The speaker welcomes the participants to the Equity Residential Fourth Quarter 2023 Earnings Conference Call and introduces the featured speakers. He mentions that the earnings release is available on the company's website and cautions that some statements may be considered forward-looking and subject to economic risks and uncertainties. The CEO, COO, CIO, and CFO will each provide updates on the company's performance, operating expectations, capital allocation activities, guidance, and balance sheet. The company had a strong fourth quarter in 2023, supported by a positive employment situation and the creation of over 2.7 million new jobs.

The article discusses the positive outlook for the job market in 2024, with low unemployment rates and rising wages. The company also expects to benefit from low exposure to new supply and a target demographic that is likely to continue renting due to the current state of the housing market. The West Coast, specifically Seattle and San Francisco, are showing signs of improvement in quality of life and rental rates are expected to recover. While these improvements are not factored into the company's 2024 guidance, other urban centers have seen a quick rebound in rental rates once quality of life and employment conditions improve.

In the third paragraph of the article, the speaker discusses the company's ability to grow expenses and overhead at a slower rate than their competitors, which has led to increased cash flow for shareholders. They also mention their recent stock buyback and thank their teams for their hard work. The speaker then turns the call over to Michael Manelis, who reviews the company's fourth quarter operating performance and outlook for 2024. Same store revenue and expense growth were in-line with expectations, with low expense growth attributed to property tax cost savings and operational efficiency initiatives.

The company saw better than expected revenue growth in the fourth quarter due to strong demand and positive occupancy rates. Renewal rates were slightly higher than expected, resulting in a positive blended rate growth. The East Coast markets outperformed the West Coast markets and are expected to continue to do so in 2024. The company has provided a revenue growth guidance range of 2% to 3% for 2024, with an assumption of consistent physical occupancy and cash concessions. The midpoint assumes a renewal rate of 4% and relatively flat new lease change, resulting in a blended rate growth of 2%. This is lower than the 2023 growth due to a slower job growth environment, but is still reflective of a mostly positive supply situation in coastal markets.

The stats for January show a positive outlook for the year, with new lease change improving and a strong resident retention rate. Turnover in the portfolio remains low and is expected to continue in 2024. Orange County, San Diego, Boston, and Washington DC are expected to have the highest revenue growth, while New York and LA will follow closely behind. Boston, with its strong employment base and limited new supply, is expected to perform well in 2024. New York will also perform well, but may not reach the high rate growth of previous years due to record high market rents causing rate fatigue.

The company expects new supply deliveries to be similar to last year in Manhattan and Washington DC, with strong demand and high occupancies. Los Angeles is facing challenges with delinquency and bad debt, but progress is being made. There will be slightly higher new supply deliveries in Southern California, but strong retention and demand will help fill vacant units. San Diego and Orange County are expected to be high growth markets due to high homeownership costs. In San Francisco and Seattle, there is little pricing power and widespread use of concessions.

The markets in Seattle and San Francisco have strong physical occupancy, but are price sensitive due to lack of job growth. Seattle will be impacted by new supply deliveries, while San Francisco will see an increase in the South Bay. Both cities are experiencing less inbound migration, but Seattle saw some improvement in the fourth quarter. The expansion markets are facing high levels of new supply, which is pressuring rents. Denver has shown stability, but limited pricing power in the portfolio. Overall, the long-term outlook for the expansion markets is positive, but there is a defensive approach being taken due to high levels of new supply.

The overall same store revenue outlook for 2024 is expected to have solid growth, led by East Coast markets and Southern California. The company will focus on producing operating efficiencies and driving other income through initiatives such as flexible living options and smart home technology. They anticipate total other income growth of 30 basis points. The company is also looking forward to the spring leasing season and credits their teams for their dedication and focus. The call will now be turned over to Alec to discuss capital allocation and the transaction market.

Despite a slow transactions market, the company is focused on acquiring properties in markets with strong growth potential and selling older assets in their West Coast markets. They are cautious in their projections and are aware of supply pressures on rents. They did not acquire any assets in the fourth quarter but have sold three properties, with plans to sell two more in the beginning of 2024.

The company has allocated capital from recent sales for share buyback activity and is well-positioned to take advantage of opportunities. They anticipate $1 billion in acquisitions and dispositions in 2024, with six new apartment properties expected to be completed at a cost of $624 million. These projects will not have a significant impact on NFFO growth in 2024, but are expected to contribute in 2025. The company acknowledges potential competition in Dallas and Denver and may have to adjust pricing and concessions. They will be selective about starting new projects, with a focus on hard-to-buy locations like suburban Boston. The call will now be turned over to Bob.

The paragraph discusses the company's performance in 2023, specifically in terms of bad debt and expenses. They were able to reduce bad debt significantly, but it is still higher than pre-pandemic levels. The company expects further improvement in 2024, but it will depend on the court systems' ability to process evictions. The company also highlights their strong expense management discipline and expects same store expenses to increase by 4%.

The individual drivers of growth for 2024 are expected to be different than those from 2023, with real estate taxes and utilities growing faster and payroll and repairs and maintenance growing slower. Insurance is expected to grow at a slower pace than last year but remain above the long-term trend. Same store NOI performance is the primary driver of growth, with $1 billion in both acquisitions and dispositions expected. The balance sheet is in good shape with no debt maturities until 2025 and ample debt capacity for growth.

The speaker, Michael, is responding to a question about the company's growth in 2024. He explains that they are giving a range for their guidance and that there are many factors that could contribute to their growth. They have considered the moderating job growth and expect market rents to be flat. Some markets are still positive while others are negative. Overall, they are balancing out to be flat on new lease change for the full year. Michael emphasizes the top level themes that underlie their assumptions and cautions against focusing on any one factor without considering the bigger picture.

Alec and Steve discuss the pressure the company may experience in the midpoint of their range, as well as the current state of the transaction market. Alec mentions that there is a standoff between buyers and sellers, with buyers looking for a 5.5 cap and sellers looking for something closer to five. He also mentions that most people are aiming for an 8% IRR, but it depends on rent growth assumptions and residual cap rate.

Alexander Brackenridge, a representative from a real estate company, was asked about the impact of the Sunbelt supply on their underwriting for deals. He stated that the IRRs (internal rate of return) for assets in the Sunbelt and coastal areas are not significantly different, as the long-term demand story for cities like Dallas, Atlanta, Denver, and Austin remains strong. However, they are currently selling older properties with high capital needs, resulting in a lower IRR for the hold scenario. The company believes that the capital from these sales can be better used elsewhere. Eric Wolfe then asked about coastal rent growth.

The speaker is responding to a question about the current state of the rental market and the factors that are affecting it. They mention that supply is in check and that there is strong demand for housing, but rent growth is not as high as expected. They express optimism for markets in the northeast, but are cautious due to various economic factors. The speaker also mentions that there may be challenges in the Sunbelt markets in the next few years and discusses the potential peak of supply pressure in Seattle.

Michael is discussing the supply and demand in the Seattle market, stating that there will be a peak in the back half of the year and a decrease in competitive pressure in 2025. Mark adds that while there will be some relief in supply in 2025, the demand remains strong in markets like Dallas, Fort Worth, Denver, Austin, and Atlanta. However, they anticipate declining new lease rates and occupancy pressure throughout this year, with potential improvement in late 2021 or early 2022.

The speaker predicts that the numbers for the company may get worse in 2025 due to oversupply in the market, but job growth could help mitigate this. The company plans to make acquisitions in the second half of 2025, but this is subject to market conditions. The company is aiming to expand into four new markets, but the timing and pricing of these acquisitions will depend on various factors.

The speaker states that they are prepared to do more if they can find more opportunities, and the number provided is just a guidance assumption. They are seeing lower values in some markets, with a 1% decrease in Washington state. Assessors are acknowledging that values are lower than initially assessed, but the open item is where rates will fall out. The magnitude of value decreases in the last couple of years are still trickling into tax assessments, providing an opportunity for appeal.

Mark J. Parrell, CEO of a real estate company, discusses their primary goal of building out their portfolio in expansion markets and reducing exposure in certain areas. They also consider share buybacks, especially when there is a value dislocation and when it can be funded with less desirable assets. However, they have to consider factors such as tax gains, balance sheet management, and platform scaling before making any decisions. The Board and management team remain open to buybacks but there is no specific formula for when they will occur.

The speaker discusses the company's plans for stock buybacks and mentions a question from an analyst about the recovery timeline for different markets. They highlight the potential for a longer recovery in San Francisco due to the need for tech job growth, which is projected to happen in 2024 or 2025. The speaker also mentions positive developments in the city, such as reduced crime rates and an increase in police cadets.

The speaker discusses the growth in incomes and decrease in rents in the Bay area since 2019, highlighting the potential for the market to take off with job growth. The management team is optimistic about the recovery, but acknowledges the volatility of the market. They are cautious about changing their long-term modeling until they see consecutive quarters of improving fundamentals. Seattle also benefits from having the lowest rent to income ratios among coastal markets, making it a promising market for recovery.

The speaker discusses the growth of Seattle's nominal wages and how it has affected the rental market. They mention that a third of their portfolio is in Seattle and San Francisco and that there may be a second derivative towards the end of the year. The speaker also talks about bad debt as a percentage of revenue and how they expect it to improve in the coming years, but caution that it is difficult to predict due to the court systems.

The speaker expects to see improvement in the second, third, and fourth quarters due to the court system and seasonal trends. They also mention that their view on the Sunbelt versus coastal markets may be influenced by the types of assets they own, but their numbers are based on same store properties. They also mention that their portfolios in these markets are relatively small, with only one out of eight properties being affected in Denver and three same store assets in Austin.

The speakers discuss the impact of oversupply in the market on all types of properties and the potential for increased competition in the investment market. They also consider the importance of transitioning the portfolio quickly and the role of selling assets and acquiring new ones at favorable prices. The interest rate for borrowing is also mentioned as a factor in expanding the company.

The company has moved billions of dollars into certain markets since 2019, but the transaction markets have been closed for half of the last four and a half years due to COVID and the Fed. They are hopeful that in a wide open year, they will be able to do $2 billion plus in transactions. They are willing to accept some dilution to complete their strategic repositioning, but the deals must make sense and have a good IRR. They believe that owning newer assets in Atlanta, Dallas, Denver, and Austin will benefit their shareholders. There has been increased price sensitivity in New York late in the year, but the company remains confident in ranking that market high for 2024.

The speaker discusses the current state of the rental market in New York and the impact of high rent prices on demand and renewal rates. They also mention the potential for future rent growth in certain West Coast cities, but acknowledge that it may be limited due to affordability concerns. The speaker believes that these cities will continue to be attractive places for their demographic to live and that there may be some repricing in the investment sales market.

The speaker discusses the current state of the West Coast markets and predicts that the appeal of urban centers will continue to grow. They also address the issue of renewals and state that they expect to renew 55-60% of residents with a 4-4.5% growth rate. They attribute this success to centralized renewal negotiations and the use of data science. They also mention that they have accounted for potential deceleration in renewal performance later in the year.

The company predicts a 4% growth for the year, but expects some deceleration. The market has shown resilience in the past, even during times of increased supply. Concessions were used in 2023, but will not have as much impact in 2024. The company feels more comfortable pushing pricing in markets like New York due to decreased competition and renters' desire to return to the city.

The speaker, Michael, discusses the current market and submarket conditions, stating that it is difficult to say if they have more pricing power now compared to the past. He mentions that they have good processes in place to navigate through the situation and that each market will have different rate growth based on various factors. Looking ahead to 2024, the speaker feels optimistic and expects to see momentum in the early part of the spring leasing season. In response to a question about expansion markets, Alec explains that they prefer simple investments but are open to participating in other areas of the capital stack if it leads to owning the property.

The speaker discusses the current state of the real estate market and mentions that there will likely be a lot of fee simple properties available. They are open to discussing any structures with owners in expansion markets. The speaker also talks about the difference in recovery timelines between the Sunbelt and other markets, and how occupancy rates and concessions play a role in same store revenue. They believe that the second half of 2025 may be a tougher year for the Sunbelt, but the second derivative may show improvement.

Mark J. Parrell, CEO of Equity Residential, discusses the potential impact of the current market conditions on same store revenue in the next two years. He expects that the second year same store revenue number will be lower due to the process of rewriting leases, but he believes that there will be an improvement in new lease rates and street rent numbers in 2025. He also mentions that the Sunbelt region is just starting to face challenges, while San Francisco and Seattle may take longer to see improvement. In response to a question about the trend of blended lease growth in January, Parrell does not provide a prediction but states that both San Francisco and Seattle may continue to face challenges in 2024.

In the second quarter, the company expects to see improvement in the market performance compared to the fourth quarter. The portfolio saw a decrease in new lease change from December to January, and this trend is expected to continue throughout the quarter. Renewals, on the other hand, are expected to decrease from 5.2% in December to around 4-4.5% due to quotes in the marketplace. The company is providing higher concessions, resulting in a trend towards a 6% development yield.

The speaker is discussing the differences in new lease and renewal rates in various markets, noting that there is more variability in new lease rates than in renewal rates. They also consider the potential for pushing renewals higher in certain markets and express concern about renewals falling closer to negative new lease rates.

The speaker discusses the use of concessions in their company's portfolio, noting that most of them are concentrated in Seattle and San Francisco. In expansion markets, about 30-45% of applications are receiving about a month's worth of concessions, with Dallas being an exception at six weeks. The company is closely monitoring the competitive landscape in new lease ups to determine their strategy for concessions.

The speaker discusses the current state of the market, with a focus on the occupancy rates and concessions in certain markets. They mention that they expect to issue a certain percentage of applications with concessions in these markets and that they feel the setup is defensive. The speaker also addresses a question about potential changes in their approach to Mez Investments and explains that they are more interested in opportunities where they have a path to ownership.

The company has experience in acquiring assets in established coastal markets and will continue to look for opportunities to buy great real estate. They are open to acquiring assets in these markets, but their primary focus is on expanding into new markets and adding capital there. The level of return they would seek for Mez or path to ownership opportunities is impossible to determine without specifics. The company is focused on getting compensated for any risk beyond a typical transaction. They cannot provide specific details on expenses, but they are embedding costs for taxes, insurance, R&M, and ongoing tech initiatives. Last year, they outlined $10 million in savings from tech initiatives, but they cannot provide a specific level of savings for this year.

The speaker discusses the company's expenses and initiatives for the year. They expect higher growth rates for utilities and real estate tax, but lower growth rates for R&M and payroll due to initiatives and optimizations. The company has been focused on innovation initiatives for several years, which will create long-term value for the portfolio.

The company has focused on technology and efficiency to improve customer experience and has already achieved $35 million in NOI improvements. They expect another $25 million in improvements in the future, with $10 million in 2023 and $10 million in 2024. These improvements are primarily in expense reduction, but there are also some revenue enhancements. The company is constantly pursuing operational excellence and may identify new opportunities in the future.

Alec, the speaker, discusses the current state of the market for dispositions in quality of life areas such as urban Seattle, San Francisco, and markets with ongoing bad debt issues like LA. He notes that there is very little activity in these markets and that the company has focused their efforts elsewhere. The speaker believes that these cities will eventually recover, but for now, there is a lot of negative investor sentiment. The speaker also mentions that the cities are making efforts to improve their quality of life and that they have powerful drivers for recovery.

The speaker believes that markets like San Francisco and Seattle will recover greatly on the rental side in the next few years. They are hesitant to make predictions about the timeline, but they are confident that these markets will eventually see a strong recovery. They also mention the potential for their investors, as having a portion of their portfolio in unrecovered markets with lower rents and higher incomes could be beneficial in the future. The difference between day REIT and normalized FFO guidance is due to higher levels of advocacy costs forecasted for 2024, as it is an election year. The remaining pieces are typical forecasted costs.

The focus of the housing industry is predominantly on California, where there is a ballot measure that has been rejected twice before. The industry is well organized and will make arguments about supply and rental voucher funding. There are also positive developments in other states such as Florida and New York. While California is the main focus, there is ongoing dialogue in other markets as well.

The speaker believes that policymakers understand that increasing the supply of housing is the solution to rising rent prices, not implementing rent control. They have had many conversations about this issue and have seen people change their minds after hearing the arguments. When it comes to new and renewal leases, the average rent may be lower due to concessions offered, but the spread between market rate rents can vary depending on the mix of people moving in and out.

The speaker discusses the stability and pullback in the Seattle and San Francisco markets, which is influenced by job growth and migration patterns. The increase in move-ins from within the MSA can be attributed to deal seekers taking advantage of concessions.

The speaker discusses the current state of the market and explains that there has not been the expected increase in activity due to seasonal trends. They mention that last year there were a lot of layoff announcements and uncertainty about returning to office, which affected relocation decisions. However, they note that occupancy is good and concessions are starting to decrease. They also mention that they will monitor the market in March and April to see if there is any change in pricing power. The speaker acknowledges that there are many factors that can affect market momentum.

This summary was generated with AI and may contain some inaccuracies.