Q1 2024 Equity Residential Earnings Call

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Yes.

Please standby.

Marty Mckenna: Please stand by. Good day and welcome to the Equity Residential 1Q 2024 Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I'd like to turn the conference over to Marty McKenna. Please go ahead.

Good day and welcome to the equity residential one Q2 thousand 24 earnings conference call and webcast. Today's conference is being recorded at this time I'd like to turn the conference over to Marty Mckenna. Please go ahead.

Marty Mckenna: Good morning, and thanks for joining us to discuss equity residential first quarter 2024 results. Our featured speakers today are mark <unk>, our president and CEO and Michael Madela, Our Chief operating Officer, Alec Brackenridge, our Chief investment Officer, and Bob <unk>, Our Chief Financial Officer are here with us as well for the Q&A.

Marty Mckenna: Good morning, and thanks for joining us to discuss Equity Residential's first quarter 2024 results. Our featured speakers today are Mark Parrell, our President and CEO, and Michael Manelis, our Chief Operating Officer. Alec Brackenridge, our Chief Investment Officer, and Bob Garechana, our Chief Financial Officer, are here with us as well for the Q&A. Our earnings release is posted in the investor 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.

Marty Mckenna: Our earnings release is posted in the investors section of equity apartments Dot 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 supply.

Marty Mckenna: 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.

Marty Mckenna: These statements that become untrue because of subsequent events now I will turn the call over to Mark Corral. Thank you Marty good morning, and thank you all for joining us today to discuss our first quarter 2024 results and outlook for the year I will start us off and Michael <unk>, Our COO, who will speak to our operating performance and how we see 2024 operations playing.

Mark J. Parrell: Thank you, Marty. Good morning, and thank you all for joining us today to discuss our first quarter 2024 results and outlook for the year. I will start us off, then Michael Manelis, our COO, will speak to our operating performance and how we see 2024 operations playing out. And then we will take your questions.

Unknown Attendee: And then we will take your questions.

Mark J. Parrell: We are pleased with our first quarter performance, which was ahead of January expectations and reflects the strong demand for the lifestyle our well-located apartment properties provide, as well as little new competitive supply across most of our established markets. Our same store revenues increased 4.1% in a quarter, and our same store expenses rose only 1.3%, which led to same store NOI growth of 5.5% and an increase in our NFFO per share of 6.9%.

Unknown Attendee: We are pleased with our first quarter performance, which was ahead of January expectations and reflects the strong demand for our lifestyle, our well located apartment properties provide as well as little new competitive supply across most of our established markets.

Unknown Attendee: Our same store revenues increased four 1% in the quarter and our same store expenses rose only one 3%, which led the same store NOI growth of five 5% and an increase in our <unk> per share up six 9%.

Mark J. Parrell: So overall, a very solid start to the year across all categories, with the company well positioned to capture increasing seasonal demand as we head into our prime Leasing season. As is our practice, we have not revised our operating or FFO guidance, and we'll make adjustments as we get deeper into our Prime Leasing season. Digging under the hood a bit, the durability of the employment picture for our target affluent renter demographic is a continuing bright spot in our business, as is the cost of owned housing. Unemployment for the college educated, a very sizable percentage of our residents, remains at around 2%, considerably lower than the overall average, supporting demand.

Unknown Attendee: So overall, a very solid start to the year across all categories with the company well positioned to capture increasing seasonal demand as we head into our prime leasing season.

Unknown Attendee: As is our practice, we have not revised our operating <unk> guidance and we'll make adjustments as we get deeper into our primary leasing season.

Unknown Attendee: Digging under the Hood a bit the durability of the employment picture for our target affluent renter demographic is a continuing bright spot in our business as is the cost of own housing.

Unknown Attendee: Unemployment for the college educated a very sizeable percentage of our residents' remains at around 2% considerably lower than the overall average supporting demand. This.

Mark J. Parrell: This demographic, which is well employed in the growth engines of our economy, including technology, financial services, and other professional and business services, continues to grow in both our established and expansion markets. We also see little competition from owned housing, as the high cost of homes combined with elevated financing costs and rapidly rising insurance, real estate tax, and maintenance costs make rental housing a very attractive option for many people.

Unknown Attendee: This demographic, which is well employed and the growth engines of our economy, including technology financial services and other professional and business services continues to grow in both our established and expansion markets. We also see a little competition from owned housing as the high cost of homes combined with elevated financing costs and rapidly.

Unknown Attendee: Rising insurance real estate tax and maintenance costs combined to make rental housing a very attractive option for many people.

Unknown Attendee: Social factors that we've discussed on prior calls like smaller households, and delayed marriage in childbearing add to the attractiveness of rental housing in.

Mark J. Parrell: Social factors that we've discussed on prior calls, like smaller households and delayed marriage and childbearing, add to the attractiveness of rental housing. In the quarter just ended, the percentage of our residents leaving us to buy homes was 7.8%, a continuation of all-time lows.

Unknown Attendee: In the quarter just ended the percentage of our residents', leaving us to buy homes was seven 8% a continuation of all time lows.

Mark J. Parrell: Strong demand and high single-family housing costs are consistent conditions across both our coastal established markets that represent 95% of our company's NOI and our new expansion markets of Dallas, Fort Worth, Atlanta, Denver, and Austin, which collectively represent 5% of our NOI. But on the apartment supply side, we see two very different pictures playing out in our established coastal markets versus our expansion markets. With the exception of Seattle and Central D.C. in our established postal markets, we see the terrific demand I just mentioned being met with generally little new supply, leading to solid rent growth.

Unknown Attendee: <unk> demand and high single family housing costs are consistent conditions across both our coastal established markets that represent 95% of our company's NOI and our new expansion markets of Dallas Fort Worth Atlanta, Denver, and Austin that collectively represent 5% of our NOI.

Unknown Attendee: But on the apartment supply side, we see two very different pictures, playing out in our established coastal markets versus our expansion markets.

Unknown Attendee: With the exception of Seattle and Central D. C. In our established coastal markets. We see the terrific demand I, just mentioned being met with generally little new supply leading to solid rent growth.

Mark J. Parrell: Across our four expansion markets, we see robust demand as well, but it is being met by an overwhelming wave of new supply, leading to declining rent levels, high concessions, and occupancy pressure. We expect this pressure to accelerate as units continue to deliver in these oversupplied markets, especially once the prime leasing season concludes and demand seasonally declines. Switching to expenses. Michael's going to go over all that with you in a moment, but I wanted to take a second to thank our teams across the company for their amazing work on Expense Spanish.

Unknown Attendee: Across our four expansion markets, we see robust demand as well, but it is being met by an overwhelming wave of new supply leading to declining rent levels high concessions and occupancy pressure. We expect this pressure to accelerate as units continue to deliver in these oversupplied markets, especially once the prime leasing season concludes and.

Unknown Attendee: Demand seasonally declines.

Speaker Change: Switching to expenses, Michael is going to go overall that with you in a moment, but I want.

Speaker Change: To take a second to thank our teams across the company for their amazing work on expense management.

Mark J. Parrell: We are very pleased to have produced a sector-leading 3.1% average growth rate of same store expenses over the last five years. Our teams have embraced innovation and a customer service mindset and are not afraid of change, and it shows in these numbers. Well done, team.

We are very pleased to have produced sector, leading three 1% average growth rate of same store expenses over the last five years, our teams have embraced innovation and a customer service mindset and are not afraid of change and it shows in these numbers well done team.

Speaker Change: On the investment side, we are seeing properties that we would be interested in acquiring well located newer properties in our expansion markets and the suburbs of Seattle, and Boston trade at high prices and very low volume compared to pre pandemic levels.

Mark J. Parrell: On the investment side, we are seeing properties that we would be interested in acquiring, well-located, newer properties in our expansion markets, and the suburbs of Seattle and Boston trade at high prices and in very low volume compared to pre-pandemic levels. Investment sales activity in the first quarter was over 60% below average pre-pandemic levels. Estimates from my colleagues who attended the recent ULI conference indicate that there is over $200 billion of dry powder looking to invest in North American real estate, with a significant portion focused on apartments.

Speaker Change: <unk> sales activity in the first quarter was over 60% below average pre pandemic levels.

Speaker Change: Estimates for my colleagues, who attended the recent <unk> conference indicate that there is over $200 billion of dry powder looking to invest in North American real estate with a significant portion focused on apartments.

Mark J. Parrell: Recent data points from the pending AIRC transaction and the apartment portfolio and one-off deals are similarly supportive of much higher values than the public market is currently suggesting. This is a huge positive signal about the underlying value of our company that has slowed our portfolio rebalancing efforts. And while pricing in most of the apartment transaction market is strong, buyer interest is not yet fully evident for some of the large urban West Coast assets that we want to dispose of as part of our strategic rebalancing.

Speaker Change: Recent data points from the pending IIRC transaction and apartment portfolio and one off deals are similarly supportive of much higher values than the public market is currently suggesting while this is a huge positive signal about the underlying value of our company. It has slowed our portfolio rebalancing efforts and while pricing in most of the apart.

Speaker Change: Transaction market is strong buyer interest has not yet fully evident for some of the large urban west coast assets that we wanted to dispose of as part of our strategic rebalancing, we expect that to change as the Submarkets continue to show improved operations and better quality of life conditions.

Mark J. Parrell: We expect that to change as these sub markets continue to show improved operations and better quality of life conditions. In the meantime, with the lack of actionable acquisition opportunities, we saw value in our own stock. So we continue to strategically deploy disposition proceeds from the sale of older, inferior properties in our portfolio into repurchases of our stock. In the first quarter, we repurchased approximately $38.5 million of our own common shares at a weighted average share price of about $59 per share.

Speaker Change: In the meantime, with a lack of actionable acquisition opportunities we saw value in our own stock. So we continue to strategically deploy disposition proceeds from the sale of older inferior properties in our portfolio into repurchases of our stock.

In the first quarter, we repurchased approximately $38 $5 million of our own common shares at a weighted average share price of about $59 per share.

Mark J. Parrell: Since we began this activity in the fourth quarter of 2023, we have repurchased approximately $87.5 million of our shares at what we see as an attractive valuation level of a bit below $58 per share. And we are using the remaining disposition dollars to drive down our already low leverage, which will create more internal debt dry powder for when opportunities do emerge. We are going to continue to be disciplined in our transaction activities with a focus on growing cash flow over the long term.

Speaker Change: Since we began this activity in the fourth quarter of 2023, we have repurchased approximately $87 $5 million of our shares at what we see as an attractive valuation level of a bit below $58 per share and we are using the remaining dispositions to drive down our already low leverage which will create more internal debt.

Speaker Change: <unk> powder for when opportunities do emerge.

Speaker Change: We are going to continue to be disciplined in our transaction activities with a focus on growing cash flow over the long term.

Speaker Change: With regard to external growth, we are on track to deliver six newly completed joint venture developments in 2024.

Mark J. Parrell: With regard to external growth, we're on track to deliver six newly completed joint venture developments in 2024. These six properties, three located in Dallas-Fort Worth, two located in Denver, and one located in suburban New York, will be delivered at a weighted average stabilized yield north of 6% and will contribute meaningfully to our normalized FFO starting in 2025, given their completion and lease up timing. The three Dallas-Fort Worth developments are the first completed projects to come out of our partnership with Toll Brothers.

Speaker Change: These six properties three located in Dallas Fort worth two located in Denver, and one located in suburban New York will be delivered at a weighted average stabilized yield north of 6% and will contribute meaningfully to our normalized <unk> starting in 2025, given their completion and lease up timing.

Speaker Change: Three Dallas Fort worth developments are the first completed projects to come out of our partnership with toll brothers.

Mark J. Parrell: With some of the other Equity Residential executives, I recently visited all six of these development projects, and I'm inspired by the enthusiasm on display from our lease-up teams and excited about adding these high-quality assets to our portfolio. Before I turn it over to Michael, I wanted to make a quick comment on the new housing laws that were passed over the weekend in New York, though I note we are still digesting the law and its implications.

Speaker Change: Some of the other equity residential executives I recently visited all six of these development projects and I am inspired by the enthusiasm on display from our lease up teams and excited about adding these high quality assets to our portfolio before I turn it over to Michael I wanted to make a quick comment on the new housing laws that were passed over the weekend in New York, Though I note.

Speaker Change: We are still digesting the law and its implications.

Mark J. Parrell: The law allows for renewal increases of CPI plus 5% to 10% and provides for vacancy decontrol on the types of units we generally own in New York, which allows rents to move to market when a new resident moves in, and that's similar to the rent laws that were passed a few years ago in California. Overall, new price controls on an already under-supplied good, in this case, rental housing, are not an effective way to attract private capital to help solve the housing supply problem in New York State.

Speaker Change: <unk> allows for renewal increases of CPI, plus 5% up to 10%.

Michael L. Manelis: And provides for vacancy decontrol on the types of units, we generally own in New York, which allows rents to move to market when a new resident moves in and Thats similar to the rent laws that were passed a few years ago in California.

Michael L. Manelis: Overall, new price controls on an already under supplied good in this case rental housing is not an effective way to attract private capital to help solve the housing supply problem in New York State.

Mark J. Parrell: However, there are also tax incentives in the new law for new rental construction subject to a new higher wage scale required for labor on larger buildings, as well as permanent affordability rules. There is also some language on zoning reforms and some rules that aim to make office to residential conversions easier. While the rent control provisions are not helpful, we commend the governor and the legislature for focusing on a supply-based solution similar to recent legislation passed in such politically disparate states as Florida and California.

Michael L. Manelis: However, there are also tax incentives in the new law for rent new rental construction subject to a new higher wage scale required for labor on larger buildings as well as permanent affordability rules. There are also some language around zoning reforms and some rules that aim to make office to residential conversion is easier.

Michael L. Manelis: While the rent control provisions are not helpful. We commend the governor and the legislature for focusing on our supply base solution similar to recent legislation passed as such politically disparate states as Florida and California.

Mark J. Parrell: We think focusing on supply, not heavy-handed regulation, has been recognized on both sides of the aisle as the long-term solution. While the new law adds to the complexity of operating in New York, a good portion of our portfolio in New York City is exempt, either due to being built during or after 2009, or meeting the luxury exemption thresholds. We'll be happy to discuss all this further in the Q&A. And with that, I'll turn the call over to Michael Manelis.

Michael L. Manelis: We think focusing on supply not heavy handed regulation has been recognized on both sides of the aisle as the long term solution, while the new law adds to the complexity of operating in New York a good portion of our portfolio in New York City is exempt either due to being built during or after 2009 are meeting the luxury exemption.

Michael L. Manelis: Thresholds, we will be happy to discuss all of this further in Q&A and with that I'll turn the call over to Michael <unk>.

Michael L. Manelis: Thanks, Mark, and thanks to everyone for joining us today. This morning, I will review our first quarter 2024 operating performance and our positioning as we start the leasing season. We're off to a very good start thus far. As Mark mentioned, demand remains good across all of our markets, supported by a continuing solid job market and high employment in our affluent renter target demographic. One of the real highlights of the quarter was our turnover, which was the lowest we had ever seen.

Michael L. Manelis: Thanks, Mark and thanks to everyone for joining us today.

Michael L. Manelis: Morning, I will review, our first quarter 2020 for operating performance and our positioning as we start the leasing season.

Michael L. Manelis: We're off to a very good start thus far as Mark mentioned demand remains good across all of our markets supported by our continuing solid job market and high employment in our affluent renter target demographic.

Michael L. Manelis: One of the real highlights of the quarter was our turnover, which is the lowest we've ever seen our focus on customer satisfaction arent as being data and leveraging our centralized renewal team to drive result is definitely having an impact here.

Michael L. Manelis: Our focus on customer satisfaction, harnessing data, and leveraging our centralized renewal team to drive results is definitely having an impact here. In the first quarter, we renewed more than 61% of our residents, which is one of the highest percentages that we have seen. A special shout out to New York, Boston, and Seattle, who set their own high marks and greatly contributed to this result.

Michael L. Manelis: In the first quarter, we renewed more than 61% of our residents, which is one of the highest percentages that we have seen a special shout out to New York, Boston, and Seattle, who set their own high marks and greatly contributed to this result.

Michael L. Manelis: Our first quarter same store revenue growth exceeded our original expectations, including very good performance in San Francisco and Seattle, which I will discuss in a moment. This positions us very well for the year, but we acknowledge that this is just the beginning of a critical primary leasing season. Our efforts to build occupancy in the fourth quarter of 2023, coupled with continued strong demand and high resident retention, have resulted in both slightly above average rent growth since the beginning of the year and a 50 basis point quarterly sequential gain in physical occupancy.

Michael L. Manelis: Our first quarter same store revenue growth exceeded our original expectations, including very good performance in San Francisco, and Seattle, which I will discuss in a moment with.

Michael L. Manelis: This positions us very well for the year, but we acknowledge that this is just the beginning of a critical primary leasing season.

Michael L. Manelis: Our efforts to build occupancy in the fourth quarter of 2023, coupled with continued strong demand and high resident retention have resulted in both slightly above average rent growth since the beginning of the year and a 50 basis point quarterly sequential gain in physical occupancy at.

Michael L. Manelis: At 96.5% occupied this month, which is one of our highest reported occupancies in April, we have a lot of confidence that we will be able to continue to grow rates through the leasing season. The high percentage of residents renewing that I previously mentioned is also a big factor in this.

Michael L. Manelis: At 96, 5% occupied this month, which is one of our highest reported occupancies in April we have a lot of confidence that we will be able to continue to grow rates through the leasing season.

Michael L. Manelis: The high percentage of residents renewing that I previously mentioned is also a big factor in this strength.

Michael L. Manelis: In terms of market same-store revenue growth, the East Coast markets in Southern California are producing leading growth, as we expected, with San Francisco, Seattle, and the expansion markets following in that order. As we think about these markets' performance relative to our expectations, New York and Washington, DC are running ahead of expectations, while Boston and Southern California and the expansion markets are in line. San Francisco and Seattle are also running ahead.

Michael L. Manelis: In terms of market same store revenue growth the east coast markets in Southern California are producing leading growth as we expected with San Francisco, Seattle and the expansion markets following in that order as.

Michael L. Manelis: As we think about these markets performance relative to our expectations, New York and Washington D. C are running ahead of expectations, while Boston in Southern California, and the expansion markets are in line.

Michael L. Manelis: San Francisco and Seattle are also running ahead, but remember these markets have been historically volatile. So we remain cautiously optimistic that we will hold onto the gains in these markets for the remainder of the year.

Michael L. Manelis: But remember, these markets have been historically volatile. So we remain cautiously optimistic that we will hold on to the gains in these markets for the remainder of the year. Now a little more color on the individual markets before closing out with expenses and commentary on other income in an issue. Starting in Boston, year-to-date revenue performance is in line with expectations. The city of Boston is currently 97% occupied, and we have very little competitive supply to deal with.

Michael L. Manelis: Now a little more color on the individual markets before closing out with expenses and commentary on other income and initiatives.

Michael L. Manelis: Starting in Boston year to date revenue performance is in line with the expectations City of Boston is currently 97% occupied and we have very little competitive supply to deal with concession use as little to none in this market and overall, we continue to expect Boston to deliver some of the best full year revenue growth in the portfolio.

Michael L. Manelis: Concession use is little to none in this market, and overall, we continue to expect Boston to deliver some of the best full-year revenue growth in the portfolio. As I mentioned, New York is performing well with both strong demand and pricing power. The market is over 97% occupied and has very little competitive new supply.

Michael L. Manelis: As I mentioned, New York is performing well with both strong demand and pricing power. The market is over 97% occupied and has very little competitive new supply.

Michael L. Manelis: So far, we seem to have moved past the rent fatigue we saw in the market in late 2023 and expect good things from this market in 2024. Hats off to Washington, D.C., as this market is outperforming our revenue growth expectations, even after a strong 2023. We're benefiting from a very solid employment picture here, particularly in the defense sector, which is driving consistent, stable, high occupancy and real strength in our retention. We see good results across the whole market, but the district has recently begun lagging our suburban assets, likely due to nearby supply. Overall, we still expect Washington, D.C., to deliver a good amount of new supply in 2024 with nearly 13,000 competitive units. So we do anticipate the pressure to continue to grow as the year progresses.

Michael L. Manelis: So far we seem to have moved past the rent fatigue, we saw in the market in late 2023 and expect good things from this market in 2004.

Michael L. Manelis: Hats off to Washington D. C is this market is outperforming our revenue growth expectations. Even after a strong 2023, we're benefiting from a very solid employment picture here, particularly in the defense sector, which is driving consistent stable high occupancy and real strength in our retention.

Michael L. Manelis: We see good results across the whole market, but the district has recently begun lagging our suburban assets likely due to nearby supply.

Michael L. Manelis: Overall, we still expect Washington D C to deliver a good amount of new supply in 2024 with nearly 13000 competitive units. So we do anticipate the pressure to continue to grow as the year progresses.

Michael L. Manelis: In Los Angeles, we see good demand, but not a lot of pricing power at the moment due to the additional units being brought back to the market through the eviction process. Our portfolio is 96% occupied and we continue to make progress on the delinquency and bad debt situation, which should be a tailwind for growth in 2024.

Michael L. Manelis: In Los Angeles, we see good demand but not a lot of pricing power at the moment due to the additional units being brought back to the market through the eviction process. Our portfolio is 96% occupied, and we continue to make progress on the delinquency and bad debt situation, which should be a tailwind for growth in 2024. Timeframes for processing evictions have recently improved from nine months to six months, which should help us make more progress going forward.

Michael L. Manelis: Timeframes for processing evictions have recently improved from nine months to six months, which should help us make more progress going forward, but they still do remain nearly twice as long as they used to be that being said we are very encouraged by the recent improvement.

Michael L. Manelis: Rounding out the rest of southern California, San Diego and Orange County are continuing to be very strong performers. The general lack of housing is keeping occupancies high homeownership costs are also high here, which makes renting in these markets the more attractive option.

Michael L. Manelis: But they still do remain nearly twice as long as they used to be. That being said, we are very encouraged by the recent improvement. Rounding out the rest of Southern California, San Diego and Orange County are continuing to be very strong performers. The general lack of housing is keeping occupancies high.

Michael L. Manelis: San Diego will see more competitive new supply in 2024, while Orange County will see similar amounts to last year with limited pressure at a few of our Irvine locations.

Michael L. Manelis: Now for the markets that may be of most interest San Francisco, Seattle, and the expansion markets of Dallas Fort Worth Denver, Atlanta and Austin.

Michael L. Manelis: For the two west coast markets remember that we entered the year with relatively modest expectations, but potential for upside.

Michael L. Manelis: Homeownership costs are also high here, which makes renting in these markets the more attractive option. San Diego will see more competitive new supply in 2024, while Orange County will see similar amounts to last year, with limited pressure at a few of our Irvine locations. Now for the markets that may be of most interest, San Francisco, Seattle, and the expansion markets of Dallas, Fort Worth, Denver, Atlanta, and Austin. For the two West Coast markets, remember that we entered the year with relatively modest expectations but potential for upside. So far, both markets are doing better than we expected, but it's early, and both remain show me stories as we saw periods of stability and pullback in 2023.

Michael L. Manelis: So far both markets are doing better than we expected, but it's early and both remain show-me stories as we saw periods of stability and pullback in 2023 and.

In San Francisco, we are well occupied but we'd like to see continued improvements in pricing power the South Bay East Bay and peninsula continue to perform better than our downtown portfolio. The.

Michael L. Manelis: The situation here remains the same as the market last the catalyst either job growth or more robust return to office policies to create true pricing power.

Michael L. Manelis: Concessions remain prevalent in the downtown Submarket that are being issued at a lower rate than they were in the fourth quarter consistent with what you would seasonally expect.

Michael L. Manelis: In San Francisco, we are well occupied but would like to see continued improvements in pricing power. The South Bay, East Bay, and Peninsula continue to perform better than our downtown portfolio. The situation here remains the same as the market lasts the catalyst of either job growth or more robust return-to-office policies to create true pricing power. Concessions remain prevalent in the downtown submarket that are being issued at a lower rate than they were in the fourth quarter, consistent with what you would seasonally expect.

Michael L. Manelis: And Seattle, we carried strength from December into the early part of the year, leading to improved occupancy and the ability to move up rental rates, which is evident in our new lease growth for the quarter.

Michael L. Manelis: That being said, we do expect a fair amount of competitive new supply in the market in 2024, which could temper growth the.

Michael L. Manelis: The east side is performing better than the city of Seattle, and our Redmond assets are performing very well, despite having some direct pressure from a new lease ups.

Michael L. Manelis: Overall, the downtowns of both markets are showing real improvement in the quality of life and the local political situation continues to get much more constructive as a focus on bringing these cities back to the thriving environments. They were prior to the pandemic remains front and center with both policymakers and citizens.

Michael L. Manelis: In Seattle, we carried strength from December into the early part of the year, leading to improved occupancy and the ability to move up rental rates, which is evident in our new lease growth for the quarter. That being said, we do expect a fair amount of competitive new supply in the market in 2024, which could temper growth. The east side is performing better than the city of Seattle, and our Redmond assets are performing very well despite having some direct pressure from a new lease.

Michael L. Manelis: Recent primary elections in San Francisco were very encouraging as voter supported candidates who are focused on addressing safety and the quality of life challenges.

Michael L. Manelis: Finally, some commentary on our expansion markets strong demand and a favorable regulatory environment continue to confirm our positive long term outlook for these markets. Unfortunately, however in the near term we are seeing the pressures from high levels of new supply being delivered in 2024 market occupancies are lower than our.

Michael L. Manelis: Overall, the downtowns of both markets are showing real improvement in the quality of life, and the local political situation continues to become much more constructive as a focus on bringing these cities back to the thriving environments they were prior to the pandemic remains front and center with both policymakers and citizens. Recent primary elections in San Francisco were very encouraging as voters supported candidates who are focused on addressing safety and quality of life challenges.

Michael L. Manelis: Dish markets and concessions are prevalent.

Michael L. Manelis: So far concession usage at stabilized asset properties in Atlanta, Dallas Fort worth and Denver are running at about 30% of applicants getting about four to six weeks and in Austin, It's 60% of applicants getting about six weeks operating conditions are challenging across all of these markets, but Dallas appears to be more.

Michael L. Manelis: Finally, some commentary on our expansion markets. Strong demand and a favorable regulatory environment continue to confirm our positive long-term outlook for these markets. Unfortunately, however, in the near term, we are seeing the pressures from high levels of new supply being delivered in 2024, market occupancies are lower than our established markets, and concessions are prevalent. So far, concession usage at stabilized asset properties in Atlanta, Dallas, Fort Worth, and Denver is running at about 30% of applicants getting about four to six weeks, and in Austin, it's 60% of applicants getting about six weeks.

Michael L. Manelis: Followed by Denver, Atlanta, and then Austin.

Michael L. Manelis: The job growth numbers in both Austin, and Dallas or some of the highest in the country, which is clearly aiding in the absorption of some of the new supply, but the volume of deliveries is high and going to continue to grow throughout the year.

Michael L. Manelis: With regards to bad debt and delinquency. The first quarter results were in line with our expectations as I mentioned, we continue to see improvements in the time. It is taking the process evictions in la which is where the majority of our delinquent residents are which.

Michael L. Manelis: Is resulting in a decrease in the number of long standing delinquent residents that we have this is an encouraging sign and continues to support our view that we will see overall improvement in bad debt net contribute 30 basis points to our same store revenue for the full year.

Michael L. Manelis: Operating conditions are challenging across all of these markets, but Dallas appears to be more resilient, followed by Denver, Atlanta, and then Austin. The job growth numbers in both Austin and Dallas are some of the highest in the country, which is clearly aiding in the absorption of some of the new supply. But the volume of deliveries is high and going to continue to grow throughout the year.

Now, let me hit on some highlights on expenses or one 3% growth in the quarter was better than expected and driven by a decrease in both utilities and repairs and maintenance coupled with pretty flat on site payroll expense growth.

Michael L. Manelis: Utility expense, we primarily benefited from lower commodity pricing. We also intend to take advantage of federal and local incentive programs to continue to accelerate our sustainability efforts and moderate future utility growth. For example, we have 26 future solar installations planned in addition to our <unk> 55.

Michael L. Manelis: With regard to bad debt and delinquency, the first quarter results were in line with our expectations. As I mentioned, we continue to see improvements in the time it takes to process evictions in LA, which is where the majority of our delinquent residents are, which is resulting in a decrease in the number of long-standing delinquent residents that we have. This is an encouraging sign and continues to support our view that we will see overall improvement in bad debt net contribute 30 basis points to our same store revenue for the full year.

Michael L. Manelis: Active systems, which will help reduce our future overall assumption.

Michael L. Manelis: Our repairs and maintenance expense decrease was driven primarily by lower turnover costs and to a lesser degree maintenance expense, which was unusually elevated in the prior year.

Michael L. Manelis: Now let me hit on some highlights on expenses. Our 1.3% growth in the quarter was better than expected and driven by a decrease in both utilities and repairs and maintenance, coupled with pretty flat on-site payroll expense growth. On utility expense, we primarily benefited from lower commodity pricing. We also intend to take advantage of federal and local incentive programs to continue to accelerate our sustainability efforts and moderate future utility growth. For example, we have 26 future solar installations planned in addition to our 55 active systems, which will help reduce our future overall assumption. Our repairs and maintenance expense decrease was driven primarily by lower turnover costs and, to a lesser degree, maintenance expense, which was unusually elevated in the prior year.

Michael L. Manelis: Once again, our disciplined approach to expense management has continued to pay off.

Michael L. Manelis: On the innovation front as we have previously discussed we will be focused on a number of initiatives to drive both revenue growth and operating efficiencies specific to other income our expectation remains unchanged that this will be a contributor of 30 basis points to our full year same store revenue growth during the quarter, we delivered 60.

Michael L. Manelis: <unk> points, which was slightly ahead of our original expectations and mostly due to faster implementation of our parking revenue optimization program.

Michael L. Manelis: In addition to our efforts around other income we have been very focused on areas of opportunity like leveraging artificial intelligence into our business process as early adopters of these AI interactions. We are thrilled with the performance of these tools.

Michael L. Manelis: Once again, our disciplined approach to expense management has continued to pay off. On the innovation front, as we have previously discussed, we will be focused on a number of initiatives to drive both revenue growth and operating efficiency. Specific to other income, our expectation remains unchanged that this will be a contributor of 30 basis points to our full-year same-store revenue growth. However, during the quarter, we delivered 60 basis points, which was slightly ahead of our original expectations and mostly due to faster implementation of our Parking Revenue Optimization Program.

Michael L. Manelis: Over the past year, our AI leasing assistant Ela has engaged with just over 600000 customer inquiries that $2 million responses addressing prospect questions and booked over 80000 appointments leveraging this type of automation at the top of our demand funnel has been incredibly effective allowing us.

Michael L. Manelis: To be nimble with increasing initial traffic demand without impacting our remaining onsite employees ability to provide high touch customer interactions when needed.

Michael L. Manelis: We're excited to share that in the coming quarter, we will begin testing in AI resident assistant helping existing residents $24 seven with common questions about their community service and even their account statements.

Michael L. Manelis: In addition to our efforts around other sources of income, we have been very focused on areas of opportunity like leveraging artificial intelligence into our business process. As early adopters of these AI interactions, we are thrilled with the performance of these tools. Over the past year, our AI leasing assistant, Ella, has engaged with just over 600,000 customer inquiries, that 2 million responses addressing prospect questions, and booked over 80,000 appointments. Leveraging this type of automation at the top of our demand funnel has been incredibly effective, allowing us to be nimble with increasing initial traffic demand without impacting our remaining onsite employees' ability to provide high-touch customer interactions when needed.

Michael L. Manelis: Wanted to give a shout out for our amazing teams across our platform for their continued dedication to innovation and enhancing customer service as we sit here today, we're 96, 5% occupied and continue to see strength in our renewal process, which positions us very well to capture the pricing power opportunities that the peak.

Speaker Change: Leasing season will bring with that I turn it over to the operator for Q&A.

Speaker Change: Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone.

Speaker Change: If you are joining us today, you say speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again that will be star. One if you would like to signal with questions Star One and our first question will come from Eric Wolfe with Citi.

Michael L. Manelis: We're excited to share that in the coming quarter, we'll begin testing an AI resident assistant, helping existing residents 24-7 with common questions about their community service, and even their account statement. I want to give a shout out to our amazing teams across our platform for their continued dedication to innovation and enhancing customer service. As we sit here today, we're 96.5% occupied and continue to see strength in our renewal process, which positions us very well to capture the pricing power opportunities that the peak leasing season will bring. With that, I turn it over to the operator for Q&A.

Eric Wolfe: Hey, thanks for taking the questions.

Eric Wolfe: I look at your April new lease growth of 0.1% versus the one 6% at this time last year I'm, just trying to understand why it's a bit lower given Europe, and a better occupancy position.

Eric Wolfe: I think you said record retention.

Eric Wolfe: Record low turnover. So just wondering if we could see that catch up over the next couple of months.

Eric Wolfe: Hey, Eric This is Michael so yeah, I think one of the things you do too to remember is that relative to the first quarter. In 2023, we are issuing more concessions right now so that does impact a little bit on what you see in that new lease change but.

Operator: Thank you. If you would like to signal with questions, please press star one on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that will be star one if you would like to signal with questions. Our first question will come from Eric Wolfe.

Eric Wolfe: Clearly when you just think about the normal rent seasonality curve pricing trend, our asking rents in the marketplace, we're seeing that sequentially build and youre seeing that sequential improvement in kind of the new lease stats for April over March. So I think is what you should expect for the next several months working our way probably even <unk>.

Eric Wolfe: Hey, thanks for taking the questions. If I look at your April new lease growth of 0.1% versus the 1.6% at this time last year, I'm just trying to understand why it's a bit lower, given you're in a better occupancy position. I think you said record retention and record low turnover. So just wondering if we could see that catch up over the next couple of months.

Eric Wolfe: The middle of the third quarter is that we will sequentially build new lease change up and we will see that stability and kind of the renewal achieved renewal increase performance. So you're right to call up and it's a little lower than norm, but right now we like the sequential improvement that we're seeing.

Michael L. Manelis: Hey, Eric, this is Michael. So yeah, I think one of the things you need to remember is that relative to the first quarter of 2023, we are issuing more concessions right now. So that does impact a little bit of what you see in that new lease change. But clearly, when you just think about the normal rent seasonality curve, the pricing trend, or asking rents in the marketplace, we're seeing that sequentially build. And you're seeing that sequential improvement in kind of the new lease stats for April over March.

Speaker Change: Okay. That's helpful and then to your point on concessions, if we look at SF and Seattle.

Speaker Change: Specifically can you maybe talk about where concession usage is today versus say this time last year and and if youre planning to dial that back further as we get into the peak leasing season.

Speaker Change: Yeah.

Speaker Change: And I think I called this out even on the first are the call in January that we made a strategic decision to increase the concession use buildup that occupancy in the fourth quarter.

Michael L. Manelis: So I think what you should expect for the next several months, working our way through, probably even through the middle of the third quarter, is that we will sequentially build new lease change up. And we will see that stability and kind of renewal, achieved renewal increase performance. So you're right to call out that it's a little lower than normal. But right now, we like the sequential improvement that we're seeing.

Speaker Change: And really have been just pulling back the concession use as we worked our way through the first quarter. The most pronounced reduction actually came out of San Francisco I think the offset to that reduction is that we also started to utilize some concessions in L. A so when you think about the sequential change from the fourth quarter through the firm.

Speaker Change: Quarter, our concession use ticked down a little bit, but not as much as what would have been if we didn't start increasing some of the usage in the la market.

Michael L. Manelis: All right, that's helpful. And then to your point on concessions, if we look at SF and Seattle, specifically, can you maybe talk about where concession usage is today versus, say, this time last year? And if you're planning to dial that back further as we get into the peak Yeah, so I and I think I called

Speaker Change: Right now about 50% of the concessions that we're using are concentrated in Seattle and San Francisco with a large majority of those sitting in those downtown areas. Both of those markets are below where they were in January and I'll tell you. We've had a really strong couple of leasing weeks. So I know the teams right now for the.

Michael L. Manelis: Yeah, and I think I called this out even on the first call in January that we made a strategic decision to increase concession use, build up that occupancy in the fourth quarter, and really have been just pulling back the concession use as we worked our way through the first quarter. The most pronounced reduction actually came out of San Francisco. I think the offset to that reduction is that we have also started to utilize some concessions in LA.

Speaker Change: Several weeks have been strategically looking at where they can continue to dial back the concessionaires.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: And our next question will come from John Pawlowski with Green Street.

John Pawlowski: First question is on Capex, Bob it's been running I think last year of about 3700 unit up to 3800. This year, which is 40% higher than 2022 is this a new structurally higher level of Capex, we should expect going forward or should we expect a reversion to historical levels in there.

Michael L. Manelis: So when you think about the sequential change from the fourth quarter through the first quarter, our concession use ticked down a little bit, but not by as much as it would have been if we hadn't started increasing some of the usage in the LA market. Right now, about 50% of the concessions that we're using are concentrated in Seattle and San Francisco, with a large majority of those sitting in those downtown areas.

John Pawlowski: Coming years.

John Pawlowski: Hey, John It's Alex So there are couple of factors at play there. One is we talked a little bit about this last quarter is leaning in more on some ROI projects specifically renovations.

Alex: Some solar installations are some smart rent installations, as well and the EV Chargers. So there's some things that we.

Michael L. Manelis: Both of those markets are below where they were in January, and I'll tell you, we've had a really strong couple of leasing weeks. So I know the teams right now, for the last several weeks, have been strategically looking at where they can continue to dial back the concession.

Alex: We can toggle up and down they have rois on them and their discretionary. So that's in the mix. There is also an element of catch up from the pandemic. There are projects that we just couldn't get to because we didn't want to disrupt our residents who are staying at home at that time.

Alex: And so theres a little bit of catch up there. So we're going to have a couple more years of that we think so I think there's 3800 ish number is pretty good.

Operator: And our next question will come from John Pawlowski of Greensboro.

John Pawlowski: The first question is on CapEx. Bob, it's been running, I think last year, about 3,700 a unit, up to 3,800 this year, which is 40% higher than 2022. Is this a new, structurally higher level of CapEx we should expect moving forward, or should we expect a reversion to historical levels in the coming years?

Alex: Okay.

Speaker Change: And then a question on markets, Michael and Mark.

Speaker Change: I guess, which markets when you're looking at just in terms of the absolute level of rents are you more concerned you are getting closer to hitting an affordability ceiling.

Yeah. John This is Michel so really from the affordability standpoint, I want to say, we have any concerns at all I mean, we're not seeing a material shift we still sit at about 20% rent to income ratios and the range is fairly tight running between like 18, 5% to 24.

Alexander Brackenridge: Hey, John, it's Alec. So there are a couple of factors at play here. One is, we talked a little bit about this last quarter, leaning in more on some ROI projects, specifically renovations, some solar installations, some smart rent installations as well, and EV chargers. So there are some things that we can toggle up and down, they have ROIs on them, and they're discretionary. So that's in the mix. There's also an element of catch-up from the pandemic; there are projects that we just couldn't get to because we didn't want to disrupt our residents who were staying at home at that time. And so there's a little bit of catch-up to be done there. So we're gonna have a couple more years of that, we think. So I think this 3800 ish number is pretty good.

<unk> and the southern California markets are sitting up at that higher engine and they really historically have always been up at that level. So I'm not concerned about us hitting that point, where the affordability index I think what we saw in a market like New York, where you had such robust rent growth through the peak leasing season last year.

Speaker Change: You hit that point, where kind of you felt like you had a rent fatigue level, we're not seeing any of that right now in the portfolio, but it's still pretty early into the leasing season. So I'm more looking at that absolute rent level than anything around the affordability of our resident base.

Michael L. Manelis: Okay. And then a question on markets. Michael or Mark, I guess, which markets, when you're looking at just in terms of the absolute level of rents, are you more concerned you're getting closer to hitting an affordability ceiling?

Speaker Change: Okay. Thank you for the time.

Speaker Change: And our next question will come from Steve <unk> with Evercore ISI.

Michael L. Manelis: Yeah, John, this is Michael. So really, from the affordability standpoint, I wouldn't say we have any concerns at all. I mean, we're not seeing a material shift. We still sit at about 20% rent to income ratio. And the range is fairly tight, running between like 18 and a half to 24%. And the Southern California markets are sitting at that higher edge. And, And they really have historically always been up at that level.

Steve: Yeah, great. Thanks, Michael I was wondering if you could just provide a little bit more commentary on the San Francisco and Seattle sort of strength and whether you can determine or those kind of folks that are returning to the market are they just kind of moving around the bay area and Seattle, just how do we think about that demand.

Steve: Picked up and dropping concessions.

Steve: Yeah. Great question. So this is Michael so I look at those markets right now and I think clearly we did see some marginal improvement with the migration patterns, we're still running with a slightly higher percent of new residents coming to us from within the MSA meeting, we're just trading around within the MSA, but we are.

Michael L. Manelis: So I'm not concerned about us hitting that point where the affordability index, I think what we saw in a market like New York, where you had such robust rent growth through the peak leasing season last year, you hit that point where you kind of felt like you hit a rent fatigue level, where we're not seeing any of that right now in the portfolio, but it's still pretty early into the leasing season. So I'm more interested in looking at that absolute rent level than anything around the affordability of our resident base.

Steve: Marginally seeing some improvement, but we are elevated still from those historical norms and I think we're going to remain elevated until you see the catalyst of either job growth or specific to like downtown San Francisco.

Operator: Okay, thank you for your time.

Steve Sakwa: And our next question will come from Steve Sakwa with Evercore ISI.

Speaker Change: Really seeing kind of a more robust return to office policy. So in terms of the demand it's not really like the migration factors that are doing it I still think you'll see some folks coming from further out nearer in and that was a little bit of the catalysts.

Stephen Thomas Sakwa: Yeah, great. Thanks, Michael. I was wondering if you could just provide a little bit more commentary on the San Francisco and Seattle sort of strengths and you know, whether you can determine are those the kind of folks that are returning to the market? Are they just kind of moving around the Bay Area and Seattle? Just how do we think about that demand that's picked up in the dropping concessions?

Speaker Change: That we saw and you also get a different sense of vibrancy I mean, we've talked about this now for over a year every quarter. The city's those metro areas seems to start feeling better and better and youre seeing that play out right.

Speaker Change: Right now our positioning we've got bulk market sitting up at 96% occupied and it gives us a lot of confidence to keep pressuring whether we're raising the absolute rate pulling back the concessions, we're seeing the sequential build in our net effective rent and that's what we're looking for as long as the velocity holds we're going to do.

Michael L. Manelis: Yeah, that's a great question. So, this is Michael.

Michael L. Manelis: So I look at those markets right now. And I think clearly, we did see some marginal improvement in the migration patterns; we're still running with a slightly higher percent of new residents coming to us from within the MSA, meaning we're just trading around within the MSA. But we are marginally seeing some improvement, but we are still elevated from those historical norms.

Speaker Change: Really well through the peak leasing season, but we've seen these markets before kind of have fits and starts. So I think it's just too early to call that these are wins for the year, yes, Im just going to elaborate its mark Steve I'd add a little bit and we do see that improvement in downtown San Francisco, but it's not yet the job growth, we probably need to drive rents, but we're 14th.

Michael L. Manelis: And I think we're going to remain elevated until you see the catalyst of either job growth, or specifically in downtown San Francisco, or really seeing kind of a more robust return to office policy. So in terms of the demand, it's not really the migration factors that are doing it, but I still think you see some folks coming from further out, nearer in, and that was a little bit of the catalyst that we saw. And you also get a different sense of vibrancy.

Speaker Change: Percent or sell below rent levels that were pre pandemic. So theres definitely room here incomes have gone up as we've talked about on the calls the crime statistics in the city of San Francisco generally have really improved compared to last year.

Speaker Change: And compared to pre pandemic levels and as Michael said politically.

Michael L. Manelis: I mean, we've talked about this now for over a year, every quarter that the cities, those metro areas, seem to start feeling better and better. And you're seeing that play out. So right now, our positioning, we've got both markets sitting at 96% occupied, that gives us a lot of confidence to keep pressuring, whether we're raising the absolute rate, pulling back the concession, we're seeing this sequential build in our net effective rent.

Speaker Change: We think the March 2024 primary was a watershed moment within the citizens really took it upon themselves on both public safety.

Speaker Change: In other matters to really.

Speaker Change: Take back their cities. So we're excited about some of the progress there.

Speaker Change: Hi Revolution is a big driver potentially for San Francisco the city in the Bay area are more widely.

Speaker Change: Our numbers indicate that the bay area is getting 13 times more funding than the next metro area in terms of AI investment.

Michael L. Manelis: And that's what we're looking for. As long as the velocity holds, we're going to do really well through the peak leasing season. But we've seen these markets before kind of have fits and starts, so I think it's just too early to call that these are wins for the year. Yeah, I'm just

Speaker Change: That's very significant now those jobs arent that many yet I mean, there are a few hundred theyre not the thousands so.

Speaker Change: Not seeing that job growth, yet that we really need to drive our numbers, but we are seeing that network effects, where companies like open AI was incubated at UC, Berkeley and adopted to stay in San Francisco. Some of these incubator firms have moved back into San Francisco from the city from the suburbs. So that's all really positive in <unk>.

Mark J. Parrell: Yeah, I'm just going to elaborate, Mark and Steve, on that a little bit. Again, we do see that improvement in downtown San Francisco, but it's not yet the job growth we probably need to drive rents. But we're 14% or so below rent levels that were pre-pandemic. So there's definitely room here.

Mark J. Parrell: Incomes have gone up, as we've talked about on the calls. The crime statistics in the city of San Francisco generally have really improved compared to last year and compared to pre-pandemic levels. We think the March 2024 primary was a real watershed moment. We think the citizens really took it upon themselves on both public safety and other matters to really take back their city.

Speaker Change: Al I, just wanted to give a plug for our friends in the northwest munis enormous $700 million project their version of the Big dig to take the Alaskan way highway and put it underground and really activate.

Speaker Change: The waterfront is really significant and its driving tourism, it's driving activation slowly, but surely in downtown Seattle Seattle's problem is really going to be the supply issues. There is just a fair bit of supply, but we do see activity levels, improving and again politically the city Council and the mayor are much more focused in Seattle on public safety and quality.

Mark J. Parrell: So we're excited about some of the progress there. The AI revolution is a big driver potentially for San Francisco, the city, and the Bay Area more widely. Our numbers indicate that the Bay Area is getting 13 times more funding than the next metro area in terms of AI investment. Now, that's very significant. Now, those jobs aren't that many yet. I mean, there are a few hundred. They're not thousands.

Speaker Change: City of life, because that's what their constituents have told him to be focused on so again, we're pretty excited and I guess, we'd make the statement that we continue to see Seattle and San Francisco is when not if stories and when could be this year. If things continue as they are but we need to see a little few more months of continued good results in a.

Mark J. Parrell: So, you know, we're not seeing that job growth yet that we really need to drive our numbers. But we are seeing that network effect where companies like OpenAI were incubated at UC Berkeley, and they opted to stay in San Francisco. Some of these startup firms have moved back into San Francisco from the city, from the suburbs. So that's all really positive.

Speaker Change: Market.

Speaker Change: <unk> can give you a head fake once in a while.

Speaker Change: Great. Thanks for that color, maybe the second question I don't know if mark or Barb you want to take this on the I guess it was on the late the California settlement and the charge you guys took in the quarter can you just kind of elaborate.

Mark J. Parrell: In Seattle, I just want to give a plug for our friends in the Northwest. I mean, this enormous 700 million dollar project, their version of the big dig to take the Alaskan Way Highway and put it underground and really activate the waterfront, is really significant. It's driving tourism. It's driving activation slowly but surely in downtown Seattle. Seattle's problem is really going to be supply issues. There's just a fair bit of supply, but we do see activity levels improving.

Speaker Change: Say, what you can say about that and does this kind of put this issue to bed or could there still be lingering kind of issues that come out of that lawsuit.

Speaker Change: Hey, Steve It's Mark Thanks for that question I mean, we are still in active litigation as you suggested in your comment or your question. So there's not a lot I can say just to give you a little background. So it's been a case that's been going on for 10 years about the amount of late fees.

Speaker Change: Got a ruling from the judge that was adverse to our interests. So we adjusted the reserve we are considering our appeal options. So to your point about adjustments they could go up or down depending on our actions also the judge didn't give us a number he gave us a methodology and we're working out with plaintiffs' counsel what that means so we can charge late fees. It's just the.

Mark J. Parrell: And again, politically, the city council and the mayor are much more focused in Seattle on public safety and quality of life because that's what their constituents have told them to be focused on. So, again, we're pretty excited. And I guess we'd make the statement that we continue to see Seattle and San Francisco as when not if stories, and the when could be this year if things continue as they are. But we need to see a few more months of continued good results in a market that, again, can give you a head fake once in a while.

Speaker Change: That's an issue so we need to figure that out so there could certainly be additional adjustments I wouldn't expect them to be terribly significant upward.

Speaker Change: But if we win an appeal I guess, there could be a downward adjustment, but this is going to go on for a little while yet I would think.

Stephen Thomas Sakwa: Great, thanks for that color. Maybe the second question, I don't know if Mark or Bob you want to take this on the late fee California settlement in charge that you guys took in the quarter. Can you just kind of elaborate, say what you can say about that? And does this kind of put this issue to bed? Or could there still be lingering issues that come out of that lawsuit?

Speaker Change: Great. Thanks, that's it.

Speaker Change: And our next question will come from Josh <unk> with Bank of America.

Yeah, Hey, guys. Thanks for the time.

Josh: All the comments on San Francisco, and Seattle are definitely a hot topic.

Josh: Could you just remind us your split between urban and suburban exposure in those markets.

Josh: Yeah, Hey, Josh it's Alec.

Mark J. Parrell: H. Davids Mark

Mark J. Parrell: Hey, Steve, it's Mark. Yeah, thanks for that question. I mean, we are still in active litigation, as you suggested in your comment or your question. So there's not a lot I can say just to give you a little background.

Josh:

Alexander Brackenridge: And Seattle, where 60% urban and 40% suburban in San Francisco, it's the opposite of that.

Alexander Brackenridge: So we have a broader suburban exposure there.

Josh: Okay. I appreciate that and then I guess just are the trends like really materially different between the urban and suburban assets in those markets and just.

Mark J. Parrell: This has been a case that's been going on for 10 years, about the amount of late fees. We just got a ruling from a judge that was adverse to our interests. So we adjusted the reserve, and we're considering our appeal options. So to your point about adjustments, they could go up or down, depending on our actions. Also, the judge didn't give us a number; he gave us a method. And we're working out with plaintiffs counsel what that means.

Josh: Just trying to trying to figure out like the economy going forward.

Josh: Yeah, Hey, Josh This is Michael yes, they're absolutely different and again. This this remains the story about kind of the city of Seattle and downtown San Francisco is where we see kind of the least amount of pricing power kind of lower occupancy. So the suburban portfolios are clearly outperforming the urban and.

Mark J. Parrell: So we can charge late fees; it's just the amount that's at issue. So we need to figure that out. So there could certainly be additional adjustments; I wouldn't expect them to be terribly significant upward adjustments. But you know, if we win an appeal, I guess there could be a downward adjustment. But this is going to go on for a little while. Yet, I would say Great, thanks. That's it. And our next question will come later. Josh Dennerlein

Josh: It's a trend we've seen for a while in those markets.

Josh: The only thing I would call out in San Francisco is that you do have some supply coming back to the South Bay and it is back half loaded. So you do need to see kind of that demand pick up because you have like 4000 units coming back to that Submarket. This later on this year, but again, it's doing its performing.

Operator: And our next question will come from Josh Dennerlein with Bank of America. Yeah, hey, guys, thanks for the time. Um, appreciate all the comments on San Francisco and Seattle. Definitely hot.

Josh: Very well right now we saw it absorbed 4000 units a couple of years ago. So it's nothing that we're concerned but it's still something that we're watching for.

Speaker Change: Okay I appreciate that.

Joshua Dennerlein: Yeah, hey, Josh, it's Alec. In Seattle, we're 60% urban and 40% suburban. In San Francisco, it's the opposite of that. So we have a broader suburban exposure there. Okay, cool. I appreciate that.

Thanks for the time.

Speaker Change: Yeah.

And our next question comes from Adam Kramer with Morgan Stanley.

Speaker Change: Hi, This is Derek Metzler, one for Adam Kramer. Thanks for the question I Wonder if you could tell us anything about the cadence of same store growth for the rest of the year any kind of what to expect given the strong one Q end and full year guidance, it's kind of well below that.

Michael L. Manelis: And then, I guess just are the trends really materially different between the urban and suburban assets in those markets? Trying to figure out, like, the dichotomy going forward. Yeah, hey, Josh, this is Michael. Yeah, they're, they're absolutely different.

Michael L. Manelis: And again, this remains the story about the city of Seattle, and downtown San Francisco is where we see kind of the least amount of pricing power, kind of lower occupancy. So the suburban portfolios are clearly outperforming the urban ones. And that's a trend we've seen for a while in those markets. You know, the only thing I would call out in San Francisco is that you do have some supply coming back to the South Bay.

Speaker Change: Yeah.

Speaker Change: Yeah. Thanks, Derrick, it's Bob I'll take that.

Bob: Let me start because there's a few pieces driving this but let me start on the same store revenue front with the residential rental component.

Bob: Our assumption for residential rental income is that we anticipate a year that is pretty normal meaning that sequentially. We expect the blended rates to continue to get better.

Bob: Till they seasonally declined in Q4.

Bob: And so youre going to see that normal kind of robust growth pattern as you work your way sequentially through on the other income front, which also drives the same store revenue piece, that's a little bit lumpier. So we expect to see bad debt improvement and increased income from initiatives later in the year as well.

Michael L. Manelis: And it is back half loaded. So you do need to see kind of that increment demand pickup because you have like 4000 units coming back into that sub market later this year. But again, it's performing very well right now. We saw it absorb 4000 units a couple of years ago. So it's nothing that we're concerned about, but it's still something that we're watching for. Okay, I appreciate that. And our next question comes from Adam Kramer with Morgan.

Bob: So that will all help growth as you kind of continue on sequentially as well.

Bob: And then the nonresidential side, which you saw some lumpiness in the first quarter that we disclosed in our footnote on the bottom of page 10.

Operator: And our next question comes from Adam Kramer with Morgan Stanley. Hi, this is Derek Metzler on behalf of Adam Kramer. Thanks for the question.

Bob: That is that is going to be a little bit of a drag when you get to the back half of the year, but when you get to the full holistic year. It doesn't really impact same store revenue overall, so normal kind of seasonal trajectory.

Adam Kramer: Yeah, thanks, Derek. It's Bob. I'll take that.

Robert A. Garechana: Let me start because there are a few pieces driving this, but let me start on the same store revenue front with the residential rental component. Our assumption for residential rental income is that we anticipate a year that is pretty normal, meaning that sequentially, we expect the blended rates to continue to get better until they seasonally decline in Q4. And so you're going to see that normal kind of robust growth pattern as you work your way sequentially through them.

Bob: Given the comp period, when you put it in a blender when you look at quarter over quarter, we would expect the quarter over quarter to be lower than that.

Bob: In the back quarters of the year than they are in the first quarter.

Bob: Okay.

Speaker Change: Got it thank you for that and anything on expenses too.

Speaker Change: And the cadence there.

Speaker Change: There.

Speaker Change: Yeah, I'm also pretty typical we certainly had a a very good first quarter on the expense side better than what we anticipated as we kind of highlighted in the <unk>.

Robert A. Garechana: On the other income front, which also drives the same store revenue piece, that's a little bit lumpier. So we expect to see bad debt improvement and increased income from initiatives later in the year as well. So that will all help growth as you kind of continue on sequentially as well. And then the non-residential side, which you saw some lumpiness in the first quarter that we disclosed in a footnote on the bottom of page 10, is going to be a little bit of a drag when you get to the back half of the year.

Speaker Change: In the disclosure and we didn't adjust guidance at all so we do we do expect that it's while it's early we're being a little bit cautious on the expense side. So we're hopeful that we can we can do better than the midpoint of our guidance range, but we'll see.

Speaker Change: But from a growth trajectory standpoint, remember that Q2, and Q3 are always usually the higher growth rate periods, because you have more turnover going on in the portfolio. Because you are in the leasing season. So do you expect those growth rates to be higher and then the only thing other thing I would highlight is <unk> had a difficult comp period 2023.

Robert A. Garechana: But when you get to the full holistic year, it doesn't really impact same store revenue overall. So a normal kind of seasonal trajectory, given the comp period, when you put it in the blender, when you look at quarter over quarter, we would expect the quarter over quarter to be lower in the back quarters of the year than it is in the first quarter. Got it. Thank you for that. And anything on expenses? The kid.

Speaker Change: <unk> fourth quarter growth rates are really low and so we have a little bit of a harder comp period in the fourth quarter, but we're off to a really good start on expenses.

Speaker Change: And so we're cautiously optimistic there.

Speaker Change: Great. Thank you congrats on the strong quarter.

Robert A. Garechana: Yeah. Yeah, also pretty typical. We certainly had a very good first quarter on the expense side, better than what we anticipated, as we kind of highlighted in the disclosure. And we didn't adjust guidance at all. So we do, you know, we do expect that while it's early, we're being a little bit cautious on the expense side. So we're hopeful that we can do better than the midpoint of our guidance range, but we'll see.

Speaker Change: Thanks.

Speaker Change: And we'll take a question from Michael Goldsmith with UBS.

Michael Goldsmith: Good morning, Thanks, a lot for taking my question you know at what point during the year do you feel confident.

Michael Goldsmith: You know about maybe not hitting the low end of the guidance recognizing you don't make adjustments for the first quarter print.

Speaker Change: You did speak about trends being.

Michael Goldsmith: Ahead of expectations I guess, maybe the question is.

Michael Goldsmith: Are you at this point do you feel like Youre trending at the higher end of the range or or above the range.

Robert A. Garechana: But from a growth trajectory standpoint, remember that Q2 and Q3 are usually the higher growth rate periods because you have more turnover going on in the portfolio because you're in the leasing season. So you expect those growth rates to be higher. And then the only other thing I would highlight is that Q had a difficult comp period in 2023; fourth quarter growth rates were really low. And so we have a little bit of a harder comp period in the fourth quarter, but we're off to a really good start on expenses. And so we're cautiously optimistic about that.

Michael Goldsmith: Where you sit today and what will give you confidence about adjusting that within next quarter. Thanks.

Michael Goldsmith: And thanks for the question Michael It's Marc.

Marc: We generally look at this at the end of each quarter and because we have so much disproportionate activity in the second quarter that it makes sense to us that that would be the time to really look hard at this it's a really volatile world even more so than usual boats in economic terms and every other term you can think of so task.

Marc: That makes some sense to wait we got a few markets that feel like they are poised to recover, but Seattle and San Francisco, specifically and those have been a little bit markets were a little bit of volatility as well so.

Operator: And we'll take a question from Michael Goldsmith of UBS.

Michael Goldsmith: Good morning. Thanks a lot for taking my question. At what point during the year do you feel confident, you know, about maybe not hitting the low end of the guidance or like recognizing, you know, you don't make adjustments for the first quarter print? You did speak about trends being ahead of expectations. I guess maybe the question is, you know, are you at this point, do you feel like you're trending, you know, at the higher end of the range or, or above the range where you sit today? And what will give you confidence about adjusting that for the next quarter?

Marc: I guess I don't know what to say about whether you're at the low end of the guidance of the high end of the guidance Mary now, we're clearly pointed to the high end of the Rab number on a lower end of the expense range, but this is just one quarter and Theres a lot of time to go and again, we feel very optimistic and very excited about the fundamentals of the business.

Marc: We'll report back in July and tell you where we are.

Mary: Thanks for that Mark and my second question is you sold a couple of properties during the quarter.

Mark J. Parrell: Thanks for the question, Michael. It's Mark.

Speaker Change: I use that to buy back some stock pay down some debt may be funds. Some of the development would you look to kind of continue to sell at the current piece and does the fact that you did talk about how there is $200 billion of.

Mark J. Parrell: You know, we generally look at this at the end of each quarter. And, you know, because we have so much disproportionate activity in the second quarter, it makes sense to us that that'd be the time to really look hard at this. It's a really volatile world, even more so than usual, both in economic terms and every other term you could think of. So, to us, it makes some sense to wait.

Speaker Change: Dry powder on the sidelines to reinvest into into real estate would you continue to sell it even if theres nothing to acquire things.

Mark J. Parrell: We've got a few markets that feel like they're poised to recover, but Seattle and San Francisco specifically, and those have been a little bit with a little bit of volatility as well. So, you know, I guess I don't know what to say about whether you hit the low end of the guidance or the high end of the guidance. Right now, we're clearly pointed to the high end of the rev number and the lower end of the expense range.

Alex: Hey, Michael it's Alex.

Alex: We're going to slow down the dispositions and until we see better visibility into the trends the acquisition side of the market and it did feel like two or three weeks ago. We were getting there that there are buyers and sellers, we're kind of finding common ground at around a five to a five and a quarter, but then the inflation report came in hot hotter than expected.

Alex: And that really kind of threw everything backwards to where we were a quarter ago, where theres a pretty good spread right. Now the tenure I think is over $4 six today and so we're just trying to figure out what the cap rate environment is for acquisitions and so we'll just temper the dispose until we get a better sense of that.

Mark J. Parrell: But this is just one quarter, and there's a lot of time to go. And again, we feel very optimistic and very excited about the fundamentals of the business. And, you know, we'll report back in July and tell you where we are.

Alexander Brackenridge: Thanks for that, Mark. And my second question is, you know, you sold a couple properties during the quarter, used that to buy back some stock paid out of debt, maybe funds, some of the development. Would you look to kind of continue to sell at the current price? And does the fact that, you know, you talked about how there's $200 billion of dry powder on the sidelines to reinvest into real estate? Would you continue to sell even if there's nothing to acquire? Thanks.

Speaker Change: Thank you very much.

Speaker Change: And our next question will come from Hendel, St Justy with Mizuho.

Speaker Change: Okay.

Hey, they're in jail.

Speaker Change: Morning.

Speaker Change: Hey, good morning, I had a follow up on I guess, the rent reversal of them.

Speaker Change: I'm here can you hear me.

Speaker Change: Yes, we can now.

Speaker Change: Yep.

Speaker Change: Go ahead and now we can hear you perfect perfect.

Speaker Change: How about that so I had a follow up on the rent reversals during the.

Speaker Change: Okay.

Speaker Change: Had a question on the rent reversals in the quarter.

Speaker Change: The improved collectibility expectations, you outlined assume they were tied to rite aid so can.

Speaker Change: Can you outline what's changed there and why you're adjusting your expectations and then what's the net net of all of this beyond this year I think you said this year with a net.

Operator: Hey Michael, it's Alec. We're going to slow down.

Alexander Brackenridge: We're going to slow down the dispositions until we see better visibility into the acquisition side of the market. And it did feel like two or three weeks ago when we got there that, you know, their buyers and sellers were kind of finding common ground at around a five to a five and a quarter. But then the inflation report came in hot, hotter than expected, and that really kind of threw everything backwards to where we were a quarter ago, where there's a pretty good spread right now; the tenure, I think, is over four, six today. And so we're just trying to figure out what the cap rate environment is for acquisitions, and so we'll just temper the disposal until we get a better sense of it.

Speaker Change: Neutral event, so I'm just curious as the space now spoken for what we should expect over the next year or two yes, let me.

Speaker Change: Yeah, Hey, Handel, it's Bob let me clarify real quick.

So relative to expectations, we had in our guidance expectations as we called out the straight line receivable reversal as it relates to nonresidential, so theres no change to expectations.

Bob: The other thing I would point out is that the benefit in the first quarter actually has no relation to the rite aid lease that we talked about last year. So let me describe what it is you.

Operator: Thank you very much. And now for our next question.

Haendel Emmanuel St. Juste: And our next question will come from Haendel St. Juste with Mizzou.

Bob: You may recall that during the pandemic, we actually took a large write off of the straight line receivable related to a variety of tenants, which converted those nonresidential tenants to a cash basis of accounting.

Operator: Hey there. Hey there, Haendel. Good morning.

Haendel Emmanuel St. Juste: I had a follow-up on against the right reverse. I'm here. Can you hear me? Yes, we can now. Yep. Go ahead, Haendel. We can hear you.

Haendel Emmanuel St. Juste: Perfect. Perfect. Sorry about that.

Haendel Emmanuel St. Juste: So how to follow up on the RET reversals during Okay, I had a question on the rent reversals in the quarter. The improved collectability expectations you outlined assume they were tied to Rite Aid. So can you outline what's changed there? And why are you adjusting your expectations? And then what's the net effect of all this beyond this year? I think you said this year was a net neutral event. So just curious, is the space now spoken for what we should expect over the next year or two?

Bob: Under the accounting literature that over time.

Bob: When your outlook on Collectability changes you convert them back to an accrual basis level of accounting. So you put that straight line receivable back on the books.

Bob: As you can imagine given the nature of the tenancy and the nature of that space in the retail we're very cautious to ensure that there was or.

Bob: Our Collectability view change so we had a pretty high hurdle rate in terms of determining that we thought that these leases would be collectible and we did so.

Robert A. Garechana: Yeah, let me. Hey, yeah. Hey, Hendo, it's Bob.

Robert A. Garechana: Hey, yeah, hey, Haendel, it's Bob. Let me clarify real quick. So relative to expectations we had in our guidance expectations, as we called out the straight line receivable reversal as it relates to non-residential, so there's no change in expectations. The other thing I would point out is that the benefit in the first quarter actually has no relation to the Rite Aid lease that we talked about last year. So, let me describe what it is.

Bob: In the first quarter, but that was intended and anticipated in guidance. So what you saw was a return of that receivable balance.

Bob: We don't expect there to be much more there on the in the <unk>.

Robert A. Garechana: So what you saw was a return of that receivable balance. We don't expect there to be much more there in the quarterly cadence for non-residential. And so that's kind of what that nature was specifically.

Bob: In the quarterly cadence for nonresidential and so that's kind of what that nature was specifically.

Robert A. Garechana: Since you mentioned Rite Aid, I will just say one quick thing about Rite Aid, because that is a rather large space. So that space, the lease was terminated associated with Rite Aid, but we have released it. So we have an active lease with a very high-credit-quality tenant, and we're in the process of putting TI dollars into that. And once those TI dollars are completed, which should happen later this year, at that point, we'll turn the space over, and we can begin revenue recognition on that lease specifically. And that's the update on Rite Aid. But otherwise, I have no relationship with Rite Aid at this point.

Bob: You mentioned Rite aid I will just say one quick thing on Rite aid because that is a rather large space. So that space. The lease was terminated associated with rite aid.

Bob: We have released it so we have an active lease with a very high credit quality tenants.

Bob: We're in the process of putting ti dollars into that and once those ti dollars are completed which should happen later this year at that point, we'll turn the space over and we can begin revenue recognition on that lease specifically and that's the that's the update on rite aid, but otherwise theres nothing Theres no relationship with Rite aid at this point.

Bob: Okay.

Bob: Yeah.

Haendel Emmanuel St. Juste: Thank you. And then I have a question on the second quarter guide here. Yes, a quick one on the second quarter guide. Seems a bit low versus what we and, I guess, the street was expecting, especially in consideration of the rental dynamics you're enjoying. So curious if there's any, any one-timers impacting that, anything in there from a dispositions perspective, anything moving the needle, or is that a clean guide? Thank you.

Speaker Change: And gosh I forgot one question. Thank you.

Speaker Change: And then on a question on the second quarter guide here.

Speaker Change: Yes, a quick one on the second quarter guide.

Speaker Change: Seems a bit low versus what we end up.

Speaker Change: The street was expecting especially in consideration with the rental dynamics youre enjoying so curious if there's any any one timers impacting that any anything in there from a dispositions perspective anything moving the needle or is that a clean guide. Thank you.

Robert A. Garechana: Yeah, good question. So, as you saw from our full year guidance, we didn't adjust our full year guidance, but we did provide for the first time NFFO guidance for the second quarter and continue to maintain what is probably a little bit of a cautious outlook still. But there are a couple call-outs that I would say that are inherent in the Q2 NFFO guidance range that we provided that is a little bit different than what you would normally see sequentially between Q1 and Q2, which I think is what you're getting at, Hendel. The core business continues to do what we would expect it to do, as Michael just outlined. So, the core kind of residential NOI business is growing the way that it would normally grow.

Speaker Change: Yeah.

Speaker Change: Good question. So as you saw from our full year guidance, we didn't adjust our full year guidance, but we did give provide for the first time <unk> guidance for the second quarter and continued to maintain what is probably a little bit of a cautious outlook still but there are a couple of callouts that I would say that are inherent in the Q2.

Speaker Change: <unk> guidance that range that we provided that are a little bit different than what you would have normally seen sequentially between Q1, and Q2, which I think is what youre getting at handle.

Speaker Change: The core business continues to do what we would expect it to do as Michael just outlined so the core kind of residential NOI business is growing the way that it would normally grow.

Robert A. Garechana: But we won't have that sequential benefit from the straight line receivable that I just described. So, that's a little bit of drag on the sequential component. Overhead is also not declining as quickly sequentially as it has done in historical periods for a few puts and takes. And finally, there is a little bit of transaction noise because we are front-end loaded on the disposition side. Oftentimes, when we do dispositions, we put those proceeds into 1031 accounts, which are interest-bearing cash accounts, but they don't earn as much interest as the NOI loss at the temporary dilution that we incur. And so, that's putting a bit of a drag on the sequential Q1 to Q2 numbers. Just to elaborate, my name is Mark.

Speaker Change: But we won't have that sequential benefit from the straight line receivable that I. Just described so that's a little bit of drag on the sequential component.

Speaker Change: Overhead is also not declining as quickly sequentially as what it has done in historical periods for a few puts and takes and finally, there is a little bit of transaction noise. Because we are front end loaded on the disposition side oftentimes when we do dispositions, we put those proceeds into 1031 accounts, which are interest bearing cash accounts that they don't earn as much interest as.

Speaker Change: The NOI lost at the temporary dilution.

Speaker Change: That we incur and so that's putting a bit of a drag on the sequential Q1 to Q2 numbers.

Speaker Change: Elaborate its mark we don't expect overheads to be higher or different than our guidance range. It's just the cadence of it is a little different where a variety of reasons. The first and second quarter are more similar than usual and you should expect that real decline in quarters, three and four so we'll update that.

Mark J. Parrell: We don't expect overhead.

Mark J. Parrell: Elaborate. It's Mark.

Mark J. Parrell: We don't expect overhead to be higher or different than our guidance range. It's just the cadence of it is a little different, where, for a variety of reasons, the first and second quarters are more similar than usual. And you should expect a real decline in quarters three and four. So we'll update that all in July, but we don't have any expectation that overhead is net higher. It's just that the drop between the quarters is occurring between quarters three and two, not between quarters one and two, as has often been the case.

Speaker Change: All in July, but we don't have any expectation that overhead is in that higher. It's just the drop between the quarters is occurring between quarters, three and two not between quarters, one and two as has often been the case.

Speaker Change: Okay.

Speaker Change: Very helpful. Thank you guys.

Speaker Change: Thanks.

Speaker Change: And we have a question from Jamie Feldman with Wells Fargo.

James Feldman: Great. Thank you and good morning, I guess, just a follow up to the <unk> number or guidance. So can you just it sounds like Theres a lot of moving pieces can you talk about just the core numbers I mean, what are you expecting for ranch blends occupancy same store revenue in <unk>.

Operator: Very helpful. Thank you, guys.

James Feldman: And we have a question from Jamie Feldman with Wells Fargo.

James Feldman: Great, thank you, and good morning. I guess just to follow up on the 2Q number or 2Q guidance, so can you, since it sounds like there's a lot of moving pieces, can you talk about just the core numbers? I mean, what are you expecting for rents, blends, occupancy, you know, same store revenue in 2Q? to maybe level set.

James Feldman: Just to maybe level set.

Speaker Change: We typically don't provide that degree of guidance, what I would tell you in terms of the actual sale.

Robert A. Garechana: We typically don't provide that degree of guidance. What I would tell you in terms of the actual same-store revenue piece, what I would tell you is that sequentially, what you normally see in same-store revenue is call it, you know, two to three cents or NOI, sorry, is call it two to three cents of sequential improvement in NOI between Q1 and Q2. And that's pretty much where we are on the residential side, but we're losing call it about a penny on the non-residential piece.

Speaker Change: Same store kind of revenue piece, what I would tell you is that sequentially. What you normally see between the same store revenue is call. It two.

Speaker Change: Two to three our NOI sorry is call it two to three cents of sequential improvement.

Speaker Change: And NOI between Q1 and Q2.

Speaker Change: And thats pretty much where we are on the residential side, but we're losing call. It about a penny from the nonresidential piece. We're also losing about a penny from the.

Robert A. Garechana: We're also losing about a penny from the overhead kind of sequential piece along with a handful of other things in the transaction activity that we mentioned. And that's why you're only seeing one penny improvement in sequence. Keep in mind that the leasing activity that you execute in the second quarter typically has a bigger effect on revenue in the third quarter because those leases are substantially reset during the second quarter. So hopefully that helps from a color perspective.

Speaker Change: Our.

Speaker Change: Overhead kind of sequential piece, along with a handful of other things in the transaction activity that we mentioned and that's why you're only seeing one penny improvement.

Speaker Change: Sequentially keep in mind that the leasing activity that you.

Speaker Change: Execute in the second quarter typically has a bigger effect on revenue in the third quarter because those leases are ratably reset during the second quarter. So.

Speaker Change: Hopefully that helps from a color perspective.

Speaker Change: Okay, Yeah, that's very helpful.

James Feldman: Okay, yeah, that's very helpful. And then maybe, you know, thinking about your debt maturities and 25, you've got 250 million expiring, you're sitting on pretty low leverage at four times that EBITDA RE, and you've got eight and a quarter preferreds out there. It sounds like you're slowing down the disposition pipeline. I mean, what are your thoughts on just other investments, other uses of capital here? What do you think on the balance sheet side, you probably just let things ride through year end without any kind of meaningful changes or debt paydowns or Paydowns of any sort? Yeah,

Speaker Change: And then maybe.

Speaker Change: Thinking about your debt maturities in 'twenty, five you've got $150 million expiring youre sitting on pretty low leverage at four times debt to EBITDA, sorry, you've got eight in a quarter preferreds out there.

Speaker Change: It sounds like Youre slowing down the disposition pipeline.

Speaker Change: Have your thoughts on just other investments other uses of capital here. What do you think on the balance sheet side, you, probably just let things ride through year end without any kind of meaningful changes.

Speaker Change: Or a debt pay downs or.

Speaker Change: Pay downs of any sorry, yeah.

Robert A. Garechana: Yeah, as you mentioned, Jamie, the balance sheet is in phenomenal shape. I mean, from an absolute leverage standpoint, it's very low, but you're also highlighting something that I think is worth noting, which is that we have very little interest rate exposure because we don't have a maturity or any refinancing needs until the middle of 2025. And even when you look further out, there is a modest kind of maturity piece.

Speaker Change: Yeah as you as you mentioned, Jamie the balance sheet is in phenomenal shape I mean from an absolute leverage standpoint, it's very low but you also highlighted something that I think is.

Speaker Change: It's worth, noting which is we have very little interest rate exposure, because we don't have a maturity or any refinancing needs until the middle of 2025, and even when you look further out there is a modest kind of maturity piece. So I think when you look at use of proceeds probably in the menu of choices debt Paydown is the last one.

Robert A. Garechana: So I think when you look at the use of proceeds, probably in the menu of choices, debt paydown is the last one, to be frank. And we'd be more interested on the capital allocation front, whether it's acquiring assets or otherwise, otherwise, you know, even buying back shares, just from a standpoint of whatever presents a better value proposition, because we don't have any maturity issues, and we have very limited exposure to rates.

Speaker Change: To be Frank.

Speaker Change: And we'd be more interested on the capital allocation front, whether it's acquiring assets or.

Speaker Change: Otherwise otherwise even buying back shares just from a standpoint of whatever presents a better value proposition.

Speaker Change: Because we don't have any maturity issues and we have very limited exposure to rates.

Speaker Change: Yeah.

Speaker Change: Okay, Alright, thank you for that.

James Feldman: Okay. All right. Thank you for that.

Operator: And we'll take a question from John Kim with BMO Capital Markets.

Speaker Change: And we'll take a question from John Kim with BMO capital markets.

John P. Kim: Thank you, Mark. You mentioned $200 billion of dry powder, a lot of that focused on multifamily. At the same time, we've got the Blackstone Air Transaction. How do you think that's impacted pricing or will impact pricing on sales of either assets or portfolios in the market? Could pricing be more aggressive despite the recent rise in interest rates?

John P. Kim: Thank you Mark you mentioned, a $200 billion of dry powder, a lot of that focused in multifamily.

John P. Kim: At the same time, we have that the Blackstone transaction.

John P. Kim: How do you think that's impacted pricing or will impact pricing on sales of either assets or portfolios in the market could pricing be more aggressive. Despite the recent rise in interest rates.

Mark J. Parrell: Yeah, that's, you know, that's, I'm going to pull back a little bit on a comment Alec just made. You know, I think when people saw the ARC print, there was enthusiasm. I think when people felt like that combined with the thought that maybe rates were going to go down in the relatively near term, and you had some certainty in sort of the financial markets and such, that that was a positive thing for stability and for kind of closing that bid-ask spread that's existed for a while that Alex talked about for several quarters.

Speaker Change: Yeah, that's that's having to pull a little bit it's mark on a comment Alex just made I think.

Speaker Change: When people saw the ERC print.

Speaker Change: There was enthusiasm and I think when people felt like that combined with.

Speaker Change: The thought that maybe rates, we're going to go down in the relative near term and you had some certainty on some of the financial markets and such that that was a positive thing for stability and for kind of closing that bid ask spread that's existed for a while that Alex talked about for several quarters and I think when the treasuries sold off when you saw rates really yet.

Mark J. Parrell: And I think when the Treasury sold off, when you saw rates really had that inflation print was high, and you have a, you know, 460 plus 10-year, all of a sudden, that threw that all back into play again. So I would say right now, we continue to struggle to see a great deal of product offered. I think the obvious evident enthusiasm for apartments in the private space, and we hope soon in the public space, more so, is powerful, but I think there's still a bit of an environment, and there are some other owners of more stable properties that also we're seeing some debt challenges, and you know we just expect more opportunities where, as Bob has mentioned, we are really well poised to take advantage of them. We just need the right price given the rate in.

Speaker Change: Inflation print was high and you have a 460 plus 10 year all of a sudden that through that all back in play again, So I would say right now we continue to struggle to see a great deal of product offered I think the obvious evident enthusiasm for apartments in the private space and we hope soon in the public space.

Speaker Change: So.

Speaker Change: He is powerful but I think there is still a bit of a.

Speaker Change: Pretty big difference between seller and buyer expectations that I think was the gap is closing a little and now I think the gap remains and Alex How would you expect yes. John This is Alex one thing that Hasnt changed although the rate environment is confusing to many investors is the amount of product that's delivering particularly in the expansion markets. So we're excited about and a lot of that just isn't capitalize.

Alex: To be on for the long term I mean that was merchant.

Alex: Merchant built and in many cases, and we're eager to pursue that we just need to come up with pricing that makes sense in the current rate environment and there are some other owners of of a more stable properties that also were seeing some debt challenges and we just expect more opportunities where as Bob has mentioned really well poised to take advantage of them.

Mark J. Parrell: On the rebalancing strategy, it sounds like you just mentioned that pricing has slowed down those efforts a little bit. At the same time, you seem very encouraged by the political environments improving in San Francisco, Seattle, and New York. Do those policy changes or anything new in data as far as net migration or any other items potentially reconsider your views on either the timing or the strategy of deploying or redeploying capital into the Sunbelt?

Alex: We just need the right price given the rate environment.

Alex: Okay.

Alex: On the re balancing strategy. It sounds like you just mentioned that pricing has slow down those efforts a little bit.

Alex: At the same time you've.

Alex: You seem very encouraged by the political environment is improving in San Francisco, Seattle, New York do those policy changes or any anything new in data as far as net migration.

Alex: Or any other items.

Alex: Potentially reconsider your views on.

Alex: Either the timing or the strategy of deploying redeploying capital into the sunbelt.

Mark J. Parrell: Yeah, it's really outstanding.

Speaker Change: Yeah, that's really an outstanding question.

Mark J. Parrell: Yeah, that's really an outstanding question. I think the really good news here is that both sides, whether it's Governor DeSantis in Florida or whether it's Governors Newsom in California or New York or Governor Healey up in Massachusetts. Everyone's thinking about supply as a solution. Or in 2018, when all the tumult happened started with rent control, with the California ballot initiative, it was all about price controls, which obviously are not going to improve supply.

Speaker Change: I think the really good news here is that both sides, whether it's covenant to Santos in Florida, or whether its governor Newsome in California, or New York or Governor Healey up in Massachusetts, everyone's thinking about supply as a solution where in 2018 when all the tumult happened started on rent control.

With the California ballot initiative. It was all about price controls, which obviously are not going to improve supply. So I think it's really a positive that everyone is trying to address supply in different ways with different levels of effectiveness.

Mark J. Parrell: So I think it's really positive that everyone is trying to address supply in different ways with different levels of effectiveness. I think the industry has done a good job. I give a lot of credit to Barry Altshuler, who was our lead regulatory guy on that, and many other people in the industry who pushed that supply argument.

Speaker Change: Industry has done a good job I give a lot of credit to Barry Altshuler was our lead regulatory guy on that and many other people in the industry have pushed that supply argument and we're seeing the results of that and you are right to recognize it but I also would say that places like New York, California continue to need to work on being an attractive place to live and for businesses to locate they need.

Mark J. Parrell: And we're seeing the results of that, and you're right to recognize it. But I also would say that places like New York and California continue to need to work on being an attractive place to live and for businesses to locate. They need to be able to more effectively compete against places like, you know, Texas that are more attractive than they used to be in terms of amenities for our residents, to our demographic, as well as for business leaders who just want to expand their operations in places where it's less complex and less expensive to do business.

Speaker Change: To be able to more effectively compete against places like Texas that are more attractive than they used to be in terms of amenities to our residents star demographic as well as to business leaders, who just want to expand their operations in places, where it's less complex and less expensive to do business. So I I do say, we remain open I think New York is.

Mark J. Parrell: So I do say we remain open. I think New York is something we'll continue to think on. Right now, our opinion is you need to have some regulatory reforms away from housing, just to make public safety better in some of those places and both to sort of encourage employers to relocate or to stay located in those markets. But I definitely see this as progress, for sure. Very interesting. Thank you.

Speaker Change: Something we will continue to thank God.

Speaker Change: Right now our opinion is you need to have some regulatory reforms away from housing just to make public safety better in some of those places in bolt to sort of encourage employers to relocate or to stay located in those markets, but I definitely see this as progress for sure.

Speaker Change: Okay interesting. Thank you.

Speaker Change: And we have a question from Nick <unk> with Scotiabank.

Operator: And we have a question from Nick Yulico with Scotiabank. Morning, this is Daniel Terkarik along with Nick. On your expansion markets, could you share the lease rates and concessionary activity for Atlanta, Austin, and Dallas in one queue in April?

Speaker Change: Hi, Good morning. This is Dennis Okay, I'll go on with Nick.

Nick: On your expansion markets could you said the lease rates and can ship concessionary activity for Atlanta, Austin, and Dallas and <unk> in April.

Michael L. Manelis: Yeah, hey Dennis, this is Michael. So in my prepared remarks, I kind of gave you some clustering around the expansion markets concession use. You know, right now for us, I would kind of cluster Denver, Atlanta, and Dallas together with about 25 to 30 percent of our applications receiving right around anywhere between four to six weeks. Austin's a little bit of an outlier, and it's running about 60 percent of our applications with almost six weeks of concessions.

Nick: Yeah, Hey, Dennis this is Michael So I think in my prepared remarks, I kind of gave you some clustering around the expansion markets concession use.

Michael: Right now for US I would kind of clustered Denver, Atlanta, and Dallas together with about 25% to 30% of our applications receiving right around anywhere between four to six weeks Austin is a little bit of the outlier and its running at about 60% of our applications with almost six weeks of concessions, but again.

Michael L. Manelis: But again, we only have three assets in Austin, so I don't think it's kind of overly indicative of what may be happening in the broader market. I'll tell you, we've been watching the new lease ups and the concessions that we see, and right now, they really seem to be in line with what you would expect. There's nothing out of the norm that's running anywhere between four and eight weeks across all of those markets, and that's kind of one of those positive signs for us.

Michael: We only have three assets in Austin, So I don't think it's kind of overly indicative of what may be happening in the broader market I'll tell you we've been watching the the new lease ups in the concessions that we see and right now they really seem to be in line with what you would expect there is nothing like out of the norm that's running anywhere between <unk>.

Michael: Four and eight weeks across all of those markets and that's kind of one of those positive signs for us relative to the first quarter I'll tell you, we've ticked down a little bit of our concession use most all of these markets have occupancies above 95% right now so as soon as we get to that threshold, we kind of pull back a little bit of the concessions.

Michael L. Manelis: Relative to the first quarter, I'll tell you, we've ticked down a little bit of our concession use. Most all of these markets have occupancies above 95 percent right now, so as soon as we get to that threshold, we kind of pull back a little bit of the concessions and see what that velocity looks like. And we've had a couple of strong leasing weeks, so you know, I think the teams are down on it again, but we do expect concessions will remain in place in those expansion markets throughout the year because the levels of supply are going to continue to increase, which means we're most likely going to see these concessions stay.

Michael: See what is that velocity looked like and we've had a couple of strong leasing week. So I think the teams are dialing it back but we do expect concessions will remain in place in those expansion markets throughout the year because the levels of supply is going to continue to increase which means we're most likely going to see these concession stay.

Michael L. Manelis: As long as they stay within the realm of reasonableness and this, you know, four to eight week range on the new leases, I think we're okay, and that's kind of how we've modeled it. Thanks for that.

As long as they stay within the realm of reasonableness in this.

Michael: Four to eight week range on the new lease ups I think were okay, and that's kind of how we modeled it.

Speaker Change: Okay. Thanks for that follow.

Speaker Change: Follow up question, maybe at a high level for Mark you talked about this in your prepared remarks turnover is at historic lows.

Mark J. Parrell: Yeah, I think two of the biggest structural advantages to the rental housing business and the apartment business are what you just identified, the fact that homeownership is just tough. And that's for a lot of reasons. So many people are locked in with really low rates on mortgages, making it very attractive to stay in place, even if they might move or downsize. So that'll slow things down in that market. I think the amount of production by the homebuilders is just a lot lower than it was pre-GFC. I think the costs of ownership, including things like insurance, are significantly higher. I think all of that together makes rental housing a lot more attractive, and that's likely to be a persistent benefit.

No real affordability benefits of the rental product versus homeownership, just curious if you could share any high level thoughts on how you see this dynamic evolving in the near to medium term could this in theory be a.

Speaker Change: Durable demand and profitability tailwind over the next cycle.

Unknown Attendee: Yeah, I think two of the biggest structural advantages to the rental housing business in the apartment business.

Unknown Attendee: What you just identified the fact that homeownership is just tough and that's for a lot of reasons. So many people are locked in with the real low rates on mortgages. It makes it very attractive to stay in place, even if they might move or downsize. So that'll slow things down in that market I think the amount of production by the homebuilders is just a lot lower than it.

Was pre Dfc I think the cost of ownership, including things like insurance are significantly higher and I think all of that together makes rental housing a lot more attractive and that's likely to be a persistent benefit and embedded in that is this just a lack of supply so even though Michael just talked about some of the impacts of supply in these expansion markets.

Operator: And embedded in that is just a lack of supply. So even though Michael just talked about some of the impacts of supply in these expansion markets for us, and for people that own in the Sunbelt, that's certainly a pretty profound impact for the next couple of years, it still means that the US as a whole is undersupplied with housing. So I think those are huge secular tailwinds for our business and are likely to persist.

Unknown Attendee: For us and for people that own in the sunbelt that certainly a pretty profound impact for the next couple of years. It still means that the U S. As a whole is under supplied in housing and I think at $1 million in App units a year of owned and rental housing supply, which is the same as the number was 1960 for a population twice as big you could see the opportunity there.

Unknown Attendee: There are few one like we do 80000, well positioned nice units to rent and some of the higher growth parts of the country. So I think those are huge secular tailwind to our business and are likely to persist and that's why again, we want to stick with our strategy of having balance being in the 12 best markets are these.

Operator: And that's why, again, we want to stick with our strategy of having a balance being in the 12 best markets. So these expansion markets for 2025% of NOI, and the remainder in these established markets, or our higher end residents want to be, and take advantage of these supply imbalances. And, you know, frankly, the preference that we think is going to be pretty persistent for rental housing.

Unknown Attendee: Spansion markets for 2025% of NOI and the remainder in these established markets, where our higher end resident wants to be and take advantage of these supply imbalances.

Unknown Attendee: And frankly, the preference that we think is going to be pretty persistence persistent for rental housing.

Linda Tsai: Thanks for the time.

Thanks for the time.

Michael L. Manelis: And we'll take a question from Linda Tsai with Jeffrey. Yes, hi, where are renewals going out in May?

Unknown Attendee: And we'll take a question from Linda Tsai with Jefferies.

Linda Tsai: Yes, hi, where are renewals going out in may.

Linda Tsai: Yeah, hi, this is Michael. So I'll just give you a sense. So renewals right now are out in the marketplace for the next 90 days for the next three months. Very consistent right now; the quotes are running between six and a half and 7%. And that gives us a lot of confidence that we expect to achieve somewhere right around that 5% on the net effective side. And then just on bad debt, there's going to be a 30.

Linda Tsai: Yeah, Hi, this is Michael so I'll just give you a sense. So renewals right now are out in the marketplace for the next 90 days for the next three months very consistent right now the quotes are running between six and a half and 7% and that gives us a lot of confidence that we expect to achieve.

Linda Tsai: Somewhere right around that 5% on the net effective side.

Speaker Change: Thanks, and then just on bad debt, there's going to be at 30 basis.

Speaker Change: I guess contribution what's the cadence of like that as you move through the year.

Robert A. Garechana: Yeah, hey, Linda, it's Bob. We would expect to start seeing improvement in the second quarter because you saw that Q4 to Q1 was relatively flat. But we're seeing some of the lead indicators, as Michael mentioned, in terms of the timing of the courts and other things indicate that we should start to see some sequential improvement in Q2. And then we would expect it to continue on that process, although it can be volatile in Q3 and Q4, such that by the end of the year, Q4 is maybe call it 90 basis points of total revenue. That means for the full year, you're getting those 30 basis points of improvement. Thank you.

Speaker Change: Yeah, Hey, Linda it's Bob we would expect to start seeing improvement in the second quarter. Because you saw Q4 to Q1 was relatively flat, but we're seeing some of the lead indicators as Michael mentioned in terms of the timing of the courts and other things indicate that we should start to see some sequential improvement in Q2.

Speaker Change: And then we would expect it to continue on that process. Although it can be volatile in Q3 and Q4 such that by the end of the year Q4 is maybe ends at call. It 90 basis points of total revenue that means for the full year, you are getting that 30 basis points of improvement.

Speaker Change: Helpful. Thank you and then one last one on the N Y C housing laws do you view that as more of a net benefit or detract or for your apartments.

Mark J. Parrell: Yeah, I'm going to answer your question very precisely because I take it to mean impact on equity residential. And I'd say the impact on equity residential is pretty modest, pretty insignificant. That's because about 40% of our units are called luxury units under the law, meaning their rents are at higher levels, or we own newer buildings, buildings built in 2009 or later. And for the other units, you know, for us to get over an 8% or 10% renewal increase, which is what the law would limit. 2023 was a great year in New York. So, just looking back, but it wasn't that great.

Speaker Change: Apartments in that region.

Speaker Change: Yeah, I'm going to answer your question very precisely because I take it to mean impact on equity residential and I'd say the impact of equity residential is pretty modest pretty insignificant that's because about 40% of our units are either called luxury units under the law, meaning their rents are at higher levels.

Speaker Change: We own newer buildings buildings built in 2009 or later and for the other units you know for us to get over an eight or 10% renewal increase which is what the law would limit 2023 was a great year in New York, So just looking backwards, but it wasn't that great and it it would be more impactful to us in a year like late 2012.

Mark J. Parrell: And it would be more impactful to us in a year like late 2021 or 2022 when we were trying to recover from the pandemic, and rents were going up more quickly on renewal, and we were taking away concessions. That market is not that kind of market right now, so I would expect right now for it not to be terribly significant to us. And again, a great benefit, I think in trying to encourage supply, which I noted in my remarks. I just think rent control in general does not encourage more supply into the market. So you know, we got to work through that in New York, but I do think having some certainty here for everyone involved is a plus.

Speaker Change: One or 2022, when we were trying to recover from the pandemic and rents were going up more quickly on renewal and we were taking away concessions that market is not that kind of market right. Now. So I would expect right now for it not to be terribly significant to us and again, a great benefit I think in trying to encourage.

Speaker Change: Supply, which I noted in my remarks, I, just think rent control in general does not encourage more supply into the market. So we've got to work through that in New York, but I do think having some certainty here for everyone involved as a plus.

Mark J. Parrell: And that does conclude the question and answer session. I'll now turn the conference back over to Mark Parrell for closing comments.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: And that does conclude the question and answer session I'll now turn the conference back over to Mark <unk> for closing comments.

Mark J. Parrell: Thank you all for your time and your interest in Equity Residential. Have a good day.

Unknown Attendee: Well. Thank you all for your time and your interest in equity residential have a good day.

Operator: Thank you, and that does conclude today's call.

Unknown Attendee: Thank you and that does cause everyone else left to come.

Unknown Attendee: [noise].