is some of the A product that competing head on with the new lease-ups, yes, net effective is it’s going up in essence 8% to 16% all the way to concession. But if you go across the whole market for our portfolio, which includes the BS, it’s all the way through; you're going to be closure to the 4% to 5% range, somewhere in there.

Our next question is from Steve Sakwa from Evercore ISI. Please go ahead.

Most of my questions have been asked, but I guess I just had two quick ones, just in terms of general development activity and kind of what you're seeing from private developers. How’s the landscape changed maybe over the last six months? And I guess what is your expectation for starts and have you seen projects actually get put on hold here? And then, I guess secondly Mike, maybe you could just address where the share buybacks sit into your overall capital allocation strategy?

Okay. Steve, thank you. I’ll have Angela answer the second part and John Eudy is here. And John and I meet every week and we talk about deals and what's going on out there. And what I hear John tell me week in and week out is the factors of construction lending continue to get - become more difficult to obtain. Costs have moderated a little bit but still are significantly up from where they were. And then the cities are atop in general; there are couple of exceptions to that. And so, it’s a very challenging development scenario. Having said that, there are some deals that are out there that have very low land basis because they started many years ago and are carrying forward a rally low land base. And some of them will be dealt and we see some of them. Those are the ones that typically work for our preferred equity program. There is a whole significant portion of other deals that have much higher land basis and maybe even developers that aren’t completely in touch with how far costs have gone, that is where the distress is in the marketplace, because they are trying to scramble to see how they can get their deal done. And again, our preferred equity program works really well at somewhere between 4.75% to 5% cap rate measured today, not stabilized. But, if you stop pushing that down to the 4.25% to 4.50% and we see a lot of deals in that range. If our preferred equity doesn’t work, nor does anything else work. So, that’s my view. Again, John and I talk about this stuff all the time. We look at a lot of deals. I mean, especially as it relates to the preferred equity program, there are more people looking at that now. There is a little bit more competition within that area. But for the last year or so, we have had great visibility into the development world given preferred equity and it’s pretty interesting to watch. So clearly, I think from my perspective, clearly the trend is for construction declining and 2018 looking like a pretty decent year. John, do you have anything to add to that?

No, I think you hit on everything, Mike. Clearly, there are a number of deals that were conceptualized in double digit rent growth years that don’t work in 3% to 4%. And when you do the math, there are a lot of transactions that are being talked about that will never get executed. You see the burn off of inventory; we think it's going to continue in the direction that it is going in 2017. It’s a challenging time to get deals done. And you can't borrow any money to get more than about 50% which you could get 80% from a construction lender three years ago.

Yes. And on the stock buyback, as you may recall, we have $250 million buyback program and we did buy back such a small amount of stock earlier in the quarter. But it was immaterial, so we didn’t need to report it. But as far as how we think about that piece of the allocation, when we sell an asset, what we would look to is how we maximize the returns. And so, we look at what are we selling the asset, what kind of cap rate and then what are the acquisition opportunities versus buying back stock and what the stock is trading at that time. And so, it's a relative consideration. But, we certainly -- if a window opens that makes sense, we certainly would execute.

Our next question comes from Conor Wagner from Green Street Advisors. Please go ahead.

Thank you. Good afternoon. Could you please comment on the measures in Los Angeles, the one that was passed in November and the one that's coming up in March that would limit supply growth? What do you think the potential impact that could be, and then how that plays into your outlook for LA over the long term, please?

Yes. Conor, it's Mike. And what was that proposition, was it...

SSS and then I think JJJ was in November than S in March.

Well, anyway, these are proposals and we've seen several of them, not just in LA but in San Francisco and a variety of places. Then those actually were passed but there are many cases where city councils want more below market rate units, want other exactions and those types of things. So, even though in LA they're actually mandated now, there're plenty of other places that the spirit of that is in play. I think we've seen this many times before where you end up layering on more requirements and then the next thing you know, you build less housing. And I've mentioned -- I made some comments on last quarter's call about just the sheer number of housing demand versus the amount of supply. In effect, we built -- California's built somewhere around a third of the number of housing units that would be indicated given its job growth. So, it’s incredibly chronically undersupplied housing market, and you're finding the political process leading to further restrictions and further exactions on building more housing. And so, I think it has the effect of slowing down housing production and actually exacerbating the rent issue, the affordability issue because if you slow down the number of housing, the number of apartments you build, it will improve the price or rents will go up. It's a conundrum that one would not expect, but this is the state in which we live.

And then, since Measure JJJ was passed in November, have you guys observed any changes in land pricing or developer activity within Los Angeles for unentitled land?

We haven't yet but we expect to.

I'd say there is distress, again within the land area because again the construction costs continue their relentless March upward. And the cities, they look at developers like a problem as opposed to a solution. And so, the more that sentiment gets baked into various places, the less housing you're going to have built. So, I don't know where this is going to go exactly. I suspect that the landholder ultimately bears the brunt of anything that happens to cost. So, if you’re going to have BMRE and it’s going to increase cost relative to returns and it comes out of the land. So, it has to affect the land values at some point in time. But again, I think it's too early to tell.

And our last question comes from Neil Malkin from RBC Capital Markets. Please go ahead.

Hey, guys. Thanks for taking my question. Two questions real quick. First, given the elevated supply environment in your markets, are there any markets in particular that you view as particularly opportunistic or that you think you have a better chance to acquire into, to gain more exposure? Any thoughts would be helpful.

That is a great question. And I think as rents have moderated here, again, we’re focusing more on Northern California than we are Southern California, principally because the job growth or just the relationship of how many jobs are being produced and what the future looks like as compared to the amount of supply hitting the marketplace. So, I think we’re still better -- in California, Northern and Southern California, you have similar levels of supply, yet Northern California has much better job growth. And so, our preference has been, given that prices come down pretty significantly in Northern California, to continue to be active in the acquisition and investment market in Northern California. So, to get more granular than that is somewhat more difficult, but so maybe I’ll leave it with that at this point in time. Northern California still would be our preference in terms of making acquisitions.

Okay. And then, lastly, everybody’s talking about immigration and the visas and job openings, but I think job openings is no concern [ph] here; I guess it doesn’t really matter, people who take their jobs [indiscernible]. So, I'm just wondering if you have any sense and I don’t know if you have any numbers, but the people in your residence who maybe are again H-1Bs, are they more in Asia or is it more Middle East, because I would suspect that if it is more Asia, there is really no risk of anything happening as far as immigration goes, whereas there'll be a bigger question mark if it was more -- of the seven countries primarily on the list?

Yes. That’s a good question as well. And I don’t -- I haven't seen a breakdown of what countries the H-1Bs are coming from at this point in time. I know that they are wildly oversubscribed. Again, it’s 85,000 a year, they get granted in, I believe it’s April 1st, and they go almost immediately because they’ve got many times that number of people that would like to come into the United States. I can tell you that we have -- it’s interesting, 20 years ago, we didn’t have communities that were one ethnicity or from one background and we do have that today. And so, I do suspect that there are more people, but again, exactly, where they come from, I can’t really tell you as it relates to the H-1B. So, I don’t know who's here on an H-1B and who is the country through other sources. So, again, I can’t tell you; it’s changed a lot in the last 20 years.

Thank you. This does conclude our question-and-answer session. I’d now like to turn the floor back over to Schall for any closing comments.

Thank you very much. And in closing, I just want to note that we appreciate your participation on the call. We look forward to seeing many of you at the Citi Conference in March. Have a great day. Thank you.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.