Equity Residential Stock

Good morning, ladies and gentlemen, and welcome to the AvalonBay Communities and Equity Residential's Merger of Equals Joint Conference Call. [Operator Instructions]

Your host for today's conference call is Marty McKenna, Senior Vice President of Investor and Public Relations at Equity Residential. You may begin your conference call.

Thank you. Good morning, and thanks for joining us to discuss Equity Residential and AvalonBay's merger deals. Our featured speakers today are Ben Schall, President and CEO of Avalon Bay; and Mark Parrell, President and CEO of Equity Residential.

Both the press release and investor presentation are available on both companies' investor websites. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. 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. Now I will turn the call over to Ben Schall.

Good morning, everyone, and thank you for joining us. On behalf of both companies and our Boards of Directors and trustees, Mark and I are extremely excited to announce the merger of equals between AvalonBay Communities and Equity Residential. This is a landmark combination, the largest merger in the modern REIT era and one that we believe creates a new and fundamentally stronger company with the capabilities, scale and balance sheet strength to redefine leadership in rental housing, enhance the experience of our residents and deliver structurally superior earnings growth, dividend growth and value creation for shareholders.

Our combination brings together 2 premier public apartment companies with complementary portfolios, spanning over 180,000 apartment homes and with a pro forma enterprise value of almost $70 billion, more than 2.5x the next closest peer.

With that said, we want to emphasize upfront that our combination is not about getting bigger just to be bigger. The opportunity is to create a meaningfully stronger company, a true newco that will draw on the foundational strengths of both organizations, while also bringing together a newly formed team, creating a new culture and building a differentiated set of capabilities that will drive a step function change in our growth profile relative to what either company could achieve on its own.

Both companies have built industry-leading platforms over many years with deep talent and associates who truly care strong cultures, operating discipline, development expertise and long-standing trusted relationships with residents, associates, communities and investors. Our ambition to build on those foundations to create a combined company that is stronger together, one that leverages its exceptional people and differentiated capabilities to unlock a structurally higher growth profile.

Stronger together starts by creating a durable operating advantage. Newco will be powered by a leading operating platform that leverages technology, AI, centralized services and leading regional teams enhancing the resident experience while driving operating efficiencies and margin expansion. Operational scale matters because it allows us to spread operating and technology investments across a much larger base of homes at a meaningfully lower cost per unit. It also provides greater data richness, stronger market knowledge and deeper within market density, all of which improve decision-making across leasing, maintenance, resident services, marketing, purchasing and capital allocation.

Stronger together also means further unleashing earnings growth and value creation through development. Combined company will have a near-term tailwind of over $4 billion of development under construction, more than 10,000 market rate and dedicated affordable apartments across 32 communities. Our intention is to accelerate and further grow our development activity to generate even stronger returns for shareholders while also increasing overall housing stock.

Every home we build creates construction jobs, supports local subcontractors and suppliers and expands the property tax base that funds schools, infrastructure and public services. Third, Stronger Together means combining 2 of the industry's strongest balance sheets, 1 that will have robust access to capital, including over $2 billion of annual cash flow and self-funding capacity to deploy into external growth opportunities.

Our focus will be on allocating capital to those opportunities with the highest risk-adjusted returns from development to NOI enhancing reinvestment to acquisitions and other strategic opportunities. With a larger and more diverse asset base, combined with stronger internal and external growth, the combined company will be positioned for a more enduring cost of capital advantage to further facilitate future growth.

And finally, stronger together means drawing on the immense talent from both organizations. While we are not announcing the leadership team today, we expect the management team to include substantial representation from both companies as will be true down through the new organization. There's a long-standing mutual respect that exists between both companies that creates the foundation for success together. Looking forward, we are excited to build on that foundation by investing in our people, adopting best practices that will position us as an employer of choice, and tapping into the next layers of leadership to pursue new areas of growth.

We also recognize that a combination of this size comes with responsibility to residents, to the communities where we operate and to the broader housing market. We welcome that responsibility. We have our track record and our commitments demonstrate that we take it seriously. I will now turn the call over to Mark.

Thanks, Ben, and thanks to all of you for joining us today. On behalf of the Equity Residential Board and our entire team across the country, we are pleased to enter into this transaction to create the leading rental housing provider in country. At Equity Residential, we have spent more than 30 years innovating and creating value for shareholders and believe that this is a natural next step on that journey.

We are very proud of what we have accomplished as Equity Residential and very excited for this next chapter. For me, this will be the end of my time at the company after 27 years with the last 8 as its CEO and on the prior 11 year stint as CFO. I was honored to lead an outstanding equity residential team that always strive to do the right thing for our customers, our shareholders and for each other.

Thanks to all my equity residential colleagues for an amazing ride, and I am committed to working with Ben through this transition to put together 2 great teams that have a promising great future.

So why merge and why do it now? We see the rental housing industry as being at an important inflection point. First, the industry landscape has evolved, from the perspective of both EQR and AVB, the status quo is not an option. The sector has matured, and it is harder for larger part leads to truly differentiate. This has been particularly true for EQR and AVB, given similar approaches and strategies. And too often, relative performance is dictated by geography, which markets are stronger in a given year or even a given quarter.

This is not a sustainable way to consistently generate outsized returns. The investor landscape has also achieved with a continuing shift to ownership to index funds and generalists. To compete in this new world, one needs to become more relevant, and we see our greatly enhanced scale and distinct growth profile as providing that relevance and distinction.

We firmly believe that the next phase of our outperformance in our sector will be driven less by simply owning assets in the right markets in that particular year or quarter and more by having the capabilities to operate those assets better through cycles especially by applying cutting-edge technology at scale, having the ability to invest through cycles more effectively, being able to efficiently convert sale into sustainable earnings growth.

We also believe that the combined company will have a real cost of capital advantage over its public and private competitors. This should be different than the last 20 years, the private sector players and the broader industry benefited from declining interest rates and declining cap rates. The real estate economy no longer has the same tailwind from declining cap rates, and the combined company's scale, ability to apply more technology faster to all areas of its business and its superior access to capital should provide a meaningful advantage relative to players in both the public and private rental housing space.

Companies that can demonstrate structurally higher growth, superior capital allocation and a stronger balance sheet as the combined company is uniquely positioned to do, should have greater flexibility to invest when opportunities emerge, and should win the return battle. I'm also excited to see the opportunities that the combined company creates for the fantastic teams from both companies.

Ben talked about the mutual respect and admiration that EQR and AVB have for each other. This has been forged through decades of competing against one another, solidified more than a decade ago when we partnered together to acquire the Archstone assets. Archstone was a large and complicated transaction both EQR and AVB came through it with flying colors. We expect the combination to be accretive to both Equity Residential and Avalon-based shareholders.

On a run rate basis, using 2026 core FFO guidance as a base, we expect similar accretion to both companies in the range of about 2%. From a governance and leadership perspective, the combined company will have a Board initially composed of 7 existing equity residential trustees and 7 existing Avalon Bay Directors. Steve Sterrett, EQR's lead independent trustee will serve as Chair of the new company.

Company will be dual headquartered in Chicago, Illinois, and Arlington, Virginia and will operate under a new name to be announced at closing. This is a combination built around shared ownership, shared governance and a shared opportunity to create the company and is stronger than either organization on its own. Now I'll turn the call back over to Ben to take you through the presentation.

Thank you, Mark. I'm now going to go deeper into the combined company's areas of opportunity. referencing select pages from the investor presentation that we posted earlier this morning. For our combination to be successful, we need the core to be strong. That means executing an integration extremely well protecting the resident experience, bringing together the best of both organizations and building a combined operating model that becomes the launch pad for future growth. .

The first step in this process is to execute on an identified set of corporate and operational efficiencies as described on Slide 7.

We're projecting $175 million of gross synergies from corporate overhead savings, property management, overhead efficiencies and property expense savings. After estimated real estate tax reassessments, we are expecting net synergies of $125 million. We expect $125 million of run rate annual operating synergies to be fully in place by the end of 18 months with more than 85% in place by the end of 2027.

These synergies are the first rotation of the flywheel, the foundation from which we will invest and grow. As described on Slide 9, the next rotations of the flywheel will be driven by further leveraging the combined company's differentiated capabilities. Operating scale and margin improvement along with a larger and more diversified asset base will drive superior internal growth. Those operational benefits also drive stronger returns on new investments, further allowing us to leverage the combined company's market presence, capabilities and local teams to serve as unique development and investment opportunities, all leading to superior external growth.

Duco's ability to consistently drive superior internal growth and superior external growth will translate into an enduring cost of capital advantage which we can then utilize to facilitate future accretive growth, accelerating flywheel and action. Zooming in closer on the operating platform, Northern California provides an example of what market depth makes possible, as highlighted on Slide 11. Combined company with 84 communities and approximately 24,000 homes in the region. When you have that kind of depth, the operating model changes in very tangible ways.

Data becomes richer, decision-making improves, regional leaders can manage with better visibility and span of control, teams can become more specialized, more activity can be in-sourced or centralized, marketing and purchasing become more efficient, outcomes are concrete, lower operating expenses per unit, enhanced resident experiences and improved operating margins.

With approximately 95% market overlap, this is how we will drive enhanced margins and drive additional NOI, region by region. And as we add homes to the platform in the future via new investments, we'll bring them on at an even lower marginal cost, including the return profile of future growth while enabling us to deliver better service to residents.

Another critical advantage that the combined company will have is our ability to further accelerate the piloting and adoption of new technologies and to spread those costs across a wider portfolio.

Slide 12 highlights AVB and EQR's very successful joint history with Elise AI, which allowed us to bring conversational AI to the vast majority of our prospective residents, a partnership that is now expanding to utilize AI tools to communicate across the full customer journey. The broader point is that NewCo will have the scale and capacity to invest in the next frontier of operations at a meaningfully lower cost per unit than competitors.

We can identify emerging technologies, how them across a meaningful platform, scale what works and spread the cost across a much larger base of homes. That investment benefits residents directly, faster response times, better digital tools, more consistent service, while also driving the operating efficiencies that benefit shareholders. We also expect a broader and richer set of data to optimize our operating and investment decisions and outcomes as highlighted on Slide 13.

The combined company will have proprietary data from decades of interactions with residents, including over 60 million pieces of customer feedback. Our scale will allow us to mine these data sets to better serve customers, provide our associates with higher quality data for real-time decision-making and inform new investment decisions.

Let's now turn to developments role in driving growth. Moving to Slide 14. NewCo will have approximately $4.4 billion of development in progress, representing roughly 10,800 homes with projected initial stabilized yields above 6%. That creates embedded growth over the next several years. But I want to be clear about what this development pipeline also represents beyond the financial returns.

NewCo will be one of the country's leading creators of new rental housing in a country with a significant and well-documented housing shortage that matters. We're not just building earnings growth, we are building housing supply that communities need. And we are confident that we can meaningfully grow the development platform from here, through an improved cost structure from a larger pipeline, improved operating margins that allow more development to underwrite favorably and deeper relationships with third-party developers.

Beyond what we have under construction, combined company has approximately $4.2 billion of development rights, representing roughly 9,800 homes. More than half of that future pipeline includes affordable and mixed income components reflecting a genuine commitment to be part of the housing solution.

As Mark noted and is emphasized on Slide 15, we also believe cost of capital will be a more important differentiator in the years ahead. Companies with scale, balance sheet strength and structurally higher growth will have greater flexibility to invest when opportunities arise.

For NewCo, capital allocation will be a core capability, not just having more capital by deploying it to the highest risk-adjusted returns across development, acquisitions, reinvestment and across markets, submarkets, product types and price points.

Moving to Slide 16 and to bring us to a close on our prepared remarks. In year 1, success is about integration excellence. Seamless Day 1, meaningful progress on synergies and a team operating as one. That is the foundation everything else is built on.

And I want to be direct about what it means for our residents. They should experience no disruption, people they know, the service they expect, communities they call home, all of that continues without interruption.

In years 2 and 3, success means platform acceleration, combined operating model, delivering margin expansion, development starts meaningfully scaled and technology and AI advantages compounding across the portfolio. And over time, success means market leadership. Providing superior rental housing solutions and customer service to residents expanding housing supply, delivering superior earnings growth and total shareholder performance for our shareholders.

A company that is recognized not just for its superior financial performance, but for the quality of homes it provides and the communities it invests in. We are extremely excited by the opportunity in front of us. And with that, we appreciate your time today. We're happy to take your questions.

[Operator Instructions] Our first question comes from the line of Eric Wolfe with Citi.

It's Nick Joseph here with Eric. Mark, I appreciate your comments on, I guess, the apartment sector broadly and challenges for the companies in terms of differentiation and driving alpha. So can you just walk through why this merger versus different alternatives, either leaning into more asset sales and buying back stock or a larger company sale? And then did you explore other alternatives as part of this process?

Thanks for that question, Nick. We're going to save some of those details for the proxy. I want to leave you that to enjoy later. But certainly, the idea of doing stock buybacks isn't something NewCo dismisses either. But the ability to create perpetual continuous earnings growth from these operational improvements from a better cost of capital giving us better capital allocation decisions, development and otherwise. And then all the other things that NewCo can unlock that Ben just went through is very attractive to our Board, and I think very attractive to our shareholders.

So we do see this combination as unique among the choices the company had because of its ability to accelerate earnings growth through the years. And again, we think the integration efforts here will be relatively straightforward given the very similar cultures, a lot of similarity in systems. We're ready for the challenge. We're excited for that. And I think it's going to be, again, a growth accelerant for our shareholders.

Nick, from an AvalonBay perspective, I want to emphasize again the trust and respect that exists across the organizations, top down. That's a key ingredient here. Mark just touched on the complementary natures of these businesses, which is part of what gives us confidence as we think about integration and then -- and moving forward with this new company. And then the other part is it's complementary, but it's also very differentiating, right? The ability here to create a truly differentiated model where we can lean into a set of capabilities to deliver a structurally higher level of growth. That's beyond what either of our companies can deliver today, and that's what we're excited about going forward.

It's Eric. Can you just -- I guess, along the same lines, can you just talk about what's in that sort of portfolio NOI synergies? I think it goes back to what you were just saying about operating at a sort of higher level. And then you kind of gave the timeline to achieve, I think, the overall synergies. But just curious for the specific bucket, when you might be able to achieve those?

Sure. And for folks reference, if you go to Slide 7 in the presentation, we have the breakdown of synergies across corporate overhead, property management overhead and portfolio NOI. The core part here and the enduring part are the efficiencies that we can create going forward.

And that very much is driven out of what I refer to as the ecosystem of leveraging technology, centralized services and the neighborhood benefits. When you think about the 2 companies together, right, that opportunity is on steroids, right? We can really, really lean in. On the operating side, I'm particularly excited about the future opportunities from technology. I mean the NewCo is going to be positioned to be able to make investments both at levels and in ways really that very few competitors will be able to make. And so we'll continue to lean in there to really strengthen that ecosystem.

So that's the bulk of what's driving it. With respect to timing, as I said in the prepared remarks, for the $125 million of net synergies, it will be in place by the end of 18 months, and we expect the bulk of it to be in place by the end of 2027.

If I could just check on just a little because it's sort of a little bit of storytelling. There's a slide in the deck about EliseAI, which is a company that both Equity Residential and AvalonBay have been involved with. And that's excellent efficiency discussion because it's something that because of the technology involved is very powerful. It's also very expensive to develop this kind of software. So Equity Residential is co-developing it with the software firm and that will be sold, that product will be, we won't own it.

And Newco will have the ability to create those kind of products on its own, and either resell them to the industry more broadly or keep it for its own benefit. So there are things that Newco will be uniquely able to do and accelerate even beyond the numbers on the page Ben just narrated, that I think are really special, like invest in technology at scale that even at the size Equity Residential or AvalonBay is right now, we just can't do. It's just not possible that I think in the future NewCo will be able to do.

Our next question comes from the line of Adam Kramer with Morgan Stanley.

Maybe just on packing synergies a little bit more. I was wondering sort of if you could double-click on maybe the scale benefits of what a combined company would look like, right? If I just look at sort of the Boston or broader Massachusetts exposure, I think it would be 16,000, 17,000 units on a combined basis or maybe that same store, but thereabouts. As i sort of look at what would be the efficiencies of having that sort of exposure versus 7,000 or 10,000 on a stand-alone basis, right?

I think you guys are sort of being really good operators, right, having already done the potting, other efficiencies over time. So what would sort of be the added benefits, added efficiencies from a property management perspective on a combined basis?

Yes. Thanks for that, Adam. And let's use Northern California, which we have on Slide 11 in the presentation as an example. The 2 companies together are going to have over 80 communities, over 20,000 units, real market depths. I do comment that it sounds like a lot, but in terms of its percentage of overall stock, it's still only 3% of overall stock.

But when we think about putting this portfolio together and to my comments about combining it with the technology and centralization benefits, we will be able to drive real operating efficiencies. And we've underwritten a component of that in our synergy numbers, but that is just the start, right? There's definitely more to come over time.

In terms of more specifics as we think about what comes from this market depth, obviously, more and more data, right, helps to improve our decision-making, enhance span of control for regional leaders, right? So we think about a regional leader being able to handle a wider portfolio of assets, having teams in these markets where you can have certain groups who can specialize just in certain functions, right? They're really good at this one function, and they can then take that across a broader portfolio.

And there are, for sure, economies of scale, right? Think about marketing, right? Great example. And the ability for NewCo, and we will have a new name for NewCo. We think about NewCo's reach, right, and its presence, particularly online, think about NewCo's reach in the world of AI search, all of that will be very powerful as we look ahead.

Our next question comes from the line of Steve Sakwa with Evercore ISI.

I was wondering if you could just maybe touch on the Prop 13 impact. I know you've got a $50 million sort of placeholder here. Is that applicable to just one of the 2 companies? I mean, obviously, one is the buyer and effectively one is a seller here. So I guess just how do we sort of think about that $50 million? And what do you think the timing of that is to kind of bleed into the pro forma financials?

Steve, it's Mark. So we did put in a $50 million estimate on Page 7. That is under the assumption that AvalonBay, as we said, will merge into the Equity Residential legal structure. So that would be how the transfer taxes and property tax reassessment would be triggered. It's almost entirely California. There are some other states. So there is back and forth there.

There is -- I mean, this estimate is just that an estimate. So I would say, Steve, once the transaction is concluded, there's going to be a back and forth with assessors. We have very capable teams that will have those very robust conversations. So we think $50 million is a good estimate. But again, there will be some back and forth. As Ben said, it's kind of an 18-month process for the synergies. It's also, frankly, probably an 18-month to 2-year process of determining the final landing point on some of these property tax reassessment issues.

Thank you. Our next question comes from the line of John Pawlowski with Green Street.

I had a follow-up on Eric's question on the $60 million in NOI synergies. One, are there any revenue synergies embedded in that number? And then two, I couldn't tell from your comments whether these are costs that the current stand-alone companies are incurring today that are visible that you can cut or it's more speculation on AI and other costs you would have to spend if you went alone down the line that you think will be unlocked, so, is it more speculative in terms of cost savings down the line?

Yes. Thanks for that, John. So again, referencing Slide 11. The figures here, we've got pretty detailed road maps for each one of these components, including on the property management overhead and portfolio NOI. So these are tangible out of the gate, we're executing types of items.

As I said before, this is just the starting point. And so your comments about sort of places where we're making further investments, I very much see this is a consistent road map of driving stronger and stronger operating margins over time. And then the second piece of your question, about 80% of this NOI is expense driven. The other 20% is in the service revenue component. And I'll give you one example. We have a furnished housing program that we think has opportunities to bring to the wider portfolio. And so we've underwritten some dollars associated with that uplift.

Our next question comes from the line of John Kim with BMO Capital Markets.

I guess one of the hurdles of being a larger company is the impact of developments. So I'm wondering if you could talk about if you could grow the development pipeline to be a larger percentage of your enterprise value so that it has a more meaningful impact to earnings.

And one has been focusing a lot on suburban development. I'm wondering if this changes your strategy in terms of where you developed and at what price point?

Yes. Thanks, John. So from a development perspective, I'd say that the baseline is to double the level of activity that both the companies have going on today. And the ambition is to find opportunities where we can grow even further to generate a larger portion of external growth. And I talked about some of the potential reasons for that. One of them being with a stronger operating model, we'll be able to deliver stronger returns. And so inherently, there are more projects that will underwrite, right?

We'll be best positioned to execute on more projects, another way to put it, we'll be best positioned to get a larger portion of the share of development that's happening in these markets. In terms of suburban, urban, where this capital heads, I think as both companies have been, right, we're going to focus capital on where the highest risk-adjusted returns are. And that will change, right, over time, and that happens at the market level, submarket level, product price point, and that's definitely a commitment going forward.

Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

Congrats, Ben and Mark, wish you best in retirement. So just a bigger question, and you highlighted it with the comments on housing and affordability, clearly, more politicalized environment. Real estate tends to not be subject to antitrust and all that fun stuff. But just if you could provide some thoughts given the climate, if there's any concern over regulators or antitrust or anything like that, that's going on currently?

Yes, Alex, Mark Parrell. Thanks for that question. So we think of this deal as very pro housing, because as Ben elaborated, it's very pro housing supply. So there'll certainly be people throwing rocks and such, but this deal is helpful overall through the amount of housing production in our country.

In no market, are we more than 2% or 3% of the competitive stock. To be kind of approved, there is no requirement, no filing, no concern you particularly have, but you do need to fight a PR battle, and we're very prepared for that. We think we have the eye ground. This is going to be the largest and one of the very largest rental housing producers in the country. We invest together $500 million, $600 million of capital in our existing properties every year to maintain them. I mean we are very good corporate citizens, and we're excited to make that argument over the next few months.

Thank you. Our next question comes from the line of Rich Hightower with Barclays.

Congrats on getting this far. And again, congrats to Mark on a great career. Obviously, we've covered a lot of ground this morning. But I guess as I look at the sort of pro forma market mix for both companies. Are there markets that stick out as being overly concentrated or not? And then how does the expansion market strategy for both companies overlay onto this transaction?

Yes. Thanks for that, Rich. Out of the gate, we think we've got a very well-positioned portfolio, very well positioned to capture demand heading forward. We come into it with the expectation that we're going to continue to grow in all of these markets via development, via investments, and that's true in the established regions collectively for the company and each of our expansion regions.

I do expect over time, as I hope you would expect, we'll go through a process. We'll have a lot more data. We think about each submarket and market differently when you roll in the benefits of neighborhooding, right, that could potentially lead to some different decisions. But really, the emphasis will be in and around just continuing to optimize the portfolio for superior growth. And that will be an element of kind of top-down direction as we spend more time on the collective portfolio and then also asset and bottoms up. And so you'll continue to see that refinement for us. And you should expect in a company of this size and scale, we'll be investing a lot of dollars, and we're also going to want to be recycling capital into new investments as we look forward.

Our next question comes from the line of Nick Yulico with Scotiabank.

So question is, clearly, there's a lot of operating synergies that you laid out here, which are substantial, and there's a benefit to immediate FFO accretion. I guess my question is how the companies are thinking about driving improved FFO growth over time as a combined entity, and what I'm wondering is if there's a way to kind of use your platform here to consolidate more of the private market?

Are you thinking about third-party management business, a fund business. Any other sort of opportunity to kind of use this combined best-in-breed platform to help drive sort of better earnings growth over time, which I think it sounds like was one of the reasons for the merger, as you guys gave some significant thought to that and the Board as well on driving better stock valuations.

Definitely. The short answer is yes, right? The premise here is this company, we're going to get the core right, have a set of differentiated capabilities and use that as the launch pad for a supercharged level of growth and a series of areas that you just ran through, I consider all of those potential opportunities. I do think about the power of the combined company just having an expanded market presence, more relevant to public equity investors, also more relevant to private capital investors.

You're seeing a number of the large-scale REITs move in that direction. So that's an opportunity we can consider down the road. To have a set of capabilities, both on the operating side and the investment side, we're going to want to translate that into a cost of capital advantage and put that cost of capital advantage to work to increase further and further scale.

Our next question comes from the line of Michael Goldsmith with UBS.

Both sides have historically talked about wanting to achieve margin expansion, but margins have been stuck kind of right around 70%. So do you think this gives you the scale to help push through that ceiling?

I'm going to start. It's Mark. Part of the conversation about margin is about revenue growth, frankly, not being particularly good the last couple of years. If you look at expense growth, especially controllable expense growth has been better. And I think NewCo is positioned to have even better controllable expense growth going forward. So I think that's part, Michael, of the margin discussion. On the revenue side, again, it isn't mostly about raising rents above market as much as it is providing other services, as Ben said, to our residents that they want.

Bulk cable was a great example, bulk Internet, pardon me, of that. Ben gave another example. Certainly, we could provide property-level insurance to people. They need that service. We can provide it over scale better. Insurance is a statistical game helped by having larger numbers. So there's just so many levers to pull here on the helpful revenue side, I'll call it, and on the expense side. we expect that whatever the natural rate of revenue growth is or whatever the natural rate of expense growth is, will be higher or lower, respectively, than those numbers and drive the machine that will give us better margins to do investment activity, as Ben just elaborated in the prior question.

Yes. And Michael, my one addition to that is I do very much see this combination as this is a breakout type of moment. And as it relates to operating margins, when you think about this level of scale, the cost of bringing on that next asset, right, that marginal cost, take it across in terms of staffing, technology, right, becomes very, very low. And so part of it is unlocking that next future wave of growth, which will then as an overall basis, bring down our expense structure over time.

Our next question comes from the line of Haendel St. Juste with Mizuho Securities.

I wanted to go back to Rich's earlier question about this expansion markets. You each had a pre-existing goal of getting to about 20%, 25% exposure there. Curious how this kind of stacks up amongst your near-term priorities. This deal clearly makes that a bit more challenging. And then just a question on the closing here. Is it -- one of the important things to focus on is just the proxy? When do you expect to hold the votes? Any regulatory reviews expected to occur?

Sure. Let me take the second part there first. I expect it to be a fairly normal course process in the next 30 to 45 days, we'll file the proxy and will then go through the normal SEC review. We've commented that we're expecting a close in the second half of this year, and it's not subject to any regulatory types of approvals.

On your first question on the expansion markets, I do expect the combined company to continue to grow in those markets. And as everyone knows, it's a select set of markets and submarkets and positioning there. We're not, at this point, putting out new portfolio allocation targets for the new company. Going back to my comments earlier, that will be part of the process as we go through and look at a very top-down level and in a very detailed kind of asset-by-asset, submarket-by-submarket level to determine what we think is the optimized target portfolio allocation that we can set NewCo's sights on.

Our next question comes from the line of Julien Blouin with Goldman Sachs.

I was wondering if you could maybe dig into a little bit more the advantage you get from a larger proprietary dataset and specifically, sort of like how does that maybe differ today that advantage versus, I don't know, 5, 10 years ago? And how do you see that really sort of playing out?

Yes. I mean the increasing power of data analytics connected with AI tools is a momentous one and one that we're -- both companies have sort of been headed down the path on. One, this just gives us double the amount of proprietary data to mine. And if you go to Slide 13, you can see some of the statistics we put together over the last, call it, a couple of decades, 4 million lease transactions, 9 million service requests, 60 million touch points in terms of customer feedback, right?

So when you think about then applying that, the way we think about it is there's a set of operational outcomes and there's a set of investment outcomes. And the operational outcomes that we've highlighted, think about optimizing renewals and concession activity, doing a better job or sort of a more refined approach to demand forecasting, predictive analytics as it relates to CapEx, right?

All of that is helping drive superior internal growth. And then on the investment side, having just more data, more touch points, we really do feel like the next chapter here is to take that data and apply it even further to our investment decisions and help drive when we talk about driving the highest risk-adjusted returns, right, really looking at that and doing that across different types of capital allocation and also different markets, submarkets, price points and products, all of it being very much data informed.

And so the collective power that we have together and then the ability to invest in that data analytics capability is markedly different. I put this very much in the category. There are not going to be many other platforms that are going to have the size, scale and opportunity and invest the ways that we are in data analytics, and I see that as a key driver of our success going forward.

Our next question comes from the line of Rich Anderson with Cantor Fitzgerald.

Congratulations, everyone, particularly Mark. job well done. So I wanted to go back, Mark, you mentioned the Archstone -- shared Archstone acquisition with AvalonBay. And both of your companies are a product of past M&A activity, whether it's Maryland or Evans Withycombe or the Avalon and Bay merger in 1998. But I'm curious how that history of M&A activity informed this ultimate decision to come together? How much did it play a role in your process? Or is it just -- is that history just too far back to have mattered in the decision tree that you went through in the present tense?

I'm going to split that up. I mean we're not doing M&A for M&A's sake. This deal had a moment and this moment is now. And we've talked about those reasons that I think, Rich, are pretty evident here, the operational benefits, the data richness, capital allocation, efficacy and the ability to sort of do some new and special things like third-party management and otherwise.

The history does help. There's a lot of us here together doing this deal that worked together on Archstone. So it just creates this sort of shared culture of directness and honesty when you're doing a complicated deal like this. So I would say that, that shared history was helpful because it just allowed us to be more efficient. A lot of this process was, of course, complex, but we were able to get through it because everyone here has got a sense of goodwill, knows each other well or many of us know each other well from Archstone.

And Ben and I have gotten to know each other very well over the last 5 years of him being in our industry. So I think that shared history helped make the process easier. But the moment wasn't driven by M&A. It was driven just the opportunity to do -- to be better, to be bigger but better is what I think really drove it as opposed to just M&A for M&A's sake.

Thank you. Our next question comes from the line of Omotayo Okusanya with Deutsche Bank.

I wanted to kind of go back to this idea around the regulatory environment. Again, it's just been really noisy. The real paid settlements on the single-family for rent side, a lot of those guys own less than 1% of the industry, but yet they may be barred from buying homes going forward. But yet a big part of the argument for this deal is kind of bigger will get you better. But I think right now, regulators look at that and kind of say bigger has not been better for the average consumer and are kind of pushing back against that concept on the residential side. So I just would love to kind of hear your thoughts a little bit more about from a regulatory perspective, how do you kind of expect to avoid some of the potential pushback that could come to the deal?

Yes. Thanks. A couple of major themes there. One is we very much see the combined company as part of the solution here. And again, the combined company is going to be one of the larger creators of new housing in our markets. Beyond that, I do want to touch on, we -- both companies have a history. We're long-term owners. We've got regional teams that are embedded in those markets, right, long-standing relationships with nonprofit partners, including on the affordable housing side, long-standing relationships with local governments.

They come to us when they want multifamily build in their markets. And so we have that reputation coming in. And then we also highlighted in the -- in our press release, we're going to build on our prior commitments as it relates to affordable housing with some new initiatives, and we're launching a seed fund to help nonprofit developers get more affordable housing built. We'll be expanding our relationships with affordable housing and nonprofit developers as we think about preserving affordable housing in our marketplaces. So we're very much here to be part of the solution, create new housing and partner with local municipalities and communities.

Our next question comes from the line of Alex Kim with Zelman & Associates.

Thanks for all the detail that you've provided on the synergies. I was curious what are the biggest execution risk to achieving the timeline that you laid out? And which synergy category carries the most integration risk?

We feel -- thanks for that, Alex. We feel pretty confident in the upfront synergy numbers that we've identified. Again, we've got -- the collective teams have gone into a lot of detail here, have detailed road maps mapped out month by month. The big next part, which I'm excited about, spending a lot of time getting to know the EQR teams, getting our teams together and get the next step going here as it relates to the integration. When we get to closing day 1, we want to be out on the sprint, right? No disruption to the business, but more importantly, right, we're moving. And so I'm excited to take that next step together and to bring the 2 companies together and embark on that journey.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Schall for any final comments.

Thank you, Mark. I appreciate your partnership. Congratulations to both companies, to our associates. Thank you for your commitment, your leadership, your dedication. Very excited to embark on this next journey for both of the companies and to launch NewCo as one of the country's great real estate companies. Thank you for your time.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Good day, and welcome to the Equity Residential 1Q 2026 Earnings Conference Call and Webcast. Today's conference is being recorded.

At this time, I would like to turn the conference over to Marty McKenna. Please go ahead.

Good morning, and thanks for joining us to discuss Equity Residential's First Quarter 2026 Results. Our featured speakers today are Mark Parrell, our President and CEO; and Michael Manelis, our Chief Operating Officer; Bret McLeod, our CFO; and Bob Garechana, our Chief Investment Officer, are here with us as well for the Q&A. Our earnings release is posted in the Investors section of equityapartments.com.

Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. 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.

Now I will turn the call over to Mark Parrell.

Thank you, Marty. Good morning, and thank you all for joining us today to discuss our first quarter 2026 results. I will start us off, then Michael Manelis, our Chief Operating Officer, will speak to our first quarter operating performance, and then we'll go ahead and take your questions.

Our first quarter operating results met our expectations with strength in San Francisco and New York, driving our same-store revenue performance. These 2 markets share common elements of strong demand from our target higher earning renter demographic for our well-located apartment homes and low levels of new supply. So let me spend a few minutes now talking about why we are excited for the setup for our business in the back half of 2026 and into 2027.

As I said on our last call, we expect deliveries in our markets to be down 35% in 2026 versus 2025. And the forecast for expected future deliveries continues to show substantial declines over the next few years, creating a very positive trend line for our business. Also, our higher-earning customer demographic continues to demonstrate solid financial health with rising incomes, and we also see lower delinquency across our portfolio. Then there is a single-family for sale market that continues to be a challenge in terms of both cost and inventory, translating into customers renting for longer and leading to our record low turnover levels and strong renewal rates.

With all those positives, the one missing ingredient is an accelerating job market and current signals there remain mixed. That said, we do see some green shoots in the form of postings on the Indeed job site for tech roles and other similar high-earning jobs, rising substantially across many of our markets since November of 2025.

That provides us cautious optimism even in the face of recent job cut announcements at big tech firms. But with a portfolio that is more than 96% occupied with much lower levels of new apartment supply for the foreseeable future and limited owned housing choices, it will not take a lot of new jobs to drive more widespread, strong operating performance in the future.

On the transactions front, we did not acquire or sell any assets in the first quarter. We did update our transaction guidance for the rest of the year to reflect the likely sale of a couple of properties. This is a continuation of our process of improving the portfolio by selling older capital-intensive assets or assets in places where we have heavy concentrations. As we previously disclosed, we repurchased $220 million of our common shares during the first quarter, bringing total repurchase activity to $500 million since August of 2025.

And with that, I'll turn the call over to Michael Manelis.

Thanks, Mark, and thanks, everybody, for joining us today. I'm going to provide a quick update on our operating performance, including some high-level market commentary, and then we'll begin the Q&A session.

So overall, we had a good first quarter with our results, reflecting the continuation of our disciplined operation execution with both same-store reported revenue and expenses generally in line with our expectations. On the expense side of the house, pressure from Northeast snow removal costs and utilities were offset by a very low 20 basis point growth in payroll. On the revenue side, we are starting the spring leasing season in a good position with solid demand and strong physical occupancy of 96.3%. During the quarter, we also saw improvements in bad debt and the financial health of our resident base remains very supportive. Household incomes for new move-ins have increased and rent-to-income ratios have fallen to 19%.

Sitting here today, net effective prices have increased just over 4% since January 1, which is in line with normal trends and our occupancy and current demand levels are providing continued momentum into the second quarter. On a cash basis, concession use continues to decrease across most of our markets and is down about 21% across the portfolio as compared to the first quarter of last year.

As we have said in the past, an improving supply and demand balance leads first to increasing occupancy levels, next to reduced concessions, then to absolute rental rate increases, all of which ultimately drives growing blended rates from leasing activity and future same-store revenue growth. We already see San Francisco and New York, where we are posting strong same-store revenue results as far along in this market performance continuum and expect most of our other markets to make progress to varying degrees as the year progresses.

In the first quarter, we reported blended rate growth of 1.5%, which mirrored the blended rate growth from the first quarter of last year on this same-store set and demonstrates a 130 basis point sequential improvement from the fourth quarter of 2025. This sequential improvement included a 260 basis point lift in new lease change and a 30 basis point improvement in the achieved renewal rate increases. Retention continues to be a key driver of our performance. Our centralized renewal strategy is performing well as evidenced by 61% of our residents renewing with a 4.7% achieved renewal rate increase, which was slightly better than what we expected.

Looking across our footprint, performance continues to vary by market, which was expected. The strength in key gateway markets like San Francisco and New York, which both exceeded our already high expectations for the quarter are offsetting a slower-than-expected start in Boston and Seattle. Together New York and San Francisco constitute about 30% of our NOI and have the best supply and demand outlooks in the country. Our urban exposure in these 2 markets is particularly unique to Equity Residential and should be a relative strength for us versus our peers this year.

San Francisco continues to be the best-performing market in our portfolio. The tremendous growth in AI is making San Francisco, particularly the downtown, the place to be. Despite a few headline grabbing layoff announcements, the market continues to have good job postings and strong office leasing activity. Looking at migration patterns, we are seeing more residents come to us from out of state and outside the MSA, which is a good sign for continued pricing power.

Concession use in the downtown submarket, where we derive 22% of our NOI here, is virtually nonexistent. The overall catalyst here is that strong demand is meeting a market that will deliver almost no new competitive supply in 2026. New York also continues to post excellent performance with demand outpacing supply and has almost no new competitive deliveries coming online in 2026. The large financial institutions continue to produce record profits and employment in the market is very stable. This sets us up for another year of strong results.

Boston started the year with challenging weather conditions and is also still feeling the impact in Cambridge around life science funding. Our overall outlook for Boston has moderated as a result, but this is a very seasonal market, and it's still early. Overall, we still think that the city will outperform the suburbs based on the location of the 2026 new deliveries. And while D.C. is performing in line with our modest expectations, pricing power is less than normal, although we expect that to improve as the year progresses given the dramatic decline in new deliveries.

With only 4,000 units being delivered this year, a decline of over 65%, the real question here is whether we will see any improvement in consumer confidence in this market. The current levels of uncertainty are clearly holding back the potential for this market. Any positive shift should allow us to recover from what has been a slower start to the year.

Heading back to the West Coast, Seattle is not experiencing the AI-driven demand boom that we're seeing in San Francisco and is currently trending below our expectations due to a slower start to the year. Historically, Seattle has followed cyclical trends from San Francisco, both good and bad, by about a year. And while it's still too early to call, given some of the headline risks regarding layoffs, we still see the potential for this market to tighten up.

Today, the market is still working to absorb the new deliveries from 2025. Concession use is down 22% in the quarter, but demand is still price sensitive, causing this market to lag normal seasonal improvements. On a positive note, we've seen some good traction in the Bellevue/Redmond submarket with recent office leasing activity announcements and having more residents during the quarter come to us from outside the MSA. Right now, rents are trending positive year-over-year and concession use is very limited in the Bellevue/Redmond submarket.

In Southern California, Los Angeles is performing in line with our tempered expectations. While the downtown is starting to feel a little better as the city prepares for the events like the World Cup and Olympics, continued uncertainty in the entertainment business is an overhang on the market, and we have still not yet seen any catalyst on the job front that will drive growth in the near term.

In our newer markets, we continue to see improving conditions in both Atlanta and Dallas with concession use coming down, which again is an early indicator that the overall market is improving. Atlanta is performing the best. And if the current trends continue, this market should deliver slightly positive same-store revenue growth for the year, which is better than what we thought 90 days ago.

Turning to Denver. We are seeing some strength in occupancy and initial signs that the market may have bottomed out. With a sizable decline in new starts, improving operating conditions and current competitive pressure easing, our newer markets, excluding Austin, Texas, all have the right setup for recovery through the balance of this year. On the innovation front, we're about 6 months into our full deployment of the AI-assisted application process, which includes screening. As I mentioned, delinquency from new residents is trending down, resulting in improvements in our bad debt net performance.

We're also continuing with the successful rollout of our bulk Internet program, and we'll have about 60% of the portfolio live by year-end. We believe that offering a superior connectivity at pricing that is better than our residents can get on their own is supportive of our goal of delivering a value-add customer experience. As we look ahead, our priorities remain unchanged. We are focused on driving disciplined pricing, reinforcing retention and maintaining tight control over expenses. As we head into our primary leasing season, the environment at a high level is stable and in many areas improving.

Portfolio-wide, occupancy remains at strong levels, so our focus naturally shifts from a reliance on occupancy gains to optimizing pricing. In the second quarter, we expect to see a sequential build in new lease change and strong stable performance in terms of retention and achieved renewal rate increases.

Overall, we are well positioned and we'll maintain our operational agility and strategic focus to deliver sustained value with the best operating platform and people in the industry that combine automation, centralization and a passion to deliver a seamless customer experience to our residents. At this time, I will turn the call over to the operator to begin the Q&A session.

[Operator Instructions]

We'll go first to Eric Wolfe with Citi.

I think last year in May, we started to see a few signs of an earlier peak in pricing. As you look forward 30 to 60 days, are you seeing anything that would suggest something similar to last year? Or does the seasonality at this point look more normal to you?

Eric, this is Michael. I think relative to last year, I look at this and say our setup was pretty good at this time last year as well, and we feel good about the positioning that we have. The strength that we see on the retention side of the business right now gives us a lot of confidence that heading through the spring into the peak that we're going to maintain this position that we have.

So I think what we have is a setup that is a little different than last year with the weakening that we really started to feel, I would say, more in the late second quarter or third quarter. We are heading into a place of unprecedented times with such low levels of new supply that I think if we can maintain this velocity and get over the peak leasing season, that back half of the year with the setup of such limited new competitive supply coming online really does position this portfolio well.

Makes sense. And then you mentioned that rent-to- incomes were at 19% now. Can you just remind me what the sort of lowest that has ever gone? And I don't know if you have an opinion about sort of why rent growth has become a bit more disconnected from wage growth than is typical?

Yes. I mean I think the ranges historically have always been somewhere between 17% to 23% across our markets. And I think at any given time, you've seen this portfolio be 19% to 20%. So it feels like we're kind of right in line with the norms. I think what we saw in this quarter is you just saw a place where incomes have grown and you can see kind of the demand coming in that just have some higher income levels against rents that are in line with kind of normal seasonality, but I think that increase in the incomes is what kind of caused us to tick down a little bit.

We'll go next to Steve Sakwa with Evercore ISI.

Michael, I don't know if I missed it, but did you talk about where renewals were going out for May and June? And I guess, what are you achieving on those versus sending out? And just remind us what your blended spread expectations are for the year?

Yes. So Steve, this is Michael. So right now, I would say the renewal quotes that are out there are really for the next kind of 3 months already at this point. And we're sitting somewhere just over 6% kind of with the quotes and kind of have a lot of confidence in our centralized renewal process. Our centralized renewal team handles all the negotiations. It allows us to kind of execute various strategies across markets and submarkets. This is the time of the year where we tighten up negotiations. So we got a pretty high degree of confidence that we're going to maintain and achieve renewal rate increase somewhere right around that 5% range kind of in the months to come.

So in terms of the blended rates right now, we're not changing our full year expectations. We had about a 1.5% to 3% kind of growth rate. And embedded in that was implied new lease change roughly flat, renewals somewhere around that 4.5% to 4.75% range. And right now, renewals are doing a little bit better than what we thought. New lease is a little bit lighter than what we thought. So we love the setup heading into the peak leasing season. We love the supply picture in the back half of the year. But at this point, it's still probably too early in the year for us to change that full year outlook for the blends.

Okay. And then maybe just on capital allocation for either Bret or Mark. There's obviously been a pretty big dislocation in the public markets versus private market. Have you guys thought about leaning even heavier into the disposition program and kind of taking advantage of kind of what the private market is offering, either to build up the balance sheet or kind of take advantage of buybacks?

Yes. Thanks, Steve. It's Mark. I'm going to start, and then Bob will kind of give you a feel for the disposition market. So we are open. We've done a fair amount of net disposition activity. You saw last year, $500 million. We took third, fourth and into the first quarter of this year to deploy those proceeds into the buyback. We're open to doing more buybacks.

We like the match of selling these lower growth assets. and buying the stock. So we're very open to that. It's just kind of comes and goes a little bit. So I'll let Bob talk about some of the assets that are embedded in the increased disposition guidance you saw and some of the other stuff we might expose to the market. And we are open to using the balance sheet, meaning using debt to buy stock back. But you just have to remember that's a very different decision because you're affecting the capital structure of the company, and you can only do that a certain number of times before, obviously, you've used that capacity up. So our preferred means is dispositions. But of course, we are aware that at 4.3x, we're relatively underlevered and have that opportunity as well. So Bob, do you want to...

Yes. Steve, it's Bob. And as Mark mentioned, we did introduce disposition guidance for the quarter for the first time. So we have $165 million. And these are assets that we're pretty confident that we're going to execute on, and that's why we introduced them into the mix. I think the critical thing that Mark already mentioned about what we're looking to sell are assets that are perhaps not best suited for our portfolio today, right?

So these are assets that have value-add components or growth components or concentration risk. So those do take a little longer typically to execute from a disposition standpoint because the buyer pool may not be as broad as just down the main fairway. That being said, interest is, I think the world has seen in multifamily in the private sector is very robust, and so we continue to see bidding tents that are very large. We continue to see interest in our asset class, and we continue to see a lot of private capital. So I think you'll continue to see us execute as we go.

We'll go next to Jana Galan with Bank of America.

Congrats on a great start to the year. And Michael, thank you for all the geographic detail. Can you comment on the magnitude of the decline in concession usage by markets? Just trying to figure out where we could start to see the new leases inflect sooner versus later.

Yes. I mean, really, the concession dollar amounts across most of the markets are down because this is a low volume of transactions in the first quarter as well. As we think about the concession use going forward, my guess is right now, we're going to see continued elevated cash concessions in the newer markets, along with kind of probably into the D.C. and maybe even Seattle markets for the second quarter.

So for us, when we modeled the concessions out, we still kept the concessions pretty heavy through the expansion markets for most of the year. As we turn the corner into the second half of the year, given the decline in supply, we expect concessions to materially decline, especially relative to the increases that we saw in the second half of last year. So I think the expectations right now on a full year for concessions, I would still model somewhere about 20% reduction relative to what we used in 2025.

In the second quarter, my guess is that the year-over-year reduction is probably going to be a little bit less than that because the cash concessions are probably going to stay about the same as what we just did in the first quarter. But then as we turn the corner into the second half of the year, we do expect them to be down considerably compared to last year. So concentrated, again, newer markets, a little bit in D.C. and Seattle. But outside of that, the majority of the markets are going to continue to see reductions.

Our next question comes from the line of John Kim with BMO Capital Markets.

Looking at your prior years, it looks like the April new leases tend to be fairly representative of what you end up in the second quarter. So I'm wondering if you feel that dynamic is going to occur again this year at minus 1.1%? Or do you think there's a chance it inflects positively?

John, it's Michael. No, look, I think you're going to continue to see a sequential build. Our net effective pricing is continuing to grow across this portfolio. So my guess is we should expect to see some continuation momentum of improving new lease change. I don't think it's going to be like materially different than what you can see we just posted, but I don't expect us to end the quarter at minus -- negative 1% for the quarter. My guess is you'll see each month sequentially build and put us closer to kind of flat.

Okay. And then New York, it's been several quarters where you've been saying it's been one of your stronger performing markets. Recently, there have been some high-end multifamily assets that have traded hands to another public REIT. So I'm just wondering, are those assets that you looked at? Is that -- is this a market where you would allocate more capital? Or are you still really focused on some of the expansion markets?

Yes. Thanks for that question, John. I'm going to just start about New York in general, and then I'm going to let Bob talk about the deal that -- stuff that traded in our interest or relative lack of interest. So we're about 14% allocated to New York Metro, mostly Brooklyn, Manhattan and a little bit of the Jersey Coast and one asset in suburban New York. Pretty unique portfolio. It's performing really well. We're benefiting from all the banks doing so well. We're benefiting from financing of the AI boom, all those things and some pretty limited supply in that market.

I feel like we're more kind of in a trading mindset in New York. 14% feels about right to us. So you may see us sell, you may see us buy. But by and large, 14% feels like a really good weighting and our urban portfolio feels like a uniquely positive thing for us compared to our peer group. And then, Bob, if you want to comment on what's sold?

Yes. We -- I would say that we underwrite everything, whether or not we look at something and bid on something is different, and we did not bid or look at these specifically, but we certainly underwrote them. One of the benefits of our Manhattan portfolio that's also kind of a nuanced approach is it's pretty straightforward and pretty simple in that we don't have a lot of 421a burnoff. We don't have an extensive amount of retail exposure. And so they're pretty straightforward, and that's one of the benefits that you see flowing through to the underlying NOI.

The assets that ended up trading were a little more complicated than our liking. So they had more retail components. They had more tax abatement burnoff components and just frankly, weren't of interest. So we didn't bid or look at them.

We'll go next to Haendel St. Juste with Mizuho.

Great to see the continued strength in San Francisco and New York. It seems like the slowdown, as you mentioned, D.C. and L.A. was in line with expectations; Boston, Seattle, a bit weaker. But I guess I'm curious, kind of beyond the next few months, New York and San Francisco clearly have momentum. What are you expecting for your coastal markets, the other group I mentioned, the L.A., Seattle, D.C., Boston, how do you expect them to trend over the next year? Which of those markets are you most excited about? It seems as though there's tougher comps in some cases, weaker demand drivers. So curious how you're -- what data you're looking at, which of those markets perhaps you're more encouraged about over the next 12, 18 months?

Yes. Haendel, it's Michael. Look, looking -- sitting here today, you have to focus on D.C. with such a tremendous drop-off in the supply. I mean it's 65% less new units coming online. That will equate to some level of pricing power in that market. So we didn't have -- we have pretty modest expectations for the full year. But I think as you fast forward and go out 12 to 18 months, that market with such little new competitive supply, such few starts actually in the market as well sets up for another strong year next year.

We need a little bit of confidence on the demand side of the equation for us to really see that thing take hold. Outside of that, I've said for L.A., we had muted expectations. I don't know that we've seen anything yet to suggest that we'll model differently for the balance of this year, and we'll kind of see where the entertainment industry is kind of closer to the end of the year before we talk about next year on those. The Boston and the Seattle markets right now, I think they're off to a slow start. Boston had a really horrific winter, cold, a lot of snow, kind of probably impacted a little bit the start that we're seeing. I like the setup in both of these markets, and I like the recovery potential of Seattle. The history has shown it follows San Francisco good or bad by about a year. So my guess is we'll start talking positively about Seattle sometime here this year or into the early part of next year.

That's great color. I appreciate that. On the -- perhaps on the Sunbelt or the expansion markets, I think you said and forgive me if I'm misquoting, that they have the right setup for recovery into next year. We know the supply is falling, but maybe some color on where you're seeing some improving demand, pricing power, where concessions are probably coming off the most. So maybe some color on that comment and which markets perhaps are standing out beyond maybe the Atlantas of the world?

Yes. So let me just clear, I can't speak about the Sunbelt. I can only talk about the few markets that we own and operate in those. So really, Atlanta, Dallas and Austin. Right now, we have 3 properties in Austin. We don't expect any material change in performance this year because there's still a lot of overhang of supply, and there's still some new supply being delivered this year.

Between Atlanta and Dallas, Atlanta really ticked up a lot for us this last quarter and is now kind of set up to potentially eke out some positive revenue growth this year, which is better than what we thought. So we have seen concessions pull back. We do see kind of good occupancy. We do have kind of that momentum right now heading into the peak that is outperforming what we're seeing in Dallas, but Dallas still sitting here today feels pretty good. It's got -- it's doing a little bit better than what we thought, but Atlanta feels like it's got more momentum right now.

We'll go next to Brad Heffern with RBC Capital Markets.

So the Bay Area continues to be very strong, and you talked about AI driving that. I think there's a lot of investor debate about whether this is going to be a multiyear trend or whether AI ultimately pushes employment the other way. Obviously, nobody knows, but I'm just curious to get your take on how sustainable you see the strength in the Bay Area being?

Yes, it's Mark. That's obviously a bit of a speculative question, and I know you probably feel that, too. To us, it feels like the AI boom and to be honest, the affordability boom in San Francisco is likely to continue. I mean rents downtown where we have a significant portfolio have just recently moved above rent levels just before COVID. So our resident can certainly reflect back on getting a 30% increase in nominal wages since 2019 and have their rent about flat.

So there is room to run there. We see all the office leasing activity, everything around AI. It isn't just the actual creators of AI. It's all the systems that sit on top of it. A lot of this employment is small groups of people building on top of AI systems, various helpful applications of sorts. So I think there's room to run here. I think this technology, there'll be ebbs and flows in valuation, things will happen. But I think there's a lot to come here, and I think the resident can afford it because I think their nominal wages have gone up quite considerably in the San Francisco area.

So this feels pretty persistent to us. And again, the ecosystem of great universities and all the venture capital money in the area and all that is also supportive of this continuing to be a kind of innovation center for everything AI and everything else technology related, which does seem to me to be the future even if there are kind of fits and starts.

Okay. I appreciate that. I know it's a difficult question. In the prepared remarks, you talked about residents coming to the Bay Area from outside the market. I was wondering if there are any stats or additional color you can give on that dynamic.

Yes. So I mean, every quarter, we're looking at where our new move-ins coming to us, what percent come from within the MSA. And then obviously, I've said over the last several years, right, for us to really start seeing sustained pricing power momentum, we'd like to see in some of these markets a bigger draw from outside the MSA, a bigger draw from outside of the state. And we saw that both in San Francisco and in Seattle, specific to the Bellevue/Redmond submarket. So they're not huge percentages. It's like 5% more move-ins, but it's the trend lines that we've seen in San Francisco now where we have multiple quarters of seeing kind of that pattern hold, which is really giving us that confidence that we're in a position of pricing power for the next several quarters.

Our next question comes from Alexander Goldfarb with Piper Sandler.

Mark, just following up on -- as you guys think about dispositions, the markets are certainly interesting, if you will. New York rebounded strong after the pandemic. San Francisco has been a dream case on the other side. You've got the contrast between Seattle and the East side, L.A. versus like Orange County and San Diego. So as you guys assess your portfolio and assets to sell, how are you making the decision which markets sort of may have deeper, longer challenges and therefore, it's worth really downsizing versus which are sort of like a New York or San Francisco, which is it's a moment in time and you just have to wait for the pendulum to come back. I'm just trying to think as you're assessing asset sales and buybacks, how you're thinking about the markets.

Yes. Great question. I'm going to take the market focus, and then maybe I'll have you, Bob, speak to asset challenges because some of these decisions, Alex, we like the market or submarket. But we just have an asset that maybe we don't believe in the capital story or the micro location. So again, just generally, our exposure pre-COVID to California was 45%. Now it's around 40%. Getting that number down over time, probably mostly with a reduction in Los Angeles is, I would say, more of a strategic goal of ours.

Right now, that's not a terribly saleable market, so we can wait that out a little bit. So that's a spot where we maybe have a little less conviction is Los Angeles. And that isn't just the regulation, of course, that's pervasive in California. It's just that employment stuff. And Bob talked about that on the last call and Michael has, too. It's the entertainment industry really feeling like there's been a paradigm shift away from Southern California and just not feeling like those employment drivers are what we thought they were when we made those investments initially. And a little bit of downtown Seattle. That, again, is an area that has some advantages and has been kind of recovering in fits and starts, but we do have a fair bit of exposure there and probably is another strategic reduction. Other than that, it's a little bit more tactical. And I guess I'll give it to Bob to talk about that.

Yes. I mean it really is an overall portfolio strategy approach and really taking an integrated approach to that at the asset level. So we integrate our capital planning with our disposition and acquisition kind of mindset. So we underwrite every single asset. I just actually went through this exercise with the team because if you're not selling, you're buying. And so we integrate that into our capital plans. We look at what the asset -- we make an assessment of what we think the asset performance is going to be going forward.

We compare that against our cost of capital, and we decide what can we do about that? What levers do we have? So in some instances, that can mean on a specific asset, we're going to invest that value-added renovation capital. We're doing $90 million of that this year. and we'll get a return that will compensate the shareholders. And in other cases, we see that, that's not an option. And so therefore, we look to sell that in the market when the market allows and redeploy that in something that's more accretive.

Okay. And then the second question is regarding the stock buybacks, you guys before have done developer equity programs where you fund a third-party deal, you get fees along the way, et cetera. How is that looking as an opportunity to put capital out, especially if you think about derisking the wholly owned development? How is that looking today versus just straight buying back your stock?

Yes. I want to draw a distinction. It's been pretty uncommon, Alex, for us to do any kind of investment in development where we don't have a clear path to ownership. Like all our deals, the 2 new ones we did, they do have partners in them. But I mean, we have the right and expect to own those assets. And so it have been pretty infrequent in my career here where we funded like some of our peers do, a program where it's just funding a development, but we don't have an expectation or a legal right to own it somewhere in the process. So I guess I'd say we don't do that sort of mezz lending or preferred equity or whatever you want to call it in development very much. When we do it, whatever the structure is, whether it's called debt or equity, it's intended for us to own the property and there's a path to ownership.

But I mean, as far as the path to ownership, how does that look versus buybacks as you judge the math of doing a third-party development deal where you're going to own it versus buying back your stock?

Yes. I think that's a great question. Let's use the 2 development deals we started this quarter as an example. Obviously, the stock has thankfully run up a little in the last few days, but we are comparing the stock and our acquisition opportunities and development all the time. So why don't you talk, Bob, about those?

Yes. And so I think what you're highlighting, Alex, is that like in the menu choice, I think the stock is obviously a really compelling choice. It's probably oftentimes the most compelling choice. The next decision or the next most compelling choice is probably the development side today. Now you got to risk adjust it, right, because the risk in the development is different than the risk in the stabilized portfolio implied in the stock price.

But like the 2 deals that we did that we announced or started this quarter, those deals generally on a current yield basis are closer, may not be exactly perfect with the implied cap rate of the stock. But then we're also looking at the IRR, right? And so we're looking at the IRR in the aggregate over time and comparing that to our WACC. And in the instance of the Atlanta deals, you're looking at delivering into -- in the one case, an asset that is in a very supply-constrained area that does exist even in Atlanta.

And you're looking -- when you look at reasonable rent growth, we can generate a nice spread on an IRR basis without kind of making too crazy of assumptions on rent growth or cap rate compression. We don't have any cap rate compression in our math, that is a premium to our WACC. And so I think you're hitting on a point which is that the development side is probably right now the best other alternative outside of stock because your third choice, which is acquisitions are really a tough one relative to what private capital is underwriting. We're seeing private capital underwrite deals still in that 4.75% to 5.25% kind of spot rate and then IRRs that are probably in the 7 handles, it's back.

I just want to add, Alex, because we don't primarily underwrite based on forward rent growth. We're looking at spot construction costs against spot rents. And when we looked at the deal that's in Canton, Georgia, which is north away from downtown and Alpharetta, which is more of a close-in suburb, our perspective was that based on the rents we see and the construction costs we see, the deal made sense on a risk-adjusted basis compared to the stock.

It's tough. It's still below the yield the stock was trading at, at the time. So we acknowledge that. But you also got to look for places to have some growth capital and put some money to work that you think can grow over time. And we just felt like the Alpharetta deal really underwrote extremely well on a basis level. We just saw a deal trade in that submarket at a 4.5% cap rate, and we're building to around a 6%. So it's a little bit of triangulation, but the primary dependent thing is how the current construction costs compare to current rents.

We'll go next to Julien Blouin with Goldman Sachs.

I guess as we think about the ramp in blends we saw from 1.5% in the first quarter of '26 to 3% in April, was that improvement relatively similar in the established and expansion markets? Or was it definitely stronger in established because of New York and San Francisco?

Julien, it's Michael. I think when I look at the quarter, I would tell you, on a sequential basis, almost all of the market showed around like a 200 basis point kind of improvement relative to the fourth quarter. I haven't really done that analysis for the April numbers. But I'm looking at it and just saying most of the markets have shown that kind of sequential improvement. Obviously, San Francisco and New York are more like 400, 500 basis point sequential improvement on the new lease side.

Renewals have been pretty consistent, where almost all of the markets were equal to slightly better outside of like a D.C. and Boston, which were marginally kind of lower on a sequential basis. So I look at that kind of growth to the April number and say it's kind of in line with what you would expect from a normal kind of pricing trend seasonal curve. And like I said earlier on the call, right now, given our positioning, given where the occupancy is, our pricing trend has continued momentum, right? We're going to continue to see that accelerate through the second quarter. That's going to drive continual kind of improvements in new lease change and a lot of consistency on the renewal part of the equation. So I don't know that I would kind of look at this across the different markets and say the momentum feels like materially different than my comments from prepared remarks about which markets are performing in line with normal seasonal trends and which ones aren't.

Yes. I think Julien, it's a difference between absolute numbers, which are certainly better in the established markets than they are in the newer markets for us. But I think what Michael is signaling to you is just the momentum or trend line in the case of the established markets is becoming very positive, and it's becoming less negative in these other markets, but the momentum track is the same, just the absolute numbers are still different, right?

Yes. Got it. That makes sense. And then maybe moving over to Seattle. Are there any forward indicators you're looking at in Seattle that would indicate that it could follow San Francisco? I mean, just so far, it seems like that market has a disproportionate amount of tech layoffs and sort of corporate roles without as much of the AI boost from company creation and job creation and the real-time rent data just continues to deteriorate in Seattle.

Yes. I mean -- this is Michael. I think, Julien, one of the positives that I guess I would point to is really the momentum that we see in Bellevue/Redmond. I mean if you look at some of the headlines around the office leasing activity, you see that kind of momentum kind of taking hold. You look at the migration patterns that I kind of mentioned earlier, where more folks are coming back into the market. Now some of that could be from the Microsoft return to office kind of policy change early in the first quarter that we saw.

But the setup feels right for that market to kind of show some of that momentum. And I think what we're feeling right now is we still have a little bit of overhang from the supply that was delivered in 2025 that we're working through in the city. We also saw a reduction of inbound migration from foreign countries. So typically, Seattle is one of those markets that has a higher concentration of move-ins from kind of outside the U.S., so call it 4%, 5% of our move-ins during that quarter. We're running like 50% of that mark. So I look at this stuff and say, kind of longer term, I see the setup and I can see this kind of the recovery indicators kind of taking hold. We probably just need a couple more quarters to get through for it to really kind of follow that trend that we're seeing in San Francisco.

We'll go next to John Pawlowski with Green Street.

Michael, I have a follow-up question on the new lease conversation. So you mentioned the expectation for the full year is flat to maybe slightly negative now for the portfolio. Can you give us a sense for the goalposts? What kind of range new lease growth rates will be for the best swath of the portfolio and the weakest?

Yes. I don't really have that in front of me, John, for the whole portfolio. I guess what I would look at and say the newer markets are going to continue to still have negative new lease change, right? As Mark just alluded to a second ago off of my comments, we are seeing momentum. We are seeing improvement, but the absolute numbers are still negative. And then you get into markets like San Francisco, right, where we're putting up kind of near 10% kind of change. So I think that's going to be a pretty wide spread when we end the year and looking at some of the newer markets as compared to like a San Francisco.

Okay. And then, Bob, second question about just the disposition pool that you have sold or you potentially brought to market and then pulled off the last 6 to 9 months. Really, the topic is perhaps widening cap rates for more CapEx-intensive, lower quality assets. So I guess, over the last, call it, 6 to 9 months, have you had to change the types of assets you're actually selling? Has there been more retrading when you bring properties to market and you're not getting the bid? Is there more churn in the kind of the disposition pipeline to still hit a reasonable cap rate on the dispos?

Yes. I wouldn't say that there's any more churn than what we expected or certainly anything different than kind of what we saw last fall versus what we're seeing today. some of these assets that we're taking to market are unique and they have different opportunities. So those opportunities may not -- like we didn't expect 20 people to show up under the tents, and we didn't get 20 people showing up under the tent because they have kind of the capital components or the value-add components or they may have retail, they may have ground leases or other things.

So -- but I don't feel a difference in sentiment like 6 months ago relative to what we sit here today. Certainly, I think what has been consistent is that the smaller the size of the deal, meaning if it's in that $75 million to $150 million range, you get a lot more people showing up, right? If you have a deal that is individually $150 million or more, it just gets smaller, right? I think that's just -- that hasn't changed. But it feels the same -- again, I haven't been doing this for that long, but it feels the same to me as this -- right now, this spring as it has last fall.

And I might add, John, too, I think from a capital standpoint, right, I think the secured debt markets are still very supportive of these types of transactions in multifamily. There's lots of capital available. So certainly no change from that end.

Yes. Okay. So you haven't got the sense that pricing, like market pricing really hasn't deteriorated at all for maybe larger CapEx-intensive, older properties?

I think that 6 or 8 months ago, I think larger CapEx-intensive assets were very hard to sell, and I think they continue to be hard to sell today.

We'll go next to Nicholas Yulico with Scotiabank.

I know you guys got rid of the blended and new lease pricing by market, which I was sorry to see you go. But I wanted to see if you could maybe just give some commentary on Southern California, how that's trending year-to-date on new and renewal leasing versus last year, if you're seeing any improvement there?

Nick, this is Michael. So relative to Southern California for the first quarter, we're still seeing kind of negative new lease change, and it's kind of most pronounced, I would say, in Los Angeles. And again, very consistent performance on the renewals. So I think for us, the [ SoCal ] portfolio continues to be the story around the Los Angeles kind of market. And sitting here today, right, I've got stable occupancy. I've got a pricing trend curve. It's flat year-over-year. I've got less concessions right now in downtown and Korea Town, where we had some of that supply kind of pressure last year.

So blends are starting to show some kind of positive momentum here, but it's less than what you normally would have expected. And I think last year, we started to feel some more of this pressure kind of more second quarter, third and fourth quarter. So relative to the first quarter, clearly, we see still some softening [ SoCal ] compared to last year. But as we work our way through the balance of the year, we just expect kind of moderate performance this year out of L.A. We're not really seeing anything that's going to point to kind of robust recovery in pricing power.

Okay. And then second question is, Mark, if we look at the multifamily sector, there's kind of a clustering of valuation for the stocks that are in your peer group. What I'm wondering is are you thinking about -- and I know you have -- there is a differentiated strategy here that maybe people don't sort of pay attention to. But are you and the Board -- are there conversations to sort of go even more in terms of differentiation and strategy, whether it's investments, platform, sort of how you're managing the balance sheet that you guys are sort of focused on to sort of differentiate yourself versus the peer group?

Yes. Thanks for that question. We are -- the Board and the management team is always engaged on strategy. It's a topic in every meeting. It's a topic between meetings. I think real estate expert investors, of which there used to be more than there are now understood the differences between the big 6 or 7 apartment companies. I mean we do have a different strategy. We're more urban focused. We're less development focused. We're more operationally focused on our kind of excellence and investment in our operations.

So I think people that are experts in the area know the difference between us and others. I think the generalist investors and of course, the index funds don't. And I think it's a little bit hard to know how you can break through that, except, I don't know, by some really more dramatic step. But I do think dedicated investors know the difference between us and our peers. And I think more generalist investors probably don't.

Our next question comes from the line of Jamie Feldman with Wells Fargo.

Great. I guess here's an opportunity to talk about your operations. So we haven't really talked about the expense side of things. Can you talk about a couple of things here. Number one, the insurance renewal that I think was in March, how that played out and how that looks versus your guidance? And then just energy costs, is there anything that's changed your outlook on the expense side given where energy costs are going? Or is there anything you're doing to mitigate expenses? Maybe just talk through that or if there's any other expense line items that are meaningfully different than your initial outlook or that you want people to focus on, on how you're managing them?

Yes. Thanks for the question. So I'd say maybe to start with the insurance, you're right. We did see actually had our property insurance premiums, they have come down, which we actually viewed as an opportunity to buy some additional coverage. So I think that hedges us against kind of what we've been seeing in annual casualty loss expenses over the last few years. And so I think while property premiums were coming down, we also have seen the offset being general liability premiums have increased as well as some of the general liability expenses that run through our same-store ops.

So I think putting that all together, the 4.5% quarter-over-quarter increase we had in the first quarter, that's not unexpected, but -- and was anticipated in our guidance. As far as energy, I would say utilities were up a little bit higher than we probably thought for the year, a little bit. A lot of that results, I think, from, one, the number of storms we had early in the year in the Northeast in particular. Obviously, there's a lot of noise in energy costs just generally across the board and electricity and gas were certainly impacted for us in the quarter.

We tend to hedge as much as we can. So there's only a small amount that we can hedge in the market. But to the extent we can, we are hedging energy prices. But I'd also say the flip side of higher utility costs being up is on the revenue side, we were able to have higher fees. And you noticed our other income was up about 60 basis points contribution in the quarter. So that offset a little bit of higher increases in expenses.

Sorry, the one thing I was going to add, Jamie, is on the capital side. So we have a number of capital -- sustainability-driven capital projects focused on reducing consumption because that's really the lever that you can manage the best, right, because it's macroeconomic drivers will drive the utility costs. We have a number of projects underway. But to be honest with you, the rise in prices has also led us to re-underwrite other projects that may not have otherwise hurdled in terms of what our capital returns would have been, but now do. And so we have looked at -- we did a big exercise at looking at accelerating those to manage that both for our own P&L, but also for our residents overall. So we're applying the operational excellence that you've seen in Michael's world just across the platform in order to keep those costs down as much as we can.

Yes. And Jamie, this is Michael. The only thing I would add there is we do have an energy conservation checklist. So our on-site teams have done a tremendous job every day showing up, going through that checklist and looking for areas of opportunity to reduce the overall consumption. We measure the consumption. We kind of share and highlight and spotlight where we're seeing those successes. And it doesn't take much, right? That little bit of focus of turning down the temperatures in the hallways or common areas by 1 or 2 degrees starts to show up in some of the bills. It has a lag effect. But clearly, we have the right mindset in place to mitigate as much of the consumption risk as we can.

And then we noticed your leasing and advertising is up pretty meaningfully year-over-year. I think it's over 20% higher use of interactive marketing. Can you just talk about something -- is there anything changing on the AI side? Are you using more resources to optimize your appearance in AI searches? Is there anything to read into that data? And if there is, what are the -- how is it going?

Yes, maybe I'll start.

Sure. I'll start, Jamie, but just on the cost side. I'd say it's nothing that we didn't expect. I mean, as Michael has talked about, we've got some of our technology innovations that are rolling through that. I would also say, specifically to that line item in the quarter, we did have an outsized increase from a write-off of a broker commission we took in the first quarter related to our non-resi portfolio. So when a tenant vacates early, we write off the full amount remaining on the amortized brokerage fees, which we did at 3 retail properties in the quarter. So that was contributing a little bit to the higher number. But otherwise, it was kind of in line with what we were thinking.

Yes. And then I think just specific to AI, I mean, I do think the industry is changing very quickly and the way that consumers or prospects are finding people by leveraging some of the LLM models that are out there, is going to change kind of the ILS environment. Our team is very focused right now on trying to figure out ways to become relevant in that kind of search optimization. Haven't really seen anything take hold and clearly not a driver to the expense that Bret just alluded to, but it's something that the team is very focused on. And we do think over time is actually going to reduce kind of the dependency and overall reduce the L&A expense.

Okay. Do you think it can become a strategic advantage? Or does it level the playing field?

No, I think there's absolutely ways to become more relevant in that environment. And I think the folks that are focused on it and put the right resources to it will have a strategic advantage.

We'll go next to Michael Goldsmith with UBS.

This is Ami on with Michael. I was curious, how much of an impact does burning off of concessions have on your blended rent spreads? So are your blended rent spreads artificially boosted by concession burnoff?

They were always reported on the same basis. So they're always net. So they don't -- it's Mark. They don't change. It's not like 1 quarter we reported it with concessions and the next quarter without. So obviously, getting rid of concessions is the beginning of that continuum of improvement, right? You get occupancy, you get confident, you take concessions away, then you move up base rents and that it finally leaks through the rents or to same-store revenue. So I guess I'd say it's on the continuum. But because we didn't change the basis of calculation, I don't see how that could be true.

Okay. So not a material impact. And then I guess just to touch on the [indiscernible] that you're monitoring. We know Massachusetts is up. Are there any others that you're monitoring closely?

Well, Massachusetts is the area of primary focus for us. It's likely to go to the voters, and I think the industry is mobilized just like it was in California to make the same arguments about the industry being more useful creating supply and that this rent control activity is a disincentive. There are a couple of deals we were looking at in Massachusetts to start building that we stopped. And I'll tell you that the 2 deals we are almost done building right now, we might have thought about them differently as well.

So it's a very negative proposal for housing supply and long-term affordability. There is a measure in D.C. we're watching closely as well that would freeze rents for 2 years. A lot of our D.C. portfolio is already rent controlled. So it's a little bit of a different and less meaningful impact directly on us. But again, it's a hard place to do business. The market already knows about this. It's already harder to sell assets in the District of Columbia. So again, I guess the theme I'd give you is capital is sensitive to regulation. And when you do this and deny returns, you're going to have less investment and worst affordability. And I think a lot of smart policymakers like Governor Healey in Massachusetts already know that. So we're going to be hopeful, but Massachusetts is the main show this year.

We'll take our next question from Adam Kramer with Morgan Stanley.

Maybe a little bit more of a philosophical question. But just with turnover rates sort of as low as they are and even with all of the supply that we've had in the last few years seeming to stay really low, wondering sort of how you view that, right? I sort of recognize that from a same-store NOI perspective, the benefit from reduced R&M costs. But just from a sort of renewals versus new lease growth perspective, wondering sort of how you see the sort of lack of mobility sort of within the housing ecosystem currently sort of benefit on the renewal, but maybe hurts you a little bit on the new lease side? Or am I thinking about it incorrectly there?

Adam, it's Mark. I'm going to try to answer. We've been reading articles, various bank research shops about less labor mobility, and that's been a trend in the U.S., people are moving less frequently. Interestingly, it does look like Gen Z, not surprisingly, younger people move more often and that higher wage folks move more often. That describes our demographic pretty well. I think for the country overall, growth is benefited by people moving to where the jobs are. So I think less labor mobility, less geographic mobility is less positive for the U.S. growth rate overall.

But our group of folks will move around the country at their age to find opportunity and maybe aren't quite as tied down as older generations are by family or other considerations. So I think overall, less geographic mobility is bad for the country. But I think for our demographic, we just haven't seen it. And you heard Michael talk about San Francisco, we see the influx. And we -- at our Investor Day last year, we talked about New York, which has lost people for a while and -- but yet Manhattan is doing great for our demographic, and you see that in our occupancy numbers. So I think there's a big overall theme of it being a little bit of a negative. But for us, it's generally been either neutral or a bit of a positive because our demographic is more mobile still.

That's great color. And then maybe just a little bit of a different question. Just wondering about sort of the Sunbelt's recovery. So a little bit of a crystal ball question. I know it's difficult. But I guess when you sort of sit here, look at sort of what the supply forecast is for the Sunbelt for your expansion markets, sort of how are you thinking about sort of the pace of recovery there? Does new lease growth, could it get positive later this year? Is that more of a 2027 story? I recognize there's nuance by market as well, Austin probably being the softest fundamentals. But just yes, wondering sort of recovery in the Sunbelt and sort of latest thoughts on timing there.

Yes. It's Mark again. And if there's something Michael wants to add, he can jump in here. But I think we need to see concessions go down. That's what we are seeing, in fact, in Atlanta and just occupancy firming and concessions, and that will be the indicator that rents will recover. The setup in all those markets, our markets, which again are just Dallas, Denver, and Atlanta with Austin a laggard, those all have decent forward setups. We just need more job growth there than anywhere else because we have more supply there than anywhere else.

So I think they are more sensitive to jobs, and we've said that a few times. I don't know how many jobs you need in a market like D.C., new jobs where there's just going to be so much less supply. So I think those are higher beta markets, and they do have upside. And I think in some -- maybe a year or so, we'll be talking about that second derivative really inflecting up in those markets more than at this point. But what we really see is a bit of a slow recovery with Atlanta in the pole position for us and Austin at the rear.

We'll go next to Omotayo Okusanya with Deutsche Bank.

The other income line item this quarter, kind of some strong results coming out of that. Just curious if that's just really being driven more by just expense reimbursement because you have higher occupancy, whether there's kind of other ancillary income sources there that are more sustainable, if there's anything onetime in there? Just kind of curious about that line item and kind of what we can expect from it going forward?

Yes, sure. This is Bret. I said -- as I mentioned earlier, I think we saw, as you noted, the higher [ RUBS ] the income a little bit. We obviously -- bad debt was better this quarter by 10 basis points. And then the last thing I'd say is we did see some positive trends in storage and some of the on-site ancillary charges that we've been generating we're working on as long as -- as well as the continued rollout of the bulk WiFi program from last year.

This concludes the question-and-answer portion of today's call. I would like to turn the call over to Mark Parrell for any additional or closing comments.

Thank you all for your time today and for your interest in Equity Residential.

This concludes today's call. Thank you for your participation.

Welcome to Citi's 2026 Global Property CEO Conference. I'm Nick Joseph here with Eric Wolfe with Citi Research. Pleased to have with us Equity Residential, CEO, Mark Parrell, and joined by his management team as well. This session is for Citi clients only.

Disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand and go to liveqa.com and enter code GPC 26 to submit any questions. Mark, we'll turn it over to you to make any opening remarks, tell the audience the top reason that investors should buy your stock today, and then we'll get into Q&A.

Excellent. Thanks for having us on, Nick and Eric. We appreciate it. Just a note, we did publish a management deck on Friday. Have a good operating update. I'm sure we'll have questions on that, Pages 7 through 11 of that deck. that we published. So just talking about the stock and the themes that we think are relevant at the moment and a note on our operations.

Our guidance kind of assumes normal up and down seasonality for the year. There's no hockey stick. There's no big up at the end of the year for some job picture improvement. But we do see the decline in supply as a positive thing and do feel like sentiment on the stock and in the industry will be better towards the end of the year than it certainly is now.

And the forward setup on supply is outstanding. We feel like we are better positioned than our peers to drive cash to the bottom line. We're the only large apartment peer where our FFO growth number is larger than our same-store NOI growth number. We don't have a lot of intervening activities, whether it's overhead, nonaccretive development activities, preferred or mezz stock programs that are winding down or just a very efficient operating platform that we think compounds cash flow growth for you guys year in and year out. We've also have a lot of flexibility.

So we're able -- because we don't have all these other things and distractions pulling at our capital, we've been very active in repurchasing our stock. Just since the earnings call a month ago, we bought another $200 million of our stock. So the company has repurchased a total of $500 million of its stock since September using excess disposition proceeds from slower growth assets.

So we think we also improved our forward growth ability. And we think our portfolio is levered to the right kind of resident in this climate. We do think places like San Francisco and New York, which together are 30% of our portfolio and are running very well. Those are very well operating markets for us right now, good supply-demand balance. A also places that have the right kind of intellectual capital as we talk about AI. Those are folks that we think will be less susceptible to disruption.

And finally, we see our urban exposure as uniquely positive. So we have more urban exposure than our competitors in places like Manhattan and San Francisco, very little supply against that urban exposure and really good demand. And with that, I'll turn it back to you all for Q&A.

Great. So thank you for the update. You mentioned that you've been a buyer of your stock in size. We've been looking at the name for a long time and been through a number of periods, whether it's COVID, European debt crisis. the GFC. This time around, I think the concern is really more of a sort of structural technology concern around job growth and potentially what AI means for that.

So I guess my first question is really, you've been a buyer in size. How and why are you comfortable doing that given the uncertainty of the environment right now?

Well, it's particularly easy, we think, Eric, to do that when you're selling these lower growth assets and just sort of arbitraging the private and public markets. So we've sold the assets towards pardon me, at the end of last year.

We sold $400 million on December 30 of these slower growth assets, a Hoboken asset just about to go under rent control, a downtown L.A. asset, a downtown Seattle asset where we're overexposed or had capital issues with the properties, turn around and buy our stock, I felt like an easy decision for us as a Board and as a management team.

So I think the bigger decision will be leaning in with debt. So if you start using your debt capacity, you're making a different kind of call about your capital structure, and we haven't done that yet.

And you mentioned that you were levered to the right sort of type of tenants. Maybe talk about that for a second, about the ability of your tenant base to sort of absorb further increases going forward as supply comes down.

And then I know that you don't have like a bunch of like student housing or just right after sort of entry-level housing for recent college grads. But I guess to what extent do you think that sort of unemployment among some of those younger cohorts, those that are having difficulty finding jobs out of college is impacting your results?

Well, maybe I'll just start with just kind of rent-to-income ratios or how we think about kind of the financial health of our resident base. So really, what we've seen not only in the fourth quarter of last year, but even in the beginning of 2026 here is the financial health of our resident base remains very strong. Rent-to-income ratios are just under 20% for those residents moving in. We see no signs of distress right now. People aren't coming into the office, turning in their keys. They're not asking to transfer mid lease to a lower-priced smaller unit. We don't see any change in delinquency.

So for us, we see a confidence that clearly has some ambiguity going forward with job security and things like that, that tends to have them bunker down, not make a lot of life decisions. But we feel very promising around just that rent-to-income ratio that as the year progresses and as the pressure from competitive supply kind of wanes in many of our markets that they will be able to absorb kind of nominal rent increases upon renewal.

And can I add just one other theme because you kind of implied that, Eric, just why do we feel good about the stock, given all the cycles the industry has been through, and it's really the stocks have all been kicked around ours and our peers. The supply picture is certainly uniquely positive and certain, right? We know what those numbers are. We know they're going down significantly, and that's helpful to us. We also know the country is structurally underhoused.

We're 96.6% occupied at a relatively quiet time of the year. It won't take a lot of good news for us to put up better numbers than the midpoint of our guidance. I'd also tell you, we are a stock, we feel like that has very little obsolescence risk. So there are things that AI may change the way we all conduct our lives, but people will still need a place to live, and we provide that.

And because we're diverse enough, we're not all Sunbelt, we're not all coastal, we're not all suburban or a little bit of both. We think having that balanced portfolio, we were made for this moment. We were made to have this balanced portfolio that isn't subject to any one risk and that we can just consistently compound cash flow on top of an efficient operating platform.

So that was the vision we started in 2018 when we did the diversification play. And to be honest, we didn't plan on any of these things happening. But our numbers in the peer group look really good, even though they're not on an absolute basis as high as we'd like.

And correct me if I'm wrong, but it seems like tenants that are moving in today are perhaps price sensitive, shopping around. There's some options on the supply side. But then your existing tenant base, those that have already moved in, they're renewing at a record rate, sometimes at above market rates. I guess what explains that dichotomy? And at what point do you think you can get to sort of that sort of new tenant moving in or market rates, however you want to define it, start seeing more meaningful upward sort of movement?

Well, I think I would start and it starts with just an excellent customer service operating platform. So that drives a lot of the strong retention that we've seen. The other thing I would say is looking back into 2025, when consumer sentiment kind of starts to weaken or confidence weakens, the resident base tends to bunker down. They just don't make a lot of life changes decisions, and that actually improves kind of the overall turnover or reduces the turnover in the portfolio.

And in terms of like that spread and what we're seeing and kind of how that plays out. So as the year progresses and you see less and less competitive new supply, the options for existing residents to move and go get an attractive concession or deal in that marketplace is starting to become less and less.

So my guess is what you're going to see is some improved performance in the retention side of the equation just because there's just less optionality for those residents. And ultimately, as we start seeing less and less competitive pressure, less concessions in the marketplace, that probably drives kind of that net effective prices to be more in line with a normal rent seasonality curve, which compared to 2025 would equate to more pricing power in '26 versus what we had in '25.

And I think you all published one of the more sort of helpful charts in terms of your pricing trend. I know it's early in the year. But can you maybe walk us through sort of what you've seen thus far, sort of why you're confident right now that you're following a sort of normal seasonal trend?

Yes. So you're referring to Page 11 in the management presentation that we posted on Friday. And basically, this is just a normal typical rent seasonality curve is a dotted line that we show how rents are going to trend from the beginning of the year through the peak leasing season and ultimately decelerating through the third and fourth quarter of the year.

So right now, we have a line in there that shows our net effective pricing from the beginning of the year to basically last week, and it's kind of right in line with what you would typically expect rents to be doing, which is sequentially week after week, we're putting through increases as we prepare the portfolio for the spring and peak leasing season. So when we're 96.6% occupied, we have confidence to kind of keep our foot on that gas and keep pressure testing that rate.

We're also coming up against a period where in many of the markets we operate in, we do see less pressure from supply. So we do start to see more pricing power. And I could use an example like San Francisco right now, where we were using a lot of concessions this time last year, and we have 0 concessions in the marketplace today. So every market is going to have a little bit of a nuance or a little bit of a story to it.

But in our minds and what we're seeing so far year-to-date, the portfolio is positioned well from an occupancy standpoint. We're not seeing any signs of distress from our resident base. We continue to see strong retention, good renewal conversations for even the renewals that are out in the marketplace for the next 3 months. So that tells us that we should expect a normal kind of rent seasonality trend.

Can we just follow up on that last part? So where are renewals going out? I think as part of your -- again, correct me if I'm wrong, but part of your revenue management system, you sort of have a projection of your lease exposure and where sort of occupancy might go based on sort of current retention. Can you just talk about sort of what those forward indicators are telling you and where renewals are going out today?

Sure. And actually, we put a page in the book, I think it was Page 46 in the management presentation because that is a proprietary kind of pricing engine that we created that handles about 60% of our transactions, which are the renewals. So this system generates kind of the quotes that go out. It also -- we have a centralized renewal team.

It modifies and put screens in front of those individuals on how to negotiate kind of based on market conditions that they see real time. So today, our quotes in the marketplace are somewhere around a net effective 6% increase -- and we have a high degree of confidence for the next kind of 90 days, which is where those quotes are out there that we'll achieve about a 4.5%.

So net -- so the kind of 150 basis points of similar, I think, what you discussed before in terms of negotiation after. And you mentioned the proprietary revenue system. I think we have some questions we'll ask on AI in a moment.

But I was just curious, how much has that sort of system changed over the last couple of years? And as you think going forward, whether it's incorporating AI or other advancements in it, like do you see that system sort of materially changing going forward?

Well, I think in terms of technology in general, I think the technology is advancing very quickly out there and the opportunities to layer in AI into the day-to-day operations it's really exciting. I mean we're creating a foundation of operating efficiency that the industry has not seen before. I was just in D.C. last week.

We're deploying a new AI-enabled CRM and service application that we have a high degree of confidence will create the operating efficiency and deliver a more seamless customer experience to our resident base. So I think as we think about technology going forward, we are going to focus and we're going to build the things that can help us differentiate.

So like the example I used on renewal pricing, our website, things like that, that we can truly differentiate. But when it comes to layering in the AI kind of components into applications, there are some great products in the marketplace, and these companies have teams of people that wake up and just think about that one part of the business.

It's hard for us to build something and keep up and compete with that. So we're just -- we're really excited about these opportunities that we see in the marketplace to license software and build our own expertise in-house to go differentiate on pockets of how we run the business.

And I just want to clarify, being a big platform really helps. We don't use and have never used really outside information. But even in Atlanta, we have 5,000, 6,000 units. When you have that kind, you can see one property's rents moving one direction, another property.

You can use that to price your 1 bedrooms, your 2s because that's another way pricing has changed. It's become much more inward looking. And so people are developing their own systems, looking at their own properties, having big portfolios in all our markets, but Austin is very helpful in that endeavor because we've never really relied on other people's pricing, and we do so even less now.

That's helpful. As you think about that AI deployment, where else are you seeing the efficiencies, maybe either on the expense side or using it towards capital allocation, just more broadly across the organization beyond kind of what you just touched on, on the revenue management.

I think it's clearly going into the buy [indiscernible].

Yes.

I think it's permeating kind of throughout the organization in all the areas that you outlined. So I think early -- our early adoption was largely focused on some of the leasing activities and prospect activities, et cetera.

But now you're seeing that increasingly in both capital allocation and underwriting, analysis in location and market selection in all those areas, and you're also seeing it in the back office, right? So you're seeing that impact line items like property management and G&A as well. So we have a pretty robust approach overall and try to identify use cases and what the value proposition is and target those use cases against the value proposition. But I think as probably everyone in this room is experiencing, there is use cases and impacts across organizations.

And Mark, I think over the history of EQR, you've been thoughtful of exiting different markets, moving into different markets based off of where your customers are and where you think they're going. AI is obviously impacting sentiment and the economy broadly.

How does that inform or how do you think through maybe either new markets or lightening up on markets based off of the potential ramifications of AI on white-collar job and the economy broadly?

That's a great question. And I want to admit to a great deal of modesty about what the answer really is, Nick, at the end. But I will talk about a little thought experiment that we've been doing here as a management team.

So we do have exposure. We have properties in and around Frisco, Texas, which is a North Dallas suburb. One of the big insurance companies has a big service center there, thousands of employees, they process claims, okay?

So what's the AI impact on that employment, okay? So we think on that. And we compare that to our very significant exposure in San Francisco, where you're tied in with a higher earner knowledge worker who may be working at OpenAI or may be working at all the things that sit on top of those LLMs and try to create products, as Michael discussed a minute ago.

And we've tried to think which of those in our experience would be more susceptible to disruption. And I guess our really preliminary, I'll call it, hypothesis at this point is San Francisco and New York, where you have these very high-end knowledge workers and high housing prices, so they stay renters longer. feels better to me. It feels like those folks have changed. If you think about the GFC pre-New York financial services was a much higher percentage of total employment than it is now and people morphed and spread and did other things and total employment is higher.

San Francisco in my career has been through Internet 1.0 bus, the social media, but -- I mean, been through and it reinvents itself, and it's doing it again with AI.

I don't imply that Frisco is not going to have employment. Dallas is a giant metro and people -- Americans are very good at figuring out how to make money. But I do worry about some of those jobs and the speednick of the disruption. If it happens quickly, it could be more problematic.

It happens over time. And my bet is it happens slowly. That it isn't the tools that are the problem, it's rolling those tools out, getting your employees and your customers to use them.

And inside our company, the big spend has been, for example, on technology, but also change management people in HR because we need to teach our teams how to think differently. We all need to think differently.

So my instinct is it will happen slower than we think than it feels than the top shops would have us believe. But I think the places with very high-end knowledge workers are probably less exposed and are used to transforming themselves to the next big thing.

Is it impacting your hiring at all? How you think about hiring?

Well, we have more -- our IT department is slowly taking over our office. So I would say that's part of it. But yes, there are reductions across -- I mean, Michael, your headcount reductions in property management. Why don't you talk about those for a minute.

Yes. So I think the first wave of innovation that we introduced through the company in the last 4 years or so was about a 20% headcount reduction. I think layering in this next tranche of AI-enabled, we'll probably see another 10% to 15% reduction, and that's not just on site.

That includes some of the centralization processes that we put in place as well. But I'll tell you, the folks that are in the AI and engineers that may be losing their job, we'll hire them because that's the group that we're trying to build out, right?

That's the expertise that as an industry, we have had a challenge for the last 5 years of attracting that kind of talent. And now what you see is this opportunity to build the use cases, like Bob said, build out kind of high-performing data and analytics team, and that's exciting to some of those individuals. So I think we see it as an opportunity for us as well.

And maybe we could just use an example. Maybe, Bob, you could talk about Block, our exposure to them and then what happened a couple of years ago when all the tech firms shrunk.

Post COVID?

Yes. So obviously, there's been a large narrative around block and the announcement on block and a lot of discussion about whether or not that's truly AI related or frankly, just some overhiring, et cetera.

Our portfolio exposure is very minimal, as you might expect. So we have like 19 residents that are employed at block. To the best of our knowledge, they may still be employed at Block. We don't know necessarily if they are or not. But it's pretty dispersed as well. It was actually dispersed across 6 MSAs. And so I think it's difficult to make a single threaded narrative around whether it's AI that's disintermediating or just adjustments like we saw and Mark alluded to in 2022. So in 2022, we saw significant amounts of kind of post-pandemic hiring or kind of during the pandemic hiring by the tech space.

And you saw a lot of job creation and then an adjustment, a rightsizing, right? And that certainly may have impacted like top-of-funnel demand in certain markets. But overall, we continue to go execute through.

And as Michael alluded to earlier, as we sit here today, San Francisco is probably our strongest market where we see the best pricing power that we've seen in a number of years. So I think it's a multivariable equation with a number of puts and takes when we think about what the workforce can look like going forward.

So nothing -- I mean, San Francisco is at the center of this really debate, right? So nothing within San Francisco that you've seen thus far would say that a certain percentage of your tenants are being displaced at least at this moment.

Because I think the fear is that it's a digital profession, might be a little bit easier to transition, especially since they're at the front end of technology, but you're not seeing anything like that.

I think it's actually the opposite for us that even the folks that are losing their jobs and what we don't see with some of the kind of public job data is what's really happening in the ecosystem of San Francisco, which is the 6- and 10-person company that's being created on top of using these large language models that are developing the next round of products and services to come approach companies like us saying they got the next best solution. So we see a lot of activity right now that people that are still in migration into the market. There's definitely a buzz still. And I think even though we're seeing some of the headlines, we're just not seeing anything in terms of resident kind of distress or turning in keys, we actually see more of the frenzy still taking place.

And then moving beyond San Francisco, I think internally, you guys might have a bet going on which markets outperform or underperform. Sort of curious who's winning that bet thus far if there are certain markets that are exhibiting a little bit more strength versus lower, better demand versus [indiscernible].

I don't know if we have an internal.

I don't like to bet against the guy who's got the best information. So I don't bet against.

Look, I think sitting here today, I would tell you that the 2 markets that have the most pronounced rent seasonality, which is for us, Boston and Seattle, are trending a little bit behind what I would say is a normal rent seasonality curve. Now to be fair, Boston for the last month has been pounded on with snow and cold weather.

So I want to see how does this market react in the next couple of weeks. I told me it's going to be 60 degrees, and we'll see if there's kind of this pent-up demand coming. It's a very early time in the year right now. We don't write a lot of leases. We don't have a lot of leases expiring.

So -- but those 2 markets right now, if I was just putting into my beginning of the year expectation, how I would think they would trend are both kind of a little bit lagging. And Seattle, I would say it's got pockets of strength. pockets of weakness.

It's a market that tends to move very quickly. It's also a market that we've seen in previous cycles tends to kind of lag San Francisco about 1 to 12 to 18 months behind, good or bad. So I think what we're seeing right now is the setup feels right for Seattle. It just hasn't kind of taken hold like we would have expected it to so far. And in Boston, I think weather is playing into this a little bit.

No change in the expectation for us in Boston that the urban is going to outperform suburban. We just have so much little supply coming at us in the city of Boston that I think we're going to have a little bit more pricing power. Outside of that, the rest of these markets are just kind of trending right where you thought they would be trending.

And if we use sort of D.C. as like a case study for maybe a market that underperformed in the back half of the year, sort of a little bit lower demand profile, more uncertainty in that market. I guess, how long do you think it takes to sort of work through not really the demand side, but whatever sort of leftover supply there is there, meaning that this is a market that where supply is coming down by 60% year-over-year, but you're probably still dealing with some lease-ups there and that sort of lower demand profile. So how quickly can you sort of move through that and then start seeing a bit more strength on the other side of it when supply comes down?

Yes. And I was just in the market last week. And again, that market, depending on where you are, Northern Virginia feels better than the district, better than the upper Northwest corridor. I think we're probably looking somewhere into this back half of this year where it's like very obvious that there is just a significant drop-off in competitive pressure, very obvious that concession start to kind of lower in the marketplace.

But my guess is we still got 6 months of an overhang. And a lot of this is going to depend too on how strong the spring leasing season, how strong the initial peak leasing season is in the demand side of the equation to aid some of the absorption of the units that were delivered last year. But I think with 62% drop off, I mean, we're going from a market that's delivered 12,000 units a year for the last decade to like 4,000 units. They haven't delivered that few of units probably in 2 decades. So I think it's inevitable unless you tell me demand is dropping off that more pricing power is returning to that market.

And then maybe in terms of turnover, one fear that I get sometimes from investors is that retention has been so good that there's this fear that there's going to be more people moving out to purchase homes as interest rates presumably come down as there's more sort of stimulative policies around the housing market.

I guess based on everything that's been announced thus far, I mean, I guess, are you seeing any of that in your data? Are there any policies out there that have been proposed where you're like, you know what, I really hope we don't see that because that can make a sort of big difference in our retention or turnover?

Yes, Eric, thanks for the question. That's probably not a risk to our company. I mean the portfolio was designed to be in places with relatively high single-family housing costs. Down payments matter a lot. I think as rates go down, you may end up capitalizing those rate declines in a higher purchase price. insurance, all those other things continue to be really expensive.

And again, lifestyle factors are different. So we saw about 7% of our residents move out to buy homes. That was a record low for us. When it was higher, it was 10% to 12%. So it just is not likely to be a reason for us to feel uncomfortable. I think it's more about jobs for us than it is about single-family.

And switching over to capital allocation. We've talked about the implications of AI for your portfolio. I guess, are you seeing any sort of signs of changes in underwriting on the private side, meaning is this something that people are factoring into their expectations, not necessarily even from AI, but also just because we've seen a little bit lower job growth.

And then on the other side of that, assuming your answer is you're not seeing it, I guess, how aggressive can you be this year in terms of selling these noncore properties? Because as you mentioned before, there is a pretty big difference between where you're trading and where some of even your lower quality stuff is trading?

Yes. Thanks, Eric. I'll start on the underwriting side. In the private markets, we do see -- we continue to see pretty aggressive underwriting, meaning we don't see a negative impact in terms of demand.

And in pockets, we see very aggressive recoveries underwritten. So like in markets like in Austin, we often see folks underwriting recovery levels, Austin being in a market that has significant supply that are pretty pronounced. So generally speaking, the private markets for multifamily remain very liquid. Cap rates tend to surround somewhere like a 4.75% to 5.25%. And the implication if you're solving to an IRR that's maybe in the low 7s, which I think is where most people are solving unlevered, is that you see good demand and good rental growth coming in the near term.

So we don't really see a lot of change there. In terms of our ability to sell some of the lower-performing assets, I think that there is -- there continues to be pretty good bids. They're a little harder than down the middle of the fairway stuff.

So it may not be as robust a bidding tense, which may mean that you have to expose a few more markets or take a little bit more time to get the transaction to work. But I think that we will continue to do that. Unfortunately, we don't have a lot to expose. So we will see how that goes as we make it through the year.

I mean we're open to doing more buybacks. We don't feel like there's a limit on that necessarily. We just have to look at our other capital options. I mean, what our acquisitions trading at. They're trading really dear right now. We got a couple of development deals we may start, but the stock is a pretty good value at this point. And if we can arbitrage it with lower quality asset sales, I think that's making lemonade out of lemons and is a good play.

And are you willing to let leverage drift up a little bit just because of the limitations on the tax side from sales?

Yes. I think the limit there, though, or the thing to think about is we can probably do several hundred million dollars of that without any impact on credit ratings and the like. But you can only do that once. So once you've used up that capacity, then you're making a capital structure decision. So I think, Eric, it's just what's the hurdle price for that? Because when you're arbitraging existing assets with your stock, I think subject to the tax issues, that's a little bit easier trade.

When you're taking debt, you're changing your opportunity set, you're potentially putting more risk. There's probably, frankly, a stock price you need that needs to be lower to justify that.

And you mentioned development a moment ago. I don't know if that's sort of -- I think you might have a couple of projects in Atlanta. I guess my question is sort of why now, I guess, for that specific market? And then more broadly across development, we've heard for years that it's just very difficult to start development right now.

Construction costs are high, rental rates haven't moved enough. Is that changing at all? And it seems like construction costs might have come down from your peers. Some have said sort of in the 5% to 10% range, but would be curious what you've seen as well.

I mean Bob may supplement this. We're very selective on development. So we started a couple of deals in Atlanta. We mentioned that on the call. One of them is an exurban small deal where, frankly, it's a bit of an experiment with a lower amenitized product in a further out location. It's not a build-to-rent deal, but it has attributes of that.

Another one is an infill deal that just has really good economics in the Northern Atlanta suburbs that we picked up. But I mean, Bob's team sits through 50 deals to talk to him about 10, to talk to me about. We're a very selective developer. And the hurdle rate, Eric, is just a lot higher than it was because the stock is trading where it's trading.

Got it. And are you seeing construction costs coming down?

Yes. I think selectively, you are seeing as there's lower volume of development, you are seeing developers and general contractors reduce their margin. And correspondingly, you're seeing construction costs coming down slightly, particularly in product that's more like wrap product and suburban product.

As it relates to high-rise, which we're just not seeing any starts on and construction costs remaining very high relative to acquisitions, there, you're not seeing it as much. But in the suburban stuff, you're maybe seeing that low single-digit reduction in costs selectively.

And so supply is coming down very quickly this year, how long will it stay at these very low levels?

Depends what market you're talking about. I mean that's why we like our urban exposure. We think there's just not a lot of high-rise construction that's going to make sense. We think a lot of these markets are going to have a longer hiatus. I remind everyone, post-GFC, everyone said there would never be anything built in the coastal markets.

And unfortunately, for us, there was plenty built in the coastal markets, and there will be plenty built in the Sunbelt, be plenty built in the suburbs. And I just think that we get these lists from these developers of assets that we can jump in JVs with them on. And that list is all suburban and our competitors are building all suburban. So that's telling you something about where the supply is going to be. So we think that balanced portfolio with the urban exposure is going to serve us well.

Great. So we have our 2 rapid-fire questions to end the session. Same-store NOI growth for the apartment sector overall next year in 2027.

We don't provide guidance...

On 2026.

It's for the sector.

Sector, it's not guidance for you.

Yes, broad sector.

I think we're not providing or giving any commentary on 2027.

What are you underwriting in your models for 2027?

Depends on the market.

And then more fewer of the same number of public apartment companies a year from now.

I feel like that might be a relatively easy question this year because there's already some announced go private. So I'm going to say fewer. And I think I'm going to be right this time.

That sounds good.

When you repurchase your stock, what NOI growth are you using for 2027?

Asked and answered.

Good day, and welcome to the Equity Residential Fourth Quarter 2025 Earnings Conference Call and Webcast. Today's conference is being recorded.

At this time, I would like to turn the conference over to Marty McKenna. Please go ahead.

Good morning, and thanks for joining us to discuss Equity Residential's Fourth Quarter 2025 Results and Outlook for 2026. Our featured speakers today are Mark Parrell, our President and CEO; Michael Manelis, our Chief Operating Officer; and Bret McLeod, our CFO; Bob Garechana, our Chief Investment Officer, is here with us as well for the Q&A. Our earnings release and a management presentation are posted in the Investors section of equityapartments.com. We plan to keep this call to one hour as a peer is hosting their call at the top of the hour and will limit to one question per caller. As always, we are available for additional questions after the call.

Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. 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.

Now I will turn the call over to Mark Parrell.

Thank you, Marty. Good morning, and thank you all for joining us today to discuss our fourth quarter and full year 2025 results and our outlook for 2026. I will start us off, then Michael Manelis, our Chief Operating Officer, will speak to our 2025 operating performance and 2026 revenue guidance. Bret McLeod, our Chief Financial Officer, will then cover our 2026 expense and NFFO guidance, and then we'll go ahead and take your questions.

2025 was a challenging year for the rental housing industry, including Equity Residential. While our 2025 same-store NOI results matched our initial guidance, the road to those results was not as straightforward as we had expected. In many of our coastal markets, we saw stronger-than-expected rental growth through the first half of the year, followed by a deceleration in revenue momentum through the latter part of the year across all of our markets, except San Francisco and New York notable bright spots that we expect to continue to deliver strong results in 2026. This deceleration was particularly pronounced in highly supplied markets. We believe heightened policy and geopolitical uncertainty took a toll on consumer and employer confidence causing an abrupt slowdown in job and rent growth in the second and third quarters.

Looking forward to 2026, there is definitely a broad range of possible outcomes for the U.S. economy, especially as it relates to job growth. Our wider-than-usual same-store revenue guidance range acknowledges that uncertainty. The midpoint of our revenue guidance range assumes steady demand similar to the back half of 2025. So basically a continuation of the current low higher, low fire environment and a significant improvement in the supply picture especially in the second half of 2026.

But with S&P 500 corporate earnings and the economy as a whole, continuing to grow at a brisk pace, we can certainly see a path to an improving job picture as we move through the year. With our portfolio occupancy currently over 96%, a significantly improving supply picture and social and cost factors that favor our business over owned housing and advantageous portfolio positioning due to 30% of our portfolio being in the well-performing San Francisco and New York markets, we feel like we just need a little bit of wind at our back in the form of improved job growth to see 2026 revenue growth accelerate beyond our current expectations.

On the capital allocation front, we remain committed to our diversified portfolio strategy. As we discussed at our Investor Day last year, we think shareholder returns over the long term are maximized by having a portfolio that has exposure to a well-earning renter in a broad collection of metropolitan areas and in urban as well as suburban settings. The strength of our results in New York and San Francisco, two markets left for dead by some observers just a few years ago are an example of the benefits of our diversification strategy. The prolonged poor performance in the Sunbelt due to supply is another example of the benefits of a diversified portfolio and avoiding relying too heavily on a solely demand-focused strategy. You can expect over time, we will invest in all 12 of our markets through renovations, acquisitions and development activities. Although given our current cost of capital, significant acquisition activity makes less sense at this time. Development activity will be highly selective.

The best capital allocation opportunity we see now is to sell properties that we see as having lower forward return profiles and using the sales proceeds to buy back our stock. As you saw in the release, the company purchased approximately $206 million of its stock during the fourth quarter and just subsequent to quarter end for total stock purchases of $300 million in 2025. We see our company with its high-quality asset base and sophisticated operating platform as greatly undervalued in the public markets versus private market values. Also, by acquiring stock with the proceeds from the sales of slower growth properties, we're effectively improving our forward growth rate as well, a double benefit.

We continue to see stock buybacks at these levels as a good use of shareholder capital while staying aware of the need to maintain balance sheet strength and flexibility and avoiding unduly descaling our business. I also note that having a smaller development platform, with all our funding needs covered by excess operating cash flow and incremental debt capacity from earnings growth, allows us more flexibility to pivot to share buybacks when that is in the best interest of our shareholders. We are proud to have returned cash to our shareholders in the form of quarterly dividend payments and stock repurchases of over $1.3 billion during 2025.

Before I turn the call over to Michael, I want to reiterate how excited we are about the forward prospects of our business. Our internal tracking shows deliveries of competitive new supply in our markets, declining 35% or to be down about 40,000 units in 2026 versus 2025 levels. The results we are seeing in San Francisco and New York demonstrate the earnings power of our business when we are operating in markets with sustained demand and low levels of competitive new housing supply. We believe more markets we operate in will trend in that direction in the latter half of 2026 assuming the job situation is reasonably constructive. Add in that 2026 starts look to be light again, boding well for continuing low levels of deliveries in future years, and you have a terrific supply setup.

We also know that cost and lifestyle factors continue to make our well-located, professionally managed apartment portfolio desirable to a wide segment of the population versus living in owned housing. A tailwind we anticipate will continue for the foreseeable future. With portfolio-wide occupancy of more than 96% and 97% in some of our key markets, we think this sets us up well for a year where performance steadily improves and puts us in an excellent position for 2027 and beyond.

In sum, we continue to see the current and future drivers of our business as healthy and the forward momentum is positive. Finally, a big thank you to my 2,700 Equity Residential colleagues across the country for your tireless work in 2025, taking such good care of our residents.

And now I'll turn the call over to Michael Manelis.

Thanks, Mark, and thanks to all of you for joining us today. Our fourth quarter revenue results reflect a continued high level of physical occupancy at 96.4%, driven by solid demand, strong retention and fewer lease expirations. Our blended rate of 0.5% in the quarter came in right at the midpoint of the range we provided, driven by a strong achieved renewal rate of 4.5% offset by negative new lease rates across every market with the exception of San Francisco. Other income growth was a little less than expected, driven by the lack of bad debt net improvement and a little less income from our bulk Internet rollout program and other fees causing us to be slightly off our midpoint.

The New York and San Francisco market showed particular strength in the quarter with growth muted in our Southern California markets and softness in our expansion markets. Our other coastal markets generally performed in line with our modest expectations.

Overall, 2025 did not follow typical rent seasonality patterns. Strong gains in the first half of the year were offset by slower growth in the back half as job growth cooled amidst an elevated supply environment. That said, the hesitancy of our customer to make big life changes, including moving in such uncertain environment, along with our team's relentless drive to provide a seamless customer experience and our very effective centralized renewal process resulted in the lowest reported resident turnover for both the fourth quarter and full year in our company's history.

We also continue to see the tailwinds in our business from the unaffordability of homeownership. In fact, only 7.4% of our residents gave 'bought home' as the reason for move out in 2025 which is also the lowest percent we have seen in our company's history. This combination of great customer service and low resident turnover allowed us to grow occupancy above expectations during 2025 which offset having less pricing power in the peak leasing season.

As we begin 2026, you can see in the pricing trend chart, which is included on Page 8 of our management presentation, some momentum in December and January as we started pulling back concessions based on the strength in occupancy. So while it's still early, the setup for the spring leasing season looks good with pricing accelerating in line with the typical year and renewals are pretty consistent with over 60% of our residents renewing. And right now, we expect to achieve renewal rate increases to remain somewhere around 4.5% for the next several months.

Moving forward, our focus is on two major drivers to our business: new competitive supply and job growth. As Mark noted, we should benefit, particularly in the second half of the year, for materially lower supply in our markets, meeting what we modeled to be a generally stable, albeit low job growth market, implying a pricing trend curve for 2026 that looks more like a typical year which is shown on Page 8 of the management presentation as opposed to what we saw in 2025.

Page 7 of the management presentation lays out the building blocks for our 2026 same-store revenue and let me highlight a few that support the midpoint of our guidance. We begin 2026 with an embedded growth of 60 basis points, which includes approximately 20 basis points of dilution from the inclusion of about 5,000 units in our expansion markets. Going from there, the rapid sequential declines in competitive supply pressure should allow us to return to a more normalized peak leasing season provided job growth remains steady, resulting in continued improvement in operating results in the second half of the year.

Given this backdrop, we expect blended rate growth to be between 1.5% and 3% for the year. At the midpoint, this includes a slight improvement in achieved renewal rates and a little more pricing power on the new lease chain side as net effective prices improved, mostly driven by less concession use as the year progresses.

We also expect continued strong resident retention as a result of our focus on customer service, the benefits of our centralized renewal process and the high cost and low availability of owned housing in our markets. This should provide us an opportunity to run the portfolio at 96.4%, which would be about a 10 basis point improvement on this same-store set.

In addition to the above, we expect another year of solid other income growth, which is being driven by a 10 basis point reduction in bad debt and a continued growth in revenue from our bulk internet program, which combined will have a total contribution of about 40 basis points to same-store revenue growth in 2026. Achieving the high end of our revenue range would require the job market to improve early enough in the year to impact our peak leasing season. The low end would most likely result if there are further declines in job growth that result in a flat pricing curve with lower occupancy throughout the year.

And while I'm happy to discuss any of our markets during the Q&A session, let me take a minute and highlight a few of them that may be of special interest. I will start by saying that San Francisco and New York are the two markets in 2026 that are driving performance. We continue to have high expectations for these markets, that together, constitute about 30% of our NOI and have the best supply and demand outlooks in the country for 2026. Our urban exposure in these two markets is particularly unique to Equity Residential and should be a relative strength for us versus our peers this year.

As we've discussed on previous calls, D.C. was a tale of two markets in 2025 with strength in the first half of the year that eroded as the year progressed, driven by a combination of federal job cuts, the National Guard deployment and the government shutdown. This has created a lot of uncertainty in the local market. The real positive in the market is that there's only going to be about 4,000 units delivered in '26, down from 12,000 units in 2025. And a very favorable new supply setup and what we hope will be a less uncertainty in the market could lead to D.C. outperforming our somewhat muted expectations for 2026.

In our expansion markets, which right now represent just under 11% of our total NOI, high levels of new supply continue to impact operating results in Atlanta, Dallas, Denver and Austin. Atlanta is faring the best of the four and Denver, the worst. We expect our same-store portfolios in Atlanta and Dallas to have improved pricing power. In Atlanta, we have seen acceleration of rent since November which continues to support our view that we are pulling away from the bottom here, we expect to see similar performance in Dallas as the year progresses.

Before I turn it over to Bret, I want to take a minute to highlight our current activities around innovation. As I discussed at our Investor Day last year, the first generation of initiatives, which focused on centralization, automation and introduced AI to parts of our leasing process, delivered a 15% reduction in on-site payroll, which is evident by the 1.1% 5-year compounded annual growth rate in same-store payroll. With the advancements we are seeing in technology, we now expect to automate additional processes and add more AI-enabled applications into the business over the next 18 months including a new CRM and service application currently being deployed. This level of innovation is expected to deliver another 5% to 10% reduction in on-site payroll over the next several years, and will also enable us to have a more utilized service organization, which will benefit our overall repair and maintenance expenses. Creating the foundation of what will be the most efficient and scalable operating platform in our business is very exciting.

Finally, I want to give a shout out to our amazing teams across our platform for their continued dedication to our residents while embracing change to further enhance our operating platform. 2026 is a year of opportunity for us to capture market rent growth by running a well-occupied portfolio with a strong operating platform that combines automation and centralization, along with a local team that knows how to keep our customers satisfied.

And with that, I will turn the call over to Bret.

Thanks, Michael, and good morning, everyone. Michael did a nice job describing our revenue outlook for 2026. So let me finish with guidance on same-store expense, our normalized FFO outlook as well as provide some color on our anticipated capital markets activity this year. Expense management continues to remain a core strength of EQR as we leverage our scale and operating platform to deliver controllable expense growth at inflationary or sub inflationary levels as we did in 2025. As noted on Page 7 of our management presentation, we anticipate 2026 same-store expense growth to range between 3% to 4%, with a midpoint that is 20 basis points lower than 2025. Similar to what we saw last year, we anticipate that controllable expenses, such as payroll, will be relatively stable year-over-year growing at or near inflation. We would also expect normal inflationary growth for real estate taxes and insurance in 2026.

On the same note, we continue to anticipate utility costs to significantly outpace inflation again in 2026, particularly in electricity and water although we believe the rate of growth will be somewhat lower than the 8% we experienced last year. We continue to roll out bulk WiFi throughout the portfolio, and we'll add 64 new properties to the 113 we stood up in 2025 which will result in an incremental $6.8 million or 70 basis points impact to total expenses. All told, we expect bulk WiFi to contribute approximately $6 million to NOI this year and approximately $10 million once the full rollout is complete by the end of 2027.

Moving to norm FFO per share on Page 9 of the management presentation, we've provided a bridge from our full year 2025 norm FFO per share of $3.99 to the midpoint of our 2026 guidance, $4.08 per share, a 2.25% improvement over last year. Beyond same-store residential contribution, the biggest incremental improvement to norm FFO is from our consolidated lease-ups, which we anticipate will contribute $0.06 this year as a result of two of our developments stabilizing in Q4 '25 and another anticipated to stabilize in Q1 '26. In addition, we have $0.01 in other, which is primarily coming from growth in non-same-store NOI.

We anticipate transaction activity will be effectively neutral to norm FFO per share in 2026, a result of investing in share repurchases with the excess proceeds from dispositions in '25. We had $500 million of net sales proceeds in 2025 with much of that activity coming very late in the year, resulting in a $0.06 drag on norm FFO per share in 2026. The offset to this is the 300 million of stock we repurchased in 2025 will now be reflected via lower share count in '26 as well as the assumption we've made in our guidance that we will invest the remaining $200 million of excess sales proceeds to repurchase stock in the first half of this year for an aggregate $0.06 benefit that effectively neutralizes lost norm FFO from asset sales. We've not assumed additional acquisitions or dispositions in 2026 but will remain flexible and opportunistic as the year progresses.

Offsetting these additions, interest expense will be a $0.05 headwind in 2026 with $0.04 driven by a combination of three items: the consolidation of joint venture projects in 2025, the reduction in capitalized interest from expected project completions as well as the timing impact of 2025 dispositions relative to share repurchases. The remaining $0.01 is related to our May 2025 refinancing and the expected refi of nearly $600 million of low blended coupon debt maturing later this year, which I'll expand on in a moment. Lastly, we expect a $0.01 headwind from corporate overhead this year as savings in G&A are offset by increases to property management, some of it related to the IT spend Michael outlined in his remarks.

In terms of capital markets activity, we only have one significant maturity in 2026, a $500 million, 2.85% note due in November as well as a small $92 million stub payment on an old 7.57% coupon note maturing in August. We would expect to refinance both of these at or near maturity, most likely with unsecured debt. We also successfully refinanced our $2.5 billion unsecured credit facility in the fourth quarter of last year, extending the maturity an additional three years to 2030 and have ample liquidity and capacity under our commercial paper program to remain flexible in the timing of refinancing these upcoming maturities. Our guidance assumes a range of $500 million to $1 billion of debt issuance reflecting the activity just mentioned, but I would note that expected debt issuance will adjust as investment opportunities present themselves.

We ended 2025 with net debt to normalized EBITDAre of 4.3x and were recognized by S&P in November 2025 with a positive outlook, reflecting the strength and flexibility of our balance sheet, which we continue to believe is a competitive advantage in the current economic environment.

With that, we're happy to take your questions.

[Operator Instructions] We'll now go to your first question. It's coming from the line of Eric Wolfe with Citi.

Thanks, and good morning. Can you talk about the assets you're selling to fund the repurchases, specifically the CapEx and growth profiles of those assets? And ultimately, I guess, how do you think about the accretion from these trades? Because I think in your remarks, you said that it was going to be net neutral to earnings. And I guess, anecdotally, I would have thought at least it was modestly accretive.

Eric, it's Bob. I'll start with maybe the asset mix and then the team can extrapolate around that. So these are typically assets that are older, as you can see in the release and typically noncore, which your implication of your question really shows that also that they tend to have higher CapEx flows. So we look at these transactions or we look at these assets as being lower growth, areas that we might have concentration risk and also areas where AFFO is burdened with capital that we find isn't ROI enhancing and isn't -- doesn't allow us to improve the growth trajectory. And that's why we've chosen that in the mix. And that's why you see a little bit higher disposition yield overall. Long term, they should improve the growth rate by selling them, they should improve the growth rate of the existing portfolio, both on an FFO and AFFO basis and that should be accretive longer term, although there can be noise amongst the assets given the mix of properties.

Yes, Eric, it's Mark. Thanks for that question. So that's a little bit on rate, but timing matters a lot. So by selling all the assets, most of these on December 30, you effectively lose an entire year of the income from those assets. The share buyback last year will affect the year account for the entire 2026. But the $200 million we have yet to purchase that we've assumed as a placeholder we will, is not going to fully affect the share count in '26. So it's a little bit of that. It is, in fact, accretive on an FFO basis if everything had occurred December 30. But because of that timing, it doesn't have that effect.

We'll now go to your next question coming from the line of Steve Sakwa with Evercore ISI.

Michael, I was just wondering if you could provide a little bit more color on your comment around the renewals at 4.5%. I'm just curious, where are you sending out notices versus kind of the take rate? And are you seeing just any, I guess, signs of consumer impact or stress or just any issues around the job market, given that, that number still kind of remains lumpy on a monthly basis?

Steve, this is Michael. So the renewals right now for the next, call it, [indiscernible] in the marketplace. The quotes are somewhere right around that 6% level. And again, with our centralized process and kind of all the history we have, we got a lot of confidence and we can clearly see how January is playing out, that we're going to land this thing right around that 4.5%, give or take, 10 basis points in any given month because it's all subject to actually who chose to renew, did they have a concession when they moved in last year, et cetera. So there's still a little bit of noise in those numbers that they can move. But a lot of confidence in that.

Right now, we are tightening up that negotiation spread, and that's pretty common for us to do, especially with a portfolio that's positioned at 96.4%. I haven't really seen or heard anything in terms of kind of economic hardship from our resident base in terms of kind of getting on the call with the centralized team to negotiate or really any of those metrics that we're looking at, which is more around transfer request, are they trying to transfer to lower levels. We haven't really seen kind of any lease breaks due to layoffs or anything like that at an accelerated level. So we still feel like things remain stable. This portfolio is well positioned against this backdrop of less competitive supply, we have a low rent to income ratio for the residents that just moved in with us. So we're really feeling the economic hardship and a lot of confidence in that renewal number.

Next question will come from the line of Jana Galan with Bank of America.

Another one for Michael. On the 2026 supply outlook, some of the data providers we use have increased their supply numbers, just kind of units from '25 delayed and coming into '26, but also increases for 2027. And I know your teams on the ground have great intel, can you give us some background on how you come up with your competitive supply set?

Yes. Jana, it's Bob. I'll give Michael a break. I'm sure he'll have more questions soon enough. But you're correct, and we noticed that actually just very recently in the data providers adjusting some of their mix. There's a little art here, I think, for some of the data providers in terms of what they're looking at from an actual perspective and also from what they're just forecasting overall. When we look at competitive supply, we both look at their data from a kind of a justification or a validation guardrail standpoint, but we also really do a boots on the ground approach. So we have investment officers and teams company-wide in all of our markets that are evaluating what is shovels in the ground, what is the permitting data, et cetera. and we build from that ground-up perspective.

I would tell you that the narrative overall isn't different between our ground up and kind of some of the data providers, which is we see that meaningful amount of decline that is coming in '26 and appears to be there as well in '27. Each market is a little different. Some markets can be a little different. But I think what we're most confident on is we are going to see that decline in '26 and it's pretty pronounced in a number of markets.

Your next question will come from the line of Alexander Goldfarb with Piper Sandler.

Mark, just a question out there. Certainly, legal, advocacy, settlements, all this stuff seems to be a much bigger part of the conversation than years ago in REIT land. Do you -- as you underwrite your business, are you guys sort of factoring in as you assess different markets in different regions sort of layering in, okay, what's the sort of regulatory, if you will, cost of operating in those markets, meaning like when you underwrite cap rates, is that something that you're thinking about more? Or how are you handling that and thinking about as your ongoing business?

Yes. Great question. Thanks for that, Alex. So Yes, we are in two ways. One, just objectively, we have some idea of just, frankly, litigation costs in the market. And it's everything from slip and falls to spurious lawsuits and the like. And we've added something in California to just our per unit cost to run the portfolio and use that in all our pro formas on acquisitions, development dispositions and the like. So we did do that in that state. We also taken into account in our portfolio allocation. As you see markets where the climate is particularly challenging, we'll buy us away from those markets. And some of the sales you saw like the Downtown L.A. asset that Bob and his team sold at the end of December of last year, that partly was a sale because those regulatory conditions I marked are really hard. So it's a combination of a direct effect on the numbers in the underwriting as well as a bias against markets where there's, what we think of, as excessive litigation and other costs, regulatory costs, we just tend to not buy there at all or to bias our dispositions towards those places.

Next question will come from the line of Rich Hightower with Barclays.

I know this is probably an unusual question for this time of year. But as I look at maybe the strength in San Francisco and New York, do you have a sense of kind of where your rents are relative to market currently, sort of a loss to lease concept? And I know it's a seasonal thing in there as well. But just to get a sense of what the relative strength of the market is versus where you are currently?

Yes. So maybe I'll just start first. At the portfolio level, I would say we're starting 2026 with a gain to lease of 1.2% when you start drilling into the markets and you look at the strength that you see in the San Franciscos, we clearly have an opportunity to continue to have rents rise as we work our way through the spring and the peak leasing season. And sitting here today, we're in kind of a moderate [ loss of position ]. But that position is going to change as rents keep going up, even at the portfolio level, that gain is going to flip to a loss as we work our way through the first quarter.

All right. So by the end of the first quarter, you'll be in a loss to lease position.

Yes. And I would just say that even looking at where we start today, it's not uncommon for a portfolio to start in a gain to lease situation or a moderate loss fleet. You always start somewhere pegged around that negative 1% or 1% range.

Next question will come from the line of John Pawlowski with Green Street.

I have a question on just how the pace at which you're deploying capital into the Sun Belt this year, Bob, just based on I know there's an element of having a dollar cost average into these markets. But just based on private market pricing and how near-term growth, the outlook has changed. Are you looking to accelerate? Do you think it makes sense to accelerate the pace of capital deployment or throttle back in the Southeast and Southwest markets?

Yes. John, it's Bob. I guess I would start with like the underlying premise that kind of dictates all of our portfolio allocation, which is kind of cost of capital and what the relative cost of capital is. And so you heard Mark talk about where our opportunity set was in the fourth quarter, and you've heard him talk a little bit about where we sit today and our transaction guidance, et cetera. And the reality is of what we see and I was just in NMHC and met with a bunch of participants in the private markets.

The reality is that right now, the cost of capital for REITs is more challenging and the opportunity set is really the share buyback. And so that's until that changes or the cost of capital changes, I think there's no acceleration, deceleration. It will all depend on where we are on a relative basis. There's a lot of demand for product in the private markets, in the Sunbelt markets and in our coastal markets, to be honest, and they're priced really attractively, meaning they're much tighter than what the public markets are. And so we're just cognizant of cost of capital, and that is really kind of our starting point to capital allocation and where the proceeds are going.

Okay. Makes sense. One question on 2026 revenue guidance. I know you touched on it briefly. Did I interpret it right that the guidance assumes just very modest acceleration in job growth over the year or no, it's assuming job growth stays basically flat with recent quarters?

John, this is Michael. So yes, our model, first of all, when it comes to job growth, we don't have like this mathematical input into the models around job growth but right now, what we're assuming really is just a current demand level like we've experienced in the last six months. So demand is going to improve as we get into the spring and peak leasing season. It's going to moderate as we work our way through the fall but we're not expecting this acceleration due to kind of improvement in the job market. It's kind of like just a flat demand curve throughout this year as we work our way through the leasing season. What we have in our favor is just so much less supply pressure sequentially, which should allow us to have pricing kind of power [ mere ] a more typical year. Not really coming from the demand boost, it's coming from just having less and less supply pressure.

And from starting with a very high occupancy...

Yes.

Your next question will come from the line of Jamie Feldman with Wells Fargo.

Great. Good to see you guys forecasting acceleration in blends into '26 from '25. Can you just talk about markets where you think rent growth will continue to accelerate in '26 versus markets where you think rent growth has peaked?

Jamie, this is Michael. So I don't know if I'm looking at any of our markets right now that I would say that rents have peaked, right? We're starting off the year we're modeling to have growth occur. Now we have moderated our expectations in some of the markets based on the starting point. But all of the markets are expected to produce growth over kind of where we sit today and really even where the levels were in 2025. Clearly, the accelerators are San Francisco and New York that are going to have outsized kind of rent growth coming through.

And Jamie, just to give you a little more color, Michael and I have a series of private bets about where things may turn out a little better in markets. And some of that's our positioning and where there's markets we have more anxiety. And I think we would share, as Michael said in his remarks, we feel better about Atlanta. We feel like that's a market. We also feel like all the negativity in D.C. might be a little overdone. That is a market with a highly employable workforce. People will find jobs, just like the tech job bust in '22. There's a lot less supply. So we've sort of circled those markets as potential for doing a little better than we thought were our expectations. I'll admit to continuing anxiety over Los Angeles, which kind of lacks both economic drivers and quality of life drivers, but we'll remain hopeful there as well.

I guess I was thinking more in terms of the pace of growth. I know they're all improving. But are there some where like the pace of rent growth has peaked? Or do you think all of them can continue to accelerate that growth rate?

I think you have to allow for acceleration through spring and into a peak leasing season really across all of the markets that we're at. We're dialing back concessions right now, so if I just even think about January, 70% of our concession use is still tied into these expansion markets. As Mark just alluded to, you got Atlanta, where we're starting to pull back. So I look at all of these markets and say, we're going to follow a more typical kind of year. Now some of the markets are going to be a little more muted, but that still means rents go up from where they are today.

Next question is coming from the line of Brad Heffern with RBC.

In the prepared remarks, you talked about San Francisco and New York being left for dead a few years ago. L.A. feels like that today, and you just mentioned your own anxiety. I'm wondering if you see the issues there as structural? And if so, why not pursue a larger rotation there either into other markets or to the repurchase?

Yes, great question. I mean the issues in L.A., and It's Mark, I'll certainly invite my colleagues to add to that. Our quality of life considerations, especially in Central Los Angeles and the West side, they also include just a difficult business climate on the political side. And then just challenging job growth. The entertainment industry just strikes and just changes in how entertainment is produced has just created a little bit of malaise in Los Angeles on the employment side. So you can only sell what people want to buy. And Los Angeles right now is not a market that is favored by private buyers, by and large. And I think that we are trying to both sell product that provides capital for other uses, including the buyback and sell things at a price that makes some sense. And right now in Los Angeles, I just think this is just the rotation of capital. People run towards San Francisco now. We could sell every single asset in San Francisco at a great price. And 1.5 years ago, we couldn't sell it at all. So my guess is L.A. will brighten over time that the politics will improve as you get closer to the World Cup this year. And as you get closer to the Olympics, and we'll have an opportunity to sell some product in Los Angeles as time goes on.

Next question will come from the line of Michael Goldsmith with UBS.

This is Ami on with Michael. What is the expected cadence of same-store revenue growth through the year? I know you mentioned the trends in rental growth with seasonal improvement. Is WiFi rollout still expected to be first half weighted? And are there any other items that could impact the same-store revenue cadence?

Yes. This is Brad. I'll take that. Thanks, Ami. I think as we think of same-store revenue growth, it's really similar to '25, right? So the second half is going to be stronger than the first, primarily a function of really the significantly reduced competitive supply that Michael mentioned.

To your point on other income, that's probably going to be back -- end loaded again. We've got some improvements from the bulk WiFi rollouts and bad debt improvement as well as we go to the end of the year.

But I would say, overall, it's a pretty steady cadence. There's not a huge difference between the second half and the first. But certainly, that would be the cadence as we move through the year.

Next question will come from the line of Alex Kim with Zelman & Associates.

Just a quick one on development. You didn't have any new starts in 2025. Just curious what needs to change for you to restart construction activity and are you seeing any improvements in the current development economics?

Yes. Alex, it's Bob. You're correct that we didn't have any starts in 2025. We do expect to have some starts in 2026. And in fact, we acquired a couple land parcels at the end of the fourth quarter and will start in the first quarter, a couple projects in 2026 in Atlanta.

Look, we approach development, I think, a little bit uniquely relative to some of the competitive set in that we look for opportunities where we don't have buy opportunities where we can buy -- where we can develop on a risk-adjusted basis, that makes sense. And we do expect to see some of those. Overall from -- in 2026, and we'll start some deals. Overall, I guess I would also tell you from a kind of competitive landscape or what the landscape looks like from a development perspective, costs have been relatively steady, yields have, therefore, improved a little bit as we've seen some rent growth and our business model with development is often to act as the LP and to use some of these local sharpshooters and not have to carry all of the overhead and we are in more demand than what others are in the past, meaning we are more attractive because there isn't as much LP capital, and that means that we can structure some really good deals with good terms that make sense. And we'll be thoughtful and modest about it, and we have to keep it all in perspective relative to cost of capital and use of funds.

Your next question will come from the line of Michael Gorman with BTIG.

Maybe just sticking with the transaction markets for a second there. I wonder if the difference between what you're seeing in the transaction market and the private buyers, is it solely kind of cost of capital related? Or are you seeing them taking different underwriting assumptions, whether it's more aggressive growth or potential for value add? Is there a difference in underwriting as well? Or is it just strictly cost of capital?

That's a good question. I think it's probably a little bit of both, depending on who the buyer is and what the buyer's perspective is. I will tell you, and this is more anecdotally because we don't operate in these markets. But we see -- when I was at NMHC, we're talking to individuals about markets like Phoenix and Nashville and other places where we see people underwriting really significant growth rates going forward. We're not trying to go in those markets, but you do sometimes see a bit of a different perspective and have seen a bit of a different perspective from private market players. I think it's important to understand the difference in objectives between long-term holders and folks that maybe have a shorter time horizon in their perspective. So when we acquire assets, we are looking and develop assets, we're looking to be long-term holders. We're vertically integrated operators. This is a long-term IRR case. Objectives for many people in the space or [ many of the ] private buyers might be different, right? They may be merchant builders that have a very short perspective, they may be folks with more medium term. So I think it's all of the above. Cost of capital are different and perspectives on performance and hold periods can be different and influence underwriting.

I also just add to that, it's Mark. It's a little rotational too. I mean I think a lot of private guys 10 years ago would also do office, suburban office. They do retail. And I think, by and large, it's apartments, maybe industrial and of course, data centers. And I just think that holds up the private market values in our NAV, which is great. But it can make it hard sometimes for us to underwrite not just on the cost of capital, but just because, frankly, private folks have to justify their existence and buying apartments is seen as a safe bet. And they kind of make the assumptions, suit whatever they sort of solve backwards and we let the numbers be what they are, and that's why you see us allocating less capital to acquisitions and development right now.

Next question will come from the line of Haendel St. Juste with Mizuho Securities.

So my question, I guess, can you talk a little bit about your expectation for tech employment and how that colors your view for San Francisco and Seattle, obviously, lots of headlines regarding layoffs, AI. So curious how you're factoring that into your [ outlooks to ] those markets. And then maybe give us a sense of blends by a major region that you're forecasting [ because of ] your East Coast, West Coast, Sunbelt.

All right. You got three things going there. It's Mark. I'm going to start. I guess Bob can do the AI and Michael can give you a little bit on the blend side. But we don't have a crystal ball on -- that's any more clearer than yours on job forecast, tech related or not. We do go and try and estimate job gains and losses in our markets by talking to our local participants, our investment officers and our [ VPs ], our Vice Presidents in each market and try and understand what they're seeing on the ground. And we got an economics team here in Chicago that watches all that stuff, too. So we're kind of trying to be generally aware.

But we do have, in the back of our minds, in 2022, there was a huge amount of tech layoffs that occurred in both Seattle and San Francisco. And we didn't get keys thrown at us, we didn't have delinquency increases. It did slow down the rate of growth of rent, that's for sure. But it's just -- these folks that -- our residents are very employable, Haendel. And I think we look at this and figure, like in D.C., the kind of folks that are doing technology or sophisticated project management or advanced finance and consulting stuff can find another job over some period of time, and they like their lifestyle, we're taking good care of them at the property, they'll stay. And by and large, we've seen that.

So to do a tech forecast, it's more our belief that these folks are very employable and it is, I think, [ any particular ] number is going to go up or down. And on particular employer. Let's go a few people. We think another employer will pick them up. Michael has mentioned a few times that our company has a middle-sized employer. When these tech companies lay people off, we're often very excited about the opportunity to hire people that are otherwise very hard for us to get, data engineers and data scientists and the like. So I guess we just believe in the dynamism of the employment market for our kind of resident. I don't know, Bob, if you want to?

Yes. No, the only -- I mean, AI is obviously a big topic out there. I think that -- and it cuts both ways, right, as you think about our portfolio, clearly, having exposure to San Francisco, which is probably the most meaningful hot bed of where AI is being developed and created is helpful from a direct perspective. And then the other side that you get a lot of narrative or discussion around is just what does this due to productivity, what is the studio employment and all the macro level items. I think it does create -- the narrative that exists today and the conversation that exists today does create a degree of uncertainty, which I think has created some degree of pause and maybe new college hires, and we see that in the data. I would just remind everyone that if you think about our customer and you think about the distribution of our customer base, we're mostly not the first home for just out of college residents. So that demographic, let's call it, 20 to 24 is a very, very small percentage of our population base in terms of our customer. Our customer's predominantly in their second, third jobs, 24 to 35, et cetera. So it doesn't have quite the direct implication. So AI, I think we'll see how it develops. We talked about in my era, in my age, the dot-com and the Internet was going to destroy all jobs, and it didn't happen to be the case, and I don't think AI will be either, but it's certainly something that we're following.

I'll pass it to Michael on the 3-part question for a [ fair ] topic of blends by region.

Yes. And I think what I would say on blends right now is clearly, if you would just bucket and look at this portfolio, San Francisco and New York are going to deliver the best blends in 2026 and the expansion markets are going to have the lowest blends through the year. And the rest of our coastal markets are really pretty tightly clustered in the middle, some of them better than last year, some of them a little [ worse ], and it's all just based on kind of the starting point to the year. I did want to take a minute and just walk through like at a company-wide level, the expectations for blends because I've been reading some stuff, I just want to kind of just walk through our expectations for it which is, right now, sitting here, the way we think about blends is almost a mirror image of what a typical year would look like a pricing trend. We're expecting things to go back to normal seasonal patterns, which would mean January would deliver stronger blends than December, check. We've seen that. Q1 is expected to deliver better blends than the fourth quarter of 2025. That is our expectation. Then as the year goes, Q2 would build upon that. Q3 starts your deceleration and Q4 decelerates further. What we see right now is the second half of the year is not expected to decelerate anywhere near like we saw in the fourth quarter or the second half of 2025. That's kind of how we're modeling the year when it comes to blend. And you can almost apply that logic to every one of our markets that we're operating in maybe you're going to have some opportunities in the Sunbelt because of this heavy concentrations of concessions. If we're really getting pricing power and pull those back, maybe the third quarter produces slightly better blends than the second quarter, but you're not going to defy gravity of the fourth quarter kind of coming down off of that third quarter sequentially.

We'll take your next question coming from the line of Linda Tsai with Jefferies.

On your technology initiatives, are you able to use AI or other predictive analytics to understand the likelihood of move-outs when leases are coming up for exploration? And then any initiatives underway to help address?

Look, I would tell you -- I don't know if I would label it as AI. I think there's a lot of information right now that we use in our renewal process that's trying to understand the likelihood of a resident to renew. And that information is kind of really at our fingertips when we're speaking to residents as offers are going out. So I don't know that I would say we're fully automating or enabling AI into kind of the renewal process per se. But clearly, we have a lot of data and there's a lot of automation in place today.

And it appears there are no additional questions at this time. I'll now turn the call back over to Mark Parrell for closing remarks.

Thanks, Shelly, and thank you all for your interest in Equity Residential, and we'll see you out on the conference circuit shortly.

This concludes today's call. Thank you for your participation. You may now disconnect.

Good day, and welcome to the Equity Residential Third Quarter 2025 Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Marty McKenna. Please go ahead, sir.

Good morning, and thanks for joining us to discuss Equity Residential's Third Quarter 2025 Results. Our featured speakers today are Mark Parrell, our President and CEO; Michael Manelis, our Chief Operating Officer; and Bret McLeod, our CFO; Bob Garechana, our Chief Investment Officer, is here with us as well for the Q&A. Our earnings release is posted in the Investors section of equityapartments.com.

Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. 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. Now I will turn the call over to Mark Parrell.

Thank you, Marty. Good morning, and thanks for joining us today. I will lead us off with some broader commentary, then Michael Manelis will provide color on our third quarter revenue performance as well as what are you seeing in the markets today. Followed by Bret McLeod, our new Chief Financial Officer, who will address expenses and our NFFO guidance, and then we'll go ahead and take your questions.

Our third quarter results reflect the resilience of our business despite what is generally a mixed macroeconomic picture, we continue to see good demand and excellent resident retention across most of our markets with results strongest in San Francisco and New York, where continuing high demand has met modest supply. We see our existing residents as having a generally stable employment situation and good wage growth. When last reported, the unemployment rate for the college educated, our key renter demographic was 2.7%, considerably below the national average. This is consistent with the experience at our properties as we see continued improvements in delinquency and no other signs of customer financial stress. We have also seen incomes rise for our new residents by 6.2% year-over-year, a healthy rate of growth. Finally, we continue to see residents react to the uncertainty in the economy and the quality of our properties and people by renewing with us at record rates.

In fact, we reported the highest third quarter resident retention in our company's history, allowing us to maintain high occupancy rates in the mid-96% range. In sum, our existing customer is financially healthy and happy to stay with us. On the new customer acquisition side, we began to see weakness in traffic during the back half of September. This was most pronounced in Washington, D.C., but did manifest itself in other markets as well. The best way to think about this is for us to say that our normal pattern of a seasonal decline in traffic began 1 month earlier than usual. In fact, everything this year feels like it was pulled forward. The leasing season started earlier than usual and peaked earlier than usual just as the normal seasonal pattern of traffic decline began earlier than usual. This acceleration of seasonal patterns, weakness in Washington, D.C. and some minor delays in the rollout of an other income initiative that Bret will discuss in a moment, led us to adjust down the midpoint of our annual same-store revenue guidance by 15 basis points to 2.75%.

In terms of market commentary, Michael will speak in a moment on specifics in D.C. and elsewhere. But I did want to make a general comment on San Francisco, where we have 15% of our net operating income. After a prolonged recovery, we are excited by what we are seeing in San Francisco, particularly the urban core, where we have more exposure than our competitors. As we talked about at our Investor Day earlier this year, we thought San Francisco had the opportunity to be a strong performer in 2025, and that is exactly what is happening in this the epicenter of the AI technology revolution. As a result, we expect San Francisco to be our best-performing market this year.

At our Investor Day, we also spoke positively about the Seattle recovery story. We do see improvement there, but due to higher supply levels in Seattle than San Francisco, this improvement is occurring at a slower pace. Conversely, but as we generally expected, we are seeing very different conditions in our higher supplied markets, specifically Denver, Dallas, Fort Worth, Austin and Atlanta, where we have about 11% of our NOI. In these markets, where the slowing job picture is meeting continued high levels of supply, we see a significant lack of pricing power. And to be clear, the supply pressure includes both recent new apartment deliveries, which are pretty well tracked by all the data providers and the continuing pressure from slow lease-ups of already completed properties as well as the first round of lease renewals at properties that were delivered a year ago, where landlords are struggling to remove lease-up concessions when going through the renewal process and places with many choices for consumers.

This not yet fully stabilized supply is less well tracked by data providers and is not as well understood by investors but is certainly impactful. Over time, all of this supply will clear the market and we remain comfortable with the cost basis at which we acquired the assets we own in these markets. We also are positive on longer-term return prospects in these markets, complementing our portfolio diversification goals. But as we've said on prior earnings calls, we do expect to see an elongated recovery in these markets.

Switching over to capital allocation. As you saw in the release, we have been active in buying our shares with the company repurchasing approximately $100 million of its stock during the third quarter and subsequent to quarter end. We see our company with its high-quality asset base and sophisticated operating platform and forward growth prospects as greatly undervalued versus asset prices in the private market. Also, we closed on 1 acquisition in the quarter, a 375-unit property in Arlington, Texas, that has been in process for some time. This property was just completed in 2023 and is a nice complement to our Dallas area portfolio. We sold 2 deals in the quarter, 1 in suburban Boston and 1 in suburban D.C. These were older assets averaging nearly 30 years in age. These transactions all traded right around a 5% cap rate.

As you also saw in our release, we have lowered our acquisitions and dispositions guidance for the full year to $750 million of each from $1 billion of each, with the vast majority of these transactions already completed. As I just discussed, with private market assets often trading at sub-5% cap rates and at or above replacement cost, our stock presents a compelling value at current levels, making us selective and limited in our acquisition activity for the time being. Dispositions of properties to fund the buyback will occur over the next several quarters, and we'll focus on properties with lower forward growth potential or where we are overconcentrated.

Before I turn the call over to Michael, I want to reiterate how excited we are about the forward prospects for our business. Our internal tracking shows deliveries of competitive new supply in our markets, declining 35% or by about 40,000 units in 2026 versus 2025 levels. The results we are seeing in San Francisco and New York demonstrate the earnings growth power of our business, when we are operating in markets with sustained demand and low levels of competitive new housing supply. We believe more markets we operate in will trend in that direction in 2026, assuming the job situation is reasonably constructive.

For example, our internal tracking shows 2026 new apartment supply in the Washington, D.C. market that is competitive with our properties will be declining by over 8,000 units or down 65% to below 5,000 units, a level we have not seen since at least the great financial crisis. With portfolio-wide occupancy of more than 96%, and occupancy nearly 97% in some of our key markets, we think this sets us up well for another year of solid performance in 2026. And if job growth reignites, we could see some very good results. In sum, we continue to see the current and future drivers of our business is healthy and the forward momentum is solid.

And with that, I'll turn the call over to Michael Manelis.

Thanks, Mark, and thanks to all of you for joining us today. Our third quarter results reflect solid demand with outside performance in San Francisco and New York. Currently, general macroeconomic uncertainty remains as a result of tariffs, lower job growth and more recently, the government shutdown. These factors make forecasting demand a little bit more challenging today than it was 90 days ago, but what has not changed is the excellent setup we have going into next year due to the dramatic reductions to competitive new supply.

Breaking down our third quarter operating results. Our renewal rate achieved for the quarter remained strong and was up 4.5% with nearly 59% of our leases renewing, and both of these were in line with what we thought would happen through the quarter. Our centralized renewal process and intense focus on customer satisfaction has helped deliver the lowest reported third quarter turnover in our history. Across our portfolio, the average length of stay has increased by nearly 20% from 2019 and retention is at record levels. As secular trends and our focus on enhanced customer experiences have driven increased retention, the positive impact on same-store revenue growth from renewals has become more significant. Our unique value proposition and customized renewal experience reduces costs associated with vacancy and new customer acquisition like marketing and concessions while enhancing customer satisfaction and removing the friction costs on our residents who choose to remain with us.

This strategy optimizes overall revenue and improved customer satisfaction despite potential short-term variability in new lease change which is an output that is greatly impacted by who moved in or out. With that said, new lease rates at negative 1% came in lower than we expected and resulted in a 2.2% blended rate increase for the quarter which was at the low end of our range. As Mark described, pricing trends peaked in July this year at a level that was both lower and earlier than normal. Prices stayed relatively flat through August, started the seasonal descent in September, which is typical but we did observe some late quarter pricing softness, mostly in Washington, D.C., which I will describe in a minute, which impacted our new lease change.

For the entire portfolio, physical occupancy remained high at 96.3% for the quarter, driven by solid demand and strong retention in our coastal markets, excluding D.C., which gave up some occupancy at the end of the quarter. Let me take a minute and highlight a few of the markets that are driving performance. The recovery in San Francisco, particularly downtown, is real. As the epicenter of all things tech workers have returned to the market and drove high occupancy and very good rate growth on both new lease and renewal rates. This strength was supported by the positive trends we observed in our migration data with just over 4% more move-ins coming to us from outside both the MSA and the State of California. In addition, we have a very favorable new supply setup in the market in 2026 with only about 1,000 units of competitive new supply being delivered.

San Francisco will be our best-performing market in 2025 and most likely again in 2026 as we are just now approaching 2019 rent levels in our downtown portfolio while median incomes in the market are up 22% since 2019. Similarly, New York continues to be a strong performer. Job sentiment in the market has been good and competitive new supply has been and will continue to be very low, which should position us to deliver above-average revenue growth again next year. I would note that our combined exposure to urban San Francisco and New York and the positive demand and supply outlook in 2026 is particularly unique to EQR and should be a relative strength for us versus peers next year. While DC will end up having a strong 2025, the year has certainly been a tale of 2 markets. The strength we saw early in the year carried through most of the third quarter, but as I mentioned, in late September, we definitely started to see some softness in demand and pricing power.

A combination of federal job cuts and the National Guard deployment followed by the government shutdown has created a lot of uncertainty in the local market. Most of the pressure is being felt in the district and in pockets of Northern Virginia, and these areas, our current operational focus is preserving occupancy. And while we aren't experiencing residents turning in keys due to job loss, our overall turnover in the D.C. market did increase slightly in the quarter and the volume of leasing activity has slowed as the overall market still needs to absorb the nearly 13,000 units delivered this year. The good news is that in 2026, competitive supply in D.C. will drop 65% and remain low for the foreseeable future, which is a marked change from the past decade. Add to that, our sense that in the long term, the federal government will continue to be a job engine regardless of the near-term headwinds of temporary cuts or shutdowns. Overall, we feel very good about D.C. as a market in the long term.

Shifting to Los Angeles. The city continues to face challenges and remains a wildcard as we head into 2026. We continue to see overall market weakness driven primarily by slowdowns in the entertainment industry and although the quality of life issues are improving, they are still not where we would like them to be. We have demand but less pricing power, particularly in the urban portfolio, where we continue to feel the impact of new supply in our Downtown, Koreatown and Mid-Wilshire portfolios. Our suburban submarkets of Santa Clarita, Inland Empire and Ventura County are performing well. As in many of our coastal markets, supply will be lower in 2026 but we will need to see a catalyst for demand in order for us to have pricing power return. Our hope is that with the upcoming World Cup in 2026 and the Olympics in 2028 that there will be long-term incentives for the quality of life to improve in L.A., albeit from a low base.

In our expansion markets, which currently represents only 6% of our same-store NOI and 11% of our total NOI, high levels of new supply continue to impact operating results in Atlanta, Dallas, Denver and Austin. Atlanta is faring the best of the 4 and Denver, the worst. Our same-store portfolios in both Atlanta and Dallas should see improved results and performed better than the broader market next year as we add our recently acquired more suburban assets to the same-store portfolios next year.

Before I turn it over to Bret, let me take a minute to highlight our current activities around innovation. In the third quarter, we deployed our AI-driven application processing tool which has already delivered a 50% reduction in the overall application time. We currently have about half of all applications being completed within 1 day, and this process includes a more robust comprehensive ID verification process that should help reduce fraudulent activity going forward. Overall, I am really excited about the opportunities in 2026 as we continue to implement AI in other key areas of the resident experience. Next month, we will begin testing a new service application module that is designed to improve service request intake, provide self-service tips, optimize team schedules and ensure qualified team members, address task efficiently in a single visit. This is a great example of how we are focused on increasing the utilization of our workforce, while at the same time, creating a more seamless and responsive experience for our residents.

I want to give a shout out to our amazing teams across our platform for their continued dedication to our residents while embracing change to further enhance our operating platform. Our portfolio will end 2025 well occupied with a strong platform that combines automation, centralization, along with a local team that knows how to keep our customers satisfied while getting a larger share of the demand pool whatever that level may be in the markets.

And with that, I will turn the call over to Bret.

Thanks, Michael. Before I walk through our updated guidance, I first wanted to say how excited I am to be here at Equity Residential working alongside Mark, Michael, Bob and the rest of our talented corporate team. It's been nearly 100 days since I joined the company, and I'm even more impressed with the organization than when I started. I'm comfortable stating that because one of the first things I did here was hit the road and visit many of our communities and hardworking associates across the country. My early travels included some of our top-performing markets, such as San Francisco and New York, where I saw the quality and location of our assets firsthand as well as the innovative operating platform Michael and the team have established.

I visited Seattle, where we are set up well for 2026, benefiting from local return to office mandates and continued AI investment growth. I also traveled to Dallas, one of our larger expansion markets and witnessed constant examples of the outsized demand growth dynamics that are driving our positive long-term thesis on that metro area. I'm grateful to all my new colleagues for helping me get up to speed so quickly.

With that said, let me provide some color on the guidance adjustments we made this quarter, which continued to reflect a stable and resilient business outlook, albeit amid some macroeconomic and employment uncertainty, as Mark and Michael described. We've adjusted the top end of our full year same-store revenue outlook down as a result of third quarter same-store blended rate coming in at the lower end of our prior range and what we have seen in early fourth quarter trends. In addition, a portion of other income growth related to bulk WiFi that we expected to realize in the second half of 2025 has rolled out slightly slower than planned and will now be pushed into 2026. That said, we still saw strong quarter-over-quarter growth in other income of 9%, demonstrating our ability to continue to pull multiple levers to drive overall revenue.

The combination of these 2 factors resulted in a revised 2025 same-store revenue range of 2.5% to 3%, with a midpoint of 2.75%, which matches the midpoint of the range we guided to at the beginning of this year. We held same-store expenses steady at 3.5% to 4% for the full year and continue to see sub-inflationary trends on payroll, insurance and real estate taxes, partially offset by higher utility expenses, particularly in California. I would remind you that our 2025 same-store expenses are approximately 40 basis points higher this year due to the continued rollout of bulk WiFi, which sits in repairs and maintenance, but is positively contributing to outsized other income growth for the remainder of the year and will continue to do so as we move into 2026.

The net result of these same-store revenue and expense adjustments is a revised annual same-store NOI range of 2.1% to 2.6% at a midpoint of 2.35%, 15 basis points higher than our original 2025 guidance, but 15 basis points lower than the midpoint we provided in the second quarter. For normalized FFO, we've tightened our range of both the top and bottom end and are estimating full year 2025 and FFO per share of $3.98 to $4.02, leaving the midpoint unchanged from Q2 at $4 per share. Slightly reduced same-store NOI should be offset by expected continued improvements in lease-up NOI and lower property management expense.

With that, I will turn it over to the operator and open it up for questions.

[Operator Instructions] We'll now take your first question coming from the line of Eric Wolfe with Citi.

It's Nick Joseph here with Eric. I appreciate the comments on the peak leasing season and totally understand that the timing of each year is a bit unique. But I guess in the past, when you've seen rent growth falling at this time of the year, how do you approach the forecast for next year's growth? And how do you decide whether these are more temporary factors affecting rent growth or it's something that's more likely to persist going forward?

Yes. Nick, this is Michael. I mean that's a great question. I think what I would start with is just say, as what we felt coming out of that peak leasing season and looking at some of the deceleration that occurred in that later part of September as carried through October. We basically just took kind of that seasonality through the rest of the year. And how it kind of manifests itself into next year. There's still a lot of seasonality to these blends. And I think I'm going to stay away from kind of giving the exact kind of guidance or outlook to next year. But we do expect to start out next year well occupied with some embedded growth. It looks very similar to kind of how we started out this year.

And I think the wildcard for us is really going to be what is that intraperiod kind of rate growth look like? And for us, in many of these markets, it's going to be when does that consumer sentiment turn positive again. We have such a great setup with the reduction of competitive supply being so much lower in many of these markets. It's not going to take much of a catalyst from that sentiment change or any kind of catalyst in the job growth in these markets to really fuel that intra-period growth. So I think for us, I'm going to stay away, like I said, from giving you the guidance, but we're modeling right now for continued deceleration for the back of the year, but still feel pretty good about the setup and the outlook into next year.

I appreciate that. And then just in terms of capital allocation, you've done $100 million on the buyback so far. Given where the stock is today, what are the factors? Or how are you thinking about really leaning into that and doing it at a much more meaningful scale versus other opportunities with your capital allocation?

Nick, it's Mark. Thanks for that question. There's really 2 inputs. I mean one is the attractiveness of our other investment opportunities, which is predominantly buying existing assets or building new assets versus the stock and obviously, we voted for the stock over the last quarter and bought that. There's also -- the availability and cost is the other factor of the capital we need to acquire the stock and it's really only 2 places. We either have to issue debt or we have to sell assets because as you well know as a REIT, we just can't retain much in the way of earnings. We pay a really nice $1 billion a year dividend already. .

So our lean right now is to continue to do asset sales of these lower return profile assets or assets we have over concentration in the submarket, kind of improve the forward growth potential of the business and arbitrage the private public markets and continue to be thoughtful about buying more stock. But exact levels and stuff are just dependent on where the stock price goes and the opportunity set goes. And we'll be open to that. But I just want to remind everyone, and again, I know you know this, Nick, but there are real tax gain limits. We have a lot of embedded gain in our assets. We've done a lot of good investing over the years and our assets are worth a lot more than the basis is a lot lower the tax basis. So there'll be a lot of gain. We also did 103 I'd also point out, I want to be careful not descaling the company too much. There's a lot of fixed costs in running a public company of this size. So we just want to be thoughtful about that. But we're very open to additional buyback activity in the quarter.

Next question is coming from the line of Steve Sakwa with Evercore ISI.

I was wondering, Michael, if you could provide any color on just kind of where the earning sits today as we kind of head towards the end of the year?

Yes. So I think maybe I'm going to just start off and let me define or clarify embedded growth, which is kind of also referred to as that earn in. And it basically just means that you're freezing the rent roll on 12/31. You annualize all the leases in place with no changes to occupancy or vacancy loss throughout the year. We started 2025 out with approximately 80 basis points of embedded growth on the same-store set. And while that was slightly below the historical average of 1%, it was still a pretty solid position for us to start off the year. Given the current momentum that we see now and some of that deceleration that I just referred to that we modeled, we now expect 2026 to start out in a relatively similar position than we did this year.

And our view is a little bit lower than what we thought 90 days ago. And this is really just a result of us taking down that trajectory of the fourth quarter given some of the deceleration that we saw begin in kind of late September. And I do want to call out because I know a lot of you guys have these models. And while the math is not perfect, right, rough estimates, you start out with about 50% of the expected full year blended growth. But in 2026, we're going to also be folding in some of the assets in the expansion market. And while these assets are clearly performing better than the same-store assets in those markets, they're not performing better than the overall kind of coastal same-store portfolio. So it's going to be a little bit dilutive to that embedded starting point. But again, I think at the high level, we would say we're going to start out 2026 in a relatively similar position as we did in 2025.

Great. That's helpful. And then maybe just going back, it sounds like with the slowdown in the seasonal trend, it sounds like there's a bit more pressure on kind of the new lease trend and kind of top-of-funnel demand. I'm just curious if you're seeing any change in behavior on the renewal side? And have you had any kind of real change in the renewal success? Or are you seeing really is most of the weakness really happening on the new lease side of the business?

Yes, Steve, this is Michael again. Great question. So I think what we noticed in select pockets of markets and the renewal process, there tended to be a little bit of a hesitation. So a little bit more back and forth. And again, we have centralized our -- we have a centralized renewal team handling all of these negotiations or conversations and it's really allowed us to execute these various strategies, but we noticed a little bit more kind of back and forth a little bit of this hesitation. Right now, for the next several months, our quotes have been sent out in the marketplace. We typically send out renewal offers about 90 days in advance. Those markets -- those quotes were sent out about 6%. And sitting here today, we got a lot of confidence in our process.

We would expect to have achieved kind of net effective renewal increases to land right around 4.5%. This is typically a time where we're going to lean into retention, and we'll tend to negotiate a little bit more as we hit the shoulder part of the season. But I think we saw a little bit of that hesitation, but we still have a lot of confidence in our process. And again, we're seeing really strong resident retention occur. It's just taking a little bit more kind of back and forth, a little more effort to secure those leases.

Next question is coming from the line of Alexander Goldfarb with Piper Sandler.

Two questions. Bret, maybe I'll start with you and kick it off. And by the way, a nice job on your [ Blue Jays ] last night. And so this may predate you, but I think you guys did converts back in 2006. Once again, they seem to be all the rates. You guys have some mid-3% debt coming due next year. Just curious where your headset is on the potential to reenter the convert market or if your view is, hey, we did it 2 decades ago. We had an experience. We haven't done it since and that's the message is that you guys may just stick with traditional. Just trying to understand, especially given some of the receptiveness we've seen from some other large REITs pricing converts pretty tightly.

Alex, it's Mark. I'm going to start here. It is historical context that Bret lacks, but certainly understands converts very well given his experience level. So when we did that back in '06, we did that in part because we were working with the Lexford portfolio sale and buying into lower cap rate, higher growth markets like New York. And so this was a little bit of an asset matching exercise for us, and the terms were pretty appealing. So I do think converts are an interesting tool. I think there are times they're very beneficial.

If we got our hands, for example, on a portfolio where it was a big lease-up effort that we were going to have, our big renovation effort, and it was pretty material. You might match fund that with some converts. The accounting disclosure converts is pretty favorable now. And then if it's succeeded, the convert holders would benefit the existing equity holders would benefit and it would all make some sense. Otherwise, we're an opportunistic and infrequent issuer of converts. It's a little awkward to be buying your stock back and issuing converts at the same time. So we'll just have to balance that out.

Okay. And then the second question is on AI. A lot of discussion on whether it's sort of a net job creator or it's maybe a job eliminator or it's just obviously different headlines on layoffs and stuff. So in your key AI markets like New York and San Francisco, are you seeing a ripple effect where the AI job hiring is benefiting other related industries and you're seeing net overall job growth? Or are you seeing sort of the reverse where AI job growth is ending up with other positions in those markets being eliminated and replaced by AI.

Yes, what an excellent question. It's Mark. I'm going to suggest that Michael will just tell you what he's hearing from people on site and in the markets and give you that intel. And then I'm going to sort of give you what we've been thinking about on the AI side and employment in the long run, but I'd tell you it's very -- of course, very unknown at this point. So Michael.

Yes. I mean I think one of the best indicators we have is when we drill into some of our migration data, which is where our new residents coming to us from, what industries are they working with? I wouldn't necessarily say, Alex, that this is all driven because of AI that we're feeling. But when you look at San Francisco and New York, San Francisco clearly saw in migration, 4% more of our move-ins coming to us from outside the state of California, outside kind of that MSA, which basically is telling us. There's a lot of kind of excitement going on. I mean this is the epicenter of tech.

So even though you see the big guys kind of really dominating the headlines around AI, there's a lot of other startup industries. There's a lot of businesses now that are benefiting from just an overall shift in the technology strategy of companies. And I think we're benefiting from that. New York, what was interesting for us is we saw a slight uptick in that migration pattern coming in from outside that MSA. But what was cool on the outbound side, people that were leaving our portfolio we're staying in the state and in the MSA at a higher degree than what we saw before, which gives us confidence that kind of that market is going to be doing really well for us next year.

Yes. Just to tack on -- yes. One last thought on the AI side. I mean, clearly, there's been a lot of talk about whether AI is going to get rid of a lot of white-collar jobs. No one knows the answer to that question. A lot of the comments about vast displacement are being made by folks, Alex, as you know, who greatly benefit from the AI boom. And so it's a little bit about talking your own book. That said, I do think AI is an interesting tool. And I think it's going to change the relationship between colleges, students and employers. Right now, I think the unspoken deal is colleges turn out smart people with good general skill sets but not necessarily work-ready skills.

And I think what's going to happen going -- and you spend a year or 2 teaching those people, your vocation, their vocation and then they're pretty productive for you. I think colleges are going to have to put at a premium teaching people, data analytics and AI skills, so they're going to show up with the equivalent of second or third year employee skill sets and be able to move forward. You know the kind of people that we have at our properties. These are highly educated folks. These are often Gen Z and millennials that are digital natives. They understand technology. They will learn AI, and they'll learn to use it better, I would argue than anyone else. So my sense is the market will adapt to this, and I'm not a believer in the no one will have a job theory of AI employment.

Next question is coming from the line of Jana Galan with Bank of America.

Question for Michael, following up on your San Francisco comments. If you could speak to your prior experience in that market when demand starts to accelerate, how quickly can rent increase? And then does seasonality still hold or kind of not as much given the growth in jobs?

Yes. I mean obviously, anytime you have supply/demand kind of imbalance. And in this case in San Francisco, you have very little competitive supply, and you have more demand coming into the portfolio, that creates this opportunity for rent growth. And I think I alluded to in my prepared remarks, we're just now getting back to 2019 kind of rent levels in our portfolio but when you look at incomes in that market, it's up 22% since 2019. So I think, historically, what you see is any time you have this imbalance and you have strong demand, less supply you're going to be in a position of pricing power. I don't know that it's going to completely abate any kind of seasonality trends. So you may see some softening in very strong numbers still like in the fourth quarter or in the first quarter. But we clearly have an opportunity in front of us. And this is exactly what we kind of highlighted earlier in the year at our Investor Day, this recovery is taking hold, and we're really excited as we get kind of playing out at this pace.

And a quick 1 for Bret on the WiFi expenses. You mentioned it was kind of a 40 bps delta in 2025. Is there additional expense related to this initiative in '26 or that will kind of just be smoothed out?

Thanks for the question. No, that's primarily for this year. So right now, we're just looking forward to getting the revenue after we've had the expenses run through this year.

Next question is coming from the line of Brad Heffern with RBC Capital Markets.

Can you give your perspective on what you expect to happen in D.C. over the next 6 to 12 months? And how much of an impact has shut down historically have? And how much do you expect this one to have?

Yes. Brad, this is Michael. So maybe I'm going to start. I just want to give a little bit of color as to what have we observed in D.C.? How do the various submarkets kind of appear today? And then I'll kind of shift it as to what we would expect for the balance of the year or turning into next year.

So first and foremost, I think what we observed in that first or second week of September is a little bit of that hesitancy that I described on that renewal process, but also taking hold with prospects. There was just a little less sense of urgency to buy and sign on the dotted line and commit to kind of move-in date. So that manifested itself as we worked our way through September into October with just a lower volume of kind of new leases occurring. The retention side held up strong. When you look at D.C. today, if you peeled out our D.C. market, we have a suburban Maryland portfolio doing very well, right? It's 97% plus occupied. It's got rents slightly on top of where they were last year.

You go into the Virginia portfolio, go deep suburban into Fairfax. I got good occupancy and I got rents up a couple of percent. Start coming in towards DC in that Virginia portfolio where you've got a more urban concentration continue with the supply and I've still got solid occupancies, but I got pockets where I don't have pricing power where I had to start utilizing concessions. And then you get into D.C., Northwest D.C. along with D.C. kind of the district central area, I've got occupancies that are running 95%, 95.5%. I've got concession use that has clearly increased in the last 4 weeks and I got net effective prices that are down 4%.

So we've modeled that out for the rest of the year. I -- we're not seeing kind of folks that lost their job with the government turning in keys, we're not seeing kind of any of this increase in lease breaks. You're just seeing an overall slowdown in the top of the funnel and this willingness to commit to a lease. And I think for us, we'll have to expect that to continue through the balance of the year. I think consumer sentiment is tricky, right? It can shift on us very quickly and turn back positive. You can get past the government shutdown. You can get some confidence back in hiring, and then that market is going to be really well positioned again because we just have a huge decline in competitive supply coming to our advantage next year, that it's not going to take much for us to have pricing power. The trick is exactly when is that inflection point take hold.

Okay. Got it. And then on San Francisco, you've called out the difference in rent growth and income since the pandemic a couple of times. Do you think we're in sort of a multiyear above-average growth environment where we might see that differential narrow quite a bit? Or is there some component of rent having outrun fundamentals in the past and now we're seeing sort of a catch-up as well?

I mean I think our view, clearly, when you look at the recovery is that we have some good years in front of us in that market. Technology is advancing quickly, that market is clearly at the center of that. You see the migration patterns. You see the income going up. You see rent levels that are still at a really good discount relative to historical standards. So that when you put it all in the blender, tells me that we should expect some outsized kind of growth for the next couple of years there.

Next question is coming from the line of Adam Kramer with Morgan Stanley.

I think, Mark, in your opening comments, you used the word elongated, talking about sort of the recovery in the expansion markets. So wanted to maybe double-click on that. I'd be interested to hear if that's more of a lease growth comment if that's sort of relative to expectations about the seasonal curve that maybe you don't expect a normal seasonal curve there in the expansion markets in '26? I guess just more broadly, any color on market rent growth expectations. I know it's still early, but market rent with expectations for next year, maybe coastal versus expansion markets would be really helpful.

Yes. Thanks, Adam. I'll start and Michael or Bob may contribute as well. So I was alluding in part to the fact that though people are very aware of deliveries in these expansion markets, in these Sunbelt markets. They don't really think as much about how long it takes to fully absorb, which in a highly supplied market, can it be at least 1 renewal cycle. And that was the other point I made in the remarks. So I want to give some perspective. Like we're not prescient about all this, but I think we were rational about how quickly absorption would occur in pricing power return to landlords. The assets that we bought a couple of years ago in these markets, when we were looking recently at their performance, we were within 1% of our underwriting on NOI.

So I think what we just had in mind was that concessions would persist that rent growth would be minimal to negative for a while that, that was just what happens when you're in a very heavily supplied situation. And then you'll get out of it in your role. But I think that inflection point, people have kept wanting to put that inflection point on the date that deliveries declined and we just didn't believe that. That is, I guess, sums up how we underwrote differently. We were more focused on the full absorption, the full amount of the supply being just part of the normal volume in that market and not pressuring existing owners very much. I would expect coastal markets to have higher same-store revenue growth by a fair margin next year, all the low leases that were written this year are going to be in next year's rent roll and are going to pressure those numbers.

You may see and we expect to see some improvement I hope earlier next year, but it could be later depending on the job situation in the second derivative and that rate of change number on new lease and otherwise, but it all comes from a really low base. So again, I think it's a certainty that coastal markets will have higher same-store revenue growth, and every market is a little different because they've written better leases this year and that those are going to affect next year. I think the opportunity in the Sunbelt markets, including our expansion markets, is to start to maybe stabilize occupancy and maybe start to move up -- reduce concessions and move up new lease levels, but I think it's just going to be more of higher cash flow late in '26 and into '27 more so.

Great. That's helpful. Maybe just a little bit of a wonky one here, but just wanted to ask about the some of the same-store pool changes with some of the kind of prior year acquisitions folding into the same-store going into next year. Maybe if you could just sort of quantify what percent of -- and I think you mentioned it earlier, but just what percent of the same-store pool today is expansion markets and what that's going to look like next year and then maybe some of the specific assets that are going into the pool as we go to next year?

Yes. So great question. I think maybe stepping back for a minute, when we think about just same-store results and kind of the steps we have. Just a reminder, we have 3 same-store sets. So we've got the quarter versus same period last year, all about 75,000 units. Current quarter versus last quarter, which is sequential, that's about 80,000 units. So there's about 5,000 unit difference there. Year-to-date same period, that's about 74,000, 75,000 units as well. So I think as we look to next year, my guess is it's about a 5,000 unit increase that goes into our same-store set in 2026, and that's primarily coming from those expansion markets.

Yes. Just -- I think that's exactly right. And it's Mark. All I'd add there, Adam, is this is something Michael said. A lot of the assets we're adding are suburban assets in Dallas, suburban assets in Atlanta, suburban assets in Denver that by and large, are going to look better than the performance of the assets we already own in the same-store set which because we brought them early, we got pretty good basis, but they tended to be urban assets, and they've not performed as well as our suburban portfolio has in the last year or so. Though when they weren't in same-store, they did pretty well. So some of that is less observable to you. So anyway, I would guess that you're going to see 4,000 to 5,000 more units in the annual same-store set that Michael will give you guidance on in 3 months.

Next question is coming from the line of John Pawlowski with Green Street.

Michael, outside of the D.C. Metro, what other markets do you see a real cooling of demand in the last month or two?

John, it's a little bit hard to hear you. You just asked on where else did we see a decline in demand in the last month or so, other markets?

Yes, [indiscernible] sorry for the quiet voice.

Yes. No, that's okay. I think I would put Boston kind of into this mix as well for us, which is we've been watching kind of Boston. It's a very seasonal market in general. But I think what we've seen right now is just a little bit more softening than you otherwise would have expected. And when we started this year, we thought this urban core of Boston was going to do better than the suburban. Again, we're 70% urban in that market, 30% suburban. It's absolutely playing out that way where the urban portfolio is outperforming the suburban but it's just not as robust as what we would have thought. So we've kind of taken down that fourth quarter projection as well.

And I think I even alluded to some of this on the last quarter call, which is we clearly had headline risk there. And I think right now, what we're seeing is a confirmation that a weaker biotech sector, pullback in university and research funding immigration challenges are all just chipping away at this overall demand levels in the market. And I think right now, when we turn the corner and we start off next year, I still think the urban portfolio is positioned to outperform the suburban, but we got to get through some of these kind of near-term demand driver vulnerabilities that we're seeing right now.

Okay. Second one for me. Bob, could you spend a minute or 2 just help and frame like what type of changes are you going to be incorporating in the underwriting process now that you're at the helm and the investments organization and just generally, how your approach will be different either philosophically or the data you're using, the processes. Could you just spend a few minutes talking through how the investments work and how your underwriting properties and markets are going to be different in the next 5 to 10 years versus the last 5 to 10 years?

Yes. I don't think there's anything that's like particularly like wholesale change in terms of strategy, et cetera. But I think you pinpointed something that it's a huge opportunity that Alex was already really starting on, which is just this data-driven mindset. So I think you guys probably see it in your own investment space where there's just incredibly larger amounts of data sets and there's better ways of analyzing that data and relational data around that. And we're fortunate to have a long history of our own data set that we can work together in making kind of better decisions. So I think it's just continuing to lean into something that frankly started before my transition and that I hope to accelerate. And I think that's part of the excitement of the opportunity for me personally is to kind of take it to call it EQR, 3.0, 4.0, whatever iteration you want to say. And we're fortunate to be on a platform where we have a lot of data and a lot of skilled people who know how to do this. And so that's the excitement, if you can't hear it in my voice.

Next question is coming from the line of Michael Goldsmith with UBS.

This is Ami on with Michael. What impact, if any, do you expect from the announced Amazon layoffs? How exposed is your portfolio to the specific submarkets most likely to be impacted?

Yes. Ami, this is Mike. I'll take a shot at that. So first and foremost, I think this is one of the benefits you have of us having a diversified portfolio that you kind of derisk some of this kind of direct pressure from any one employer. That being said, if I looked at the entire portfolio today, again, we capture employment data at the time of application. So we don't follow somebody once they move in as to where they're currently being employed. But if I just looked at that snapshot today, we have about 3% of our units that had residents employed at Amazon at the time they moved in with us. I looked at the concentration across them, obviously, markets like Seattle, where you have a heavy employment space from Amazon. We have a higher percentage there. But for us, that gets very isolated. We have 3 properties in South Lake Union, where we have a high percentage of Amazon employees. .

I also want to just call out that we've been through this before with these kind of layoff announcements and looking at some of the stuff that's hitting the press now about Amazon, it is more dispersed across several markets. This is not a light switch. It's not immediate. These are very kind of well skilled, employed individuals. Many of them will receive severance packages. I think in the case of Amazon, they're given 90 days to go find alternative roles within the company. I looked yesterday, even at a couple of markets like in D.C. they still have 300 positions posted. So it's not like they pulled down all their available positions either. So I look at this and I say, look, any time you have these big headlines that take away from the top of funnel demand, that's not a positive, right? In today's day and time, we're looking for job growth. But comparing that to isolated pressure, I'm just -- I don't see this as a big concern for us.

Okay. That's helpful. And then next question is on leasing concessions. They still had a relatively low level of rents, but on a year-over-year basis, they jumped up pretty materially. What are you offering in terms of concessions? And are they concentrated in certain markets? And last question, are you offering any concessions on renewal?

So this is Michael again. Very, very limited concessions are being used into our renewal process at all. I think on a cash basis in the third quarter, we did use more concessions than we originally expected. I will just put this in terms of days per move-ins. So in the third quarter move-ins, we averaged about 7 days of rent being concessed and that increase was clearly targeted into occupancy leans in some of these markets like D.C. and the expansion markets are pretty heavy use of concessions right now. As we think about the fourth quarter, I would expect that concessions on an absolute dollar basis will drop off a little bit just because the sheer volume of transactions on the new lease side drops off.

But when I look at that relative to move-ins and days being concessed, my guess is we're going to tick up 1 day and probably be in a position next quarter to say that we've concessed about 8 days per move-in for the folks that moved in, in the fourth quarter. Concessions right now are sticky in some of the markets, even in like a market like Seattle, that has some decent demand, you just see some more widespread use happening. And I think this is just a function of where you had supply delivered in 2025, and you're still working through the absorption of that supply, many of the owners of those types of assets, increased concessions heading into the fourth quarter and many of the stabilized assets in those submarkets followed suit. And that's kind of what we're feeling.

Your next question is coming from the line of Haendel St. Juste with Mizuho.

My question is on the 4Q '25 blend guide, 50 basis points. I was hoping you could set some light on the range of expectations there for say, your weaker coastal markets like D.C., Boston, L.A. as well as some of your better markets like San Fran, New York, Seattle.

Haendel, this is Michael. I'm going to stay away from giving kind of any like specific market numbers relative to blend. I'll tell you, the trends that you see are probably going to -- and continue in the fourth quarter. San Francisco is going to be one of the better performing markets, same with New York. You clearly have seasonality in the stats, and I think everybody needs to remember if even if you went back and looked at like 2019 data, you have material declines in the fourth quarter just based on seasonality in it by itself. So markets like Boston will be more negative in the fourth quarter than they were in the third, even when the market is performing well. So I think for us, rather than go kind of market by market, I would expect to say that the trend that you see in the fourth quarter or the pecking order is probably going to continue into -- or what you see in the third quarter is probably going to continue into the fourth quarter, but there will be continued deceleration probably across most of the markets.

Got it. That's fair enough. And I don't know if I missed it, but did you give new and renewals for October?

We did not give that, and we're not going to give any kind of spot month kind of stat. I think I gave some of my remarks around the renewal side of the business that the quotes are out in the marketplace, and we have a lot of consistency there and would expect about 4.25% achieved renewal rate increases in the fourth quarter.

Next question will be coming from the line of Rich Hightower with Barclays.

Mark, I think just to maybe put a finer point on some of the comments on the expansion markets. I guess, with some of the absorption dynamics that you described, I mean do you expect a normal seasonal curve next year starting in -- or is it going to look different kind of in the way it looked this year? And then similarly, can we expect positive market rents given the trends that you're seeing sort of extrapolating? Just to be clear.

Well, every portfolio is different and every market is different. So you could have people less and more optimistic because of their portfolio composition in a specific place. And again, we don't report to be experts in every submarket in every location. And there's a lot of places in the Sunbelt like Phoenix, we don't do business at all. So we wouldn't have a perspective on that. I think the answer to that is this job growth thing. If we, as a country, see decent job growth next year, I think the markets will have their normal seasonality. Most markets across the country have less supply in the coastal markets, particularly we've highlighted a lot less supply. I think if we see job growth, I think we are off to the races in our coastal markets, and I think you'll see the recovery begin in our expansion markets in a more profound way than it has so far. .

So my bet is that this is a pause in jobs, not a significant and long-lived downturn. The big question, to be honest, is whether the pause continues in and through the leasing season. If it gets better in the third and fourth quarter of next year, that's nice, but we will have done and our competitors will have done a lot of their leases by then. So I think, Rich, it's just a question of whether when you start to get to April and May, you're feeling better about the job situation. There's reasons you should, right? I mean the Fed, we expect in a few hours is going to lower interest rates. There is more certainty on the tax and regulatory side than there was even 6 months ago. There appears to be more certainty even on the tariff side, though that is a dynamic input still. So there are a lot of things that look a little better known. And I think maybe employers will be a little more risk on in the new year. So we'll just have to see. But I think the job thing is the key to the whole puzzle, and certainly is a wild card at this point.

Okay. That's helpful. And then finally, just a quick one, and maybe this is for Bret. And Bret, it's good to hear you on the other end of the line. Yes, of course. And then just on the guidance, really quick, guys. There's a $0.04 swing on $1.4 midpoint for 4Q. So just help explain what the swing factors might be between now and the end of the year, which is obviously not so many days.

Yes. Look, I think we've got clearly other income growth, which we mentioned is going to help alongside with that swing and then we've got also rental income contributing in the fourth quarter as well. That pretty much makes up the difference of it.

Yes. And just to understand the variation because that is you're sort of highlighting that, that $16 million of total difference, we do have our overhead stop. A lot of the bonuses and other things, frankly, are determined in the current period so we don't know those numbers. The same with a lot of medical reserves and things, Rich, that kind of are inside baseball and not particularly interesting, but do have an effect on the numbers. So that was just giving us the ability to deal with those in the period. I mean, we obviously feel good about the midpoint or we wouldn't have said it there, but there are puts and takes at the end of each year and they are, frankly, relatively unpredictable and uncorrelated to each other.

Your next question will be coming from the line of Jamie Feldman with Wells Fargo.

Great. So I guess just some of the line items in our model, we're hoping to get a little more clarity on as we think about '26. Can you talk us through your latest thoughts on loss to lease if the push out of other income will affect '26 at all? Like there will be any kind of bump there that we should be thinking about? Any thoughts on your insurance renewal for March? And then any other key expense line items we should be thinking about?

Wow, that's the gamut. It's Mark. I'm going to have Michael speak to loss to lease, which right now is probably be by the end of the year, gain the lease thing and other income a little, and I'll talk to insurance, and we'll work on expenses for you a little bit. But we are just to be fair, rolling numbers up. I mean we don't have visibility into a lot of these numbers at the level of precision, I think you're asking. But we can talk directionally.

Yes. And I think, Mark -- this is Michael. Mark just hit on it, right? Today, the snapshot of the portfolio, we have a gain to lease of about 1%. This is where the portfolio was in November of 2024. And I think while we originally modeled to have a little more pricing power kind of through this peak leasing season, all of this stuff does appear to be very consistent in the fact many of the other metrics and that everything is happening about a month sooner than normal. So my expectation is that we're going to start out 2026 in a continued gain-to-lease environment, and then we'll go through the leasing season.

And as Mark just talked about, many of those variables is going to dictate how quickly we shift back into a loss to lease, which is kind of what happened to us in 2025 because we started out in a moderate gain to lease and very quickly moved into a loss-to-lease environment. I'll also hit on one of the other items. So I think, as Bret alluded to, some of the shift in the other income that we saw in '25, it's really just a timing delay and we're talking about -- it's a couple of million dollars that deferred from 2025 into 2026. So yes, it's going to help in '26, but we're still in this process of rolling all of this up to understand exactly what the full contribution from other income will be to revenue.

Yes. And insurance, just to hit on that, for us, a pretty small line item, 3% or 4% same-store expense, a good number this year after some really outsized numbers. Let's see how the rest of the hurricane season goes. We don't have a hurricane exposure in our portfolio, but it does affect the marketplace as a whole. So right now, it feels like the loss history or losses these insurers have incurred hasn't been very high. But we'll be pretty careful and thoughtful, Jamie, like we always are on the fourth quarter call with the building blocks on revenue. i mean clearly, there is going to be more emphasis on intra-period revenue growth next year to get to good numbers because the embedded will be good, but about the same as it was this year. .

I think we got something we can give you on occupancy because some of the markets are very, very highly occupied like New York. But we have opportunity in Los Angeles in some of these expansion markets and that number has opportunity. I think we continue to have really good interesting other income initiatives that provide value to our residents, that continue to roll out successfully and there's pluses and minuses in timing, but those will be in there too. So there will be a pretty fulsome discussion with you when we get there. But I feel confident about next year. It feels like the setup is good and the biggest thing we need is just some level of job growth. And then I think we're off to the races.

Okay. Great. That's very helpful. And you guys have quoted a couple of times now, the 6.2% income growth since 2019. If you were to mark that over the last 12 months or even thoughts going forward, like where are we today on that number? And how does it differ across your markets? And what does that tell you about your ability to push rents?

So Jamie, just to clarify, 6.2% is year-over-year for all our new residents across the whole portfolio, 22% is the increase of all employment in San Francisco metro area in wages. So it's grown by 22% since 2019, not just our residents just in general, incomes have and rents in the market are a little above, but in the downtown area below what they were in 2019. So that's what we meant by that. Is that a helpful clarification?

Yes. I was thinking more across like other markets, are you seeing deceleration, acceleration I assume that will be -- it's a big governor on how much you can push rents? Just any other -- anything else that as you look at the data stands out to you guys?

I mean I guess I would just look at what I would say is an affordability index like rents and incentive income. And based on new move-ins coming in, in the quarter, we're running just below 20% rent-to-income ratios which gives us a lot of confidence in the financial health of our consumers and the ability for them to be able to absorb kind of whatever the market rate growth is.

And income growth has been pretty good across all our markets, it's that rent growth has widely varied. So some places, rent growth has been relatively significant until 2 years ago and then went down like in the Sunbelt markets. But places like Seattle and San Francisco, that's the dry powder. That people, if we give them a great experience and if the supply picture improves, we have a bigger opportunity there because they have good incomes and they've had good income growth in nominal dollars, while rents in nominal dollars haven't moved very much.

Your next question will be coming from the line of John Kim with BMO Capital Markets.

You're probably going to hit this question. But Mark, you mentioned that your Sunbelt markets are seeing a significant lack of pricing power, and that's due to the lingering impact of new supply. You've been talking about that for the last several years. Michael, you mentioned that net migration trends are favoring San Francisco and New York, do detect an AI demand? Yet this quarter, your Sunbelt concentration continues to grow with the acquisition in Arlington. But just given those dynamics that you're seeing today and the fact that your same-store NOI in expansion markets are down 7%, have you thought about pausing acquisitions in Sunbelt?

I don't hate that question at all. I like that question, John, thank you. I mean, we're committed to the strategy of having the sort of all-weather diversified portfolio. Like we said at the Investor Day, we're trying to balance supply demand opportunities and risks as well as regulation and resilience and kind of have a portfolio that is very consistent and is just a cash flow growth machine. That said, we don't have a clock over here. Right now, it is not in our shareholders' best interest to continue to move quickly into these expansion markets, not just because of the forward next year's likely numbers in those markets, but because of the price.

When we were buying earlier, we were buying better at better prices. And right now, 5%, 4.75% cap rates that Bob and his team have been bringing to us in premiums to replacement cost from our perspective, given where the stock is, is not a prescription for a long-term investment success. So again, no clock over here. We like being more diversified in the long run, but we will do the best thing in the current period and in the long run. The great thing about the buyback this quarter and potentially going forward is by selling these lower growth assets in our existing markets in the coastal markets, we're improving the growth rate of our NOI going forward. We are improving the percentage of exposure because we're lowering the denominator in these expansion markets. So -- and by the way, we're making a great arbitrage trade between private and public. So it kind of works all those ways, but you shouldn't think that we feel like we've got a clock going off that we need to finish this by a date. There's an opportunity to do it accretively, we're going to hit it. And if not, we're going to stand still or buy our own stock.

Okay. Thanks for answering that. Michael, you mentioned in your response to Brad's question about what you're seeing in D.C. today that net effective pricing is down 4%. And I just wanted some clarification on what that meant. Is that what you're seeing currently on lease assigned or what you're seeing kind of year-to-date?

Yes, John, this is Michael. So what I was saying, so D.C., I want to make sure we're clear. I'm talking about the micro submarket of like DC, the district. D.C. kind of Northwest excluding Maryland, Virginia kind of portfolios. And when I reference the rates, that's our pricing trend. So basically, you were out looking on our website and you basically snapshot it today, with the net effective price against all those concessions compared it to the exact same day last year, same methodology, where would rents be on a year-over-year basis. How that manifests itself through the blends and through the new lease change. It's not fully correlated because new lease is very much subjective to who moved out and then who moved into that unit and the time duration in between all of that. But I think just that spot check and time of where rents are absolute rents are on a year-over-year basis is an indicator of when I was saying that we felt pressure in isolated pockets. What did I mean by that?

But the pricing trend tends to be a leading indicator of where blended rates are?

Yes. I mean, there has to be some correlation, right? If rents are down 4% and I'm getting ready to generate renewals that's going to put pressure on the quoted renewal offers that go out in the marketplace.

Your next question will be coming from the line of Alex Kim with Zelman & Associates.

Could you talk about what you're seeing in the transaction market and just the quantity of for-sale supply in your markets? What does the kind of bid-ask spread look like? And could you put that in the context of the share buybacks?

Yes. It's -- Alex, it's Bob, and I'll start and maybe some of the team will augment a little bit. In terms of transaction volume, and we're seeing pretty healthy transaction volume in the private markets, right? So it's a very big -- Mark has mentioned a few times on the call already, there's a fairly large disconnect between what you're seeing in the public markets versus the private market. So volume overall is about on parity with 2024 which in broader kind of historical context is about 50% of what we would have done pre-pandemic, but has, in fact, been accelerating. It's a tale of different markets and different assets. So when you have assets that are in that kind of down the middle of the fairway, call it, $80 million to $100 million, relatively new, maybe a little bit of light value add, you see a lot of bidders in the tent. You see a decent amount of transactions and you see sellers getting good prices around that kind of 4.75% cap rate that Mark alluded to in his last response and that's fairly active.

If you look at larger-scale transactions, larger assets, assets that might have a mixed-use component of it, there isn't much of a bidding tent. There isn't a lot of people interested there. And that also applies to some of the geographies, right? Some of the markets that are more geographically challenged because the operating momentum may be a little bit weaker. You're not seeing a lot of activity there. But there are -- there is plenty of private capital out there in general, and it's fairly liquid and pretty aggressive on pricing. So the opportunity set, as we've said on the call already, is our shares more at the moment.

Got it. Yes. I appreciate the detail there. And then I noticed that the completion date for your unconsolidated development in Washington state was pulled forward about a year. Could you talk about what allowed for the faster construction time line?

Yes. So Bret and I were actually just out there in August. And it's a market where the rain and seasonal patterns matter a lot and they got the footings in early and some of the more complex riskier excavation work done faster than they thought, and it was just kind of binary, and it's moving along really, really well. Kirkland is a great place to have a brand-new asset. We're really excited about that and thrilled that we'll be getting our hands on it a little sooner. But it really was we made a sort of average estimate on how long it would take and some of this more complex and riskier, frankly, excavation and other work just got done really quick and really well without any problems at all and off to the races we are now with framing and a lot of stuff that is generally more routine.

Next question will be coming from the line of Omotayo Okusanya with Deutsche Bank.

As we're about to go into election cycle, just curious if there are any states or counties that you're kind of watching for anything on any kind of ballot that could have an impact on your rent practices? And then specifically also kind of around New York any thoughts on the major roll rates and any potential implications?

It's Mark. Thanks for that question. So I'm going to start by taking a little bit of what I think is a fair and more optimistic take on regulation. I mean we've had good activity in California with Governor Newsom's leadership and passing a new law that really liberalizes zoning in areas that are near transit hubs and will create more supply. And is really good public policy and similar, frankly, to what was done in a very red state down in Florida. So there are a lot of places where there's a lot of good things going on in terms of increasing housing supply. Congress or at least excuse me, the Senate passed a bill that was bipartisan, again, supporting housing. The federal government doesn't have nearly the tools that the states and localities do, but that was very positive as well. .

In terms of areas of concern, areas of focus. New York, I mean, we've talked about it on prior calls. We are assuming, I think, like many that [ Mr. Mamdami ] will win, the industry associations we belong to have been in conversation with him. He has sat in his various campaign announcements, he'd like to increase supply a lot in New York and the private sector builders are the ones who can do that for. So our message to him through our association is use us to help add to New York's housing supply and that rent control is bad. By the time he gets in office, if he wins, and the rent control stabilization board speaks on these rent issues. We're just going to have a very small percentage of our units subject to that risk.

So for us, it's not as significant directly but certainly, we want to keep having those conversations if he ends up being the mayor and push the supply side solutions programs like the new 421a program and things like that are really positive. We are keeping our eyes on Seattle. There's a big mayoral election there next year -- or next week, pardon me, that is important for the city to continue to make progress. So those are the areas. But again, we've seen a lot of positives as well as things we need to keep focused on as an industry.

That's helpful. Then one more for me. From an operating expense perspective, kind of any other opportunities to kind of keep making progress there. Again, I know like same-store payroll was down like 2% year-over-year. So just curious any other levers that can be pulled in that area to kind of contain operating expense growth?

Maybe I'll start and Bret can kind of add some color on top of it. I think just in terms of operational excellence, the reality is you're just -- we're never done with that pursuit. This is something that's wired into the DNA of our company. We just outlined in my prepared remarks, some of the initiatives that we've been working on to layer in kind of continuations of automation centralization. And all of those do lead to kind of reduced payroll and operating efficiencies being garnered inside the portfolio. So we're really excited. I wouldn't even say that we're in the early inning and there's still a lot of opportunity in front of us to become a more efficient kind of operator by leveraging technology.

Yes. I might add, just I think one of the things we called out was utility expenses were a bit higher. I think one of the areas that stood out was trashed. And I think there's some opportunities for us, as Michael alluded to, to put some best practices in place where we can actually really drive that specific number down. And I think that will be helpful as we go into next year.

And it appears there are no additional questions at this time. I'll turn the call back to Mark Parrell for closing remarks.

Thank you, Shelly. I thank everyone on the call for their interest in Equity Residential, and we'll see you on the road over the next few months. Thank you very much.

This concludes today's call. Thank you for your participation. You may now disconnect.

Great. Well, good afternoon. Welcome to Bank of America's 2025 Global Real Estate Conference. I'm Jana Galan, and I cover the residential REITs at Bank of America. We're very pleased to have with us Equity Residential's President, Mark Parrell; EVP and CFO, Bret McLeod; and First VP, Investor Relations, Marty McKenna.

I'll turn it over to Mark to give a few opening remarks, and then happy to take Q&A from the room or I have some questions prepared as well.

All right. Well, thanks, Jana. Thanks for including Equity Residential in this event. We appreciate that. I want to make sure everyone knows we have Bret McLeod, who is our new Chief Financial Officer, comes to us from hospitality and retail background. Really excited to have him on board.

So just talking about operations year-to-date, then we'll talk a little bit about the shape of '26 and then hit on capital allocation real quick and then open it up to questions. So just in terms of how this year has gone so far, it's been a solid year for Equity Residential. When we did our earnings about 5 weeks ago, we raised our revenue guidance, our NOI guidance and our FFO guidance on the back of better than we expected and better than historical average renewal rates, retention rates, meaning the percentage of people that are renewing with us and occupancy levels. Those were all very strong.

New lease rates were more modest than we expected. We had a leasing season that plateaued earlier, did not go as high as usual. So new lease through June 30 was about 10 basis points down. Last year, when we reported at the same time, it was 10 basis points up. So a comment I do want to make is there's a lot of emphasis on the street about new lease. It's not unimportant, but it's not the most important. It is a lever we pull in balancing and managing same-store revenue. In some markets, we're more occupancy focused and some were more new lease focused. So I just want to make sure people get that whole context, because the Street does seem to react to that number particularly. And we and I think our competitors manage to a same-store revenue cash in the bank number, not to a particular input.

Looking to next year, we're really well positioned. We are a uniquely urban REIT. We have a higher level of urban exposure that was tough on us during the pandemic years of 2020 and '21, but it's going to be greatly to our advantage. So far year-to-date, our urban portfolio has outperformed suburban by 60 basis points. So we have a particularly high exposure here in Manhattan and Brooklyn as well as Downtown Seattle and Downtown San Francisco. And San Francisco and the Peninsula are doing particularly well right now, and we can talk about that in a minute.

So those 3 markets combined are 45% of our company and that puts us in a good position next year to outperform, we think, the peer group. Looking towards supply, we expect a lot less supply and a lot is discussed about less supply in Sunbelt markets, and we certainly see that, and we have a few of those in our portfolio. But markets like San Francisco, by our count, are going to have only a bit more than 1,000 competitive units delivered next year in a metro of that size in a place like Los Angeles, more like 4,000 or 5,000. Those are really low numbers, and they bode well, especially we're occupied right now, 96.5%. So you think about that setup going into a quieter time of year.

Rents will decline in the rest of the year, but the setup going into next year, less supply. We're in advantaged markets that are seeing more growth and they're seeing more growth for a couple of reasons. First, absolute rents compared to incomes in Seattle and San Francisco are low. So nominal incomes went up 25% to 30% since the beginning since 2019, call it the beginning of the pandemic but our rents are just going above 2019 levels in San Francisco and Seattle as a whole. So there's room to run on rents.

I'd also say that there's a bit of a decoupling effect. So a lot of folks that live in the Midwest and East have already forgotten about return to office because you're already back in the office. But I tell you that is an ongoing thing in the West Coast. When Bret and I were out there a month ago, San Francisco, just called all its municipal employees back to the office full time.

Yesterday, Microsoft announced that they were going to bring everyone back 3 days a week as of January 1 for their Seattle-based workforce, those are powerful demand drivers for us. We told you on the earnings call, we already saw in San Francisco, people moving in. We see everyone's address when they leave and when they're coming to us. And we see those addresses people moving from Sacramento and further out locations back into suburban locations where we have properties and into the downtowns.

We also see in San Francisco, the beginning of something we're very excited about. When that market, which is a volatile market cycles up, we typically see a fair bit of inbound traffic from outside the state so think about MBAs from Wharton, think about Purdue University computer science graduates. We see those people coming to San Francisco, again, following the AI boom, following all that technology and we just have a bigger presence on the Peninsula and in Central San Francisco, downtown San Francisco than our competitors.

And like I said, that was tough in '20 and '21, but it's feeling really, really good right now. Rents right now are up 8% year-over-year in San Francisco. They have not started to go down yet. We just have terrific demand in that market. And again, being out in Seattle, I can tell you, the indications feel good. That is a higher supplied market so next year will be even better. So again, we feel very well positioned going into what we think will be an above-trend year. So we talked at our Investor Day about the company's positioning and our ability to recover some of the lost revenue that sort of went through the COVID period and went away, and we see that coming together for us. That is definitely manifesting itself. And like I said, we'll come together, I think, in a good way next year.

So a quick note on capital allocation, and I'll throw it back to Jana. So going into this conference, just looking at the stock price, management and the Board are keenly aware of it. It's certainly something we're very focused on. It makes it very difficult to have acquisitions pencil when you have 4.75% prevailing cap rates and the quality of assets we want to buy. If you look at the stock trading well above a 6% implied cap rate, and that seems like a better value to us. So we are aware of the signal the market sending. I think acquisitions are a tough thing to allocate capital to. I do note you may see us, you will see us close a couple of deals this quarter. Those are deals that were already in process and under contract. But new capital allocation and acquisitions is challenging right now. I think development has a pretty high hurdle, too. I do think it will be interesting to deliver some product 2 years from now and there's a lot less being delivered, but we'll be very selective there as well.

So I'll stop there, Jana and kick it back to you.

Great. Maybe just following up on that comment on the -- where the implied cap rate is and acquisitions and development not really looking that attractive. I guess kind of what is the share buyback program currently in place and...

Sure, details. So the buyback authorized by the Board is 13 million shares. That's been publicly announced. We aren't -- that's the legal authorization of that program. I said on the call that it would be our intention to the extent we decide to do that, to fund it with dispositions. So the ability to sell some of our lesser attractive assets at numbers. So our better assets trade well into the 4s, but we certainly have assets in the mid-5s that are older.

We don't believe in a renovation story where we're overexposed. Those are great candidates to sell and a turnaround and buy the stock. So I would expect the limiter to be more about tax gain scaling things of that nature, Jana. I wouldn't expect to fund it with long-term debt. I think that's a different risk play at this point, but we do have that capability. We're pretty underlevered.

And then maybe jumping back to at kind of just operations. And I think you laid out kind of a really strong trajectory and vision of demand at your Investor Day for kind of the next 3 years and also kind of the markets that you are and there's greater visibility on supply, longer permitting, longer construction time lines. But I guess what kind of surprised everyone was the revised job reports that we got a couple of weeks ago. Just wondering how you're kind of thinking about that news and then kind of matching it with what you heard from the team in the field during the kind of spring and summer leasing season.

Yes, that's a great observation. So you saw the apartment companies start to report. The first quarter was more or less on track in terms of new rents and less -- we just have a lot less activity in the first couple of months of the year. Then you started to hear from us and our peers that it was weaker. And that seems to have corresponded almost exactly with the job slowdown. We didn't know it at the time, but they do sort of explain each other.

And my theory on why our growth -- intra-period growth was less is certainly the jobs. But I'd also say, I think there's a lot of uncertainty and indecision in the minds of both landlords and in the minds of residents. So if you're a landlord in our position and you're in D.C. and you're hearing and reading all those headlines, you may feel really good because your occupancy for us in D.C. was over 97% for a long period of time. But it's hard to move rents and not feel uncomfortable at times because what happens is you move rent a little, you lose a little occupancy, you test that, then you move -- it's a hunt and peck method. It's not a smooth increase. So you end up in a situation where you don't know if you hit an inflection point.

And if you're nervous, you might slow down your rent increases. And in markets like D.C., that's exactly what happened. I think we probably could have increased rents more than we did. And I think we felt that anxiety. I think our residents are getting good service from us. I think they like their properties. I also think they're a little uncertain about their job prospects. They haven't lost their job, but they wonder.

The world is an uncertain place. They aren't interested in buying a home for sure. And you know what EQR gave me a 4% rent increase. I like living here. I'm not going to go to the trouble of moving. And I think those 2 combined to give us really good renewal rates and retention rates and really good physical occupancy, but relatively weak new lease rates.

And I guess, any -- I mean, outside of the expansion markets, any markets where you kind of built that more, I guess, you're calling out D.C. as an example.

So D.C. only recently felt weaker to us. So we do feel that in both Northern Virginia and the D.C. proper right now. Our portfolio in Maryland is not that large. So I don't have an opinion on Maryland suburbs. Boston, we saw all like the health and university-related news. That impact was not significant. That market has continued to perform well. We're mostly urban. The urban is outperforming suburban because there's just relatively little supply in the urban center of New York. So we feel good about Boston. .

I think the market that would have disappointed us, Jana, just as much as San Francisco surprised us to the upside is L.A. to the downside. So L.A., for us is a challenged market. Job growth was hurt by just all the strikes in the entertainment industry. A lot of that work moved. We're hopeful that the new tax credit program brings a lot of that back. We're already seeing an increase. There's 4x as many film permits pulled in July of this year as July of '24. So that's promising. There will be a lot less supply, particularly in the areas we have concentrations in L.A. So that's Koreatown and downtown. So we love the supply picture in L.A. Quality of life needs to keep improving.

I'm hopeful that the focus on the Olympics in 2.5 years or 3 years still, I guess, and next year's World Cup focuses city leaders on that. Quality of life has improved immensely in Seattle and San Francisco. And we just haven't seen that follow through in L.A. and that would be great. So my guess is L.A. will be better than this year. Next year will be better in L.A. than this year because I'm certain supply will be lower. I feel like the job stuff will get a little better. I'm hopeful on quality of life. But I bet you it will be more like an average market, Jana, not an outperformance market.

And clearly, you've had a lot of success on renewals. You offer a very high quality level of service, high-quality product. I guess, are you kind of surprised at that ability to continue pushing on those? And kind of just curious. Obviously, at later points in the year, there is more kind of like a gain to lease, but do you -- is there a point where you feel that, that may be too outsized?

What's to it? The renewals?

The renewal -- the market or the in-place rents are much higher than market rates.

Well, this is going to give me a chance to have one quick comment on new lease and how it's computed. So new lease is a one-to-one thing, as Jana knows. So I move out and you move in and my lease rate, I've lived there 5 years, and you've gotten pretty good renewal increases from EQR. And if it's a weak market, you may be significantly above market. So when the new person moves in to take my spot, that new lease number is going to be very negative. That may be true even if the rent is 5% higher than it was last year, but just because I've had so many rent increases as a person who stayed a long time.

We gave you great service, you were happy in our unit. You didn't want to move. We didn't want you to move. We worked with you and you ended up where you were. And then after you have a point in your life where you're changing jobs or you're buying a house or something else is going on. You also could have the opposite where rents have been going down in the market. We pushed someone to -- now it's time for a renewal increase. We haven't done it as much in the market. And all of a sudden, they move out and we get a big increase.

So new lease rate just to take your question, is like the use -- the least useful number because it really requires you to know both the person moving out and the person moving in and their tenure and where their rents stand compared to market. So right now, we are in a loss to lease position, Jana, to answer your question, which is pretty common, meaning that our rents, if we could reprice the whole rent role would be higher than what they are right now. I expect, as is usual, by the end of the year, we'll be in the gain-to-lease position.

We expect next year, we'll have embedded growth, which is, again, the ability for us to just kind of go through the year without changing occupancy or rate, sort of our starting point to be about 100 basis points or 1% going into next year. We would have expected it to be de minimisly higher, but it's probably going to be about 1%. And then on top of that, you'll add intra-period growth, maybe a little benefit in occupancy or delinquency management, other income. And then I'll tell you the good supply picture. And that's why you hear your management team so optimistic about 2026.

That's super helpful. And I guess, occupancy kind of at 96.5%, do you think that there's room to take that [indiscernible] a couple of basis...

It's just 96.4% right now. So again, now. Yes, I think it's plus or minus 10 basis points. I don't think it's going to be a lot. I think some markets like Dallas, where you may get more absorption, there's more opportunity, but we have a much smaller portfolio there.

And maybe same on kind of like the bad debt, it's come down? you think it could come down.

I think it could come down another again, plus or minus 10 to 20 basis points over the next year or so. We're making good progress right now. I think other income is a definitive positive. So you see us year-over-year, quarter-over-quarter, I should say. Third quarter and fourth quarter will be better than the first quarter and second quarter were. That's partly because we've written a lot of good leases, and we get that rental income, also because delinquency is getting better and also because our other income initiatives are hitting. So those are parking. Those are some other income matters that we're working through like Wi-Fi. So those things, Jana, are helpful to the tune of 60 to 80 basis points this year, and they'll provide some lift next year as well.

Great. Then maybe if we could kind of turn to San Francisco, it seems to be kind of the strongest market in the country right now. If you could kind of share what you're seeing there because last year, it had a lot of kind of starts and stops.

It feels like it started. So we were there. Bret and I were there the first or second weekend -- second week, pardon me, of August, spent a couple of days there, walked around and visited our properties, great occupancy, great rent growth. Again, we're seeing people move back in from further out suburbs in Sacramento and the like. We're also seeing people move from other places. Quality of life is much better. We had some high-level government meetings. The first question to ask is how can we get you to bring more jobs here? How can we get you to build more housing units, a very welcoming attitude towards business, and that's an incredible change of pace for San Francisco, a ton more activity on the street, a lot more activation.

The people we saw and talk to had 3-day a week work weeks. They were moving up the RTO scale. So to me, all arrows point up in San Francisco, very, very little supply, quality of life improving, good demand for us on the Peninsula and in the city from the AI boom. And I think elsewhere, we just feel like the tech ecosystem still has a lot of jobs in it. We have properties very near Apple, and we were renovating some units and they're very nice renovations. And boy, they just sell out so quick. There's just a really housing starved market and have a big presence there like we do is to our advantage.

[Technical Difficulty] in the next 3 months.

Right. So the question was what happens to our delinquency forecast and numbers, if maybe the job market deteriorates further in the next few months, right?

Yes. So more important than that would be government policy. So local government policy matters a lot more. We are -- we have some pretty powerful tools in our underwriting toolkit to understand both fraud as well as people's earning power. So for us, it's not that the number of delinquents is high. It's not. It's the cost of each delinquency. So if you think about L.A., maybe it took 2 to 3 months if someone wasn't willing to pay for them to have to leave and now that cost could be 6 months. So each mistake we make in underwriting or each change in a person circumstances is a lot more expensive. During COVID, it was even more so.

So if you add eviction moratoriums and things like that put into place. And again, L.A. County thought about it. And they're a tough place to do business post the fires. And there was just such a groundswell that it's so clear that's a bad idea. I mean, why would you do that across instead of a need-based relief program from the government, it makes no sense at all. So I feel more optimistic that people realize those kind of moratoriums are bad public policy tools, but that will be more than job changes. We have such a high-end clientele. They pay about 20% of their income in rent that a blip here or there is not going to matter on that side. I think our population is more insulated from that. But I think if government policy changes and 3 months goes to 6 or 6 goes to 12, that would be more of the dilemma.

Maybe talking a little bit about some of your newer markets. I think you were kind of favorable on maybe Atlanta leading a little bit of the Sunbelt recovery. And in your comments, you mentioned maybe if Dallas gets a little bit stronger absorption, it could -- so these are kind of the 2 that you think could lead us.

Sure. So we said on the earnings call, our Chief Operating Officer, mentioned that we do see the light at the end of the tunnel in Atlanta. And what that means is our operators on the ground feel less pressure from concessions and just less challenges keeping the buildings filled, and we start to -- it's sort of a process where you build a little bit of occupancy, then you start to reduce concessions, then you start to raise face rents. It's a process. It doesn't happen all at once. And we're at the beginning of that process in Atlanta, and it feels really good.

Dallas is -- I think the team really would characterize it as hand-to-hand combat. There's a lot of demand, but there's all a lot of units there. It will drop a lot next year. But right now, I would say it's still a very supplied market. Denver has both supply and to some extent, demand challenges. We feel good about it long term, but it is a challenged market. Our presence in Austin is 3 buildings. It's too small to really speak to anything definitively. But we like the long-term supply-demand dynamics in those markets.

Our opinion has just been maybe contrary to others, it would take longer to manifest itself in better rent rolls and better same-store revenue growth, and I think we were right about that. A lot of people said it was a '25 story, clearly not a '25 story, and we said that a year ago. So I think next year, the second derivative will turn up in a lot of those markets, but same-store revenue is more of a '27 story than the '26. And like I said, we own those markets, we like a lot about them. But when you lease up a building and you give people 1- to 2-month concessions, the first anniversary when people come up and you say, hey, no more concessions. That's not been our experience. They say that's great. Experience that we've had is they say, I'm going to move across the street because I get 1 month free still there.

So our experience is it just takes a while to ring that out. It doesn't mean it doesn't happen. And like I said, we're investors in Dallas and like it. It's just the time line in which it occurs is slower than I think people talk about deliveries being the point of a turning point in a market. It's not deliveries. It's sort of 1 year, 1.5 years after peak deliveries.

You just mentioned that same-store revenue growth was a '27 event. Was that specific to the markets you were just talking about? Or is that fully...

No, that's specific to the markets I'm talking about, right? And for us, that's specifically Dallas, Atlanta and Denver, where we have a presence and keep building. So I want to note on our -- because we've been buyers in those markets. So our underwriting has been on track. We expected revenues to go down in those markets. We underwrote it to do that and they're doing that. So it's a combination of concessions and just lower face rents in those markets. We thought we'd run it with less vacancy. We thought we'd run it with less delinquency, and that's true too. We're good at that -- we're really good expense managers so the people we bought from of all ilks one-off and portfolio whatever, all good owners and stuff, but we're particularly good operators.

And so we feel like year-over-year, there won't be a big increase, but there also is going to be a big decline in NOI because we're, like I said, particularly adept at expense management. And one example I want to give is the deal that we did earlier this year, the 8-Property in Atlanta. So we stayed at a cap rate there of 5.1%. 5.1% cap rate for us is the standard cap rate that includes a property management charge. So that's everybody off-site. Computer engineers, HR professionals, legal, all that, some charge for the fact that you need those services. It doesn't include G&A, people like me that are purely top of the house overhead. So in any event that number in our underwriting was $1.5 million, yet we only added $500,000 of overhead because we're already scaled in that market. So when you start to get scale like we are, it's really, really powerful. And that's when I talk about like the advantage we have buying from less organized private operators. It's our scale advantage and just because we're professional managers. We are an integrated property management and investment company.

Maybe following up on that, just comments on the overall transaction market. You kind of took down expectations a little for this year. Curious what Bob is working on that.

Well, the Bob we're referring to is our former Chief Financial Officer. I'm sure misses this event greatly and now our Chief Investment Officer. Well, what we're seeing is in the markets that we're interested in, so Dallas, Atlanta, Denver, the suburbs of Seattle, D.C. and Boston, just wasn't a lot offered for sale. This wasn't as much as we thought. I'd also say the stock price was a signal. So in light of all that, we took our acquisitions down from $1.5 billion of acquisitions and $1 billion of dispositions, which meant that we were incrementally financing $1 billion.

We sort of looked at it and that just didn't make sense. So we lowered our guidance to $1 billion and $1 billion and just said, listen, we'll sell some of the lower echelon performers in the portfolio, and we'll buy as we can see out there opportunistically. I'm not even sure if we'll get to the $1 billion, we were sort of, I think, at $600 million. So we may not end up getting to that number because we're going to react to the capital cost signals we're getting.

And then maybe just kind of on cap rates. I think they've kind of been around that 5% range, whether it was coastal or Sunbelt. Is that kind of still the case? Or are people kind of getting fed up with negative leverage or getting excited about potential rate cuts?

Yes. Really good question. So we continue to see cap rates in the 4.75% to 5% range for the kind of product we want to buy, which is BB+, A-, A quality assets in the markets I just mentioned. There's been no real change in that. We've seen some deals in Austin where we're not buyers right now trade closer to 4.5% because people have such a high expectation of that recovery, but yet there's still a ton of supply. So what we also understand there to be doing is a lot of the buyers that are private buyers are buying using GSE floating rate debt. So SOFR plus a spread.

Right now, that number isn't lower than fixed rate financing, but everybody is playing the curve and hoping that Fed will cut big then they won't have negative leverage anymore. I find that an interesting play and not one that we would take. So I think that's a little bit of it to Jana. It's a little bit of hope on, as you said, on rates and on the recovery in these markets, which I think is coming just probably a little slower.

And I guess on the other side, is that helping you a little bit with dispositions coming in better than you guys were expecting?

So dispositions are a split world. If the asset is much above $100 million, it's harder to sell. The market for pricier assets is harder to sell for cheaper, cheaper, meaning [ 125, 100] those sell. Sold asset in D.C. really full bidding tent, asset in the RBC corridor, cleared very well, just an area we were overexposed. So cap rates for the kind of assets we sell continue to be in the low 5s because we're selling less productive assets and we're buying what we think are hopefully higher IRR assets and more productive assets.

Yes, similar on the Boston -- suburban Boston assets.

Yes. Boston is -- there's not a lot for sale in Boston. So it can be hard to buy in that market. That's why we're building 2 deals in suburban Boston. It's one of those places we're having a development pipeline is helpful. So we got a deal in Kirkland, Seattle area, Metro Seattle and 2 deals, one north, one south in Boston because those are areas we find it hard to purchase exposure. So we've been building it.

[Technical Difficulty] slower job markets, college graduates.

Yes. So the question is, have we seen any impact on our portfolio from maybe slower employment of college graduates.

So there's 2 different things that could be going on, and I'm not sure which of the 2 it is or maybe it's something else altogether. When you have a downturn in employment and you have a downturn in the economy, the first thing you do is in layoffs. The first thing you do is stop hiring people and the people you stop hiring are your entry-level people. So whether it is all the companies collectively as a group, hiring college graduates less right now because they just are hiring less entry level or whether there's an impact from AI on some of those industries is not clear to me. The conversations I have with people about AI seem to be everyone is very excited about it.

And some of the easier use cases are being explored, but the ability to use it at scale in a lot of medium-sized businesses like equity, residential and others are more a year or 2 from now because you just have to figure out how to deploy it. So I'm not sure whether it's the general slowdown in the economy, but we're 96.5% occupied. We continue to move renewal rates. I mean the business is healthy. And I don't think the job market has to be great for us to have a good 2026. I just think it has to be not negative.

Maybe if you could just remind us kind of average age since you're not really getting that entry.

Yes. So our average resident makes about $160,000 and is about 34 years old. So there are certainly entry-level people in that cohort, but that isn't the majority of our residents.

Does the 4.75% cap rate for assets that you would buy in your overall cost of capital improved. Does that reflect on the margin, a higher quality of your average in [indiscernible] portfolio or marginally improving?

So just to repeat the question back, is buying a 4.75%...

Does 4.75% represent quality of...

So because what we're -- okay, the question is whether buying 4.75% to 5% cap rate assets improve the quality of our portfolio going forward or not?

First off, really big ship, $33 billion, $35 billion. So buying $100 million is not going to make a difference. It's going to help because they are generally lower CapEx assets because they're newer, so they're going to have an AFFO benefit. They're going to have less capital spending. A lot of stuff we're selling. We always quote to you what amounts to a nominal cap rate because that's the market convention with a standard $150, $200 CapEx. A lot of stuff we're selling is a really serious CapEx load that we don't believe in.

And the next guy is going to do a big rental and we don't believe in the return. So I'd tell you, I think you're going to improve the quality of the portfolio, but it's a little bit at the margin.

I'm just curious, anything that you guys are tracking or anything new on the regulatory front, whether it's at the federal level with this potential affordable housing emergency or maybe some of your markets at the local level?

Sure. So we'll just talk quickly about the federal government. So the housing emergency, I don't know what that means exactly because I don't know what specifically would be done. But local zoning decisions are the most impactful thing on housing supply, local regulation like the eviction moratorium we alluded to, those are much more impactful to our business than anything the federal government does with the possible exception, I would say, of the GSEs and the potential privatization of the GSEs, which is also hard, pardon me, to comment on because I'm just not sure what that is. Like I haven't seen a proposal so I don't know what it would do to funding for apartment loans.

So I don't know how to react to that on the federal side. I think more supply would be great. A lot of federal land that might be loosened up here, Jana, isn't anywhere near where people want to live. So that -- I'm not sure that's helpful. I've heard that maybe LIHTC or Opportunity Zone grants would be conditioned on local government having certain rules or not having certain rules. I guess that could be good. I'm just not sure, again, how that would work and why that would be terribly impactful because those are smaller programs anyway.

In terms of local government, again, you see a lot of governors like Governor Newsom moving supply-focused solutions forward, and we really like that. The Senate Bill he's pushing along would take away local control of zoning by transit stops and places that have the ability to take a lot more residents. You could have 3-, 4-, 5-story buildings built that's a terrific idea in a state that starved for housing and he's pushing that along and it's a really good idea.

We have a mayoral campaign here in New York going on. We don't have a lot of exposure to the rent-stabilized units that a mayor would control if Mamdani won or more market rate here in the city. I would say the bigger impact would be on quality of life and things like that potentially than anything else. But again, we feel great about the vibrancy of New York City. It's been a terrific market for us. We're 97.7% occupied. So again, it's a strong market at the moment. And our hope is that Mr. Mamdani's focus is on housing supply all New Yorkers and the private sector can be part of that solution. We produce those units and I think having us as an ally is better than as an enemy, and we'll continue to make that argument through our trade association.

I think we have time for one more question. Otherwise, I can jump into rapidfire.

Rapidfire.

Okay. So these are questions we're asking all the REITs presenting at the conference. When the Fed starts to cut, do you expect rates for long-term debt to decline, stay flat or rise?

Decline.

Last year, the majority of companies stated they're ramping up spending on AI initiatives. How would you characterize your plans over the next year? Spend more, same or less.

More.

And then do you believe same-store NOI for your sector will be higher, lower or the same next year?

I'd like to not answer that question just because it gives such a read into the guidance numbers for our company.

I'll say the same.

Yes. Yes.

Thank you very much to Equity Residential.

Thank you, Jana. Thank you all.