John Christie - Senior Director of Investor Relations & Research Timothy J. Naughton - Chief Executive Officer, President, Director and Member of Investment & Finance Committee Thomas J. Sargeant - Chief Financial Officer and Executive Vice President Leo S. Horey - Executive Vice President of Operations

Robert Stevenson - Macquarie Research Jana Galan - BofA Merrill Lynch, Research Division David Bragg - Zelman & Associates, Research Division Eric Wolfe - Citigroup Inc, Research Division Derek Bower - UBS Investment Bank, Research Division Karin A. Ford - KeyBanc Capital Markets Inc., Research Division Michael J. Salinsky - RBC Capital Markets, LLC, Research Division Andrew McCulloch - Green Street Advisors, Inc., Research Division Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division Unknown Analyst Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division Jason Ren - Morningstar Inc., Research Division Richard C. Anderson - BMO Capital Markets U.S.

Good afternoon, ladies and gentlemen, and welcome to AvalonBay Communities Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference call, Mr. John Christie, Director of Investor Relations. Mr. Christie, you may begin your conference.

Thank you, Amanda, and welcome to AvalonBay Communities Fourth Quarter 2011 Earnings Conference Call. Before we begin, please note that forward-looking statements may be made during this discussion. And there are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon's press release, as well as in the company's Form 10-K and Form 10-Q filed with the SEC. As usual, the press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion. The attachment is available on our website at www.avalonbay.com/earnings, and we encourage you to refer to this information during your review of our operating results and financial performance. And with that, I'll turn the call over to Tim Naughton, CEO and President of AvalonBay Communities. Tim?

Thanks, John. Welcome to our fourth quarter call. Joining me today are Tom Sargeant, our Chief Financial Officer; and Leo Horey, EVP of Property Operations. Tom and I have some prepared remarks, and then the 3 of us will be available for Q&A afterwards. I'll start by touching on some of the operating and investment highlights from last quarter and an overview of 2011. In addition, I'll provide a few comments about our outlook for the economy and our partner markets for the coming year. Tom will then discuss some of the financial highlights for the quarter and review our financial outlook for 2012. Lastly, I'll come back to provide some color on the press release we issued in December in which we announced the launch of 2 new apartment brands. Last night, we reported FFO per share of $1.19, which was up 18% over the prior year. In addition, we announced an increase in the quarterly dividend of 9% for 2012 based upon this continued strong performance and our outlook for 2012. Results in Q4 were driven primarily by strong same-store NOI growth atop 10% for the quarter, driven by same-store revenue growth of 6.2% and a decline of same-store expenses of 1.8%. Same-store NOI growth was particularly strong in California, which posted growth greater than 15% in both Northern and Southern California. Northern California continued to be our strongest region, while Southern California is still relatively early in its recovery, with Orange County and Los Angeles leading the way in that region. In Q4, we continue to be very active across the board in the area of investments. We started 4 new developments, totaling almost $500 million, and now have $1.5 billion underway. Two of the new starts were AVA communities, which is one of the 2 brands…

Thanks, Tim. Let me start with an overview of the topics that I'll cover this afternoon, and then we'll go into some detail. First I'd like to discuss the earnings and capital activity for 2011, then I'll provide more color on the 2012 financial outlook that we provided last evening. And then finally, I'd like to talk a little bit about the dividend increase and our general dividend policy. Tim covered earnings highlights. But in the context of capital activity, earnings growth really stands out. We issued $1 billion of equity capital in 2011 that deleveraged the balance sheet and helps ensure we have the appropriate mix of capital as the investment cycle progresses. And you can see this in the reduction of average leverage as measured by debt to EBITDA, which fell from an average of 7.2x during 2010 to a quarterly average of 5.8 in 2011 and then expected to average between 5 and 5.5 across the quarters in 2012. So a pretty dramatic reduction in leverage paired with pretty robust earnings growth. We also retired secured debt in 2011 and in early 2012, some at our discretion and some related to pending sales. Charges for early termination of debt were incurred but were absorbed by strong overall earnings from operating assets and new development. Reducing secured debt will also allow us to increase our unencumbered NOI from 68% in 2010 to about 73% in 2012. And importantly, when you look at earnings, floating rate debt did not contribute to earnings growth, as variable-rate debt is less than 15% of all our debt at the end of the year. With about $690 million of cash on hand and $750 million available under our line of credit and a full range of capital market options, our capital plan and…

Thanks, Tom. As I mentioned in the introduction, I'd like to take a couple of minutes now to provide a little color regarding the press release we issued in December in which we announced the launch of 2 new apartment brands, AVA and Eaves by Avalon. AVA is a brand designed to attract the increasing number of people, particularly the younger Gen-Y segment, who want to live in or near high-energy, transit-oriented, urban neighborhoods. AVA communities will generally have small apartments, many designed for roommate living, and feature modern design and technology-focused and amenities that maximize the social experience of residents. The AVA brand will grow through new development and redevelopment. Over the next 2 years, we anticipate having approximately 20 AVA communities in service or under construction. Eaves by Avalon is targeted to the cost-conscious value segment, seeking good quality apartment living, with practical and functional amenities and service. Eaves by Avalon communities will tend to be older assets, located in suburban areas, with the brand growing through acquisitions and redevelopment. By the end of 2013, we plan to re-flag or redevelop over 40 existing communities to the Eaves brand. Avalon remains our core offering, focused on upscale apartment living and high-end amenities and services, in leading urban and suburban submarkets. The Avalon brand will continue to grow primarily through new development. These 3 brands complement one another in terms of target customer segment, submarket focus and method of deployment. This brand framework is a natural extension of a disciplined and time-tested strategy that builds upon and leverages a set of well-established capabilities. During our history as a public company, we've discussed the structural advantages of our chosen markets, including supply constraints, high incomes, and low housing affordability. During this time, we've been highly disciplined in market selection and…

[Operator Instructions] The first question comes from Rob Stevenson of Macquarie.

Tom, you were talking about the same-store guidance before. In the supplemental, there's like 6,500 units that you guys have classified as other stabilized, how many of those are rolling into the same-store portfolio this year, and what's the relative impact of that versus the existing same-store portfolio for 2012 guidance?

Rob, in terms how many of those are rolling in the same-store, you can look at the attachment that talks about the number of communities in each basket. We had 37,470 in the basket in 2011, and I think that number is going up to...

About 37,000, Rob, this is Leo, into the same-store's bucket.

So -- but how many in total were increasing going into same store bucket from 37,470 in 2011? My guess is it's a couple of thousand units, but we can get back to you on the detail for that.

Would you expect that those are going to have stronger same store NOI growth in the existing this year or is it going to be relatively stable between the 2?

Rob, this is Leo. It depends on the submarkets that they're in, and they tend to perform pretty consistent with the other same-store assets in those submarkets.

Okay. And then, Leo, did I miss -- did you guys talk about the first quarter or the -- where you were sending out January and February renewals at?

We didn't comment on that yet, Rob, but I'll give you the information. In the fourth quarter, we made a conscious effort to focus on getting availability down and occupancy up. And as you probably saw, occupancy rate at about 96% for the fourth quarter. That's put us in a pretty good position entering 2012. And for the first 3 months of 2012, in essence, the first quarter, we've been sending out renewals between 6% and 7%. To give you some perspective, last year at the same time, we sent them out between 5% and 5.5%. So we're pretty encouraged and is part of the positioning that we did in the fourth quarter as we entered into 2012.

Okay. And what are you seeing these days in terms -- as you hit the first part of the year in terms of foot traffic? Are you seeing this sort of normal pickup in foot traffic or is it still slow, et cetera?

Well, I mean, foot traffic in the fourth quarter was up about 10% over the previous year, Rob, and we're seeing it maintain those patterns in January.

Okay. And then lastly, Tim, I mean, you guys added a bunch to the development pipeline. Nothing is falling out although there's going to be some from falling out on completions here in early '12. What's your sort of tolerance at this point given what you see from economy for the upper end of the portfolio of the development side? Would you go up to $2 billion at this point?

Rob, yes, certainly, we'd go up to $2 billion. In fact, we expect the year to end with around $2 billion. I think, as we mentioned on the previous calls, we're geared to do about $1 billion a year right now. As Tom had mentioned, we expect to do -- start upwards of $1.2 billion this year on top of around $900 million last year. The average community has a production cycle of around 8 or 9 quarters so that, just by math, it gets you to $2 billion, maybe a little bit north of that. And put it in perspective, that's close to what it was at the peak in 2007. However, then it was up 20% of total market cap. At the end of this year, just based on current market cap, that $2 billion will only represent about 13% of total market cap, so about 2/3 of what it was before. Ultimately, our tolerance is going to be gauged by a number of things. One, just the obvious around just balance sheet in terms of how much in unfunded commitments we want to tolerate. And the more that we put in the pipeline, the more conservative we will be about liquidity and how we're positioning that balance sheet. But then also, just in terms of the economics, as I mentioned in my prepared remarks, the stuff that is currently in due diligence or in the development portfolio continues to look attractive to us. And so that's probably as big of a driver as anything else, just the relative economics of that business relative to what you can buy at so -- Tom, did you have something you want to add?

Yes, Rob, I just want to follow up. We have 37,470 apartments in the total stabilized basket, which includes same-store and other stabilized. You mentioned the 6,000 or 7,000 units in other stabilized. We don't expect any change in the same-store basket, any meaningful change between years because of asset sales, but also just the normal things that come out of the same-store basket when you redevelop an asset. So virtually no change.

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

You mentioned that you're at a higher occupancy starting out this year. How are you thinking about turnover? And are there any of your markets where you think they'll trend up and maybe do more towards homeownership?

With respect to general turnover for the year, I expect it to go back to more normalized levels. So for instance, in 2010, it was about 52%. I believe one of the attachments indicated that in 2011, it was 53%, budgeted between -- we budgeted between 54% and 55%. So that's what we're expecting for turnover. As far as the reasons for move out go, the area that we've been discussing a lot and focusing our time on is -- especially as we're pushing renewal rents so aggressively, what percentage are people -- of our turnover is related to financial or rent increase. For the quarter, the fourth quarter, that ran about 16%, which is above the historical average but has actually come down from about 19% in the third quarter. We've also been watching pretty carefully what's going on with move out to home purchase. Last quarter, that was about 13%. I believe it moved up to about 15%, still well below the historical average that has run in excess of 20%.

And I was just curious whether any of the apartment communities in Fund I could be potential Eaves candidates?

Jana, it's Tim Naughton. It's not our expectation that they would be converted to Eaves, just given the limited hold period of most of those assets. We only have 2 or 3 years left on the hold period on Fund I.

Your next question comes from the line of David Bragg of Zelman & Associates. David Bragg - Zelman & Associates, Research Division: Leo, you alluded to this as it relates to 4Q, but could you tell us specifically what did you achieve in terms of increases on renewals and new move-ins in the quarter?

Sure. Across the portfolio in the fourth quarter, renewals were about 5%, and new move-in rents were up about 1.5% to 2%. David Bragg - Zelman & Associates, Research Division: Okay. And then, that just brings out the topic of looking back to the second half of 2011 and in the hopes of better understanding your outlook for 2012. Thinking back to June, you updated your revenue growth guidance to 5.0% to 5.75% range for the full year. At the time, you essentially had the first half of the year in the books. And now that you're coming in at the low end of that range for the year, can you just talk in general about how the second half of the year played out as compared to your expectations back in June for the midpoint or the high end of that range? It seems as though pricing power was meaningfully less, but I want to understand if that would be attributed to new move-ins or renewals or specific markets?

Dave, this is Tim. Maybe I can jump in there. We did -- as you recall, we did increase our guidance last year to about 5.3% to 5.4% at the midpoint. In terms of revenue, it came in a bit less than that. I think at that time, I've indicated we expected the fourth quarter to be up close to 7% same-store revenue on a year-over-year basis, and it came in around 6.2%. So the delta there was around 75 basis points. I wouldn't attribute it to either new move-ins or renewals. Obviously, new move-ins have been a little weaker. I think it's just really a function of what happened in the economy in the summer. And as we talked about, we thought -- on our prior calls, we thought the slowdown we saw at the year end was not just seasonal, but we did think there was a macroeconomic aspect to it as well. But we started to see some improvement here at the end of the year going into the beginning of the year, as Tom mentioned in some of his prepared comments and Leo referenced in what we're seeing in renewals in the first 3 months of the year. David Bragg - Zelman & Associates, Research Division: Okay. So then, therefore, it sounds like your view is that, that pricing power has been deferred into 2012?

It's our view that the fundamentals have improved again, not just in terms of a seasonal basis, but also some of what we're expecting just from a pure macroeconomic demand and supply standpoint. David Bragg - Zelman & Associates, Research Division: Okay. And last question, specific to your transaction activity plans. Can you talk about the expected spread between acquisition and disposition cap rates, especially in light of the fact that you do have the heightened focus on class B?

Sure, Dave. We -- as Tom mentioned, we're expecting to be close to net neutral, maybe a little -- maybe net positive by about $100 million. We have identified most of the assets that we intend to sell next year. Some of them were some of the higher cap rate assets. To be honest, they're strategic sales. They're sales -- they're assets that either where we're looking to trim a position in a market or we think their growth potential isn't as great as the balance of the portfolio. So even though we may be buying more B assets, they're likely to be -- it's likely to be weighted a little bit more on the West Coast and dispositions are likely to be weighted a little bit more on the East Coast. So we're actually anticipating a bit of dilution through the -- through acquisitions and dispositions on the order of 25 to 40 basis points.

Your next question comes from the line of Eric Wolfe at Citi.

Obviously, with it being pretty early in the year, you're giving your guidance now without having the benefit of knowing what your peak leasing is going to shape up. So I guess, I'm curious about how aggressive are your assumptions thinking about going into those summer months? Are you expecting growth to accelerate into those summer months, or would you expect it to hold flat or potentially decelerate?

Eric, this is Leo. Obviously, we expect improvement in both new move-in and renewal rents. What we've seen in the past -- we've seen in the past 2 years, is from -- basically January through August, we've gotten some pretty substantial increases in both new move-in and renewal rents. And then toward the back half of the year, as we gone into the slower leasing season, we've given some of that back. To give you some perspective, over the past couple of years, new move-in rents, the absolute rents have moved 10% to 12% to 13% from January through August. And then in that -- from that period to the end of the year, we've given back typically about 5%.

And then, Tim, I think the last time we talked at NAREIT, you mentioned that in 50% of your markets, it was more expensive to rent than own. In what markets in particular are you seeing those affordability numbers become a little bit stretched? And I guess, how long do you think you can continue to push rents in those particular markets before people just finally make that purchase decision?

Eric, I think the answer to that second question is probably somewhat unknowable, just given the interplay of confidence and where we're at in terms of the mortgage business right now, in terms of the discipline that it continues to impose on the market in terms of the kind of down payment it's requiring. In terms of the markets where we've started to see a little heightened increase in move outs related to home purchases, it's been mostly in the Northeast, actually, Boston, Long Island. We've seen it start to creep back up towards longer-term trends, even though for the portfolio overall, it's quite a bit below. And the markets where it appears to be most affordable are the Mid-Atlantic/Midwest, which has generally always been the case, but increasingly in some of the other Northeastern markets, Boston and Long Island and Fairfield.

Okay. And I guess as you think about what's actually best for the apartment business for the next couple of years, so what you're hoping to happen, are you rooting for the housing industry to recover? Are you thinking that it's actually better if home ownership rates continue to drop?

Well, I think we would take 5% to 6% revenue growth for as long as the eye can see so -- but that can't last forever based upon the dynamics under which it's happened. Right? It's our sense that if the housing market recovers, the for-sale housing market recovers, the factors that would have to be in place for that to happen are going to be good for the entire economy, including rental housing. It's hard to imagine it's going to happen without a decent increase in consumer confidence, without a decent increase in job growth, without just general, just household -- growth in general. And so we think those factors are likely to be good for rental housing as well. And just remember, I mean, we went from the mid-90s to the mid-2000s, where homeownership rates went from 64% to 69%. And the industry did pretty well, particularly in the '90s where you had -- we had a sustained period of economic growth. So it's not -- that's not a scenario we necessarily fear for the -- particularly for the apartment industry, particularly when you consider -- we think the impact is going to largely be absorbed by the single-family rental business, not necessarily multi-family rental.

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

I just wanted to get back to the 6% to 7% range on renewals. Was that asking or what you're achieving for February and March?

Derek, this is Leo. That's what we have sent out, the offers that we've sent out. And obviously, if they move in a pretty broad range where they could be well above that or they could below it, the ultimate number is going to depend on the level -- what leases are renewed. We've seen it range from -- I mean, last year, I threw out 5% to 5.5%, and that's what it actually came in at. But it could range anywhere from no decline, like we saw last year in the first quarter, to up to 100 basis points less, depending on whether people took the less aggressive offers and didn't take the more aggressive offers that we put out. So if I had to give you a range, let's say, 50 basis points is the erosion that you might see off that. But it could range anywhere from 0 to 100 basis points.

Got it. And I guess with occupancy now at the 96% mark, what are your expectations for new rents to trend in 1Q? And could we see new rents cross new renewals by the end of the year -- I mean, sorry, by midyear?

Derek, to give you some perspective, absolutely, we will push new move-in rents aggressively. Generally, what you find is new move-in rents move much more -- at much more volatility in them. By the middle of 2011, new move-in rents were right on top of renewal rents, and they can certainly go past as long as the market dynamics stay favorable.

Okay. Got it. And just lastly, could you just provide a little bit more color on the timing of the acquisitions later for this year? Is that just a function of having something that you're currently underwriting but you think may take a little longer to get done? Or are you just not seeing anything overly attractive today with the expectation that maybe a deal may come to market later in the year?

Derek, it's Tim Naughton here. Yes, transactions generally are backloaded in the second half of the year anyway as companies oftentimes start to put kind of their plans together in the first quarter, and you start to see a pickup or close in the second quarter. It's not -- we're not -- it's not backloaded because we have deals under contract that we think are going to take several months to get closed. It's really -- that's where we're -- that's sort of the place holder and the budget is just more in the back half of the year based upon what we're seeing right now in terms of activity. We're starting to see -- we're just starting to see the pickup in listing activity. We do think transaction volume will be up significantly again this year. In '11, it was up about 35% over '10, still below long-term trends. But just based upon chatter in the brokerage community, most brokers are expecting to see 30% to 35% growth again this year just based upon their discussions with the client -- with their clients, but a lot of it coming in the, call it, the last 7, 8 months of the year.

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

Just a question for Leo. The fact that the renewal notices are going out at a higher level than they were this time last year, as you're thinking about this sort of January to August time frame, does that give you some level of confidence that rent growth towards sort of the peak leasing season could reach or exceed where you guys were at that time last year? Or does the comparison issues start to come into play at that point?

I think both factors are at play Karin. Clearly, we're going to bump up against some more difficult comparables. But certainly, the results that we're seeing early in the year are very encouraging, and I can assure you that we will continue to push as aggressively as possible to maximize that revenue stream.

Great. And second question is, can you remind us what percentage of your residents are employed directly in financial services? And have you seen any sign either in New York or San Francisco or any markets seeing any indication that residents are seeing some weakness in that -- layoffs in the banking industry and that's affecting their ability to pay rent?

Karin, this is Leo. Across the entire portfolio, it runs about 9% to 10%. More specifically, in the New York area, it runs about 30%. It can vary anywhere from 10% to almost 50% at various communities. We have not seen any major change. Certainly, we're watching for it because of all the press, but we haven't seen any change. One of the things that has been encouraging is in New York Metropolitan area. Certainly, the technology sector seems to be taking on or moving into that area in a way that can certainly benefit us.

Great. And then last question, just on the expense side. Is the relatively mild winter and snowless winter, particularly in the Northeast, having a positive benefit on your operating expenses so far in the first quarter?

Well, we haven't gotten any results for January yet, but I can tell you that I am rooting for 65 degrees straight throughout the year. And certainly, early indications are that this winter should help our operating expenses.

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

You gave the renewal statistics for January, February and March. Just curious as to the guidance that you guys provided. What is the scenario you guys are assuming for full year renewal growth, as well as new lease rate growth in there? And then also, if you look at where the portfolio today compares, be it on a loss to lease spaces, how far off are in-place rents versus market?

Mike, this is Leo. We don't have that disaggregated for the entire year. And frankly, since we went on to LRO, because market rents move in such a volatile way, a lost lease isn't something that we focus on. We focus more on what is the direction of absolute rent and what is the year-over-year percent change that we're seeing in both new move-ins and renewals as we've been discussing.

Okay. Can you give us that statistic then for new leases then through the year to date so far?

Right now through January, new leases are running about 2%. And so that you know, both new move-in and renewal rents on an absolute basis turned positive in December. It started moving forward in a positive trend, which is ahead of what occurred last year. That took until February for that really to start to occur last year.

Okay, that's helpful. Second, Tom, you walked us a little bit through expense guidance for 2012. Can you give us a sense of what you're budgeting for real estate taxes and a couple of the areas there?

Leo is going to take the real estate tax expense question.

Sure. What's driving our expense forecast is really insurance and taxes. And to give you perspective, real estate taxes is kind of in the 5.5%, 6% range, and insurance is closer to 13%. In both of those cases, we had a lot but there's denominator effect there in that we were very successful, obviously, with tax appeals, which is why 2011 came in favorable, and then we had some success with insurance claims. All other categories, payroll, all those other categories, really are going to be somewhere between 0% and 1%. So it's really being driven by the 2 categories of insurance and taxes.

Okay, that's helpful. Third and final question, can you talk a little bit about your growth expectations for Northeast and Mid-Atlantic versus the West Coast in 2012?

Sure. This is Leo again. I would kind of bracket our growth expectations in 3 different areas. First, I'd put Northern California in a 7% to 8% range. And then on the other end of the spectrum, while still healthy and positive, I'd put D.C. around 4%. And then the remainder of our regions are around our average, call it 5.5% to 6%.

Your next question comes from the line of Andrew McCulloch from Green Street Advisors.

Tim, a question on the branding initiative. Do you expect the new brands to have any positive impact on rent at all? Or are the benefits you're seeing mostly going to be internal, given that it helps climb kind of your operating and external growth strategies?

Andy, I think it's our hope over time that we'll be able to drive rents by providing a very differentiated product to the marketplace. But as much as anything, there's an internal benefit, as you alluded to in your question, in terms of not just what you put in the product, but what you don't. And we are finding, increasingly with the Avalon brand, that it's still, as I mentioned, the core brand. And we try to have it appeal to a broader base of customers that, in a sense, we're asking it to do too much. And you're starting to get a little bit feature creep to build -- that gets built in over time where that marginal customer may not be valuing the set of features and amenities you may be providing and therefore, you may be over spec-ing it. So we think it's -- there's going to be a benefit in terms of hopefully skewing it over indexing towards the target segment that will value appropriately what you're bringing into the market, but then also that you're not over spec-ing what you are bringing into the market.

And then on the acquisition environment, I'm sure you're following the Archstone saga very closely. After the current bidding process played itself out, do you expect to get a shot at some of those assets at some point in the near future as whoever the eventual owner is begins to rightsize that portfolio?

I have no idea. I have no idea. Ultimately, it depends on who the eventual owner is, I suppose.

One last question. Can you give us an update on the market for land and whether your recent purchases there are entitled or unentitled?

Sure. I'm not sure about the ones we just closed on. I think that those are pretty much all entitled. I think those are all entitled. But in general, I think we've talked about in the last few quarters, the land markets have gotten a bit more competitive, particularly on the entitled deals, as institutional capital was sort of anxious to put capital work and new development, just given the fundamentals that were playing out in 2011 and '12. What we're starting to see is those entitled deals have largely cleared the market, in our markets anyway. And our focus, I think, has really been paying off and focusing increasingly in 2011 on deals that require some perceived cost investment. In fact, we increased our development right pipeline by about $1.2 billion worth of new development in 2011, over 18 deals. And I would say of those 18 deals, 11 of them required a fairly significant entitlement work, 7 of which were largely entitled.

Your next question comes from the line of Jeffrey Donnelly of Wells Fargo.

Actually, if I could build on that last question. I'm curious, are landholders willing to let you guys cost-effectively option land today or are they getting more stringent on trying to get you to buy it outright?

We're not seeing really any pressure to buy it on an unentitled basis yet. The one reason that's always been a bit of a struggle with that, tug-o-war with that is in Southern California, where land historically has traded more frequently on an unentitled basis. But virtually, in all of our other markets, we're getting the requisite time we need to get through the entitlement period during the option period.

And is it a fairly deep, I guess I'll call it, market of opportunity? But also, I guess, you touched on it but how deep is the competition you face at the same time?

Well, in terms of the offerings that have been brought to the market, that has expanded, I would say, in the last 6 to 9 months. And eventually, we've put over $1 billion of new development rights on the board here over the last year. I'd tell you, we were focused on in 2010 as well. And there just weren't that many opportunities and there were even fewer people out there looking for them. So the markets have started to open up a bit, and there's definitely more competition. But our sense is it's not -- we're talking about 2 or 3 guys we're often competing with on these deals that require some pursuit cost capital, and the landowners are still putting a lot of -- a big premium on sponsorship and track record, particularly for something that are going to get 2 or 3 years to go out and get the entitlements.

I know we still have rents growing, but do you have a sense or do you have a feeling for what the signals are that you'd looked for, for when you might pull back from acquiring land or do you think that's a ways off?

It's something that we have talked a fair bit about. One, is just price, right? How much has land recovered in? And on the entitled deals, we have seen a pretty full recovery, again, something where you can get in the ground in 3 to 6 months, deals that are 2 to 3 years to entitle. We're not seeing it. We're really not seeing values anywhere close to peak for the most part, so that's still a good sign. And then the normal metrics we look at in terms of the economics and total costs to have actually develop a deal. I mean, how we feel about that basis relative to where assets are trading, as well as what the yields look like relative to acquisition cap rates. And the signals there are still generally positive, I'd say, as it relates to land.

And then the just last question or so was, now that you're developing and redeveloping around the AVA and Eaves brands, can you talk a little bit about maybe the tangible differences that exist between those products and maybe even differences in the return profiles that you guys underwrite for them?

Sure. I'm not sure that there's a big difference in return profile because we don't necessarily see one being riskier than the other. But other than Eaves, it's largely through -- likely to be largely through acquisition, which is going to be subject to acquisition cap rates in the market. But in terms of the product, the Avalon I think people are generally familiar with, upscale, high-end to manage, et cetera, but AVA is really geared towards that younger age cohort who want to accept more sort of transitioning neighborhoods. They want urban. They went active. They want transit, but they'll take something that's a little edgier. In terms of service, they want -- they're looking for staff that's knowledgeable, that's sort of, "of the neighborhood." But looking for sort of casual and the fact that dress, that associates that work on the property, at least at the office level. It's more of kind of an urban casual dress code as opposed to the pressed and polished you might expect to see at an Avalon community. Conversely, at Eaves, it's -- the service model there is more sort of friendly, welcoming, respectful, if you will. The dress there is probably more like business casual as opposed to an urban casual, the pressed and polished, likely to be more in suburban bedroom communities. As I mentioned, sort of older assets where residents are looking for sort of mature locations, safe neighborhoods, but where they put a big emphasis on value or generally looking for something that works, that practical. Fitness room is fine. It doesn't need to be a spa-like exercise facility, but they do expect it to work. They do expect it to be neat. They do expect to be treated with respect.

Is it fair to say that the launch of the AVA brand kind of will increase your development opportunities set then because, obviously, those markets probably couldn't have sustained to fall on Avalon products in the past?

Yes, I think that's absolutely a fair statement. We already have several in the pipeline that I'm not sure we would have positioned as an Avalon community. And I guess the other part of it, we think it can strengthen Avalon. We have at least 4 communities we have identified that will be some combination of Avalon and AVA, where there are 2 very different consumer experiences, different lobbies, different offices, in some cases different amenities, but very different unit plans, et cetera. And it allows us to go after maybe, say, a larger deal than we otherwise might have been comfortable with just under one brand. An example of that is the West Chelsea deal, which is roughly evenly split between the Avalon and the AVA brand, both in the 350-unit neighborhood, if you will, as opposed to just doing one large 700-unit Avalon or AVA deal.

Your next question comes from the line of Jade Teng [ph] with Real Estate Buyers [ph].

I'd like to find out how much capital the company used for acquisitions during 2011?

I'm not sure we have that right in front of us here, but most of it was through the -- through our Second Investment Management Fund. And I want to say, it was on the order of what we did this year around -- or what we're anticipating doing this coming year, around the $300 million in acquisitions -- through acquisitions. And then we had a -- we also had an asset exchange with another REIT. That represented about another $250 million in volumes. So it ends up being in the -- I want to say in the $500 million to $550 million range, which is about what we're expecting in 2012, just to expect to capitalize it differently, given the end of investment period for our second fund having occurred in 2011.

Great. And also, I'd like to find out as far as the fair value added fund, is that in the works or something we expect with that?

This is Tom Sargeant. We are currently not in the market for a third fund. We have certain portfolio objectives that we want to execute on. And it's a lot easier to execute those portfolio reshaping efforts without a partner and a joint venture partner. Having said that, we do like the fund business. We've had a good experience with it, and we've made money for our investors. And it's something we wouldn't rule out, but we have no current plans to market a third fund.

Okay. And finally, my last question for you concerns the Eaves brand and also the drilling into the suburban and veteran communities. I'm wondering which regions the company would be most interested in? The places where you've stated about the growth, and it seems like Northern California would be a prime markets with what you're talking. Will you be looking for that?

Yes, I think I got most of that. You're breaking up there right at the end. But in terms of markets where we're most interested in, at least initially, as it relates to converting some of our existing assets, there'll be more -- actually, in California, both Northern and Southern California. As I mentioned, they're likely to -- they're more likely to be sort of older, vintage assets, if you will, which our portfolio is just older in both Northern and Southern California. So initially, in terms of what we're redeveloping and reflagging, it will be weighted towards the West Coast, in particular, the California markets. Over time, we expect to have a mix -- a broad mix across really all of our regions, maybe a little less so as it relates to Northeast just given the depth of our pipeline, our development pipeline there and our heritage and our ability to -- and track record to create a lot of value through new development particularly in that region. So that region maybe a little bit more weighted towards Avalon and AVA over time.

But I mean, in terms of new acquisitions, the class B product, which regions would the company be most interested in?

Well, I think again probably all of our regions, but maybe weighted more towards the West. I think as we grow the portfolio on the West Coast, it's got to be somewhat balanced between development and acquisitions, which sets up nicely for some additional Eaves product there. On the East Coast, it'll be probably a little bit more weighted towards new development, which bodes for stronger growth in Avalon and AVA. But we still intend to grow through acquisitions, as well as converting some of our existing portfolio in the East Coast to Eaves as well.

[Operator Instructions] Your next question comes from the line of Paula Poskon of Robert W. Baird. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: Are you seeing any increase in move-outs in response to rental rate increases? And are you still able to backfill with higher income or better credit quality tenants? And also, as you think about rent-to-income ratios, do you think the ceilings of those could be different between the 2 tenant bases that you're targeting in the 2 branding initiatives?

Paula, this Leo. With respect to reasons for move-out related to rent increase or financial, for the fourth quarter, it ran about 16%. That was down about 3% from the third quarter where it was 19%. But to put it in perspective, that is above the long-term average, which is more in the 8% to 10% range. With respect to income, the income -- the average income for new move-ins in the fourth quarter was about $112,000. That's up about 6% from the same period of the previous year, so we feel pretty good about that. And with respect to rent-to-income, our rent-to-income ratio remains around 19.5%. I will tell you that in the '08 period, it peaked more 21%, 22%, so there's still room there, plus we do expect through the information that we're getting would suggest that incomes will continue to rise in 2012, giving us room in both areas, both in the percentage of income designated to rent, as well as the growth in incomes, which should be positive for us. With respect to a split between As and Bs, I don't see any big issue there, no.

Paula, maybe just to add to that. I guess, if we -- I guess we would expect that maybe Eaves would maybe a little bit higher than the average in terms of the percentage of income that they're spending on rent in that they're generally going to be lower, more moderate income. And they're going to be spending a greater percentage of their income on necessities, whether it's housing or healthcare or school whereas in the Avalon communities, we have just more discretionary renters and more discretionary income. And they're going to be spending their income on a broader mix of types of consumptions. So there's not a big difference up and down the income scale as we alluded to, but it's -- there's 100, 200 basis points here and there from higher to more moderate income, typically, is what we see. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: That's helpful. And on redevelopment investment, what average rental rate pop are you expecting?

It really varies. I mean, what's typical is around $150 and -- but what we focused on really is the return on enhancements and return on total capital. A typical deal, say, may have $30,000 in total improvements of that, 50% or 60% of that maybe in enhancements, 40% to 50% of that maybe in the end of user life type components. And we'll typically see a return on enhancements, 12%, 13%, 14%, and a return on total capital at maybe 7% or 8%. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: And on the development side, are you seeing any delays anywhere in your ability to just get through the municipality process because the staffs are overloaded like we've reading about here in Fairfax County?

Yes, it's a good question. It's one we're a bit concerned about. We've had 1 or 2 deals where permitting has been delayed. I'm not sure that it's been a result of staffing as much as just unique aspects of those deals, or maybe a little bit of turnover in the building department office. But it hasn't become acute by any means, but it's something we're keeping an eye out because it is a concern looking forward. Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division: And then just finally, what drove the cost savings on the development projects in 2011 that you mentioned in your press release? Was that mostly labor or something else? Relative to your initial budgets, I mean.

Yes, I think -- well, one, typically, we've been able to get buyout savings, and we generally let that flush through contingency. And we've been able to save more contingency and get more buyout savings than we have in the past. And what we are seeing in 2010 and -- it was 2010 when we were starting those deals, we're getting a lot of bid coverage around a certain number. And that was -- and that's where we set our budgets to. And then when you actually went out to actually buy it, you could get -- you could extract even a bigger price concession than we typically have been able to see in the past and kind of that last pricing discussion that you have with the subcontractor. So it's really been a combination of that, being able -- just having more leverage with the subs in terms of how we've been able to manage change orders and contingencies that -- and I mean, just the fine work of our construction group.

Your next question comes from the line of Jason Ren of MorningStar Research.

I was wondering if you could give just a little bit more color on how rental income has grown across your various geographies? I understand it's up 6%, but is there a difference between -- I mean, how close is the difference in -- from one geography to another? And I was also wondering if you could give us a little bit more granularity as to where the rent-to-income ratios are stacking up in your various markets as opposed to the consolidated figure?

Just to give you -- Jason, this is Leo. It doesn't vary too dramatically from market to market. It's the truth. I mean, the high might be in the low 20-point-something, 20.2, 20.3. With respect to incomes, the incomes vary from Southern California in the low $90s to the Northeast, the New York Metro area where it might be as much as $130k. So that's kind of how it ranges. But as my previous comment indicated, it kind of ties back to the rent levels. So the percentages remain fairly constant and fairly consistent from region to region. Obviously, to go from Southern California being in the low $90,000 range to the Metro New York area, which is about $130,000, there is a fairly large range there. To give you some indication of where there's been more significant changes, and this is looking at fourth quarter of 2011, the fourth quarter of 2010, in the New England area, which is Boston and Connecticut, incomes were up 10%, similar in Southern California. Whereas in the Pacific Northwest for that one quarter, it was just slightly down, a couple of percentage points down on a year-over-year basis. So hopefully, that gives you some perspective from region to region and also answers your question about rent-to-income ratios.

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

Yes, I tried to get off though. My questions were answered.

Your last question comes from the line of Andrew Schafer [ph] of Sandler O'Neill.

Going back to real estate taxes, I was trying to get a better feel of what percent of this is going to be attributable to the 421-A burn-off in New York?

None. I don't think any of it is attributable to the 421-A. To give you a perspective, because I have looked at it, the place where we're seeing the high -- the most pressure on property taxes is in the Washington D.C. Metropolitan area, and that's occurring both in rate and assessments. Obviously, California is constrained, so that works to our benefit. And the rest of the markets are more in the 5% range, kind of in the averages.

Yes, Andrew, just to add a little color to that. Most of our assets, we built in New York and are still within their abatement period. So we're not in that during the phase out, if you will, with the -- of the burn-off of that abatement yet.

And then I was wondering at what markets specifically you got the successful appeals in terms of the refunds?

Give me just a sec, and I'll tell you where we've had success. In the fourth quarter, they came in Massachusetts and Southern and Northern California. And then year to date, you would add New Jersey and Maryland were the places where we had success in the appeals.

Maybe just to add to that, just briefly. Where we've seen successes on some of the lease-ups that we had in -- during the downturn, 2009, 2010, where assessors would hit you up with something based maybe on cost but values were actually -- may have been less than cost in certain cases. And it just takes a while, 1 year or 2 oftentimes for those appeals to resolve themselves. So naturally [ph], we benefited a lot in 2011.

Okay. And finally, I just want to make sure that for your same-store 2012 guidance off -- kind of basing off of 2011, yet you're moving the full year effect of Rock Spring so the tempo -- with the guided number is kind of a pure comp.

This is Tom, Andrew. We only had 3 quarters of the negative drag from Rock Spring in 2011, so you don't see the full benefit on Rock Spring in 2012. Roughly, if you were just to think about it, we had 3 quarters of excess expense and release payments, which was about -- it's $10 million, full year. It's $7.5 million for those 3 quarters, so that goes away. What also goes away, there was the NOI from that asset, which was cash flowing nicely on a cash flow basis. We had a pretty good yield. So we do lose that NOI. And until we reinvest that capital, that somewhat is a drag. So we're going to pick up $7.5 million or $0.075 per share between years. But once you factor out the NOI loss, it's more like a $0.04 pickup between years. And so I think, it's a lease that we're happy to go away, but we're not really picking up as much as you might think, given the magnitude of the excess expense and release payments.

So when you sort of projecting out for your guidance 2012, so you're keeping that in your base 2011 assumption - full year numbers?

I'm sorry, I don't understand that last question.

Looking forward, so that full year -- the 3-quarter effect in your 2011 analyze, you're not removing that and then...

Yes, correct. We're not removing that, it's just you don't get a full year impact in '12 because you only had 3 quarters of 2011 dragging you.

I would now like to turn the call back over to Mr. Naughton.

Well, thank you, Amanda. We appreciate you being on our call today. We look forward to the Citigroup Conference, so we'll see many of you. And we'll have a chance to update you on our business at that time in March. Have a great day. Thank you.

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