Equity Residential's REITweek 2012 NY Presentation, Part 3 of 3

No, I think the credit statistics of our new residents coming in continue to improve. Credit scores are at all-time highs and we're approving more people than ever.

No, I think that's impactful as well as the Journal article this week about... you don't forget about that inheritance from Mom and Dad. I mean, Mom and Dad have for many of our residents been the down payment to buy a single family home. So I think there's an awful lot of things going on in the economy that make the rental model seem to make more sense for more of our population for a longer period of time than ever.

I think that I don't think they're frothy. I think when we look at asset values relative to replacement cost, ability to build new product, I don't think they're frothy. They're certainly high, they've returned back to peak if not exceeded peak. But just given all that we've shared with you today, which is not state secrets as to the strong fundamentals and our long-term expectations for the profitable operations of apartments, I don't think that the valuations are out of whack relative to that expectation and certainly relative to treasury rates.

I can't imagine what we'd have to see for us to return to some of those markets. I think that not, and again not that one can't make money in those commodity markets, those lower barrier markets. But I think one has to be kind of more of a trader. And I think that as the focus of Equity Residential will be on buying and building assets that we expect to own for 20 years, not four or five or six years. And I think that there are an awful lot of people that I think will be able to move into some of those markets and buy well and operate and sell, but they will have a trading mentality. And I think that just given the longer term perspective that we think is the right perspective for the capital that we work, we think that adding concentration, adding density to our core markets makes far more sense than trying to market time those more commodity markets in which I think you'll have much greater fluctuation in values and rents. We think the IRRs will be superior in the markets in which we have been investing in our core markets. And the ability to achieve higher than expected returns will be better achieved in the markets that we're in rather than the markets that we've exited. So I cannot imagine a scenario in which we change that strategy and begin to deploy more capital into those low barrier markets.

Today there doesn't seem from our point of view, and certainly we have no great crystal ball into what goes on politically, it doesn't seem to be any real initiative or attempt in Washington given all the other more significant problems to deal with the multifamily sector. So for Fannie and Freddie, 95% of their business is single family, 5% is multifamily. The multifamily part has modest delinquencies, very few losses, and is operating pretty normally. It's actually making money for the government. And I just don't see that, and we are active in various trade industry groups and so we do hear what's discussed on the Hill. It just doesn't seem to be a priority to deal with Fannie and Freddie at this point given some of the other pressing issues our country has at the moment. Obviously there's an election coming up and all that could change. There has been some discussion sort of at the think tank level that has occurred lately. This is both stuff that's occurred at FHFA, which is the Federal Housing Finance Authority that oversees Fannie and Freddie now on behalf of the taxpayers, talking about splitting the multifamily divisions off from Fannie and Freddie. And so that's the first time that idea has gotten some official traction. It's an intriguing idea. It would require a large amount of capital to flow into Fannie and Freddie to privatize them and have them run separately. It is technically possible in the sense that the technology that they have can be transferred, but just the ability to do it on a capital raise is at least to me unclear. But right now Fannie and Freddie are operating normally. They're making loans right now to us on a 10-year basis of three and 3.75 to 4%. You know those loans are just terrific by all historical standards. That's also about where we can borrow unsecured. They finance most of our disposition buyers as well. So they are important to us. And at this juncture we have seen no disruption in their operations. And as to their future, I just don't know how the government can with all the other pressing issues they face, even if there was a change of administration, deal with that issue in any kind of real near-term horizon.

You know, I think that the analyst community has done a pretty good job of thinking about Equity Residential. I'll also say the same. I think we've made ourselves a little simpler. I think that we have narrowed our focus. And I think the investment community has done a pretty good job of understanding what we're doing and why. I think that the analyst community is always slow to fully appreciate where asset values are. I think their NAVs always kind of trail where real time values are. But I think generally through narrowing our focus and simplifying our business and communicating that hopefully fairly consistently and directly over the years, I think that the general investment community and the analyst community has got a pretty good handle on Equity Residential today.

I have an idea where the NAV is, but it's not something we've shared and not something that we intend to begin to share.