The paragraph is an introduction to the Equity Residential Third Quarter 2024 Earnings Conference Call. Marty McKenna opens the call and introduces key speakers, including President and CEO Mark Parrell, Chief Investment Officer Alex Brackenridge, Chief Operating Officer Michael Manelis, and CFO Bob Garechana. The call's purpose is to discuss third-quarter results and the year's outlook. Mark Parrell mentions solid performance due to strong demand and limited competition in core markets, representing 90% of the portfolio. He highlights a stable environment with low unemployment and steady wage growth benefiting consumers. The company's recent acquisition of Blackstone and the broader transaction market will also be discussed.

The paragraph discusses the company's operational performance over the recent quarter, noting variability in pricing with unexpected occupancy, retention, and blended rate outcomes. However, pricing has normalized for the fourth quarter, aligning with expectations. The company remains on track with its same-store revenue guidance, anticipating a positive position for 2025. Expense growth has been controlled at 3.2% for the quarter. Despite potential economic and geopolitical uncertainties, the company is optimistic about solid same-store revenue results in 2025, supported by steady demand from affluent renters, favorable supply conditions, and preferences for rental housing. Preliminary insights for 2025 are provided in their management presentation.

The company anticipates a recovery in same-store revenue by 2026 due to high supply levels but expects some improvement in new lease rates and concessions next year. They are focusing on acquiring newer, well-located assets in expansion markets like Atlanta, Dallas, and Denver, with favorable terms and strong cash flow growth prospects. Approximately 10% of their net operating income now comes from these markets, assuming asset stabilization. They plan to fund $1.6 billion in acquisitions using fixed-rate debt, dispositions, and commercial paper. A notable achievement was raising $600 million in 10-year fixed-rate debt at a favorable 4.65% coupon rate. Overall, their strategy aims to maintain a high-return, low-volatility apartment portfolio with a focus on cash flow growth.

The company plans to achieve its goals by focusing on well-earning renters in select metro areas that offer desirable lifestyles and balanced market conditions. Recent volatility and market trends have reinforced their strategy of balancing their portfolio across coastal and sunbelt regions, as well as urban and suburban locations. They expect this strategy to prove beneficial by 2025, with strong revenue growth anticipated in Northeastern markets and improvements in urban portfolios in Seattle and San Francisco. While there may be supply-driven weaknesses in expansion markets, these are expected to diminish in later years. The company remains confident in its geographical strategy and efficient operations to create long-term value for investors, and aims to demonstrate this in the coming years. Alex Brackenridge noted a commitment to increasing their presence in Atlanta, Dallas, and Denver, but observed limited progress in the first half of 2024 due to market conditions.

In the third quarter, as interest rates dropped, the company significantly increased its activity, acquiring 14 assets with over 4,400 units for a total of $1.26 billion. These acquisitions were funded through a $600 million bond issuance, $365 million from asset dispositions, and $295 million in commercial paper. The disposed assets, averaging 43 years old, were non-core holdings with significant capital expenditure needs and sold for a 5.7% yield. The newly acquired assets, averaging seven years old and 100% market rate, were purchased primarily from Blackstone and aligned with the company's expansion strategy. An additional asset in Atlanta was acquired for $89.5 million, with the overall transactions expected to generate an 8% unleveraged IRR. The strategy focused on expanding in markets with strong job growth and affluent renters, though these markets also have high supply levels, resulting in competitive leasing conditions expected for the first two years.

The company anticipates offsetting some negative impacts to Net Operating Income (NOI) by running assets more efficiently as they integrate them into their operating platform. They foresee additional opportunities to acquire assets in key markets like Atlanta, Dallas, and Denver at approximately five cap rates, aided by their cost of capital advantage and quick due diligence. Currently, they have assets under contract in Denver and Atlanta totaling $190 million. However, they are cautious about expanding in Austin due to a competitive rental market. The company aims to increase their portfolio in expansion markets from 10% to 20%-25% over the next 18 to 24 months, capitalizing on expected job growth and declining supply. They also note a significant reduction in supply in coastal markets, with starts down significantly in recent years.

The paragraph discusses the company's third-quarter 2024 operating performance and future expectations. It highlights a favorable supply-demand balance in coastal markets due to anticipated reduced starts in 2025. The company's strategic market exposure is expected to deliver optimal returns. During the third quarter, the company experienced low resident turnover and a strong occupancy rate of 96.1%, with low move-outs for home buying. However, blended rates were at the lower end of expectations due to lower new lease changes, influenced by excess inventory and pressure in certain markets like Los Angeles. The focus was on maintaining occupancy to maximize revenue, affecting rate growth. Despite this, there are indications of improvement in new lease changes during the fourth quarter.

The paragraph outlines the company's strategy and market performance for the remainder of the year and into 2024. Despite anticipating a seasonal rent deceleration in the fourth quarter, they are maintaining high occupancy and stable renewal rates, particularly in Seattle and San Francisco. Their net effective rents are currently 2% above the previous year. On the East Coast, Boston is a top performer with strong results from its urban portfolio, expecting minimal new supply through 2025. In New York, high demand and limited new supply continue to drive revenue growth, keeping occupancy above 97%. Washington, D.C. is noted as a standout market for 2024 with high occupancy rates and robust rental growth, though some pressure from new deliveries is expected.

The paragraph discusses the challenges and future prospects of the real estate market in Los Angeles. Blended rate growth in new leases is affected by slower job growth, particularly in office-using jobs, and a pause in content production from L.A. studios. Increased competition from new supply, particularly in downtown, Koreatown, and West L.A., and improvements in eviction processes contribute to the market's challenges. Urban submarkets face quality of life issues, while suburban areas like Santa Clarita and Ventura County perform better. Despite these challenges, there is positive momentum in the market, with rents improving and occupancy rates trending upward. High retention rates are also noted. Although job growth in 2024 is muted, projections for 2025 are more optimistic, especially for office-using jobs, which could lead to a recovery in results. In San Diego and Orange County, demand persists but with price sensitivity, prompting residents to move further for affordability.

The paragraph discusses the positive recovery trends in the real estate markets of San Francisco and Seattle, highlighting their contribution to expected growth in 2025. San Francisco is experiencing high demand with increased occupancy rates and stable rents, driven by factors like Salesforce's return-to-office policies. The lack of new supply is also supporting market conditions. Similarly, Seattle is showing signs of recovery with strong occupancy and renewal performance, though new lease changes remain slightly negative. Overall, both markets are performing better than expected, enhancing optimism for future growth.

The paragraph discusses increased demand for apartment homes in downtown Seattle and South Lake Union due to Amazon's return-to-office policy, drawing people from further suburbs. The city's livability is bolstered by government and business efforts, while tech employment remains strong in Seattle, Bellevue, and Redmond. Despite upcoming new supply, there is optimism for market performance, similar to San Francisco. In expansion markets, new supply affects occupancy and rates. Denver is performing best, while Dallas leads in revenue. Atlanta faces challenges due to new supply, making lease renewals and maintaining occupancy the top priorities.

The paragraph discusses the recent addition of suburban assets in Atlanta, Dallas, and Denver, emphasizing the long-term demand and balance they bring to the company's portfolio despite short-term supply risks. The company highlights successful implementation of an AI inquiry application handling 60% of queries, aiming for 75-80% coverage, improving efficiency. They focus on optimizing the customer journey, including the leasing process. The quarterly financial performance showed favorable results, highlighted by cost control in property taxes, repairs, and on-site payroll, supporting a 3% expense growth target. Looking ahead to 2025, the company anticipates starting the year with solid growth and high occupancy.

The paragraph discusses the company's favorable outlook for 2025 due to lower expected deliveries of competitive new supply in established markets and a reduction in expansion market supply. The company is positive about its ability to attract and retain residents, particularly in West Coast markets like Los Angeles, San Francisco, and Seattle, which contribute significantly to the company's net operating income (NOI). Together with strong East Coast market performance, these factors are expected to yield solid revenue growth. The paragraph concludes with appreciation for the company's teams and their efforts in innovation, customer service, and expense management. In the subsequent Q&A session, Eric Wolfe from Citi asks about potential revenue growth from bad debt and other income, to which Bob Garechana responds by outlining expectations for bad debt levels and the potential for improvement compared to pre-pandemic levels.

The paragraph discusses the company's financial outlook and strategic initiatives. They anticipate incremental growth between 1% and normal levels and will provide more detailed guidance by the fourth quarter. Key contributions to future performance will come from initiatives like bulk WiFi, which began contributing in the third quarter and will be more impactful in the fourth quarter, despite associated expenses. Eric Wolfe asks about the impact of fluctuating interest rates on pricing and investment decisions. Alex Brackenridge responds that rapid rate changes make it difficult to assess impact, but notes recent opportunities with pricing around a 4.75% cap rate in markets like Denver and Dallas, indicating strong interest in apartment investments.

The paragraph discusses the current state of the real estate market, highlighting factors like interest rates and upcoming elections contributing to limited market activity. Despite this, there is still significant capital, with a positive outlook on a 5% cap rate. Steve Sakwa from Evercore ISI raises concerns about leasing spreads for the year, expecting them to fall just under 2%, down from the previous year, due to high supply, economic slowdown, and lingering deliveries. Michael Manelis acknowledges these challenges, noting they're in early budget planning and suggesting that market rent growth will largely influence leasing spreads in the future, with 2025's setup feeling similar to 2024's.

In the paragraph, a discussion takes place about market rent growth and expenses associated with providing WiFi services. The speaker mentions it is too early to predict market rent growth due to absorption issues in some markets. Another speaker, Mark Parrell, anticipates slight pressure on expenses above the current 3% growth rate due to factors like the 421-a tax abatement burn-off in New York and inflation concerns. However, he highlights that any additional expenses will be offset by significant revenue benefits from WiFi services. Although costs might rise slightly, they expect to provide specific figures, particularly the impact of WiFi, while maintaining low expense levels overall.

The paragraph discusses the anticipated decline in new lease rates, particularly moving into the fourth quarter, with an expectation of a decrease from the third quarter's rates. Michael Manelis highlights that in the third quarter, there was a focus on maintaining occupancy, which led to reductions in rates and increased concessions, especially in Los Angeles and expansion markets. He notes that upcoming comparisons in Seattle and San Francisco should be easier due to last year's performance. Los Angeles is experiencing rent increases compared to the prior year, a positive trend not seen earlier in the year. The outlook for October seems positive, with expectations of blended rate growth between 75 to 125 basis points and stable renewal rate increases, although moderation in new lease changes might continue.

The paragraph discusses the company's financial strategy and recent actions. Mark Parrell explains their approach to balancing new lease rates and occupancy to maximize current quarter earnings and set up well for the following year. He indicates that any short-term discrepancies, such as what happened in September, are not a significant concern. Haendel St. Juste asks about the company's recent Blackstone transaction, which involved using more debt, potentially leveraging lower debt costs and their strong balance sheet. Bob Garechana responds, highlighting their underlevered position and their strategy of managing capital by paying down debt, maintaining a net debt to EBITDA ratio below their target range of 5 to 6 times.

The paragraph discusses a company's financial strategy and use of debt. Alex Brackenridge mentions that the company capitalized on an opportunity by utilizing its debt capacity at an attractive rate, targeting long-term cost of capital benefits and profit-and-loss improvement. Haendel St. Juste notes that they assess investments based on an unlevered internal rate of return (IRR) compared to their weighted average cost of capital (WACC), achieving an 8% IRR that exceeded the WACC at the time. Alexander Goldfarb and Bob Garechana discuss the company's use of a commercial paper (CP) program for short-term floating rate exposure to manage transaction volumes efficiently. Bob explains that the CP program is a cheaper alternative than the company's line of credit and is a part of their overall capital structure management.

The paragraph discusses financial strategies related to borrowing at different rates and balancing short-term and long-term issuance to minimize overall capital costs. The conversation then shifts to the optimism surrounding the return-to-office trends in Seattle and San Francisco. Alexander Goldfarb queries about the team's confidence in the sustainability of these trends. Michael Manelis responds by noting positive signs in San Francisco, including increased office tours and migration patterns indicating people moving back to urban areas due to work requirements. However, he acknowledges that it is still early to fully assess the situation in San Francisco.

The paragraph discusses the impact of big tech companies like Salesforce and Amazon making significant announcements, leading to increased activity in Seattle's job market, particularly in tech-focused areas like Bellevue and Redmond. Amazon employees are anticipating a market shift and are securing housing early due to expected demand spikes. Seattle is perceived as more advanced than San Francisco in terms of job market recovery and quality of life. The paragraph also mentions expectations for job growth in the Bay Area, based on Moody's Analytics, despite a current lag in job recovery there, particularly in AI versus tech job losses. Los Angeles is noted as lagging behind in addressing quality of life issues.

The paragraph discusses a conversation about job markets in Seattle, San Francisco, and Los Angeles. Seattle is experiencing positive signs following an announcement by Amazon, with decreased concessions and improved migration patterns. This indicates a recovery in the urban markets, as opposed to the previous year when concessions were high and rents were decelerating. Meanwhile, in Los Angeles, the job market has been more stagnant. Overall, there's optimism that these changes may lead to recovery in these markets if economic conditions remain favorable.

In the discussion, Michael Manelis addresses the challenge of dealing with the eviction backlog affecting market vacancy and rents. He notes that progress is being made, with two-thirds of the backlog cleared and the duration of evictions decreasing from six to four months, but stresses the need for it to drop further to two months for normal conditions to return. Manelis anticipates continued pressure from excess inventory for a few more quarters but highlights that occupancy rates are positive as units are being rented out, albeit more slowly than usual. The conversation then shifts, with John Kim from BMO Capital Markets asking about net migration trends in Seattle and San Francisco, specifically inquiring about the origins of new residents.

In the discussion, Michael Manelis and Mark Parrell address shifting migration patterns and a recent Blackstone acquisition. Michael notes that while there's a reversal in Sunbelt migration, with more people moving within the same metropolitan statistical areas (MSAs) rather than long-distance relocations, out-of-state migration remains below pre-pandemic levels. Mark comments on the Blackstone acquisition, acknowledging that while the operating environment in some expansion markets is worsening, the purchase was made at a favorable price. He suggests that future asset pricing might be higher, offsetting the current negative net operating income (NOI). Despite the weak Sunbelt market and anticipated rental growth challenges, he trusts the management's ability to mitigate issues such as delinquency and vacancy.

The paragraph discusses the current real estate market conditions in the Sunbelt and East Coast regions. It mentions that while there is no regret about the investment timing due to favorable cost basis, significant revenue improvement in Sunbelt markets will take time, particularly in three major markets. Oversupply is a concern, but the company has not been purchasing in Austin despite having existing properties there. In-migration trends on the East Coast are consistent with pre-pandemic patterns, similar to Seattle and San Francisco. As for bad debt, the levels for new residents are mentioned but not specified if they are in line with historical levels or not.

The paragraph discusses the management of new entrants concerning bad debt and the normalization of nonpaying residents to pre-pandemic levels. The speaker mentions the impact of extended eviction processes on costs and their initiatives to reduce these costs. Despite longer eviction processes, the quality of residents remains high, with low percentages failing to pay. It also touches on rent growth strategies for new acquisitions in high supply markets, indicating that initial years may see flat or slightly reduced growth, but improvements are expected from operational efficiencies and additional income. The expectation is that outsized growth will occur in the third and fourth years.

The paragraph discusses the potential impacts of government elections and policies on the housing industry. Mark Parrell highlights that while federal elections are important, state and local government decisions, like California's Proposition 33 regarding rent control, are more impactful to their business. He notes that changes in federal leadership could influence the housing market through entities like Fannie Mae and HUD. The industry is also concerned about budget impacts on housing programs. The focus is currently on state-level initiatives, with an expectation of more clarity in the near future.

The paragraph discusses recent efforts across various states to address housing supply issues through legislative measures and zoning reforms, such as those in Massachusetts, Florida, and California. It emphasizes the importance of focusing on supply as a solution and mentions potential federal and state-level initiatives, including public-private partnerships. The conversation shifts to Adam Kramer from Morgan Stanley, who inquires about the current loss to lease in the portfolio and the status of sending out lease renewals for November and December. Michael Manelis responds by explaining that they started the year with a slight gain to lease, shifted to a loss, and are now back to a slight gain of about 10 basis points. He expects the year to end in a normal range and notes easier comparisons in the fourth quarter in some markets.

The paragraph discusses a company's strategies for renewals and dispositions. They have quotes in the market expecting a renewal increase of around 4.7%, potentially higher depending on market improvements, especially on the West Coast. Adam Kramer asks about future dispositions, focusing on which markets they're targeting. Alex Brackenridge responds that the company is reducing exposure in California and urban cores of certain cities but is not in a rush to sell, waiting for favorable market conditions. There is interest in their properties, particularly from those with a contrarian perspective.

The paragraph discusses the company's strategy to expand into suburban areas and engage in more one-off deals while continually seeking opportunities like the Blackstone deal. Michael Manelis mentions their early adoption of AI in leasing processes since 2019, which helped reduce or control payroll growth. They are now rolling out an AI tool to handle resident inquiries, aiming to improve efficiency as the technology advances.

The company initially achieved a 60% coverage rate in responding to resident inquiries and aims to improve to 75-80% in the coming quarters to enhance operating efficiencies. This improvement could allow for flexible staffing and more centralized team efficiencies. Although some benefits are margin-related, the primary focus is on counteracting inflation's impact on costs like payroll and medical expenses, ultimately holding costs below inflation levels to improve margins as revenue grows. Julien Blouin from Goldman Sachs acknowledges the efforts and discusses an openness to utilizing leverage capacity further.

In this discussion, Mark Parrell addresses the timing and rationale behind deploying leverage for acquisitions despite tight spreads between cap rates and debt costs. He emphasizes that factors like replacement costs are crucial, suggesting limited supply growth due to high building costs, which enhances long-term revenue potential. Additionally, newer assets being acquired have lower capital expenditure needs compared to older ones being sold, improving adjusted funds from operations (AFFO) yields. Parrell concludes by noting that, unlike other asset classes, apartments rarely experience significant gaps between the cost of capital and investment returns, making the acquisition strategy favorable even in the current market conditions.

In this discussion, Alex Brackenridge explains to Julien Blouin that despite the potential for development in markets like Denver, Dallas, and Atlanta, the focus remains on acquisitions due to better risk-adjusted returns. The development is instead concentrated in areas like suburban Seattle and Boston, where significant acquisition opportunities are scarce. Later, Jamie Feldman from Wells Fargo inquires about property insurance rates. Mark Parrell responds, mentioning a conversation with the risk management team and noting that their property insurance renewal occurs in March.

The paragraph discusses the company's insurance and debt situation. They experienced a 10% year-over-year increase, which included expanded coverage, and benefited from not owning properties in high windstorm risk areas. Despite two major storms, the insurance market seemed prepared, and no significant rate hikes like after Hurricane Ian are expected. Concerning debt, $500 million is due in mid-2025. The company plans to address it opportunistically, leveraging its strong liquidity, credit rating, and various financial strategies.

The paragraph features a discussion between Jamie Feldman and Bob Garechana about market volatility and investment strategies. Garechana notes the fluctuating interest in treasury instruments like the 10-year bond, which previously looked promising due to low spreads. He mentions the potential appeal of shorter-term investments as the yield curve steepens and emphasizes the value of maintaining a variety of investment options, including some floating rate exposure. The conversation then shifts to Linda Tsai's question about when new lease spreads might become more favorable, with Michael Manelis explaining that lease spreads are subject to seasonality and referring to a management presentation for more information on pricing trends throughout the year.

The paragraph discusses a company's strategy for market expansion and pricing dynamics. They plan to slow down in the fourth quarter and expect to gain pricing power in early the next year, which could lead to positive lease spreads by the later part of the first quarter. Alex Kim from Zelman & Associates inquires about attractive long-term expansion markets. Alex Brackenridge responds that they are following customer trends and focusing on tech job growth in cities like Denver, Dallas, and Atlanta. They are also considering North Carolina markets, such as Charlotte and Raleigh, but are cautious due to high supply levels. They are willing to accept some dilution but are cautious about market timing. The paragraph ends with Rich Anderson from Wedbush preparing to ask a question about a Blackstone deal.

In the paragraph, Bob Garechana discusses the company's financing strategy, indicating that upcoming property dispositions will help normalize their CP (commercial paper) balance to around $500-700 million. Rich Anderson then asks Mark Parrell about the company's recent strategic shift towards Sunbelt expansion, contrasting it with the 2016 decision to sell assets in that region. Parrell explains that market dynamics and regulatory risks in coastal areas have influenced this change, noting that all companies adapt to evolving circumstances.

The paragraph discusses the challenges faced by some states and jurisdictions due to regulatory risks and increased single-family housing costs in desirable areas, particularly in the Sunbelt markets like Atlanta. While there are more higher-end jobs in these areas now, housing has become more expensive, affecting renter behavior. Mark Parrell thanks his colleagues in the Augusta, Georgia, Accounting Center for their efforts in closing the books after Hurricane Helene's damage and acknowledges the additional support from the Chicago team. The conversation ends with him thanking participants and mentioning future conference appearances.

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