Aug 3, 2015
Executives
Marty McKenna - IR David Neithercut - President and CEO David Santee - EVP and COO Mark Parrell - EVP and CFO
Analysts
Nick Joseph - Citigroup Jeff Spector - Bank of America Nick Yulico - UBS John Kim - BMO Capital Markets Alex Goldfarb - Sandler O'Neill Dan Oppenheim - Zelman & Associates Tayo Okusanya - Jefferies Vincent Chao - Deutsche Bank Dave Bragg - Green Street Advisors Derek Bower - Evercore ISI Drew Babin - Robert W. Baird Neil Malkin - RBC Capital Markets
Operator
Good day and welcome to the Equity Residential 2Q 2015 earnings call. As a reminder, today's conference is being recorded.
At this time, I would like to turn the conference over to Mr. Marty McKenna.
Please go ahead.
Marty McKenna
Thank you. Good morning.
Thank you for joining us to discuss Equity Residential's second quarter 2015 results. Our featured speakers today are David Neithercut, our President and CEO, David Santee, our Chief Operating Officer, and Mark Parrell, our CFO.
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.
David Neithercut
Thank you, Marty. Good morning, everybody.
Thanks for joining us for our call today. As reported in last night's earnings release, our teams across the country continue to do a really great job, achieving 4.9% growth in same-store revenue in the second quarter, and 5% same-store revenue growth for the first half of the year.
This strong performance was driven primarily by increases in rental rate, and the continuation of increased occupancy levels first experienced toward the end of last year. There's no doubt that we continue to enjoy very strong apartment demand across our core markets, despite elevated levels of new supply.
This demand's being driven by the powerful combination of favorable demographics, an improving economy and good job growth, which create new households and millennials to have a high propensity to rent housing, and wish to do so in 24/7 cities across the country that have very high costs of single family home ownership. So in a nutshell, business remains very, very good.
We're pleased with how our primary leasing season unfolded. We're pleased with our results year-to-date, and our outlook for the year.
We're pleased with what we're seeing in the markets in which we operate, and with the assets we own in those markets. And we're extremely confident that fundamentals will continue to deliver above trend performance for many years to come.
So to discuss a bit more about our markets, I'll turn the call over to our Chief Operating Officer, David Santee.
David Santee
Thank you, David, and good morning, everyone. As we discussed during our Q1 call in April, the jobs-driven surge in apartment demand that materialized last summer continues to fuel superior operating results, in spite of elevated deliveries across most of our markets.
As expected, the 100 basis points of occupancy gain we enjoyed in Q1 across our core portfolio continued throughout Q2, setting the stage for results that were better than expected, and providing an operational springboard as we moved into peak leasing season. On our most recent call, we said that the strength that we saw in Q4 gave us the confidence to extend renewal increase offers for Q1 that resulted in renewal growth rates not seen since Q1 of 2012.
Today, we are pleased to say that this trend continues throughout Q2, and we achieved a portfolio renewal growth rate of 7.2%, the highest growth rate since implementing our new platform in early 2008. I am pleased to say that this trend continues, with July on the books at 7.1% and August already at a 7%, which will continue to grow throughout the month.
Additionally, the percentage of residents who chose to renew with us was virtually unchanged from the previous two years at 53%, which also contributed to our combined Q2 renewal and new lease rate growth of 5.8%. New lease space rents continue to average 5% year-over-year for the quarter, and improved to 5.5% for much of July.
Turnover increased to 14.5% from 14.1% quarter-over-quarter, primarily driven by affordability. However, factoring in residents transferring to another apartment within the same community, year-to-date annualized turnover is down 30 basis points from 2014.
Home buying at 12.5% of move-outs remains in check across many of our markets, increasing from 776 units in Q2 a year ago to 1,914 this quarter, with the incremental increase being driven by Denver and Seattle. As high velocity rent growth continues to drive many of the West Coast markets, we experienced 180 basis point increase in percentage of move-outs due to rent being too expensive.
However, the line at the door remains long, as demand measured by our online e-leads increased 17% in Q2, versus Q2 of 2014. The resulting applicants that chose to rent from this pool of inquiries also had the highest percentage of 720-plus FICO scores out of the last eight quarters, with 90% of all applicants being auto-approved.
Now, touching briefly on the health of our markets and our three buckets of revenue growth, San Francisco, Denver, Seattle, Los Angeles, Orange County and South Florida all make up the plus 5% revenue growth bucket listed in order of year-to-date revenue growth. San Diego, New York and Boston remain in a 3% to 5%, with Boston teetering, and DC in a bucket by itself, at a positive 40 to 80 basis points.
The color remains the same, and the picture is bright across all of our markets. We're halfway through a year of elevated deliveries across most of our markets.
People of all ages and companies of all types continue to move to the city, as the generational shift in lifestyle preferences continues to take root. Not just in our core markets, but in cities all across the nation.
Broad-based job growth is driving increased absorption and record lease-ups, and for all these reasons we are confident in delivering on our increased revenue guidance. Now [blowing right on the horn], Seattle continues to absorb units at a rapid pace, with 25 new jobs being created in the central business district every day.
As expected, the northern suburbs followed by Bellevue are delivering the strongest revenue growth. However, many central business districts and Belham [ph] Capital Hill communities are beginning to show signs of acceleration as delivery of new units are absorbed.
Strong earnings performance announced by Amazon last week will certainly continue to drive positive momentum in the downtown markets San Francisco continues to suffer from a housing shortage, as evidenced by year-over-year new lease rents which are up 13% versus same week last year. San Francisco continues to be a key driver in our revised revenue guidance.
Southern Cal continues to be solid, with LA County leading the way in this broad-based economic recovery, with only small pockets of disruption due to new lease-ups. Concentrations of new deliveries in the Irvine area, and lower than expected job growth caused Orange County to take a back seat to the growing excitement and investment into the revitalization efforts in downtown LA, and a multi-year development of Silicon Beach.
Boston continues to perform as expected, with virtually no pricing power in the downtown financial district. Outer sub markets continue to perform at or above trend, as new development is virtually nonexistent.
New York Metro continues to add a steady pace of new jobs, and Manhattan assets show strong demand and rent growth. However, Brooklyn is feeling the effects of concentrated deliveries, and we would expect the same to occur later in the year on the Jersey waterfront.
DC continues to bump along the bottom, but with encouraging job growth numbers that are above the national average. As pockets of new deliveries come online in the South Alexandria and Rockville areas resident growth has deteriorated, while submarkets that have completed deliveries are on the mend.
Our RBC corridor submarket remains the most challenged, with year-to-date revenue growth of minus 1.2%. While we are only halfway through our 13,000-plus deliveries expected this year, we still expect our DC Metro portfolio to deliver slightly positive revenue growth for the full year.
Expenses for the quarter were in line with expectations. Real estate taxes, which account for 36% of total expense, remain unchanged at 5.07%.
Maintenance and building expenses remain elevated, as a result of the storms in Q1, which are offset by significant savings in energy costs year-to-date. As a result, full year expense growth will be in the range of the midpoint of our revised guidance.
Demand for apartments in great locations is exceeding even our best case scenarios. With a strong jobs outlook and a generational shift in home ownership, apartment fundamentals are better than any other time in our history.
With deliveries across almost all of our core markets declining in 2016, and the belief that urban lifestyle preferences will continue its trend, some believe that many cities across the country are significantly underhoused to meet the growing demands of all age cohorts, creating a road map for continued above trend growth for the foreseeable future. David?
David Neithercut
Thanks, David. On the transaction side, we were able to acquire one asset in the second quarter, which remains the only asset acquired in the first half of the year, and remains so year-to-date.
We briefly mentioned this acquisition in the first quarter call, which was a 202-unit apartment property in Boston that we acquired for $131 million at a low 4 cap rate. I've mentioned on several of our recent calls just how difficult it is for us to acquire assets today, given the very strong bid for multifamily assets from many different segments of the investment community.
As a result, we've reduced our expectations for acquisitions this year to $350 million. Obviously, with only $131 million of acquisitions in the first half of the year, this means we will have to find another $220 million of deals before the year is up, and I'll have to admit that they're not on our radar at the present time.
So we've got our work cut out for us for the balance of the year to achieve that goal. On the disposition side, we did sell three residential assets in the second quarter, along with the medical office building in Boston.
The three multi-family assets were all in Orlando, and represented our last remaining assets there, so we have now totally exited that marketplace. These assets averaged 14 years of age, and were sold at a weighted average cap rate of 6%, and unleveraged weighted average IRR of 8.7% inclusive of indirect management costs.
We calculate the weighted average buyer cap rate at about 5.4% on those purchases. As discussed also on our most recent call, in the second quarter we sold a 41-year-old, 193,000 square foot medical office building in Boston for $123.5 million or $639 per square foot and a mid-4% cap rate.
Located next to Mass General, this asset was acquired as part of our Charles River Park investment 16 years ago. And with the current demand for healthcare assets, we saw great opportunity to dispose of it, and trade into the recently completed multifamily property in Boston, with far more upside in both earnings and NAV growth going forward.
Disposition guidance for the year has been reduced modestly to $450 million, and so there's no misunderstanding, the medical office building sale is included in this number. This means that we expect to sell less than $100 million over the remainder of the year.
We're currently under contract to hit this number, and our disposition guidance will likely change only if we can find more opportunity to reinvest disposition proceeds, which as I noted previously will be a tough task given the competition for assets today. In the quarter, we commenced construction on one small development project in Washington, DC, where we're building 174 units for $73.2 million at an expected yield on cost at today's rents in the mid 5%s.
This deal is in the Mt. Vernon triangle market directly across the street from our 425 Mass Avenue property, and will be delivered in the second half of 2017, which we think will be a very good time to bring new product to the marketplace.
This start brings year-to-date starts to $377 million, with the potential to start as much as [$460 million] of new developments for the full year. Similar to the acquisition market, there's a lot of capital chasing development opportunities, and land pricing has increased significantly.
As a result, and as noted in our last call, we're not acquiring land for new development at the same rate we're commencing construction on existing sites held in inventory. So in addition to a reduction in starts this year, we would also expect starts in future years to be down to levels seen over the last several years.
We're also very pleased to have completed our new development on Manhattan's upper west side at Amsterdam and 68th Street in the second quarter. Hopefully, many of you saw this asset in June when we hosted tours during the NAREIT meetings.
And we [indiscernible] showed -- showed on our cover of last night's earnings release. Like most assets priced several years ago and coming online in the current marketplace, we're seeing strong absorption, at rent levels at or above our original expectations, and we currently expect this asset to stabilize in the low 7%s.
So I'll now turn the call over to Mark Parrell.
Mark Parrell
Thank you, David. I want to take a few minutes this morning to talk about the revisions we made to our guidance for the full year, as well as discuss our recent debt offerings.
In yesterday's release, we revised our guidance for our same-store metrics, as well as for our normalized FFO per share for the year. I want to take a minute now to give you some color.
As David Santee discussed, we continue to enjoy very strong demand for our properties. As a result, we have raised our expectations for our same-store revenues to 4.75% to 5%.
Our new midpoint of 4.9% is a 40 basis point improvement from the midpoint we guided you to in our first quarter release, and an 80 basis point improvement from the guidance midpoint we gave you to start the year back in February. We have also raised our expectation for occupancy for the full year to 96%, which is up slightly from the guidance we gave you last quarter.
As we have discussed before, we are getting a benefit from both rental rates, and running our portfolio at a higher occupancy level than we have traditionally. On the expense side, we have narrowed our range to 3% to 3.25%.
David Santee talked about the drivers of that activity. Expense growth will be higher in the second half of the year than the first half of the year, due to the more challenging comparable periods.
I'd ask you to remember that we posted quarterly expense growth of 0.6% in the third quarter and 2.2% in the fourth quarter of 2014. So overall, we anticipate annual expense growth for 2015 to be about where we expected at the beginning of the year.
We are proud of our strong expense control record, and have posted a five-year compound average growth rate for annual expenses of only plus 1.7%. We now expect NOI for the full year to be between 5.5% and 6%, and we have reset our range for normalized FFO per share for the year to $3.39 to $3.45 per share.
At a new midpoint of $3.42 per share, this is a $0.01 per share improvement from our April 2015 guidance. So I want to break out these details a little bit further for you.
Our improved expectation of same-store operating performance should lead to about a $0.02 per share increase in normalized FFO. We also now estimate that interest expense will be about $4 million or $0.01 per share lower than we've previously expected.
And this is due to the smaller amount of debt we will now issue in 2015, and we're just going to issue the $750 million that we already have -- we already put out in May, versus the $950 million we had in our previous guidance. With dispositions now anticipated to exceed acquisitions by $100 million, the excess cash will be applied for now to reduce debt, and will eliminate the need to source additional debt in 2015.
Also, we expect to have higher capitalized interest than our prior guidance, due to a slightly faster pace of development spending than we previously expected. We are also getting a benefit from lower floating rates on our successful new commercial paper program.
On a negative side, we'll see about $0.02 per share more transaction dilution than we expected. And that's primarily as a result of our lower expectations for acquisitions.
As we stated in our release, and as David Neithercut just described, we have lowered our expectations for acquisitions to $350 million for the year, and that's down from $500 million, and we have now assumed that any of these acquisitions that we do occur very late in the year. To sum it up, the improvement of approximately $0.02 per share from our better than previously expected NOI, and a pickup of about $0.01 per share from lower total interest expense, will be offset by about $0.02 per share in increased dilution from slower and less acquisition activity.
And that will leave us at the end of the day, with a $0.01 net improvement to our annual normalized FFO guidance at the midpoint. So now onto the balance sheet for a moment.
In May, we were pleased to successfully execute on two simultaneous debt offerings. We issued $300 million of 30 year unsecured bonds at an all-in effective rate of about 4.55%, and this was our second 30-year debt issuance in the last year.
We also issued $450 million of 10-year paper, and that was at an all-in effective rate of 3.81%. Both these issuances were very well-received in the market.
We saw tremendous demand, especially from large money market funds, desiring to invest in bonds from a high quality borrower like Equity Residential that issues larger and more liquid tranches. Over the last two years, we have aggressively taken advantage of historically low long-term debt rates, and now have about 10% of our debt maturing in about 30 years.
The weighted average maturity of our debt at about 8.3 years is among the longest in the sector, and matches up well with the long hold periods we expect for our new better quality assets. Our credit metrics are strong, and the balance sheet is in excellent shape.
At the end of 2015, we expect to have about $460 million of outstanding commercial paper or revolver borrowings, and have availability under our revolver of slightly less than $2 billion. So Keith, we're now ready for the question and answer period.
Operator
[Operator Instructions] And we can take our first question from Nick Joseph with Citigroup. Please go ahead.
Nick Joseph
Thanks. You highlighted the strong operating fundamentals and we've seen the strong growth.
But recently, we've seen suburban sub markets outperform urban. So I'm wondering if you think that trend will continue, and what we need to see before urban starts to outperform suburban again?
David Neithercut
I'm fascinated at this interest of the investment community, Nick, in what happened over the last 90 days. We remain quite convinced that -- and I think history has demonstrated quite clearly, that over extended time periods, the higher density urban markets have outperformed the suburbs.
And when we think about performance, we mean about overall total return. So from time to time, will different assets or different sub markets quote, unquote, outperform just in terms of rental growth?
I suppose. But I think, over an extended time period, I think the total return on the higher density assets will do better.
I think history has quite clearly demonstrated that.
Nick Joseph
Thanks. Then just in terms of the development pipeline, it looks like you decided to add air conditioning to three of the developments which increased the total cost by about 6% in aggregate.
Can you talk about that decision, and then what the impact is on the projected yields for those projects?
David Neithercut
When those deals were conceived in San Francisco and Seattle, air conditioning was not really considered to be necessary for that type of product. But as more product has been brought to market there, and the expectations of luxury product have changed modestly, we came to the decision that we should add air conditioning.
And was better to do so now under construction, than wait until these assets were completed. We think we'll get enhanced rents for having done so, but at the end of the day we think that they will modestly decrease the sort of stabilized returns, but believe over the long term hold, and over an extended total return on these investments that we'll at least break-even on that incremental investment or do better on it.
Because we think it's the right thing to do in those marketplaces today, that those residents of those markets have an expectation of that air conditioning, and that was something for us to do. So we believe we'll get an increased rent.
It'll be modestly, just a few basis points dilutive on a stabilized basis, but we think it will be long-term accretive for the asset.
Nick Joseph
Thanks. And just to remind me, what is the stabilized -- what is the targeted stabilized yield for those assets?
David Neithercut
Well, generally those deals are in the 5s and 6s. So it would just be a few basis points off of those levels.
Operator
We'll take our next question from Jeff Spector with Bank of America. Please go ahead.
Jeff Spector
Good morning. David, obviously some very positive trends and comments about the foreseeable future, and I know, of course, you're not providing 2016 guidance.
But anything we can read into on your thoughts for 2016 on rent growth at this point?
David Neithercut
Well, I guess, you can read into them what you care to read into them. I think in my quote, in the press release, my comments today, David's comments, we all feel very bullish, continue to be very bullish on the overall demand for housing, particularly in the high density 24/7 urban markets in which we've been focused.
The demographic picture is very powerful. The job picture very good.
We expect supply to be down in 2016, over 2015. So you can read into that, and we think 2016 which should be a very good year.
Jeff Spector
Okay. And then on the acquisition front, the Boston unit acquisition.
At a low 4% cap rate, you've discussed how the environment is tough to do deals. How -- can you just talk to us a little bit more about that particular deal at a low 4% cap rate, versus I guess, other things you're seeing that you're not as comfortable with to execute on?
David Neithercut
Yes, we think that that was -- probably become probably our best asset in Boston. We believe that the lease-up by the seller had not been done ideally.
We had the opportunity to maybe fix that a little bit. But we also looked at it as a trade if you will, with the sale of the medical office building also in Boston.
And by trading the one for a mid-4%, and buying the other at a low 4%, it was a good trade and a good capital allocation decision. Assets today are trading in low 4%s, and 3%s in many instances in some markets.
And we're just not -- we are finding other people being far more aggressive in acquiring those assets, and frankly, we just think every single day away from us, people are demonstrating the value of our portfolio, and demonstrating the true NAV of our Company. And that's okay.
Jeff Spector
Okay. Thanks.
And then last, on the development yields, you described DC, I guess mid-5%s, the rest mid-5%s, mid-6%s. Obviously, you're comfortable with those yields, with facing potentially higher rates over the next year or two.
Is it that you're just -- you're not comfortable below that? I mean, are you still comfortable with the 5%s?
I mean, at this point, of course, you have to execute. How are you thinking about those yields?
David Neithercut
Well, we think that -- we're building at 5%s and 6%s in markets, that trades in the 3%s and 4%s. So we're fine with that.
I think what you're seeing our actions today, is unwillingness to continue to buy new land sites at prices today, in which we believe development yields are in the 4%s. So we're comfortable in the 5%s and 6%s, again for the high density sort of urban locations that we've been focused on.
So you'll see us continue to work through our existing land inventory, but you will see us, not likely adding a lot of new land at this pricing.
Operator
Our next question comes from Nick Yulico with UBS. Please go ahead.
Nick Yulico
Thanks. I was hoping you could talk a little bit more about the supply picture.
I think you said 2016, you see deliveries easing up a bit in your markets. Yet the June starts number for multi-family from the Census Bureau was higher than recently.
So could you just talk about the supply picture as you see it today?
David Neithercut
Sure. I mean, starts in 2015 are not going to result in deliveries in 2016.
So as we look at 2016, we see -- and again, let me just sort of be clear. We're focusing on our markets only, and we track projects of 100 units or more, or even smaller within close proximity to our existing assets across our markets.
Many of you have toured each of our properties over the years, and have met the professional teams we've got across these markets that are tracking this for us. We're currently tracking more than 1,700 units across all these markets.
So as we track what will be delivered in 2016 in the markets that we're focused on, we believe could be competitive to our own product, we're seeing a significant reduction in new deliveries. And as we look at what is either under construction for 2017 delivery, and what we think could yet be started that could be delivered in 2017, we see levels around 2016 or a modest increase to that.
So again, still well below the 2015s. Now, beyond that, who knows?
We certainly are cognizant of some of those statistics that have been reported about permits, and we question how many of those will turn into starts. We note in Brooklyn, for instance, there was an elevated level of permits.
But it was on so many projects, that the average unit per property was about 50 units, and disbursed over the entire borough of Brooklyn. We're not quite sure how impactful that will be on some of our properties.
So we're watching the stuff. And we'll be cautious about 2017 and 2018, but as we look at 2016 we see, again a meaningful reduction across our markets.
And again, as we mentioned, continued very strong demand.
Nick Yulico
That's helpful. Thanks, David.
One other question, you talked about acquisitions becoming more difficult, or as difficult I guess, as they've been. It sounds like you're also going to maybe start -- some less in the development next year.
Does this point to a situation then, where the Board starts thinking about, if you don't have as many capital needs to have even higher dividend growth, and even more of your earnings being paid out for dividends?
David Neithercut
I think the Board thinks about all these things. I think we've been very good stewards of capital, and very good capital allocators, and we'll be discussing all those things.
And again, a reduction in acquisition activity by us, or a reduction in land take-downs and development is not an indication in any way of our belief that fundamentals aren't going to remain very strong for years to come. It's just pricing has got very expensive, and yields very low.
We're happy with what we own, and don't believe we need to buy assets at these prices. And to your point, we'll consider lots of different options for capital allocation, given those dynamics.
Operator
Our next question comes from John Kim with BMO Capital Markets.
John Kim
Good morning. David Santee mentioned in his prepared remarks, the generational shift you're seeing in urban demand, and not just in your markets, but across the nation.
Are any of these cities becoming more interesting for you to enter at this point?
David Neithercut
Any cities that we're not currently in?
John Kim
Yes.
David Neithercut
I would tell you no. As we -- and we've done a lot of work in looking at what's going on in -- across other markets that we don't currently operate in.
And we just find that they don't stream well on all the important sort of things that we want to consider. Probably one of them, which is the most damming if you will is, the cost of single family homes as a multiple of income.
There are markets in the country, Chicago, Minneapolis, others in which there's some very solid 24/7 cities, very exciting things happening in these cities, with millennial growth downtown, et cetera, et cetera. But as you look at single family home price as a multiple of income, they become very challenging to think of those being good long-term, and I want to stress long-term investment markets.
I'm not suggesting you can't make money in those markets but I think one must do so with more of a trading mentality, and less of a long-term market. So we're focused on where we're at, and have no intention at the present time of deviating from that.
John Kim
Okay. And then a question on development yields.
AvalonBay mentioned on their call yesterday that they're seeing higher achieved yields than originally projected. I am wondering if you're seeing a similar dynamic in your projects, excluding the ones you reconfigured?
David Neithercut
Absolutely. Anything that was priced a few years ago, land priced a few years ago, construction costs locked in a few years ago, are outperforming one's original expectation.
I think that sort of almost goes without saying, but it just becomes more and more difficult, as pricing gets more costly. So certainly, anything being delivered today is at least achieving your expectations.
Certainly, it's exceeding your expectations on market rents, at the time in which you underwrote it, and commenced construction. So we're very pleased with what we've got in the pipeline.
I think we made a lot of money on that pipeline. The question is for us, is at what price or what cost you continue to probably reload that pipeline, and we've decided to take our foot off the gas.
John Kim
So you're not replenishing the land as much as you had in the past on developments? Are you also seeing higher construction costs as well that are outpacing the rental increase?
David Neithercut
Well, you're just -- well, I mean, by definition, yields are coming down. So you're having costs go up more quickly than rental rates.
The product that we delivered, or started coming out of the recession is delivering 8%, 9%. And then several years after that we're sort of delivering 7s and 6s, and then 5s and 6s.
And I said I think the product that we'd look at starting today, at pricing that we see coming to the market would be in the 4s. And so, we've made a lot of money on the product that we have already started, and have delivered or will deliver soon.
But we've just elected not to start construction on projects today that we think would have yields of today's rents in the 4s.
John Kim
Okay. And then a final question on downtown LA.
It's been a very strong market for you, but there's a lot of new supply coming to the market. Is this one of the markets where you may look to replenish the pipeline, and maybe protect your market share?
David Neithercut
We're not about protecting market share. We'll leave that to the automobile business.
We do have a land site in LA, a terrific land site in LA, that we could start sometime in 2016. But we do like downtown.
It's really one of the best-performing sort of markets. There is new supply there, but that new supply brings more density, and brings more restaurants and more things to do.
I mean, it's kind of a self-fulfilling sort of cycle. We like downtown and we look forward to working on the project that -- the land site we already own in downtown LA that could start construction soon.
Operator
We'll go next to Alex Goldfarb with Sandler O'Neill. Please go ahead.
Alex Goldfarb
Hey, good morning out there. David, just a question for you.
You guys were vocal at NAREIT, you're vocal on the call, about the challenges of acquiring, both existing as well as land sites. And yet this apartment cycle seems to be going on longer than most people thought.
As well as this year, it's got a second wind. So how do you balance the two between the cycle being longer, so therefore there's more opportunity to get a return on whatever you invest today, versus the fact that yields continue to come down, and are, as you point out, in the 4s even for development.
How do you marry those two, and does that mean we should see EQR remain on the sidelines as long as yields are down where they are? Or do you think that something will break in the investment part that will make pricing come back to be attractive during -- yet while the cycle still continues to grow?
David Neithercut
Well, I guess, you marry it, Alex, by just being happy that you're long, right? This pricing is -- it may be difficult for us to rationalize new investments, but it just validates everything we've been doing over the last 10 years.
So when you're already long, this is a high class problem, right? Is it possible that with these elevated new deliveries, there will be opportunities to buy assets at prices that make sense relative to taking construction risk?
Perhaps. We don't have to buy.
We don't have to develop in order to kind of create value. I think the single biggest value creating tool we've got is David Santee, and his teams across the country.
They have delivered unbelievable bottom line results for us, and have created enormous value out of the existing portfolio. So we admit that we continue to have assets that we rather sell, we'd like to sell if we could.
But it's only if we can find the reinvestment opportunity for those assets. Absent those opportunities, we're happy to sort of sit tight, and operate what we have.
We acknowledge that doing so is modestly more dilutive this year, than what we had originally forecasted. But we're quite content to allocate capital in the best way we sort of see fit, the opportunities present themselves.
And with George and his team, I tell you they turn over every bush and rock, and beating every bush looking for a product, and remain optimistic that we will find stuff we can buy this year, at a little better yield, by maybe taking on some risk that we can uniquely manage, and we'll be comfortable managing. We'll see.
Not the first time in our history. It's probably the sixth time or so in our 20 some odd year history, in which we've had relatively little transaction activity.
And I guess, I'll tell you, that at the end of those lulls, we've always come back strong, and have created a lot of value in doing so. So we don't worry about marrying these things.
It is what it is, and we're quite comfortable with our plan, and think that there will be opportunities down the road, and we'll patiently wait for them.
Alex Goldfarb
Okay. And then, earlier in the call during the MD&A, you guys mentioned move-outs.
But I wasn't clear, was that specific to one market? Or was that portfolio-wide the increase in move-outs?
And if it was portfolio-wide, which markets were you seeing that mostly in?
David Santee
This is David. Basically move-outs, the increase amounted to 600 for the quarter, and it's really broken down by three categories, half of the 600 were due to affordability, 150 were home buying, and the other 150 were transfers.
So that's across the entire portfolio.
Alex Goldfarb
Okay. And just finally for Mark Parrell.
Anything else from Archstone out there? Any other either positives or negatives in the -- or are you guys totally done with anything Archstone related?
Mark Parrell
Alex, it's Mark. Yes, there isn't a lot left.
We've really wound down all the Archstone related joint venture activities. There's a little bit left, and we give you some disclosure of that towards the end of the preferred issuance.
But it's really quite minimal. There could be minimal lawsuit costs, and master lease costs and stuff that run through for a little while.
But I don't see anything significant on the horizon.
Operator
Our next question comes from Dan Oppenheim with Zelman & Associates.
Dan Oppenheim
Thanks very much. I was wondering in terms of the move-outs and the affordability driven ones -- [indiscernible] up in the third quarter just based on more expirations coming through during the quarter, plus the way you're pushing rents here.
Is there anything in terms of the -- what you're doing with the rent? Do you think it's sticker shock in terms of the affordability, or it is some negotiation where you might be able to manage the turnover a bit, and how are you looking at that overall?
David Neithercut
I guess, we don't -- first of all, we don't manage to occupancy. We manage to an acceptable level of inventory to coming at it.
We have, as we discussed before, we did a lot of work on moving a lot of the Archstone expirations that were kind of out of whack. So on average, we moved probably 32% of our leases from January through May, into June, July, August, so where the rents are higher.
I mean, at 300 affordability move-outs across 400 properties across three months, I don't see any major concern there. A lot of that remains in San Francisco, where rents are still -- renewals are still double-digit.
But as I said, there's just a long line waiting at the door to backfill those. As long as that's the case, we're not concerned.
Dan Oppenheim
Okay. I guess, just relating to that in terms of the long lines or the duration of the cycle, in terms of the hesitancy in terms of pursuing acquisitions here, if you think that the long line persists for a while, would you be content to sort of try to find something here?
So if we look back over time, we've had people make large acquisitions and talk about having a proud history of dilutive acquisitions, and then those turn out well, because the cycle continues. How do you think about that now in terms of managing it?
David Neithercut
Well, I guess, the acquisitions are funded by dispositions. And so these are trades for us, and we're just unwilling to make the trade.
And again, it just validates, I think that the value in our portfolio, and validates everything we've done to reposition this portfolio over the last 10 or so years. So if pricing is very aggressive in the urban core assets we'd like to own, we're already long in those markets and that's a good thing.
We're just not willing to make the trade of the assets we want to sell for the relative value pricing of the assets that people are buying today. We think that that could become more attractive as -- based upon the elevated -- the new supply that we talked about a little bit.
There may be more attractive trading opportunities for us a little bit down the road. But again, the fact that there are people out there willing to pay 3 cap rates for some of this product, I think says a great -- attributes a lot of value to our portfolio, and all that we've done.
And we don't feel we need to continue to chase that pricing. Once you're already long, you're in good shape.
Operator
Our next question comes from Tayo Okusanya with Jefferies. Please go ahead.
Tayo Okusanya
Yes, good morning. Just along the lines of acquisitions, could you just talk a little bit about which markets you're seeing the most competition for assets for?
And then specifically, who seems to be bidding assets up, so much to the point where some deals are just not attractive to you anymore?
David Neithercut
There's a lot of institutional players out there that are buying assets. Big pension fund advisors, we're seeing life insurance companies, we're seeing some foreign capital.
It's happening across all markets. I don't think that there's limited to just any one.
You're seeing some people on land for condos, for instance, makes it difficult to rationalize multi-family rental on land. But in terms of existing sort of stabilized deals, big institutional players, domestically and foreign.
See very little REIT activity. I think we're not the only ones who are suggesting that that transaction activity may be reduced kind of going forward, but very much domestic and foreign institutional investors.
Tayo Okusanya
Got it. And then, with the slowdown in acquisitions and development, how do you kind of -- how do you offset that from an internal perspective, just to drive your historical earnings growth levels?
David Neithercut
Well, again, let's understand about just kind of cash flow. Acquisition is really funded by dispositions, and our development kind of funded from free cash flow, and we've got development to fund over the next several years.
And a lot of the growth, I mean, the lion's share of the growth, and I think more growth from us than from others is really being delivered, as I said from the property portfolio, the kind work that David Santee and his team have done. Drilling down submarket by submarket, asset by asset, we believe that we're outperforming many others.
And in terms of bottom line performance and putting whatever multiple you want on that creates that incremental value, is significant, and we think is a much better risk-adjusted return, than aggressively chasing development at these prices or new acquisitions. So as I said earlier, this is not the first time/ I think there's been a pause for us in this activity, and every single time coming out of these pauses, we've been loaded for bear, and able to take advantage of a great deal of opportunity.
So we're content to sit and wait and see what happens.
Operator
Our next question comes from Vincent Chao with Deutsche Bank. Please go ahead.
Vincent Chao
Hey. I know we've had a lot of questions on acquisitions here.
Clearly, it's a tough time to be buying. You've said you don't really have anything in the queue right now, and anything that's in the guidance is going to be back end weighted.
Just curious why even leave the 220 in there. I know it's reduced, but given the conditions, why not just take that out of there as part of the guidance?
But two, if for whatever reason you can't find deals that make sense, I guess what would be the sort of most natural use of the 220 that would have gone towards acquisitions? Would that be sort of debt repayment?
I know you've got some stuff due in the early part of '16.
David Neithercut
Yes, so I'll answer the first part of the question, and Mark can answer the second. I guess, what we've told you is that we reduced the acquisition guidance and have told you that it will be backend loaded and challenging.
So I think that's sort of giving you the pieces of the puzzle the same way. We could take it down and tell you there's a chance we'll buy more or we'll tell you it's up and it will be tough to buy.
So we figured you can get there on your own with the information we've given you. And as relates to use of proceeds, Mark?
Mark Parrell
Yes. So just to be absolutely clear, we put it in so late in the year, that if the [$220 million] came through it would only be worth about $900,000 of FFO to us.
So if it doesn't occur, we'll use it to pay down debt. We'll have, as I said a $460 million line balance, so we'll pay the line or the CP program down.
That is not a particularly accretive use of funds. But again, as David Neithercut mentioned a minute ago, it just loads us up and prepares us for when opportunity does arrive.
So the use of proceeds will be to pay down the line or the CP program in the short-term and in the long term to fund our investment activity, as we have done at other points in the cycle.
Vincent Chao
Okay. And just one other question on the sort of the demand you're seeing.
So move-outs are up, but you've got a lot of folks waiting to get in. Just curious if you have any stats on how the household income has grown on your move-ins say, this year versus last?
Mark Parrell
Well, so we use the same qualifier that we used for 20 years. So when you measure the income of those folks coming in, they have to meet that qualifier.
So really when you look back over the 12 months which is, we measure the previous 12 months move-ins, the numbers never change. And then, we have no means to measure incomes of people that have lived with us for three, four or five years.
However, I think the important thing is that we have seen a tremendous improvement in the overall credit quality of the people coming in the door with 720-plus FICO scores. In summary, the rent to income will never change, as long as we continue to use the same qualifier.
Vincent Chao
Right, right. I was more just thinking about the income side.
Sounds like whatever rental rate growth you're seeing, you're seeing an equivalent increase in the incomes of the people coming in?
Mark Parrell
Correct.
Operator
We'll go next to Dave Bragg with Green Street Advisors.
David Bragg
Just to follow up on a key topic on this call. David, you seem to be providing a view on values in absolute terms, but don't you think about it on a relative basis?
Are you saying that the spread has widened between coastal, urban assets, where you want to invest in your sources of capital, whether it's Denver or Inland Empire asset sales or equity?
David Neithercut
Yes, I guess, what I'm saying is that the trade between the sale and the buy has probably widened. And because of that, we're less inclined to make those trades, particularly at the price -- I guess, what I'd say is -- at the stabilized assets in these -- the coastal markets yields, as I said in many instances are in the 3%s.
We're confident that we can manage that spread, or have been confident, and hope we still can yet this year, by trying to find some things to acquire that aren't stabilized assets. But rather assets that have got maybe some lease-up risk, some completion of construction or some other things that might detour an aggressive bid from some of those institutions that will buy stabilized stuff, and provide us with an opportunity to buy something with a little better yield, which would narrow that spread and make a trade make sense for us.
Operator
We'll go next to Derek Bower with Evercore ISI.
Derek Bower
Great, thanks. Just wanted to circle back on operations.
Can you talk about where new and renewals are in July, relative to where they were in 2014, just the spread that you're seeing?
David Neithercut
So renewals, renewals as far as achieved were 7.2% for the quarter. For quarter two in 2014, we achieved a 5.5%.
Derek Bower
And then, just how you do those numbers compare to 2014's level?
David Neithercut
Well, Q2 of 2014 was a 5.5% achieved renewals.
Derek Bower
Okay. Thanks.
And then just knowing you have a tougher comp going into the fourth quarter, but assuming you hit the midpoint of guidance this year, how should we think about the potential earn-in going into next year, relative to the one you had coming into 2015?
David Neithercut
Well, so Q4 of last year I think we averaged 95.8[%], 95.9[%]. We're probably not going to run the portfolio up to 97[%].
I think if you start leaving rate on the table, once you get up to that point, unless we see continued acceleration in the job growth. So if we see continued job growth above [250,000] and the formula for apartment demand has changed dramatically relative to home ownership.
Then again, I'll just say 97 will be the new 95. I mean, we're not managing to 97.
But if we continue to do the same things that we've done year after year, as far as rate optimization and managing inventory, if we achieve 97, then so be it.
Derek Bower
And then, Mark, just lastly, any updated thoughts on timing of the refinancing, the 2016 and 2017 maturities?
Mark Parrell
Sure. We've got a fair amount of debt maturing in those years.
We don't now have any guidance, any thought of prefunding that. We will think about that.
We will think about hedges as well, which we've done in the past. So right now, I you would tell you that we're sort of waiting to see the rate climate, and feeling our way through it.
But I think we've been pretty proactive in dealing with those maturities. It's about I think a 5.3% rate next year that we get to re-fi to, so I think it will be a pretty accretive refinancing opportunity, and so we will be all over that.
But right now, the guidance has no prefunding activities in it at all.
Operator
Our next question comes from Drew Babin with Robert W. Baird.
Drew Babin
Going forward, as it appears dispositions will probably be -- or EQR is likely to become a net disposer over time, given where cap rates are on the acquisition market. And you mentioned that there's foreign demand for assets.
Do you think the cap rates on your sales of apartment buildings may actually drift down as we go into '16 and '17, as you start to see maybe once in a lifetime type bids on some of your better assets?
David Neithercut
I'm sorry, I missed -- not sure I got the whole question. Assets -- valuations of the properties that we want to sell?
Drew Babin
Might we see kind of -- as you have already pruned a lot of your non-core assets, might we see some of your future assets, be sort of higher on the quality spectrum at even lower cap rates, versus what you've disposed of to date?
David Neithercut
Yes, but I think what you have a chance of seeing is, we'll begin to sell lesser quality product in more of our core markets, and the possibility and the expectation that that will attract a bid of a better cap rate than that which we've realized in exit markets. So yes, as we work through exit markets, and we'll also sell -- I guess, as we did like the office building in Boston -- we'll sell lesser quality, non-core assets in our core markets.
And that's another way in which we're trying to manage the spread between the disposition cap rate and the acquisition cap rate.
Drew Babin
Okay. That's helpful.
And back to operations, New York City, Boston and Seattle stand out as markets where, some minor deceleration versus last quarter on the revenue growth front, but also kind of versus your six quarter trailing average. Is there anything going on in those markets?
Is it just kind of the supply being a disproportionately weighted towards where you're located? Is it rent fatigue?
What are you seeing that might be behind that?
David Neithercut
Well, so let's just take Boston as an example. A lot of the deliveries are probably within a one-mile radius of the financial district.
We have six properties in that one-mile radius that delivers 40% of our revenue for the entire portfolio. So that's just an example as we've talked about, when we're going to see some head to head pressure and pricing pressure.
And I think you just have such a concentration of properties in such a small area that you just lose pricing power. So in the case of Seattle, probably the same thing, a lot of deliveries in Belltown, downtown, CBD.
When you look at the portfolio up in Bellevue -- I'm sorry, north up towards Bothel, Snohomish, those properties are far outperforming the CBDs just because of the magnitude of the deliveries. But still, the portfolio in Seattle is producing very good results.
So I think it's just a matter of time to flush out these elevated deliveries that are very concentrated in some of these markets. No different than DC, where we have 20% of our revenue coming out of the RBC corridor, which is probably -- which is the most negative submarket that we have.
So I think over the next year to 18 months as job growth improves, as new deliveries kind of start to dissipate and move kind of back out to the suburbs, I think you'll see the relative strength of these markets return.
Drew Babin
And New York would be a similar story?
David Neithercut
Well, New York is -- Manhattan is fine. I think you just look at our portfolio, and you look at Brooklyn, which is really dragging the portfolio down.
We still have assets in the far outer burbs, down near Philadelphia, Fairfield, those are far underperforming. So I think when you break down a portfolio like New York, when you look at core Manhattan assets, those are performing better than expected and above historical trend.
Operator
We'll go next to Neil Malkin with RBC Capital Markets.
Neil Malkin
Hey, guys. First question.
Given that we have been seeing pretty strong job growth for the last several quarters, and just recently we've seen an uptick in household formation, what are your thoughts on as we move forward into 2016, given less supply this year? And given, that we probably had a breakdown from that 5 to 1 jobs to apartment ratio has probably decreased, that we actually continue to see accelerated or higher levels of rent growth than we have this quarter, which kind of probably took a lot of people by surprise?
David Neithercut
Well, I guess, we won't give you any sort of numbers. But we've been quite vocal for quite some time that even -- that the levels, elevated levels of new supply that we've experienced over the last several years would not destabilize these markets.
That we were confident that the demand was there to adequately absorb this new supply, and not destabilize these markets. And I mean, to your point, we expect less supply in 2016, and continued good job growth, and the inevitable of income growth that kind of comes with that.
This segment of the population is very interested in living in these high density urban markets. They either value the optionality and flexibility that provides rental housing, or can't afford single family housing in these markets, because it's significantly -- the multiple of those prices in those homes as a multiple of their incomes are significant.
And that's why we continue to suggest, and believe that we're going to have above trend fundamentals for many years to come. So we see it the way that you've just described it, and continue to remain very optimistic about the multifamily business for the foreseeable future.
Neil Malkin
If I could just add onto that. Given that lag between strong job growth and household formation, if we -- this decoupling continues to happen, do you think there's a good chance second quarter of 2016 would have better rent growth than this quarter?
David Neithercut
We're not going to give any over-unders on growth that far out. But just suffice it to say, we feel very positive about fundamentals for quite some time.
Neil Malkin
Okay. Last one from me is, given your comments on development being expensive, sorry, would you look to do things more internally, maybe ramp up redevelopment?
Maybe do deeper turns or deeper type of redevelopment, or are there other kind of efficiencies that you could work on to improve organic growth, I guess for David Santee?
David Neithercut
Well, yes, it's David Neithercut. I want to make sure I just define what we mean by our rehabs, which is really not redevelopment.
There are others in our space who talk about redevelopment, as spending $40,000, $60,000, $80,000 a door. What we have done, and what we have accelerated is our rehab business, which I'll have Mark Parrell explain.
Mark Parrell
Right. We give you a little disclosure on that on page 22.
We spend right now about $9,000 per unit. These are usually kitchen and bath freshenings.
We generally get a yield in the mid-teens on that, and those have proven to be for us excellent investments. I do think you'll see that ramp up.
We didn't increase our guidance there, because we're still sort of in the formative stages of that. But I would expect we might spend closer to $65 million there, and do a few more of those rehabs.
The cost is trending up for us. Not because cost items are increasing, but the scope of these rehabs are going up.
And the places we're doing them, these high-rise units that we now own, just demand a higher level of finish. So you might see us have that number go up a little from $9,000 per unit to $10,000 or $11,000.
And I think you'll see more volume there and more spend, because it's a great investment in these very well-located assets that we intend to hold long-term. We are doing one very significant rehab of an asset in LA.
I guess, I will call that a redevelopment. We did take that out of same-store.
We mentioned it in prior calls. We may do another.
These are assets that are right on the beach. They're just terrific, we can't replicate them due to zoning requirements.
But they do require more in the $40,000 to $50,000 a unit rehab cost, and that includes interiors and exteriors. So I could see us doing more of this sort of stuff, because our assets are so well located now.
Operator
And it appears we have no further questions at this time, so I'll turn the program back over to our presenters for any closing remarks.
David Neithercut
Well, thank you all for your time and interest today. I hope you all enjoy summer, and look forward to seeing many of you in the fall.
Have a great day.
Operator
And this does conclude today's program.