Equity Residential (EQR) Q1 2014 Earnings Report, Transcript and Summary

Marty McKenna - Spokeman David J. Neithercut - Chief Executive Officer, President, Trustee and Member of Executive Committee David S. Santee - Chief Operating Officer and Executive Vice President Mark J. Parrell - Chief Financial Officer and Executive Vice President

David Toti - Cantor Fitzgerald & Co., Research Division Nicholas Joseph - Citigroup Inc, Research Division Michael Bilerman - Citigroup Inc, Research Division David Bragg - Green Street Advisors, Inc., Research Division Ross T. Nussbaum - UBS Investment Bank, Research Division Nicholas Yulico - UBS Investment Bank, Research Division Ryan H. Bennett - Zelman & Associates, LLC Jana Galan - BofA Merrill Lynch, Research Division Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division Vincent Chao - Deutsche Bank AG, Research Division Michael J. Salinsky - RBC Capital Markets, LLC, Research Division Omotayo T. Okusanya - Jefferies LLC, Research Division Vahid Khorsand - BWS Financial Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Equity Residential First Quarter Earnings Conference Call and Webcast. [Operator Instructions] This conference is being recorded today, May 1, 2014. I would now like to turn the conference over to Mr. Marty McKenna. Please go ahead.

Thanks, Camille. Good morning, and thank you for joining us to discuss Equity Residential's first quarter results. Our featured speakers today are David Neithercut, our President and CEO; and David Santee, our Chief Operating Officer. Mark Parrell, our CFO, is also here with us for the Q&A. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities law. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. And now I'll turn it over to David Neithercut.

Thank you, Marty. Good morning, everyone. Thanks for joining us. We're extremely pleased to have delivered normalized FFO for the first quarter of $0.71 a share, and that's an amount that's near the high end of our previously provided guidance range, and one that represents an increase of nearly 11% over the first quarter of last year. For the first quarter of '14, our same-store revenue, which includes nearly 18,500 Archstone units, grew 4% over the first quarter of last year, which was slightly better than our original expectations. And it is no surprise that San Francisco, Denver and Seattle continue to lead the way, with Washington, D.C., bringing up the rear by a very wide margin. Fundamentals in the business remain favorable. David Santee will go into more specific market-level detail in just a moment. But from a portfolio-wide perspective, current occupancy is 95.9%. And through the first 4 months of the year, we've achieved average renewal increases in excess of 5%, a level we expect to achieve in the coming months as well. So we're confident that we are well positioned as we approach our primary leasing season, and I can assure you that our teams across the country are eager and very well prepared to maximize revenue during this very important time of the year. So now I'll turn the call over to David, who will take you through what we're seeing across our specific markets today and how things are setting up for the summer leasing season.

Thank you, David, and good morning, everyone. Today, I'll round out our Q1 performance results with a brief recap of our key drivers of revenue growth, provide some color on our expenses and how that plays out for the balance of the year, and then give you current pricing, renewal rates for April and May, coupled with some brief commentary across the core markets. Now in addition to the renewal and occupancy results David gave you in his opening remarks, turnover for the quarter continued its decline with an 80 basis point reduction from Q1 of '13, translating into a 300 basis point decline on a year-to-date annualized basis. While managing lease expirations is a never-ending but critical process, the percentage of residents electing to renew with us is at the highest level we have seen in the 7 years we have been tracking this metric. Also fueling the lower turnover is less home buying. Move-outs for home purchases decreased 30 basis points, to 11.9% of move-outs. But more telling is the absolute number of residents buying homes, declining in 9 out of 10 of our core markets, the lowest we have seen in the last 5 quarters. Net effective new lease base rents for the quarter averaged above 3% through March, and have averaged slightly above 4.5% April-over-April. While a much stronger start to the leasing season than last year, improving rates are simply reacting to the normal season patterns that occur every year. Also contributing to our favorable revenue growth for the quarter is the ancillary income growth in the Archstone portfolio. Plugging these assets into our platform allows us the visibility to fully realize the benefits of our centralized and subject-matter expert approach to day-to-day property management activity. Simple things like late charges, which were up 50%; pet rent, up 250%; transfer fees, up 220% all add up to being very accretive to our total income growth. As we say internally, the next big thing at Equity Residential is doing many small things extremely well, if not perfect. As we look out over the next 90 days, our exposure is dead on to same week 1 year ago. Renewal offers have been issued above 7% through July and achieved renewal results for April and May are on the books at 5.3%, with net effective new lease rents approaching 5% year-over-year. With all these indicators flashing green, we remain extremely optimistic, but mindful, of the magnitude of new deliveries across all of our markets, and that the full year revenue growth targets are achieved over the next 90 days. Expenses for the quarter came in on the high end of our expectations, due to utilities and real estate taxes. As we have discussed previously, real estate taxes, payroll and utilities make up 68% of total operating costs. So by now, it's no surprise that utility costs had a significant impact across all types of businesses as a result of the extreme temperatures. More telling are the significant price spikes that occurred in the deregulated electricity markets in the Northeast, with unprecedented increases of 300% to 400% across all of the regional pricing indexes. Consumption of energy in the EQR portfolio was up a modest 5% to 7%, as we continually to -- as we continue to aggressively invest in LED lighting, solar and cogeneration opportunities that provide outstanding rates of return on investment. More recently, with global forces having tremendous influence on energy costs here at home, vigilance will be necessary to keep these costs in check going forward. Additionally, since our initial guidance in February, we have revised real estate taxes upward to 6.2% from 5.2%, both for the full year, as a result of Washington, D.C. valuations increasing more than expected and higher-than-expected taxes in King County, Seattle, Washington. Now mitigating these costs are the operational efficiencies realized through the addition of the Archstone portfolio to full year same-store. Comparing Q1 '14 costs on the EQR platform versus Q1 2013 costs on the Archstone platform allowed us to reduce total costs in leasing and advertising, which were down 23%; turnover cost, down 19%; property management cost, down 2.3%; and most importantly, making up 20% of our total expense, on-site payroll, which was down 4%. So excluding real estate taxes and utilities, our controllable operating expenses declined 2.1% for the quarter. While we expect these expense levels on the Archstone portfolio to continue to offset legacy portfolio growth rates, the impact will diminish over the course of the year, primarily in the next 2 quarters. Archstone Payroll, as an example, was not fully optimized until mid-Q3 of '13. For modeling purposes, we would not expect any material expense mitigation beyond Q3 and the mitigation in Q2 to be less favorable than Q1. Now moving on to the markets. I'll provide you with our occupancy today. April and May achieved renewal rates and then net effective new lease base rents 4 weeks out. For California, I'll only quote April renewals, as these are 30-day markets and May has yet to firm. As David said, we continue to maintain our 3 buckets of performance across the portfolio. In our top-performing bucket we have San Francisco, Denver and Seattle, with expected full year revenue growth well above 5.5%. The bottom bucket remains Washington, D.C., down 1%. And all other markets, making up the middle bucket, with expected full year revenue growth of 3.5% to 5%. Seattle continues to be a great job producer and systematically absorbed the expected 7,500 deliveries without material disruption to the market. With occupancy at 96% and exposure on top of same week last year, renewal rates achieved for April and May are gaining momentum at 8.3% and 9%, respectively. Net effective base rents 30 days out are up 6% to 7% versus same period last year, with impressive strength in the CBD and Belltown, Queen Anne submarkets. San Francisco continues to be our top market for yet another year, with the Peninsula and South Bay leading the way in year-over-year revenue growth, while North San Jose continues to absorb units at a reasonable pace. After a slow start to the year, occupancy is now 96.3%, and renewal rates achieved remain strong at 8.8% for April, with net effective base rents up 8% to 9%. Denver, despite delivering almost 10,000 units this year, remains resilient with a bustling energy and tech-driven economy, and is producing some of the best job growth numbers in percentage terms in the nation. With concentrated deliveries in the urban core and our portfolio concentrated in the South and Southwest, we would expect another banner year from Denver, with occupancy today at 96.6%. Renewal rates achieved remain very solid at 8.3% and 8.5%, with net effective base rents above 7%. So jumping down to Los Angeles. Results, thus far, while solid, unfortunately do not paint the picture of the breakout year that many had hoped. L.A. continues its slow and steady improvement in fundamentals, with occupancy at 95.4%, although employment remains stubbornly high at 8.7%. Nevertheless, renewals achieved are solid for April at 6.1%. Net effective base rents are up 5.8%, again this is versus same week last year, and are poised have a good run over the next 3 months, based on our historical seasonal pattern. Orange County, after dealing with a constant stream of elevated concessions in Q1, primarily from the overhang of delayed deliveries, has now returned to good health. Occupancy today is 95.9% and achieved renewal rates improved to 4.9%, with net effective base rents up 6%. Our outlook for Orange County is a bit brighter than that of L.A. San Diego, good news. The ship is still in, with occupancy strong at 96.7%. Renewal growth rates are some of the highest we've seen in years, at 5.2% for April. Net effective base rents are steady, up 6% over same week last year. With 5,000 new units sprinkled throughout the market, we would expect smooth sailing through the balance of the year. So jumping over to Boston. The urban core deliveries have arrived, and are in full lease-up mode. Across the street and down the block, we continue to see favorable demand in our downtown submarkets and steady absorption of quality assets, with only minus price -- modest price negotiations on renewals, at 96.8% occupancy, and renewals achieved having remained solid at 4.1% and 4.3%. Net effective base rents remain strong, up 4.5%, versus same week last year. Now New York fared better with occupancy in the quarter. However, the pause button remained in the on position relative to net effective base rent growth, which remained at or below 2% for much of the quarter. Job growth remains solid, but many are on the low end of the pay scale, with fewer in the higher-paying financial services sector. Today, the portfolio is 96% occupied, with achieved renewal rates of 4.7% for both April and May. Net effective base rents were up 4%, versus same week last year. So the next 2 months should set the table for full year revenue growth. Jumping down to South Florida, and saving Washington for last. South Florida remains a steady performer with occupancy at 95.8%, about the same position they were last year. Achieved renewals of 5.7% and 5.8% for April and May are very strong, with net effective base rents well above 6%. Given our diversified 3-county portfolio, we would not expect, nor are we seeing, any impact from the expected 7,200 new deliveries this year on top of the 6,000 units delivered in '13. And last but not least is Washington, D.C. Occupancy pressures are starting to mount as our portfolio occupancy sits at 95% today, roughly 30 to 40 basis points less versus year-to-date last year. Looking at our dashboard, there still appears to be a healthy level of demand across the MSA. Net effective base rents continue to fluctuate between flat and minus 2%, as the various submarkets react to the deliveries. Achieved renewal rates are still holding at 2.6% and 3.3% for April and May. And our experience during the last downturn leads us to believe we can continue to mitigate the effective lower new lease rents with more favorable positive renewal growth. Jobs will continue to be the governor on how this all plays out for 2016. Today, though, interestingly, aside from PG County, Maryland, the District and the Rosslyn-Ballston submarkets are performing the best, making up 41% of our portfolio. Both have the least negative year-to-date revenue decline, with current month revenue growth improving versus Alexandria and South Arlington submarkets, which are further out and declining, a potential signal that many are taking advantage of moving closer in while rental rates become more attractive. So all in all, everything appears to be on track as we enter the peak leasing season. Seattle takes first place for the unexpected upside surprise, while New York City brings us back to even. We know there are major delivery hurdles out there, but to date, the markets are absorbing these units with little dislocation or concessions. We have our platform tuned up. We have some of the best and brightest in our industry across many disciplines, and we're all anxious to deliver our 2014 goals.

Terrific. Thank you, David. Just a little bit now on transaction and development before we open the call to questions. For the first time in nearly a year, we acquired a one-off asset in the first quarter '14 in Los Angeles, where we bought a 430-unit project built in 2008 near LAX. The deal was acquired for $143 million at a cap rate of 4.9%. You'll recall that we exceeded our original disposition guidance in 2013, when we opportunistically sold a 1,400-unit asset in San Diego late in the year for $366 million and a cap rate in the mid-5s. Now in addition to lower annual sales volumes going forward, that sale and this acquisition are examples of the type of transaction activity you should expect from us. The sale of older, surface-parked properties in our core markets, but more suburban in nature, with proceeds reinvested in higher-density, more urban assets at a much narrower cap rate spread than it's been [ph] in recent years, in this case, about 70 basis points. The development team continues to be extremely busy with an elevated level of activity, thanks to our legacy land inventory and the Archstone land sites that we acquired in 2013. During the first quarter of this year, we completed construction in 5 projects, 1,290 units, with a total development cost of $370 million. Now we expect to achieve yields from 6% to 7% on current market rents, inclusive of management costs, on those transactions. During the first quarter, we also started 3 new projects, 1,145 units and a total project cost of $614 million, and we project yields of mid-4 to mid-5 on current market rents on those starts. So with the starts in the first quarter, that leaves us today with 9 land sites in inventory that we expect to develop soon, representing a pipeline of just over 2,500 units in terrific urban locations in our core markets, with a development cost of approximately $1.1 billion. And of this current inventory, we expect to begin construction on several hundred million more yet this year with the balance to begin in 2015. And with that, Camille, we'll be happy to open the call to questions.

[Operator Instructions] Our first question is from the line of David Toti with Cantor. David Toti - Cantor Fitzgerald & Co., Research Division: I just have 2 questions. First, sort of stepping back in terms of operations. The quarter saw slightly higher occupancy and lower turn, which to me seems a little bit counterintuitive in this part of the cycle. Is that characteristic of sort your first quarter dynamics in your opinion? Or was that intentional -- intentionally somewhat defensive?

I think we're managing lease expirations. We're being intentional in trying to mitigate the volatility that we see in Q4 and Q1. So I mean, like I said, one of the biggest benefits is just significantly fewer homebuyers, and then just a tendency for people to stay put. David Toti - Cantor Fitzgerald & Co., Research Division: And do you find this, in general, kind of surprising at this point in the cycle?

No, I think we -- I don't find the home buying surprising. We saw turnover drop pretty dramatically in Q4, and we had hoped that would continue through Q1, and it did. David Toti - Cantor Fitzgerald & Co., Research Division: Okay, that's helpful. And then my other question just has to do with the acquisition, the $143 million. Can you give us maybe some detail on the underwriting that made that price attractive in terms of your expectations for occupancy perhaps or rent growth? Or is there material synergies in terms of operating savings? What's the driver of that being a good fit at a 4.9% cap?

Well, I guess we identified this asset in a higher density kind of urban location. We think we bought at a favorable price. I'm not sure the deal was heavily marketed. And we were able to just plug it into our platform there in L.A. and run it very efficiently. As I say, we bought it at about a 4.9% cap. We think that year 2 could be in the mid-5s. And it's just a nice complement to our existing portfolio. David Toti - Cantor Fitzgerald & Co., Research Division: Do you think it'll top out in the mid-5s? Or do you see more upside in sort of a 2- or 3-year window?

Well, I don't think rents are you going flat, if that's the question. I mean David commented about L.A. We think Southern California is beginning to show improvement, and we think it'll be a very solid, long-term deal, and it'll be very strong, high-single-digit IRR for us.

Our next question is from the line of Nick Joseph with Citigroup.

Recognizing that Archstone is now in the same-store portfolio. But could you give a breakdown of how same-store revenue growth differed between the EQR legacy portfolio and the Archstone portfolio?

So I think the best way to say this is that the Archstone portfolio is performing as we expected relative to our underwriting in the various submarkets. So head to head, when we have a couple of Archstone properties in Chelsea and we have our legacy properties in Chelsea, those properties perform very similar. When you start looking at market dynamics, there are anomalies that kind of create some differences, but we know what those are. So head to head, they perform as expected and very similar.

And then you quote the 5% average renewal increase. How does that compare to where the renewals were actually sent out?

So historically, our spread has always been in the neighborhood of 180 to 200 basis points. And that's where it stands today. Some markets are a little tighter. But rarely do markets exceed 200 basis points.

David, it's Michael Bilerman. I just had a quick question. In your opening comments, you talked about transfer fees being up, I don't know, something like 200%, and you talked about the retention and that people are staying in place, so it was the highest rate in 7 years. And I'm curious, when you step back from that, how much of it do you think is just the new EQR portfolio, that more people sort of like the places that you offer? How much of it's the services and the customer things that you're doing? How much of it's maybe not charging high-enough rents to the tenants? And how much it maybe was just weather-related where no one wanted to move and were willing to pay whatever it was to not schlep their stuff around?

Well -- gosh, there's a lot of questions there. Let me deal with revenue first. I think if you remember a few years back, we set up this business group and we've taken a lot of, if you want to call it, authority or some of the decision making. At the property level, we simply automated a lot of that. So no longer can -- do we leave it up to property managers to charge late fees or settlement fees or -- all of these fees and additional charges are built into our platform and automatically billed. And then, if they want to waive that, then they -- there's a process and the support group that helps them with that. But when we set this up on our legacy portfolio, I think 3 or 4 years ago, we saw the same thing, 50%, 60% increases in late fees. It's just the same. It's just we're seeing the same thing that happened to the legacy portfolio when we implemented those types of activities on these ancillary income items. So what was the -- what was your next question?

Well, I'm just trying to figure out. I mean, you have -- you said there was higher transfer fees that you got as people transferred in the equity res portfolio, and there was a much higher retention rate of people staying and renewing. And I think you said it was the highest in 7 years. And what I just wanted to try to figure out is, is that a sign of the portfolio that you have? Or is it a sign that maybe you're not pushing rents enough? Or was it just happening in the first quarter where a lot of people just didn't want to move and were willing to accept whatever rent they got? It was -- I was trying to put those 2 things together.

Yes, I guess I would say, it's probably a bit of all of that. But I would tell you that when we look -- let's talk about the renewals, the percent of residents renewing. We see that across almost all of our markets. It's not just a Archstone-related thing or a new portfolio. I mean, Seattle, we added 3 Archstone properties, virtually 0 impact on our overall staff. So I think there was some of that. On the other side of lower turnover, in raw terms, let's talk -- it was about 700 move-outs for the quarter. Consequently, we had 700 less move-ins than we had last year. So it becomes a little murky because when you get up to 96% occupancy, you start having availability issues. But could the weather have played a role in that? Certainly, it could've. But I don't know how we would measure that.

And Michael, it's David Neithercut. Just to make one clarification here. The increase in the fees really came from the Archstone portfolio, where a lot of -- in which we collected more in the first quarter under our ownership than they had collected in the first quarter under their ownership. So I just want to make sure it was clear that these -- it wasn't kind of -- increased fees across the board, but rather a significant increase in those collected as a result of plugging their assets onto our platform.

Our next question is from the line of Dave Bragg with Green Street Advisors.

David Santee, at the beginning of the year or on the fourth quarter call, you laid out your revenue growth guidance, and you've appended [ph] it with your assumptions for base rent growth, renewal rent growth and occupancy. And through the first 4 months of the year, it appears as though you're tracking well ahead on all 3 of those metrics. Is -- are we correct in that interpretation? And is that steering you towards the top half of your growth guidance for the year?

I feel good that we would be in the top half of the guidance, just as I would expenses.

Okay, that's helpful. And another question relates to your March investor presentation. I think you talked about this on the fourth quarter call as well. Equity Residential has put out a view that apartment completions in your core markets will be significantly lower in 2015 than 2014. And you must have a very sophisticated way of looking at this. But we're looking at permits in all of your key markets and on a year-over-year basis, in nearly every market, permits are up still pretty significantly, and that would translate into starts a year from now -- I'm sorry, into completions a year from now. So can you talk about the process that gets you to this much lower level of completions next year versus 2014?

Well, I guess that process is the result of the investment professionals and the management professionals we've got in each one of these core markets, that really do bird-dog this process extensively and are aware very specifically of the sites and the activity and what to expect. So that's simply what is being -- permits being pulled. But they have a very good sense as to the real activity that they expect to see happen. So that kind of creates our view of our expectation that deliveries will -- should be down. And also, as we look at, again, what's happening on the demand side and the continued expectation for household formations in these markets gives us the view that things will be back in balance as early as next year.

And then also, Dave, we're talking about deliveries of apartments. And when -- the permit numbers are generally anything 5-plus units. That could include college dorms. It could include senior housing. It could include any type of dwelling that would house 5 or plus more units. But like David said, I mean, we use our BI platform. We update it every quarter. We recently made a 1,500-unit adjustment to deliveries in D.C. next year. So I don't know that there's a one-to-one correlation on permits versus deliveries in '15.

Okay, that's helpful. And just on that point, are you increasingly hearing from your staff on the ground that planned projects are getting shelved?

Well, I guess I'm not sure that I'm hearing that specifically, as this process that we went through recently in preparation for this call led us to really no changes from the last time we went through that process.

Our next question is from the line of Nick Yulico with UBS.

It's Ross Nussbaum here with Nick. I've got 2 top-down industry questions for you. The first relates to the bill that's making its way through the Senate banking committee that would, I guess, preserve the liquidity that Fannie and Freddie are providing to the multi-family housing business. And curious what your take on that is and the success of that actually moving through the pipe.

Well, I guess I'll let the Vice Chair of the NMHC Finance Committee answer that question.

I don't think that comes with any compensation, so I won't honor it. To answer the question, Ross, we think that bill is very favorable. This is the bill that's now being considered by the banking committee, the multi-family. We think it preserves many of the best aspects of the existing system and will provide a great deal of liquidity in good times and bad for the sector. In terms of probabilities, what we're sort of hearing is that it's increasingly less likely that anything will happen this next month or so. And if that's the case, then with the election, in a lot of respects, right around the corner, that means nothing will happen in this Congress, and it'll all be deferred. So our best guess is that nothing will occur. But certainly, that's subject to change. And they're working on the markup, as we understand it, right now. So certainly subject to change.

Okay, appreciate that. Second question, on the homeownership rate. I'm sure you knew that Sam was speaking earlier this week and talked about the rate, which is at 64.8% now, potentially going down to 55%, which is a pretty bold statement. And I'm curious if you all are in full agreement with your Chairman's view on the home ownership rate and the direction of it.

Well, I guess I'll just say that Sam is making more sort of points than making very specific declarations about levels. I -- he believes that there is no reason why the homeownership rate needs to stay back at this historical level of 64%, as a result of just sort of changing demographics and preferences and delayed marriage, et cetera, et cetera. Now whether it's 55 or not, you're absolutely right, that's a very bold statement, and I think he's trying to be provocative. But he certainly is trying to make a point about, that at least for this demographic that rents a significant percentage of our apartments, they are staying with us longer and we expect them to be in the -- rental housing occupants much later, as they do delay marriage, as they enjoy the lifestyle we provide in these high-density urban markets.

And I think Nick had a question.

Yes, just on New York City. I'm wondering if you've, at all, explored a sale of one asset or more assets to test the condo conversion bid for your portfolio.

Look, we like our assets in New York. We think we're very well positioned, and we're certainly keeping an eye on what's happening there. And who knows what it might provoke us to do, but we haven't done anything at this time.

Okay. And then, I guess, just the one other one on New York is this development right that you added. Can you just remind us, where is that parcel?

Well, it's by the Lincoln Tunnel. And those rights were against an easement, and there was a subdivision of a neighboring parcel, which gave us some more rights. But that's a property we own near the Lincoln Tunnel.

Okay. And then that -- what -- I mean, how soon might that be a start that would be possible?

It will be some time before that's a start. That is not one of the transactions that's included in our expectations for '14 and '15.

Our next question is from the line of Ryan Bennett with Zelman & Associates. Ryan H. Bennett - Zelman & Associates, LLC: Most of my questions have been answered, but just one point of clarification on the quarter. David Santee, I think you mentioned utility -- had brought up utilities being up significantly year-over-year. Just in terms of the impact on your revenue, given your recoveries on utilities, was there a material impact this quarter and how did that compare to the first quarter of last year?

It's Mark Parrell, just answering the question. But just a little bit of context on utilities for us and the RUBS income, which is the sort of contra to that -- which is the number in our revenue. 75% of the RUBS income we have is water, sewer and trash, which does have energy-related components, but it's not a direct kind of item that's hit by an energy cost change. So what we did, as David Santee mentioned, when we plugged all these new acquisition properties into our system, was also to plug it into our RUB system. So sequentially, the 0.5% revenue increase we reported was unchanged of RUBS. So if you had taken RUBS out, you still would have had 0.5%. Quarter-over-quarter, it was a 19 basis point improvement, so benefit to our numbers. And again, that's because of this, I think, permanent plugging in of these acquisition assets into our system and better utilization of it and better acceptance by residents of these charges being part of their responsibility.

Our next question is from the line of Jana Galan with Bank of America.

Just a quick question on Boston. It seems that you benefited 120 basis points from year-over-year from nonresidential-related income. Is that the ancillary income you spoke about earlier? And will you continue to see that benefit for the remainder of the year?

That's really -- it's Mark Parrell again. And that's really the garage, Jana. We have a garage near the Boston Garden. And depending on the sort of ups and downs of the Boston sports teams. And also, we did some substantial rehab at that garage that closed it down in part during 2013. So this benefit will exist in Q1 and Q2, and will get smaller through the year.

We did reference by footnote in our 2013 statements, Jana, the impact of the garage being down. And we're now just being -- trying to be consistent by showing you exactly what the positive benefit was of the garage, bringing it back online.

Our next question is from the line of Alexander Goldfarb with Sandler O'Neill. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Just some quick questions here. David Santee, I think in your opening comments about New York, where you said the pause was still on, and you commented about lack of financial service growth. Just sort of curious, I mean, any of us looking around the Street can see that -- I don't think -- unless you're compliance, Wall Street's really not hiring. Do you feel that your mix in New York requires financial service or that growth in the TAMI industries are enough to -- those income levels are enough to pay the rents at your portfolio here in the city?

Well, I mean, when we look at our resident makeup, we still have 51% of our New York units occupied by one person. So that goes to more unit makeup, so to speak. Also, when you -- what really doesn't get talked about much is just the level of new development. And there has been a lot, quite a bit, of new development in New York City, all at the very high end of the range. So I think with the -- just the lack of growth in the higher-paying jobs, you have significant deliveries in the luxury Class AAA apartment market. You have other neighborhoods, like Brooklyn, Williamsburg, that were, at one time in the past year, deemed more affordable. Now those rates are approaching New York-type rates. I think there's just been this movement around that's kind of just put a temporary ceiling on rents. So I hope that answers your question. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: But are you seeing -- so are your folks, when the applicants come in, the people from the ad agencies and social media and all the growth industries, are your leasing people seeing comparable income levels that support where the rents in your portfolio are right now? Or do you think that it may cause a shift in how you allocate capital in the city going forward?

Well, I mean, if people are renting these units, they're obviously qualifying with their income.

Yes, and I think it's more -- when you just look at the different neighborhoods in town, I think that's very telling, to some degree. I mean, the Upper West Side has been a little soft for us. But Williamsburg, Brooklyn, those are doing plus 8%, 9% revenue growth. So -- but even in midtown, Upper West Side, we have all different types of quality and price points available, with our Parc Cameron, Parc Coliseum assets. You have Trump. You have 101 West. All those assets have various price points that could really fit or meet the needs of any renter [ph], I think. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay, great. And then the second question is, on the acquisition disposition guidance, you guys maintained it, but it definitely seems like the disposition market has heated up a lot, whereas the acquisition market is a lot tougher. So your view is -- I mean, obviously, you maintained it, so your view is that you can still keep it. But it would almost seem like we could see you guys end up being net sellers this year, just as the acquisition market is very competitive. Is that a fair view? Or are you comfortable that there are enough off-market deals or what have you that there's still some attractive acquisition opportunities?

I guess that remains to be seen. I will tell you that we are beginning to see a reasonable increase in potential activity on the acquisition side. I will tell you that, that seems to be very aggressive in price. So there remains to be seen what activity we'll have in pursuit of some of those opportunities. But the disposition activity will be a function of the kind of reinvestment opportunities that we find. So it's hard for me to answer that question, Alex, except to tell you that we are seeing potentially more assets being offered in the marketplace that we'd be happy to own. It's just a question whether or not pricing makes sense for us relative to the dispositions that we'd incur in order to fund that. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay. So bottom line is, you're not -- you wouldn't want to sell more and just take advantage of the current strong bid for assets? You want to do really matched transactions?

That's correct. We've discussed on multiple calls. Now, really, our acquisition activity will be funded by the disposition activity. And following the $4-plus billion of product that we sold last year, we're not in any hurry, have no immediate need to sell anything. It'll just be a function of the reinvestment opportunity.

Our next question is from the line of Vincent Chao with Deutsche Bank.

Just coming back to the housing market commentary. Just -- we continue to see a slowdown in the overall housing market. And just curious in terms of your outlook, I mean, what level of deceleration sort of was anticipated in the overall housing market? And if it continues to slow, I mean, does that add incremental potential upside for you guys?

Well, I guess I'll tell you that our expectations or our planning, our budgeting for any one given year doesn't start with a sort of big macro view on single-family housing. It's really just looking at each individual asset, each individual submarket and what we think is going on in that market. So the fact that fewer people are moving out of our apartments to buy single-family homes really doesn't surprise us much. Nearly 50% of our units are occupied by a single individual. I mean, that's just -- we just don't have in our properties sort of the most common demographic that would be buying single-family homes, that of 2 adults and a child. I mean, that represents about 9% of our units. So I guess, what's really going on in the greater housing market -- and I'll also tell you what's going on in the housing market in Atlanta, in Phoenix, in Las Vegas doesn't really concern us. So as we look at the individual markets in which we've been concentrated and we've been focused, we're not terribly surprised to see the numbers that we're seeing.

Our next question is from the line of Michael Salinsky with RBC Capital Markets.

Just to go back to a couple of questions. On dispositions, just to Alex's question, how much is actually being marketed right now? And is it more dependent upon the opportunities coming in? I mean, is there a portfolio that you're marketing that you're just waiting to pull the trigger on right now? Or how should we look at that -- think about that?

Well, I guess I'm not quite sure why it matters, Mike. I mean, we do have identified the assets that we would sell. And so in order to make those ready to go we've got brokers' opinions of values. We're prepared. But in terms of actively marketing, there's not a great deal. We don't have a large number of assets that are being actively marketed out there. But we know which ones they would be, and we'd be able to get them to the market very quickly if we felt like we needed to or wanted to.

But there's no tax situation or anything like that, that would preclude you having you do a 1031 or anything like that? You could sell more if the opportunity arises.

No. No, the level of activity we would expect to do, we could be doing without concerns of 1031.

Okay, that's more of what I was getting at. Mark, what was -- what's debt pricing right now? And is there still -- is still the bond offering dialed in for the mid part of the year?

Yes. So we really put that, Mike, both in February and now, the bond offering, in the third quarter, just for purposes of your modeling. And we've got something like a 4% rate on that. I think we would do better in the 10-year market by 20 basis points or so than that 4% number. And we also have hedges that have a positive mark that would also lower the rate further. But we're going to be flexible and opportunistic that may occur a little earlier, may occur a little later, it may not be an unsecured offering. So -- but right now, to answer your question about pricing, the secured market is worse, probably by at least 0.125% and probably 0.25%. So again, I think EQR could borrow at 3.80% on a 10-year basis or so in the unsecured market -- or 3.65%, pardon me, and 3.80% in the secured market. So I do think the unsecured market is probably a little more favorable to us at the moment.

Okay, that's helpful. David Santee, the 3%, isn't that effective rent you quoted, is that a lease-over-lease number, like a blended number in the quarter for the quarter? And if not, what was the actual rent change on leases signed in the first quarter?

Yes, the 3% is really just the net effective base rents that come out of LRO average for the whole portfolio. The actual checkbook number, like every year, tends to be pretty flat because you're renting apartments at the lowest point in the cycle. You have folks breaking leases that rented in the summer. And so when you turn that lease, you're operating at a negative gain to the previous lease amount. So that number, really, for the last 7 years, has always pretty much been 0 to very minimal growth in Q1.

So no real change then year-over-year in terms of average...

Yes, no real change. I don't like to quote that number because I just don't think it's representative of the direction that the business is going. It's just a anomaly that occurs in our business cycle.

Understood. Just helpful just to gauge kind of how it's change -- how that -- how it's changing year-over-year, though.

Our next question is from the line of Tayo Okusanya with Jefferies & Company.

Just trying to get a better understanding of the intricacies of Boston. I was hoping maybe you could give us particular submarket information about renewal rates and as well as new rental rates, what those trends look like for particular submarket?

I couldn't give you any specific rates at the submarket level today. But I can tell you that in the financial district, where our 600 Washington community is, you have probably 3 or 4 lease-ups in that immediate area. That's probably the most impactful. When you go over to West End, where we have our large West End, Charles River Park, Emerson over by the Garden, we're doing extremely well. 6%, 5%, 6% revenue growth. Cambridge is doing well. And I think if you take the numbers that I gave you, those are pretty representative of the entire market, other than the financial district where you have a lot of high-end luxury communities coming online pretty much all at the same time putting pressure on the immediate comps.

All right, that's very helpful. Then the other thing, just some of the papers coming out in San Francisco about some new tenant protection ordinances in East Palo Alto. Could we just talk about that a little bit and if that has any meaningful impact on your operation?

None whatsoever.

Our next question is from the line of Vahid Khorsand with BWS Financial.

Could you provide some insight into how D.C. is tracking compared to what you expected at the beginning of the year and where you think that market is headed for the rest of the year?

Which market?

Yes, which...

The D.C. market.

D.C? I guess I would say, late last year, I said that D.C., at best, would not go negative until Q2. And would it have not been for a lower occupancy in Q1, we probably would have ended the quarter flat. So other than being lower occupied, rates did exactly what they thought, and we just achieved -- arrived at minus 50 basis points about 2 months earlier than expected.

Okay. And how do you think that's going to track for the rest of the year? Is it going to continue down the same path with lower occupancy than expected? Or will there be a swing upwards?

Well, like I said in my comments, when we look at our -- when we look at the markets, there's varying degrees of levels of deliveries in some of the submarkets, the R-B, Rosslyn-Ballston corridor has seen a lot of deliveries in the last couple of years. They will continue to have deliveries. But yet, on a year-over-year revenue basis, revenue growth basis, that market is doing better than we expected. Alexandria, South Arlington, the further you get away from downtown D.C., it seems to be more problematic, but you also have equal amounts of new product coming online there as well.

There are no further questions at this time. I'd now like to turn the call back over to management for closing remarks.

Well, thank you, all, very much for your time and attention today. We look forward to seeing many of you at the NAREIT meeting next month. Thanks so much.

Ladies and gentlemen, that does concludes our conference call for today. Thank you for your participation. You may now disconnect.