Thank you for standing by. Good day and welcome to the Equity Residential 4Q 2017 Earnings Call. Today's conference is being recorded. At this time I'd like to turn the call over to Marty McKenna. Please go ahead.

Thank you. Good morning and thank you for joining us to discuss Equity Residential's full year 2017 results and outlook for 2018. Our featured speakers today are David Neithercut, our President and CEO; David Santee, our Chief Operating Officer; and Mark Parrell, our Chief Financial Officer. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities law. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. And now I'll turn the call over to David Neithercut.

Thank you, Marty. Good morning everybody. Thank you for joining us for today's call. We are pleased to have delivered operating and financial results for 2017 that were at the high end of our original expectations for the year. Now obviously a lot of things had to go right for us to do so, because it required every market to achieve our absolute best case level of performance for the year and stayed one that’s pretty much exactly what happened. Naturally as we began the year we were quite cautious, about the elevated levels of new supply across our markets, which had begun to impact landlords pricing power in 2016, ending several years of above trend performance that had been driven by extremely favorable supply and demand conditions, as we emerged from the last downturn. However, while revenue growth certainly slowed as compared to prior years, several factors allowed us to mitigate the impact of this new supply and outperform our original expectations. First as everyone is keenly aware, there is clearly very deep and very resilient demand for apartment living in our urban and highly walkable suburban markets, which continue to be powered by an expanding economy, which has driven employment -- unemployment to record lows and is ignited wage growth that had been dormant for much of the recovery. As David Santee will explain in more detail in just a moment, the second factor for our success in 2017 was the relentless focus on our prospects, our residence and our properties, by our property management and operational teams and everyone else across our enterprise that supports those teams. Our 2017 performance was the result of everyone, working as one team, providing remarkable service to our residents and sweating every detail. This was a job very well done across…

Thank you, David. Good morning, everyone. A year ago, when we laid out our guidance for 2017, I told you that our teams are keenly aware of the challenges before us, and I was 100% confident that they would go above and beyond to deliver in 2017. They did and I'd like to recognize those efforts, which allowed us to keep revenue growth at the high-end of our original guidance and expense growth that came in well below the bottom end of our guidance. In a new supply environment like this one, we know that our customers have many choices, but despite these above-average levels of new supply across all of our markets, our teams were able to deliver 4.6% renewal rate growth, while achieving the lowest resident turnover in the history of our company. They also continued to improve our customer loyalty scores, which have increased 25% over the last couple of years. And we did this while, also seeing our employee engagement scores remain at peak levels and our property employee turnover decline. Our wining culture and the desire to deliver our best will be called upon once again in 2018, as we face another year of elevated supply. And so our 2,000 operating strategy is very simple. Hit the replay button and keep a laser focus on our customers and employees. Renew and retain combined with market pricing discipline will be the key drivers in our ability to deliver 2018 revenue results that are very similar to 2017. Now moving on to the markets, I’ll focus my comments on the assumptions that make up our full-year forecast on a market-by-market basis. These include new lease growth rates, the expected renewal rates achieved and the percent of contribution to same store revenue growth that together get into the…

Thank you, David. Good morning, everyone. And I want to take a few minutes this morning to talk today about our same store expense, normalized FFO and capital expenditure guidance for 2018. Before I launch into some detail on our 2018 same store expense guidance range of 3.5% to 4.5% I want to give some context. Our lower than expected full year 2017 same store expense increase of 2.7% versus the 3.2% that we expected has set up a relatively difficult comparable period for 2018. We have also benefited from a modest 2.7% average annual growth rate of same store expenses over the past five years. Switching now to 2018, our same store expense growth this year will be driven as it usually is by growth in our big three expense lines, real estate taxes, on-site payroll and utilities, which together constitute almost 80% of our total same store expenses. On the real estate tax side, we expect an increase of between 4.75% and 5.75% with about 170 basis points of the increase coming from the 421-a burn off in New York. We face the tough comp in 2018, as we had better than expected success in some appeals in 2017, that brought the full year growth rate down to 3.2%, now is about 100 basis points lower than we originally thought back in February of 2017. Jurisdictions with the largest expected real estate tax expense increase in New Jersey and New York. For payroll expense, we expect an increase of around 5%, as we face continued pressure to retain our property level employees, especially in regards to maintenance salaries, which we see up over 6%, all in a very competitive labor market. Switching to utilities, we anticipate an increase of between 3% and 4% in 2018, after some very…

Thank you, Mark. I want to spend just a moment addressing the transaction Mark in development activity. So across our markets there continues to be a very strong demand for multifamily assets regularly demonstrated by deal prints supporting all time high valuations despite slowing revenue growth and rising interest rates. The sentiment across the space is that many investments remained under allocated to multifamily real estate and that a lot of capital is looking to be put to work in our space. In fact the annual NMHC meeting in Orlando several weeks ago attracted 6,000 registrants and by some estimates there were more than 8,000 attendees in total. Further evidence of the stability multifamily asset valuations can be found in our own disposition activity. In 2017, we sold five assets for $355 million and the prices realized were 102% of our internal valuations at the time and 105% of our 26 valuations of these same assets. Now as recently as October last year, we thought we might get closer to our original guidance of $500 million of dispositions in 2017, but had more than $100 million of closings move into January of this year. And these assets will trade at 105% of our most recent valuation expectations. Now with highly competitive demand for multifamily assets throughout 2017, we closed on no new acquisitions in the fourth quarter. And we closed on $468 million for the full year at a weighted average cap rate of 4.8%. Consistent with last year, we begin 2018 with an expectation for transaction activity of $500 million of acquisitions funded with $500 million of proceeds from dispositions. And like a year ago, we will only conduct this activity if it can be accomplished with the limited initial dilution and result in higher long-term total returns. Now…

Thank you, sir. [Operator Instructions] And we’ll take our first question from Nick Yulico with UBS.

Thanks. David I just want to go back to the comments you had in the press release where you talked about the outlook in your coastal markets with high homeownership will soon improve significantly as new supply reduces. And I'm just looking to hear your view as to when you think this might happen if you’re seeing any light at the end of the tunnel on supply in the second half of this year or is it more of a 2019 impact?

Well we really look at 2019 deliveries Nick as the beginning of the reduction. In 2018 we’ll still have 2017 deliveries that are spillover into this year and I will say in 2019 we will still have 2018 deliveries spillover. But the number of deliveries that we count as competitive to our assets we see diminishing considerably in some markets less so in others, but we do see kind of light at the end of the tunnel with elevated level of new supply beginning in 2019. I'm not suggesting this going to zero, but clearly while we look at what we think will be and should be continued very strong demand we do see the supply we do see in 2019 and we believe that by that time we’ll begin to see pricing power kind of return to the landlords.

That’s helpful. And then on New York City in the past you’ve talked about Long Island City Brooklyn is having the bulk of the supply delivering this year it feels like you’re now saying that that competitive impact could be a little bit worse or at least your guidance is factoring some of that in. So perhaps you can just tell us more about how you thought about Long Island City Brooklyn pricing of the competitive new supply impacting your portfolio in terms of your guidance for New York this year? Thanks.

This is David. At this point we have a lot of anecdotal stories, we have some examples of residents that move out of our communities in Brooklyn not to Long Island City, but after several months choose to move back. But as I said, I think, the long-term outcome of 6,200 units coming online is very hard to quantify. So we prepared for it last year certainly the number of units that are going to be delivered this year especially in the first half of the year are very, very elevated and we planned accordingly. And we hope the discipline stays in the market and owners remain picking to their guidance on profit.

I guess I’d add to that Nick that these developers that are delivering this product have not seen a lot of rent growth from their regional performance and for them to meet their expectation, meet their investments expectation, meet their refinancing expectations, they’re going to be forced to toe the line on pricing. Now that doesn’t mean that some of them will get aggressive and we may not -- we won’t feel that, but I think that unlike what we experienced in San Francisco in 2016 there’s not a lot of cushion for the pricing expectations of these few folks that are delivering these product in Long Island City and that maybe very well why we saw discipline throughout the market in 2017.

And just to follow-up -- that’s helpful. So it sounds like you sacked in a fair amount of conservatism in New York relative to how this pricing impact could play out.

Well I guess we’re as conservative going into this year as we were last year and obviously we outperformed our expectations, not we’re saying the fact that New York was the worst performing market, so this performance was all relative. We still expect New York to be our worst-performing market, but if pricing discipline holds throughout the marketplace maybe for the reasons that we have noted maybe New York could do better. But I will tell you, if there is a crack in the dike than we could have an outcome on the downside.

Thank you, David.

You are very welcome, Nick.

And we'll go next to Juan Sanabria with Bank of America.

Hi, thanks for the time. Just following up on Nick’s question on New York, just hoping to better understand the same store revenue build where you guys are building in maybe potentially more concessions that you didn't necessarily see in 2017. If I didn't miss here, I thought you said, your expectation is for new leases down 3.7%, but you had a 50 basis point increase in 2017. So I was hoping you could just kind of walk us through that a little bit just to understand the assumptions on why you're starting out more conservative as you ended up in New York for 2017?

Well, I think it's more driven by what potentially could happen in the summer months, a lot of these deliveries will come online, starting at the end of Q1 into Q2 that's when a lot of your lease expirations occur. The other thing is that, New York has the lowest turnover of any market. So consequently renew increases have a bigger impact and have more staying power in New York. So when a new lease turns over the drop and the difference between the current rent and the new lease rent is much greater. So you’ll just have more roll down in the rent rolled so to speak than we saw last year. And then we forecasted, we are prepared with the concessions we think are necessary should the market see pricing contagion with regard to concessions.

And so I just wanted to follow-up on that 2019 supply comment. Any sense portfolio wide at this point what the expected decline in units across your competitive set would be looking at 2018 deliveries versus your initial expectations for 2019 at this point?

I guess I would say 2019 numbers are definitely more bias towards the estimate than fact. But today, based on our boots on the ground and data that we reconcile through Axiometrics, we’re showing almost a 30% decline in new deliveries in 2019 versus 2018.

Now that being said, there are some markets that might be consistent deliveries 2019 over 2018 and -- but more significant drop in other markets. But as David said it’s difficult to make a real call on 2019 in markets in which unlike New York where it doesn’t you can take less than 24 so months to deliver product. Certainly New York, we have an expectation of a material decrease and I think we probably be pretty close for most anything to be delivered in 2019 it's got to be underway in some fashion today. And our guys are covering all this stuff very closely for us.

Thank you very much.

You’re welcome.

We’ll move next to Rich Hightower with Evercore ISI.

Hey, good morning guys.

Good morning, Rich.

So a couple questions here. So I want to follow-up on some of the market commentary and thanks for all the color during the prepared comments, it was very helpful. But just to stress test the guidance a little bit and you spent a lot of time talking about New York, but maybe some of the other markets just you know what generally would have to happen for you to hit the bottom end of the range versus the high end of the range? I mean, how do to you guys probability wait the different outcomes. And then maybe further on those supply comment, I think we know with certainty that every time we look at these numbers at the beginning of the year the actual deliveries end up in some cases meaningfully less at the end of the year. And I'm wondering if you’ve baked in that same sort of assessment to the way you've envision these markets to playing out in 2018.

Well I'll let David answer the first part of your question. I'll answer the second. So if there is any meaningful change at the end of the year it’s just because that product got pushed into the next year. And as I think we've talked about at one of our last calls. A lot of the data you look at is based upon when properties receive their final CO, and that doesn't necessarily mean that the opening of the door and their first availability for actually occupancy were pushed back any. And we do track that very, very closely and we track not completions as defined by final CFOs, but when in each quarter or each month properties will actually be open for business and able to begin to compete with us actually thinking that occurs 60 or 90 days actually beforehand. So we've got our hand on the pulse of that competitive product. But as it relates to what kind of has to happen for us to be at the low end, I'll let David address it.

Well, to be at the low end, we'd have to pretty much miss in every market. But I mean as you referenced, we do pressure test, I mean, the art of forecasting in a market is really the gut feel, which way the winds are blowing and that's why we kind a check mark San Francisco, I mean, we feel very good about San Francisco, the headlines are positive. We've had a strong start to the year probably our best last in the last three or four years. So we feel that we consider all of the variables that San Francisco has very positive momentum. Relative to our forecast on Southern California, based upon where our properties are located, the general direction of the economy, we feel that it would be more difficult to outperform, but on the other hand lower risk to underperform. Washington DC for the last three or four years it's been pretty much flat revenue growth. And there is uncertainty with the federal government and what the new budgets will look like that could pressure jobs. I mean, I think a quarter above jobs in DC are directly related to the federal government. So we see -- when we look at DC we see that risk we see continued elevated supply. And when you look at even the suburbs in DC is stretching far out the rest and what have you those markets are not generating revenue growth as well. So DC would probably be more at risk to the downside. And then New York it just comes down to concessions. I mean, we feel very good about rates will do, what have you the number one variable with New York City is. As pricing remained disciplined and can we manage through these elevated supplies without new deliveries or lease up increasing concessions to a point where it creates contagion across the market.

That's helpful. Can you guys specify where you are in terms of an overall earn in so far for 2018?

You mean embedded growth?

I'm sorry say that again?

You're asking about sort of what we thought our embedded growth was beginning the New Year?

Yes, that's exactly right.

So for the portfolio it's 70 basis points.

Okay.

Just might describe what that means, David.

Yes, so what we do is really just take the value of the rent roll for the portfolio on 12/31 for the month, annualized that and divide it by full year 2017 that rent roll value. And that generates 70 basis points. So on the assumption that all other income components stay equal you would generate 70 basis points of revenue growth.

Thank you. Do you have another question?

Yes, I do one separate question on the dividend. So after the prepared comments, just maybe give us a little more color to the decision there, how increasing the dividend and maybe making the policy a little more flexible compared to other avenues to return shareholder capital including share repurchases? And then Mark, I want to fold you into this as well, can you remind us where EQR is in terms of run rate, free cash flow versus the taxable income, dividend requirement and some of those other elements as we think about the calculation. So it's a bit of…

So maybe I think -- yes, that will be best maybe for Mark answer that question with the statistics and then I'll talk -- and I'll share with you how the Board thought about those as it change this policy.

So let's start with just free cash flow then talk tax and then David will interject the policy overlay. So the number to probably start with for 2017 is something around -- or 2018 pardon me is something around $270 million of cash flow after the dividend assuming the run rate dividend but we hadn’t increased it. We have some additional CapEx and that we disclosed in the release. So that uses up $10 million call it. The incremental dividend is another $25 million use. So now you are down of about $235 million, then you have development spending of $100 million to $150 million, it's closer to the high-end of that range because of the addition of the Boston Garden garage that David Neithercut describe in his remarks, which leaves you $80 million to $100 million of excess cash flow that now in our model effectively reduces debt. So if you look, you'll see that we're paying down $1.2 billion in debt this year, but we're only issuing $900 million to $1 billion. So that difference is partly a draw on the line of credit, but it's also partly the application of this excess cash, at least in our model and guidance to repaying debt. In terms of taxable income, we've got plenty of room. We distribute already significantly more than were required few under the re-tax rule. So every year just to give you an approximation we can sell about $400 million of assets and retain the cash without affecting our dividend policy, meaning without forcing the dividend higher. With that I'll turn it over to, David.

Yes, so with all in mind, I think, we have had conversations on these calls for at least the last year and certainly conversations with our Board for the same time period. Giving everyone the heads up that as our development starts were rolling down that as we were looking forward beginning sort of 2018, that we were looking at elevated levels of sort of uncommitted cash and discussing sharing with you all and sharing with our Board what are range of opportunities where with respect to that cash and one of those always was an increased distribution or annual dividend to our shareholders, which is resulted in this new policy. We also did share with the Board that in doing so, that didn't preclude us from doing anything else with excess cash that by doing this that did not preclude us from buying stock back, did not preclude us from starting some additional development transactions like the deal in Boston that we've talked about or buying other deals or taking down new land. So this is just one way one that we’re using this excess and we still have excess capacity to explore any other options and we think it's in our best interest to do so.

Okay. Thank you for those comments.

You bet Rich, thank you.

We'll take the next question from Rich Hill with Morgan Stanley.

Hey guys, good morning. So I think there has been a few questions about this and just want to get a little bit of a better sense of cadence as you think about same store revenue growth between 1H and 2H. And it seems to me and I don’t want to put words in your mouth there seems to me maybe still some bumpy roads in the first half with improvement in the second half as we start to get pass this supply. Is that fair and could you give us any more color about that?

It's Mark, and I'm going to start and I think David Santee may end up contributing as well on some of the details. But that isn't quite right, sort of as we sit here in January, David talked about the embedded growth. We feel pretty comfortable with our level of first quarter growth and we came into 2018 with pretty good momentum. In 2017 and then this relatively good embedded growth that David Santee just mentioned. In light of some of the upcoming supply headwinds and sort of increased move-in and move-out activity that you always see from us in the second and third quarter. We believe that sort of a step down in our numbers for the reminder of the year is prudent and is what is implied in our guidance. So if you look at the way our quarter-over-quarter revenue numbers moved in 2017, there is likely to be a great deal of parallelism in how those numbers move in 2018. Now if we are able to hold occupancy and increase rate as the year progresses, or we utilized fewer concessions we may very well end up with the upper half of our revenue range. But at this early point of the year our guidance kind of is our reasonable best view of what can be achieved in the year.

Got it. And so that was sort of my follow up question I think there was a question about what would be the low end of the guidance range, but the top end of the guidance range might -- I think there’s an expectation that pushing supply out in 2017 help you achieve the upfront of that range. This year it’s going to be really driven by you achieving the top end of the occupancy range where supply is coming for the most part. Is that fair or how should we be thinking about it?

Well, I mean, the stuff doesn’t turn on and turn off, this is a -- supply is out there we’re still dealing with supply delivered last year and there’s sufficient supply now that is we’re dealing with it and it doesn’t -- there’s not a first half and a second half. I mean, we do track when these things open every quarter, but the fact, the belief out there that somehow our performance this year was a result of new supply sort of being pushed back is just not correct. It’s just that the markets performed better than we thought, the teams did a great job and it’s not because for some reason there was not as much new supply as we might have thought at the new year. There’s sufficient new supply in the marketplace that we’re dealing with that whatever got pushed back. And again I note that pushing back is the pushing back of the completion not necessarily the pushing back of the delivery of new product that’s competing with us.

Got it, that’s really helpful. I’ll follow-up offline with any additional questions, thanks guys.

Thank you, Rich.

We’ll move next to Dennis McGill, Gilman Associates.

Hi, thank you guys. Actually just clarifying that last statement David, so when we think about the comment earlier about 2018 supply being pretty similar to 2017, I think at this time last year you would have had more of an optimistic view that 2017 would have been the peak. So as you weigh what’s different today versus a year ago as it relates to 2018. How much of the higher level of competition in 2018 is a reflection of 2017 stuff being delayed versus more being in the pipeline than was visible at this time last year?

Yes, again it’s forward not the latter I mean it’s just and again I want to just emphasize this notion of delay. When properties are completed which is how everybody track this all the third party densities track this it’s by completion, which is when they get their final CFO that does not mean that they were delayed in opening their own doors. We had a couple of properties ourselves, and one in San Francisco last year and one in Seattle last year, that was delayed or the completion pushed back but the opening of the door, the day on which these properties became available for rent was not delayed it was simply the completion that was pushed back for various reasons. And one of them we didn’t get some street gate work done because of some issues with the city, but the property opened its doors it was available for lease right on time. So I want to just get away from the people thinking about the stuff was delayed, which means it wasn’t competitive in 2017 it was competitive even though it was pushed back. As we add up the completions of 2017 plus the completions of 2018 the total there really has been no change in our review and the way that we look at competitive product.

Okay. And then similarly as you talked about the very preliminary look into 2019 and the step down is that from the competitive side or from the actual completion side?

The stats we would give you would be on the completion side. We do give you data that may not be the same footprint as the third party services, but it is defined the same way as the third party services.

Okay, perfect.

Okay, because we don’t look at say New York Metropolitan area we look -- we draw a different boundary and consider that product that we believe would be impactful to our market. But we do track completions in the manner in which I described you as completed in final CFO which is consistent with the third party service providers.

Okay, that’s helpful. Thank you. And then second question just as it relates to the fourth quarter sorry if I missed this, but do you have the renewal and new lease numbers for the fourth quarter and then maybe any color you can provide on thus far as well?

Sure, renewals for Q4 were 4.6% and then lease over lease was minus 4.2%.

Now as David has mentioned several times on these calls those new lease rates reductions always are sort of wider than on average, because you're often re-leasing units in the down of the winter versus the up in the summer. And so when people for whatever reason have to come in and term their lease, they leased it at the peak of the season where we got the highest pricing they’re giving it back to us in the lowest time of the season. So it's not uncommon for that delta to be the widest when it’s happening in the wintertime or in the fourth or first quarters and it also does not account for any prepayment penalty or cancellation fees that we might have received.

And then let me give you January and February renewal numbers. January, closed out at 4.6% on renewals, February thus far which is early and we would expect this number to jump up again another 20 basis points is 4.4%.

And the new lease on January?

We don't track the new lease numbers on a month-by-month basis.

Alright, thanks guys. Good luck.

Thank you.

We’ll take our next question from Conor Wagner with Green Street Advisors.

Good morning,

Good morning, Conor.

David Santee on the Bay area, could you break out your expectations by the three submarkets there, San Francisco, San Jose and open East Bay.

Well, let me say this most of our portfolio is in the Peninsula and South Bay, we have a few assets in the East Bay Berkeley that should do better this year. So really all I mean most of our assets in downtown San Francisco are still new store. So when you think about same store, it’s really the Peninsula South Bay, which we feel should do very well as I stated in my comments. So the driver of the full market would be greatly influenced by Peninsula and South Bay.

And then within your Bay area forecast, what are you thinking about the impact of H1B and do you have any sense for how many of your residents are H1B holders?

We measured that before, I mean, we really haven't seen any material impact from that, I mean, lot of the H1Bs were kind of the $60,000, $70,000 a year jobs, I think the -- we employees -- employers typically get sole security numbers and what have for the employees after they move in. So our proxy is really to kind of measure the number of residents that don't have a sole security number. And that numbers been consistent, but we really haven't seen any negative fallout from all the H1B headlines.

And you are not forecast anything really to change on that this year?

No, I mean, the only thing that’s changed really last year was this express approval process, I don't -- I think the actual number of visas really remained unchanged in the big scheme of things. So it's really more about I think they kind of all get approved in like the end of Q3 versus companies paying up $1,500 to $1,000 for this express approval, which I believe that was what was eliminated, the express approval.

Thank you. And then David Nethercutt you mentioned on development 5% to 5.5% return on cost and the spread that is their cap rates and the bid that you received on your dispositions with your stock trading at an above 5% implied cap rate. How attractive is even a small share buyback given you Mark Parrell that you have $400 million in annual capacity to do that?

Not sure, we attract it at all at these levels and as you know by your own math, that you have shared with us that the after taxable gains and being balance sheet neutral there's just not a lot of capital left after dispositions to make a meaningful impact. And the impact that it has just generally on the enterprise going forward, we don’t think it makes sense at these levels. That being said, we have bought stock back in the past and we won't hesitate to do so in the future. But levels at which we've traded off of that AZ today and this is about the level that we experienced six or so months ago. The management team here saying the Board just don't believe that the discount is enough to have it make sense particularly given the taxable gains that's embedded in the assets that we own today.

And so use of the free cash flow even like $100 million buyback doesn't look attractive to you?

I think that that's an option with free cash flow. I guess, I was responding more to the notion of selling assets to buy stock back. There is not a lot of capacity there. But from the free cash flow perspective that is certainly a perspective use of that capital.

And how perspective?

Well, I mean, it's just an option on the table. I mean, we'll act and we’ll let you know when we act, and don’t let you know ahead of time.

Thank you.

That's certainly an option that we have with that capital. But we've said for the last year it remains an option. And as I noted in a response to one of the earlier questions nothing that we've done with respect to the increased demand nor the commencement of this deal in Boston has precluded us from having ample cash capacity to do anything else.

Thank you.

You bet.

And we'll take our next question from Michael Bilerman with Citi.

Hey, it's Michael Bilerman here, with Nick. I'm curious David how you feel about sort of the overall private equity and just other money looking at multifamily in a large scale transaction. To-date a lot of that capital has gone to higher cap rate product, value add, secondary markets or southern assets, the assets. And pretty much everyone has been playing in that and may have been able to get the leverage and get pretty attractive ROE. If you think about the deal you did with Starwood in that sale do you think there is capital for a larger scale core type transaction of the product that you own today?

That's hard to say, Michael. And I guess, I’d first add that if notice the Starwood transaction I'm not sure anyone who still exists today has done more in that space than we have with the sale we did to Starwood. Anyone who might have done more doesn't exist as they've gone public to private. But we’re a big company and it's hard to say just because Brookfield might think they can do some of the GGP doesn't mean that same level of capital is available to do large transactions. So, I guess, I believe that to you and other sort of pundits to suggest, it's tough for me to say.

I'm just wondering whether you see that now core building up in more assets in the markets that you have whether there is appetite that you're seeing from capital sources to buy that product, because most of the capital has been targeted towards higher yielding product. As this didn't know whether there…

I think most of maybe the big capital investments have been, but there has been plenty of one-off capital acquisitions of what we’d considered to be core product. I mean, there are prints every day of core products that might not be billion, multibillion dollar transactions of core products. But we think that there is a lot of demand for at least one-off core product that continues to print on a regular basis showing very strong values in cap rates and freeze and certainly low 4s across our portfolio. Now whether or not that's available in scale which is your question, I just -- I can't comment, I just don't know.

And your Chairman has been pretty vocal about as you on equity markets and also selling a lot in certainly he's doing that through on a real estate basis through ETC liquidating a lot of those assets. How does his views sort of translate into your strategy from an asset recycling perspective and narrowing this above average discount to your peers as well as above average discount just to pure NAV?

Well, I guess if my math is correct, we've sold more in the last couple of years than ETC has not as a percentage of the company obviously. But I think the $6 billion sale we've done in 2016 is more than ETC and probably worth more than EQC’s total valuation. So it may not represent as larger share in the company, but we’ve been as active as anyone.

I'm not insinuating that you haven’t done a lot of things I'm saying that…

No, I appreciate that I'm not suggesting you insinuate that, but I just think it’s important to communicate to everybody else on the call to just kind of put some of these things in perspective. And so I think Sam obviously he had his view, much of his view of what you hear and talk about on Quark [ph] Box or Bloomberg or whatever is a general view. He has more of his network away from real estate than he does in real estate. I mean, it’s just more of a sort of general view and obviously I have conversation with him more specifically with respect to Equity Residential. And I can tell you that Sam is not concerned at all about discount to NAV, his suggestion to us after having done the dispositions we did a couple of years ago and his understanding about the arithmetic relative to buying stock back at the current discount, which we believe was insufficient Sam says go run your business, he plans something around for a long time and encourages us to kind of run our business without regard to where the stock price is. That being said, if the discount widens we’ll begin to maybe perhaps need to have a different conversation, but right now it’s go run your business.

Just last question in terms of capital you talked a little bit about the equity side and how it’s unsure whether there’s large pockets of software [ph] and or a private equity that would be willing to take down large scale portfolios versus single assets I'm curious what your views on the lending market and Fannie & Freddie certainly bumping up over 50% of the multifamily lending market last year. And whether you think this appetite and what you’re seeing sort of on the mortgage side to fund core type deals?

Hey, Michael, it's Mark. Fannie & Freddie as you said has just been extremely active, we anticipate them being extremely active in 2018. They have a slight preference probably and their pricing reflects it for certain types of affordable product, but they are certainly a very significant lender on our kind of product as well. And I think are able to do things in size. I would caution however that their ability just really for political reasons to do very large loans on very visible transactions is something I can’t -- I've not discussed and I can’t underwrite or explain. I mean, their ability to just finance our product in the ordinary course I think is unfettered, we have very little secured debt now especially by the end of this year. So we’ve got plenty of room with them and I think others do to. But to do very, very large loans that I think you’re talking about is both in underwriting decision and in their case due to conservative a political decision and that I can’t give you any opinion.

Well, that’s true, but we’ll just sort of add there has not been a transaction in the multi-space of public to private that was not significantly financed by those agencies. Now again to your point Michael that was smaller sizes, but they played a very significant role in -- I think in every public to private event that we’ve seen in our space. Now again there’s political issues that doesn’t mean it will continue, but they have played that role.

Alright, thanks for your time, guys.

We’ll go next to Rob Stevenson with Janney.

Good morning or afternoon guys. Just a couple of questions left, in terms of the $0.04 negative impact in the first quarter on a sequential basis from same store, can you talk about whether or not that’s more revenue or expense driven and what markets are predominantly driving that as well?

Hey, it's Mark. It’s really about some real estate tax refunds that we got that I sort of alluded to in my remarks in the fourth quarter. So that just meant that the usual decline we have between the first quarter and the fourth was $0.02 larger throughout really was just those couple of large refunds running through this system in Q4, increasing FFO in that quarter and just making it look like that difference was larger instead of sort of that being spread out probably in 2018 and just kind of move forward a bit.

Okay. And then Mark can you help me understand what the next couple of years on New York tax abatement stuff looks like, I mean, you guys have a lot of assets in the city. I mean, is it just a constant role of those programs down to over the next couple of years or does the peg [ph] go through the pipe on at some point in time and you get back to a more -- you can just sort of normalized the tax abatement stuff in your same store expenses and your same store property taxes?

I think, it's probably fair to assume there is 150 basis points to 200 basis points for the medium term of growth in our number due to New York 421-a burn off, there isn’t a particular year Rob that’s at all ends in the next year and it's all done, it does go on for some number of years. But I just want to add a remark, it sort of like prepaying a loan, every year you get closer to the end of the loan maturity, the prepayment penalty goes down. Every year we get closer to the end of the 421-a period, the cap rate on these assets decline. So NAV is being created because they trade as these assets get stabilized at a lower cap rate, but in the mean time you do feel it through the P&L in property tax expense.

All right. And then last one for me, any update on relationship with Airbnb and how that's progressing relative to expectations?

Sure, this is David Santee. We completed the rollout of additional pilots on the 18 properties in Q4 -- I'm sorry 14 building in Q4. And there is not a lot of activity in Q4 as a lot -- most of these buildings that we put on this portfolio were more corporate housing company type properties that typically will Airbnb some vacancies and that's why we selected the specific group of buildings. So it's more about just getting visibility into what these companies are doing and I don't think there has been any surprises, but it's doing exactly what we thought it would do, which is give us transparency into the entire process.

Okay, guys. Thank you, appreciate it.

You bet, Rob.

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

Thank you. David four of your six core markets are finalized for the Amazon HQ2. I was wondering if what your thoughts were on which market if we announce the winner would be the best for your company.

Would be the best for the company, that market in which we’ve got the highest allocation of capital deploy. I think everybody is having a great deal of fun trying to figure this out. We think the DC market identify three sort of submarkets within DC. We think that there is a possibility there that would certainly be good for that marketplace. It’d be good for any market, but certainly would be most beneficial in those markets in which we have most NOI coming up.

Okay. And then the second question is on your same store rental rate declined a little bit of quarter to $2,720, I was wondering if in your 2018 guidance if that contemplates an increase in rates?

So for full year when you look at 25, when you smooth out the leases on renewals and new lease expectations, it doesn't show much growth.

The $2,720 is the GAAP number so that’s effective rental rate?

That's a number from the press release.

I'm sorry you are on $2,720 for the fourth quarter?

Yes, sorry this is page 11, of your supplemental.

Yes, I mean it customarily goes down and it's not stunning thing for it to decline in the fourth quarter, a little bit, I mean, it's not as transaction intensely a quarter. David has given some of the parameters about renewals in new lease rates in the rest and I think that what you are going to see in new lease rates there and average run rate is it will go up but only very modestly.

Yes, we talked a little bit about how -- previously about how lease over lease rent that delta is the widest during this time of year when we're often re-leasing units that had been leased previously during the best time of the year meaning the summer. Due to lease cancelations or for whatever reasons and these numbers out again as I noted don’t include a breakage cost that we receive from the person walking out. So it’s the delta while yes lease to lease but that’s not the full economic impact to the company, because of the lease breakage cost that we recover.

And just to add, I mean, it went down in 2016, I mean, this is not like I said an uncommon thing to have happened. So I wouldn’t take it as a read through against anything that this year in 2018 is particularly ominous. It’s just sort of the way the fourth quarter and compared to the third sequentially often play out.

Okay, thanks for the color.

We’ll move next to John Guinee with Stifel.

John Guinee here, thank you. Let me just focus on two things, first, operating expenses, you mentioned real estate taxes 4% to 5% to 6%, utilities 3% to 4% personnel 5% and we fully expect personnel to continue to go up at least 5% annually they do a great job deserve it. Do you think we should be thinking that real estate taxes and utilities are all going to go up at these sort of levels for the next three to five years or was this a one-time aberration?

Thanks for that question John, its Mark, and I think David Santee also contribute to this answer. But on payroll just to give you a little background certainly a lot of that is the very deserving pay raises to our on-site personnel, but a portion of these estimates we've given you reflect our estimates and it's very difficult to estimate this changes in our medical insurance reserves like most employers healthcare costs are very significant to us, and we’re effectively self-insured. So large claims which are your lumpy can really move our numbers. We made an estimate of that in there and we had a good experience towards the end of 2017 and you saw our payroll number decline and depending on that that could move that number a lot. So I don't feel that 5% is actually a terrific run rate going forward, I think it’s probably good estimate for this year, because of impart these medical costs as well as the pay increases. On utilities, I think, our estimate of 3 to 4% we hope to be near the lower end to that range but it’s more based on just having terrific result over the past three years, where we were negative in two years and up 2% and seeing some increases in trash in Los Angeles and a few small things, David Santee and his team do a lot of repurchases and hedging of utility costs that’s been very effective. So I don’t think you should think of utilities as a run rate 3% to 4% necessarily, it could be lower. And finally on real estate taxes, the big two things that we were trying to handicap this year because the 421-a stuff is understood is in New Jersey there is submarkets that we’re in that are having their first reassessment in a generation. It’s very hard for us to guess how that will turn out, we may have been too cautious in which case our number is too high or we made out of it. We also have to take some guess as to how many of our appeals are successful, we are good at that, we pay a lot of attention, we have had some success of late, we hope for more. Depending how that goes you could see that number decline as well from the range I gave you in the script. So a little bit of color for you, but for your run rate I'm not sure 5% is the right number for payroll, that's probably the one comment I’d give you.

Okay. We hope no one is listening from the properties for that one. Okay then the second question, merchant builders as you know are about 95%, 98% of all development starts the re-crowd is relatively insignificant and they've been -- they used to underwriter to 100 and 150 basis points spread and they were getting 200 basis point spread and creating a lot of value. Do you see any signs that the merchant builders are closing up shop, laying off people or do you see any signs that equity investors are just shutting down their interest in multifamily? Or do you expect maybe these spreads just to come down and the merchant builders maybe building to a 50 to 100 basis points spreads instead of 100 plus.

Well I guess I'd say perhaps all of the above. There certainly we believe equity capital that is now sitting on the sidelines because of the sort of shrinking yields. And we do believe that there are some lesser well-capitalized merchant builders that might not -- might have to be forced to the sidelines. At the same time they were certainly well-capitalized, experienced their folks that continue to have access to capital and they may not be building at lesser yields, they just maybe building different product in different locations or different submarkets or further away from their urban core. So I think it’s a little bit of everything.

Great, thank you.

You’re very welcome.

We'll go next to Alex Goldfarb with Sandler O'Neill.

Good morning out there. I'll try to be quite quick by two questions. First, David, assuming that Amazon doesn't take the DC area for HQ2, you guys have almost 20% of NOI there and yet you have that market just continues to produce a huge amount of supply every year. And the job outlook that you provided based on the government hiring doesn't sound so great. So if Amazon doesn’t take there, would you guys consider pairing some of your exposure in that market?

Well, sure. I mean we'll consider pairing in every market Alex. What you say is true, we've got a big exposure in DC, that market is really underperformed and we believe will continue to underperform given what we see hiring in the government as well as our outlook for new supply. And those are one of those markets that we think will not see a reduction in new supply come by 2019. So it's certainly a market that we believe will continue to be under pressure. All that being said, there are trades being printed in that marketplace that continue to support valuation. So while the top lines and bottom lines might not be growing we've not seen any real diminution in certain valuations. And I guess I'll say also these tides turn we saw phenomenal results in DC coming out of the great recession. And my guess is DC has been over the long-term a fantastic apartment market we don't think it will be anything other than a fantastic apartment market, but that doesn't mean it doesn't have periods of time in which it doesn't do well. So we've got great assets in the district, and we think again as more and more demand for people wanting to live in the district or in the close in sort of walkable communities in which we’ve got assets in Alexandria and Silver Springs and [indiscernible] et cetera. We think that market will do okay, but we do acknowledge that it's been underperformed at least in terms of revenue growth for the next several years.

And we did just to remind you Alex, we did sell a fair amount of DC as part of the Starwood transaction and where assets packaged up some of the further out suburban stuff. And we got rid as part of that deal as well.

Okay, that's helpful. And then the second question for David Santee. You talked about the revenue trend expectations for the year. But as far as pricing power, do you foresee that you'll have your normal peak leasing season pricing power or is there a concern that just given how the markets are shaking out that you may not be able to fully push as much as you normally would like as you head into the peak later the spring?

Well I think the lease over lease numbers that I gave you on a market-by-market are indicative of the curve that we expect in each market. But nevertheless there will be a curve. And the shape of that curve is going to be a little bit different in each market. So yes, we expect peak pricing in the call it April through August periods. And to what levels those rise will determine the outcome of our full year revenue growth.

So if I may add on that, Alex for just a moment. Certainly pricing power is the issue that we have, but demand is not the issue. The occupancies remained very, very strong, so this was just not a function of attracting traffic, it's just how much pricing power we have and we're seeing less today obviously than we did in the five or six years immediately following the great recession.

Thank you.

You're welcome.

And we'll move next to Tayo Okusanya with Jefferies.

Good afternoon everyone. Just two quick ones from me, the first one in the markets where you are seen increasing supply, could you talk a little bit about just how the local developers or the merchant builders are behaving in regards to lease up progress they get with pricing concessions and is there any concern even in first quarter that you guys may have to kind of compete at that level to get it rationale like they did a year ago?

Well, as we see the markets today, we believe that they have been very similarly to 2017 acting quite rationally. I think as David Santee said in his prepared remarks and in response to some previous questions Tayo. That could change particularly in New York, but we believe that developers are offering normal sort of levels build concession, they offer in order to stimulate lease up, but we’ve not seeing anything that we would believe would be concern for us today, but we remain very cautious about New York and how that might change. But as I’ve noted earlier the fact the rents haven’t moved much since these deals started, we believe gives them very, very little cushion on the ultimate net effective lease rates they need to achieve to meet their expectations for their investors and to meet their expectations for their refinance amounts.

Okay, that’s helpful. And then my last question just to confirm in 2018 you do not forecast we’ll have any developments starts in your guidance?

I did I noted that we expect this summer to begin the demolition of our property in Boston, and to begin that demolition of that old garage is going to be the start of that process it does not require a great deal of capital this year. But we will begin -- our expectation is we will begin construction on that project this year.

This year. Okay great. Thank you.

With no questions remaining, I’d like to turn the call back to management for additional comments or closing remarks.

Great well we’ve been added a while, I appreciate your patience and look forward to seeing everybody around the season. So thank you very much for your attention today.

Thank you, sir. That does conclude our call for today. Thank you for participating you may disconnect at this time.