The paragraph is an introduction to AvalonBay Communities' third quarter 2024 earnings conference call. Jason Reilley, the Vice President of Investor Relations, opens the call by noting that forward-looking statements may be made, which involve risks and uncertainties outlined in the company's recent press release and SEC filings. The press release includes definitions and reconciliations of non-GAAP financial measures, available on their website for reference. Ben Schall, CEO and President, is introduced to provide updates on the company's four strategic priorities, initially discussed during their Investor Day last November, with other key executives present for the call.

The organization is focused on executing plans for shareholder growth, evidenced by a $37 million achievement towards an $80 million target of incremental NOI through enhanced operating models and AI utilization. They’re optimizing their portfolio by increasing suburban and expansion region allocations, benefiting from favorable demographics and demand. They sold $600 million in assets to reinvest in suburban expansion regions. Finally, their development growth engine is set to drive consistent external growth.

The paragraph discusses AvalonBay's strong financial performance and strategic priorities. In 2024, the company achieved higher-than-expected yields on completions, which contributed to earnings growth. They have increased planned development starts to $1.1 billion, targeting a favorable yield spread over cap rates and cost of capital. The company aims to capitalize on its development and capital strength amid fewer industry starts. AvalonBay's balance sheet is robust, bolstered by $850 million in forward equity at a low cost to support growth. The company is pleased with progress in its strategic priorities, confident in future growth, and credits its associates for strong Q3 results, surpassing earnings expectations.

The paragraph discusses financial updates and performance expectations for a real estate company. They started $450 million in new developments this quarter, with plans for a total of $1.1 billion this year, anticipating reduced competition upon completion. Due to strong operations, they've raised the 2024 core FFO guidance to $11.04 per share, indicating a leading growth rate of 3.9%. For their same-store portfolio, they predict 3.5% revenue growth and have adjusted their operating expense estimate down, increasing their NOI guidance to 3% for 2024. Sean Breslin notes strong third-quarter performance with low turnover and increased economic occupancy. He also mentions a potential rise in asking rents, influenced by softer comparisons from late 2023, and notes current rent growth trends.

The paragraph discusses the current and future rental market conditions for an apartment portfolio, highlighting a 3% year-over-year increase in average asking rents as of November 1. The East and West Coasts have seen 4% and 2% increases, respectively. Rent changes are expected to strengthen from November to December. Looking further ahead to 2025, the outlook is positive due to anticipated job and wage growth, financially stable renters, and unaffordable home buying alternatives, leading to steady demand for rentals. Rent-to-income ratios have decreased, enhancing renters' ability to pay more. Renting remains more affordable than owning in coastal regions, contributing to lower resident turnover and higher rental demand. New housing supply in these regions is projected to be 1.4% of existing stock, significantly lower than in the Sunbelt, which faces an oversupply. The predominantly suburban portfolio is set to benefit from a modest 1% stock increase in 2025.

The company believes its portfolio is well protected from excess supply in 2025. They project a modest revenue growth due to factors like improved debt conditions and strong rental revenue, though not as strong as in 2024. Operating expenses are expected to moderate, with easing impacts from expiring tax programs and reduced utilities expenses due to the AvalonConnect deployment. Overall, their Q3 results surpassed expectations, prompting an increase in full-year earnings guidance, and the outlook for 2025 remains positive, especially in their established regions.

The paragraph discusses the company's focus on development to drive earnings growth and value-creation, with an emphasis on strategic priorities aimed at superior shareholder growth. A question from Eric Wolfe of Citi addresses delivery projections as a percentage of stock, noting a slight decline expected next year. Sean Breslin responds, indicating a forecasted reduction in deliveries for established coastal regions in 2025, except for New York City, which may see a slight increase. He notes the challenges in the development climate due to rising construction and capital costs, especially affecting merchant builders.

The paragraph discusses the construction and development trends in coastal and Sunbelt markets. It explains that construction starts have decreased, particularly in coastal regions, due to lengthy gestation periods and recent trends in project underwriting. The speaker, Matthew Birenbaum, then addresses questions about four Sunbelt apartment projects initiated this quarter, specifically in North Carolina and Texas. These projects target yields of around 6%, which is on the lower end of their development yield range but still above their cost of capital. Birenbaum highlights that a specific project in Austin is advantaged by being developed on land previously acquired, forming part of a larger development plan.

The paragraph discusses a company's initial investment in Austin, highlighting that they are front-loading infrastructure and amenities for a new community, which they expect to be a signature project in that market. After cautious consideration over the past four or five years, they are confident about the timing due to reduced construction costs compared to 18 months ago. The asset is anticipated to start leasing in 2026, with little competition expected at that time and a favorable financial basis. Benjamin Schall adds that the company has a cost of capital advantage over private competitors and can generate higher yields on new investments by applying their transformed operating model, achieving 30 to 40 basis points of incremental yield in many projects.

The paragraph discusses development projects planned for 2025, highlighting the potential to increase start volumes to around $1.5 billion, up from $1.050 billion in the current year. The strategy involves leveraging their strong balance sheet and capital position to capture a larger market share amid reduced overall starts. Approximately 40-45% of this year's start activity is in expansion regions, with a similar distribution expected next year. The company also plans to initiate projects on the West Coast, where development economics are improving, with potential starts in San Diego, the East Bay, and a garden project in Denver.

The paragraph discusses the business opportunities and challenges in various U.S. real estate markets, focusing on lower density, simpler construction projects in regions like New Jersey, the Mid-Atlantic, Boston, and Florida. It mentions market pressures in North Carolina and Texas, influenced by specific product and submarket conditions. In a conversation with Jamie Feldman, Kevin O'Shea explains the anticipated 10% increase in insurance expenses for the current year, driven by property insurance premiums and losses, linked to their renewal in May 2023. Sean is expected to provide further insights into overall operating expenses for the next year.

The paragraph discusses the company's property insurance renewal process and cost expectations. It highlights a successful renewal in May, with less pressure from premium increases compared to previous years, and anticipates more stabilized program costs in 2025. The company has limited exposure to high-risk areas like Southeast Florida, helping mitigate pressures. While liability insurance premiums are rising, it constitutes a minor part of their overall insurance expenses. Overall, the company expects insurance costs to grow in the mid to high single digits next year, aligning with normal levels. Additionally, operational expenses are expected to grow at a slower rate in 2025 compared to 2024, with factors such as certain pilot programs influencing these costs.

The paragraph discusses financial projections and operational initiatives for a company. It mentions an expected 80 basis point impact on the 2024 growth rate, which is anticipated to decrease by 2025. AvalonConnect is projected to be 90% deployed by the end of 2024, impacting total operating expenses growth by 120 basis points, with a reduction expected. The company's growth rate is anticipated to be lower in 2025 compared to 2024. In response to a question from Adam Kramer of Morgan Stanley, Sean Breslin explains that increased occupancy early in the year allowed for rate growth during Q2 and most of Q3, particularly due to a high volume of lease expirations. The strategy involved stabilizing occupancy in September and October as they move into a slower leasing season.

The paragraph discusses the trends in rental occupancy, new move-ins, and rent changes as the market moves from September to December. It mentions that while there was a deceleration in new move-ins, occupancy remains stable, with asking rents about 3% higher than the previous year. Rent changes are expected to increase, with a blended rate change rising from 1.2% in October to mid-2% in December, driven mainly by new move-ins. The conversation shifts to the topic of bad debt, with Adam Kramer inquiring about the improvement outlook, noting a forecast of 170 basis points for this year, and seeking insights into how long it might take to return to pre-COVID levels of bad debt. Sean Breslin responds, acknowledging the challenge of making precise predictions in this area.

The paragraph discusses the improvement in performance, noting a reduction of 60 basis points year-over-year and a more significant 140 basis points from 2022 to 2023. The expectation is to make progress towards stabilization by 2025, but full normalization is likely delayed until 2026 due to ongoing challenges with processing 1,300 accounts through skips or evictions. During a call, Adam Kramer acknowledges the detailed information provided by Sean Breslin. Following this, Steve Sakwa from Evercore ISI inquires about renewal figures for November and December, asking about the level of negotiation compared to the past six to nine months. Sean Breslin responds, focusing on expectations for upcoming months but not providing specific figures.

The paragraph discusses expectations for renewal achievements in November and December, projecting them to be in the high 3% range based on current agreements and negotiation outlooks. Steve Sakwa questions Kevin O'Shea about the use of forward equity for funding development opportunities rather than acquisitions, to which Kevin confirms that the forward equity deal, executed in early September, was intended to support increased development starts next year. Austin Wurschmidt then asks about new development starts in expansion markets, implying whether this indicates that rents have stabilized or will stabilize soon. Matthew Birenbaum responds that projects are underwritten on current, not projected, rent yields, suggesting a conservative approach that does not rely on future rent increases for project viability.

The paragraph discusses the company's confidence in their current and future real estate deals, anticipating positive market momentum within two years. It highlights the differing impacts on acquisitions and developments, emphasizing the importance of evaluation due to rent roll variations affecting short-term yields and IRR. Benjamin Schall notes the company's strategic focus on achieving a significant spread between development yields, cap rates, market rates, and cost of capital, which has been stabilized for upcoming projects. He mentions limited recent transaction activity but increased clarity on valuations, alongside decreased construction costs in many regions, encouraging net new external growth.

In this paragraph, Austin Wurschmidt inquires about investment opportunities in expansion markets and the potential acceleration of a paired trade strategy aided by equity proceeds. Matthew Birenbaum responds that while there are opportunities to expedite the paired strategy, the transaction market remains thin and lacks distressed opportunities. He notes that while there was previous optimism about increasing transaction activity, a recent rise in loan rates has caused a pullback. Birenbaum mentions that selective assets are still trading and that there is interest from buyers and the company in acquiring similar assets. Despite the challenges, they've managed to sell $590 million and purchase $325 million in assets so far this year, with plans to continue.

The paragraph discusses the company's strategy of being a net seller by $150 million to $200 million for the year, with hopes of maintaining a net neutral position by balancing acquisitions and dispositions. The focus is on selling older assets at higher prices to invest in properties with better growth potential, while also managing regulatory exposure. Looking ahead, the company aims to continue similar transactions in 2025. In a conversation with Josh Dennerlein from Bank of America, Sean Breslin explains that lease rates have decreased across most markets as part of a strategy to stabilize occupancy during slower seasons, noting that Seattle experiences more pronounced seasonal effects.

The primary focus in Seattle's market is the impact of Amazon's return-to-office policy, which has been driving more traffic and better performance than expected. This trend began around the second quarter and is anticipated to continue positively through 2024, as more employees return to the Seattle area. Other employers, like Salesforce in San Francisco, are also recalling employees, indicating a similar potential trend in those markets. Sean Breslin notes limited market volume, while Benjamin Schall attributes Seattle's market improvement largely to the return-to-office trend. Brad Heffern from RBC Capital Markets inquires about lease numbers.

The paragraph discusses AvalonBay's decision to formally advance their efforts in the build-to-rent (BTR) sector, viewing it as an extension of their current business. AvalonBay, which has experience in building townhomes alongside apartment flats and full townhome communities, sees this as an opportunity to leverage their strengths in operations and development. They plan to focus on townhome communities within BTR and pursue growth through acquisitions, such as a recent townhome community purchase in Austin. They also mention the developer funding program associated with their Plano project. AvalonBay aims to capitalize on these strategic advantages to drive future growth in the BTR market.

The paragraph discusses the expectations for property tax changes and development yields in the coming years. Sean Breslin explains that property taxes are expected to decrease in 2025 due to the expiration of certain tax abatement programs, such as New York City's 421-a, which had increased expenses by 80 basis points. John Kim asks about development yields, and Matthew Birenbaum clarifies that the slight decline in current pipeline yields to 5.9% is due to a change in project mix. Two completed projects with higher yields left the development category, while four new projects with yields around 6% were added.

The paragraph discusses the performance and expectations for real estate deals currently in lease-up, which make up about 5% of their portfolio. These deals are performing ahead of their financial projections, though not as significantly as earlier deals from the current year, with rents $175 higher per month and yields 20 basis points above forecast. It is expected that over the next few quarters, yield rates will rise into the low-to-mid 6% range as deals underwritten into the 6% range from 2023 and earlier years progress, while older deals with lower cap rates and yields are completed. Following this, Anne Chan from Green Street asks about plans to acquire detached single-family home build-to-rent communities or stick to townhome products. Benjamin Schall responds that while detached Build-To-Rent units are possible, their focus is on townhomes that align more closely with their typical operations.

The paragraph discusses the real estate strategy of investing in purpose-built communities with 80 to 130 units, emphasizing the benefits of bringing operational scale to these areas due to a lack of large institutional operators. The focus will be on developing a mix of apartments and Build-to-Rent (BTR) units to create synergies. Over the next 12 to 18 months, resources will be dedicated to this area, although a specific target for the portfolio hasn't been set. Regarding construction costs, it notes that while land values are sticky and vary by location, there have been instances of significant land price decreases, particularly in markets like California and Quincy, Massachusetts. In regions like the Sunbelt, North Carolina, and Texas, land is a smaller portion of the overall deal cost.

The paragraph features a discussion during a Q&A session about the real estate market's supply and demand balance, particularly in the Sunbelt regions. Benjamin Schall mentions that high supply areas in these regions will face significant pressure into 2025, impacting rent rolls and cash flows into 2026. However, he notes a decline in start volumes in both the Sunbelt and established regions, suggesting that by 2026, supply levels will be lower with steady demand, potentially restoring pricing power. Amy Provost asks about earnings assumptions, and Sean Breslin confirms that prospective rents are included in their calculations. Rich Anderson notes a somewhat optimistic outlook for 2026 concerning new property deliveries.

The paragraph discusses economic assumptions for 2025, focusing on job growth and the job market's composition. It mentions that job growth is expected to slow from two million net new jobs in 2024 to 1.5 million in 2025. There is an expectation of a shift towards higher-income jobs, particularly in the knowledge-based economy. Wage prospects for core customers remain strong. Job and supply ratios are projected to be consistent across markets, with markets having lower new supply expected to perform better. The conversation ends with a question about the advantages of investing in multifamily properties next year.

The conversation revolves around economic observations and expectations for Equity Residential's future performance. Benjamin Schall expresses optimism for their suburban coastal business and external growth prospects, emphasizing development activity and transaction markets. He anticipates more transaction activity with improved stability in rates and cap rates, suggesting their scale and cost-of-capital will aid in external growth. Rich Anderson appreciates the insights. Alexander Goldfarf from Piper Sandler inquires about the leasing market's return to normalcy by 2025, questioning whether it will follow typical seasonal patterns, and Sean Breslin seeks clarification on what is meant by "normal."

The paragraph discusses the ongoing effects of the COVID-19 pandemic on housing demand and market dynamics. It highlights that seasonal demand patterns remain stable, but two unusual factors are influencing the market: the gradual return to office work, particularly in coastal areas, and the lack of affordable housing for purchase. The return to office work is improving but hasn't fully impacted all areas, and companies like Amazon and Salesforce are bringing employees back, boosting city confidence. The high cost of homeownership compared to renting leads to lower housing turnover and makes renting more attractive, potentially supporting growth in established regions.

The paragraph features a discussion between Alexander Goldfarb and Matthew Birenbaum about site selection changes due to increased flooding risks, particularly in the Northeast. Birenbaum explains that for the past several years, they have used a third-party resiliency risk model to evaluate sites for risks such as flooding, wind, heat, and wildfires. This proactive approach has led them to avoid sites that may be difficult to finance today. Following Goldfarb, Haendel St. Juste asks about the year-to-date performance of East versus West Coast markets and future opportunities, noting strong performance in Eastern cities like Boston, New York, and D.C., but with challenging year-over-year comparisons ahead, while Western cities like San Francisco and Seattle have easier comparisons but less clarity.

Sean Breslin shares insights about market performance and future outlooks, noting that markets like Boston, New York City, New Jersey, the Mid-Atlantic, and Seattle have shown better performance this year. He suggests these markets might continue to outperform in 2025 due to "earn-in" potential, assuming other market conditions remain constant. However, unexpected changes in other markets could affect this outlook. Breslin highlights the importance of factors like job growth, supply, housing trends, and return-to-office in determining future performance. He quantifies the "earn-in" as 130 basis points for the East Coast and about 94-95 basis points for the West Coast. Additionally, the expansion regions are facing a slight negative impact of around 20 basis points.

The paragraph discusses anticipated changes in rental revenue growth and associated operational expenses. Sean Breslin predicts a slowdown in rental revenue growth in 2025 compared to 2024, primarily driven by the AvalonConnect offering, which will be mostly deployed by the end of 2024, with revenue impacting in 2025 as leases expire. Breslin also mentions that operational expenses will increase by about 120 basis points in 2024 due to certain initiatives but expects these expenses to decrease significantly in 2025 as the program is more widely implemented and impacts fewer units. Additionally, Linda Tsai from Jefferies inquires about the potential for new lease growth to remain positive moving into January, noting that the comparisons seem reasonable.

In the paragraph, Sean Breslin mentions that they haven't yet provided a forecast for January due to ongoing evaluations but are confident in their projections for November and December, noting changes in lease expirations and asking rents. Linda Tsai asks about the differences in yields and resident preferences between townhomes and single detached homes in the build-to-rent sector. Matthew Birenbaum responds that while the sub-sector is still emerging, yields and cap rates for townhomes and single-family homes don't significantly differ. He notes that the choice between townhomes and single-family homes often depends on location, with townhomes usually in areas with higher land values. The customer base for townhomes and single-family homes is similar, though townhomes may be less appealing to empty nesters or families preferring larger yards. Some townhome rentals do offer their own yards and garages, which can be important for residents.

The paragraph discusses the demographic trends in the apartment renter base, highlighting that there haven't been significant recent shifts. During COVID, there was a trend towards more single-person households, but things have stabilized. Moving forward, there is recognition of the aging millennial population, many of whom are drawn to suburban townhome products that offer features like yards and good school districts. This aligns with their desires for larger households and quality living spaces, while buying a home remains expensive. The company is ensuring their portfolio meets this anticipated demand.

In the paragraph, Benjamin Schall discusses the anticipated improvement of bad debt by 2025, highlighting specific markets with potential for significant change. He mentions New York City, New Jersey, the Mid-Atlantic, Northern California, and Los Angeles as key areas needing improvement. Some regions like Orange County, San Diego, and Virginia are closer to historical norms. Schall concludes the conference call, expressing gratitude and mentioning an upcoming event at Nareit.

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