Q1 2024 AvalonBay Communities Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to Avalonbay communities first quarter 2024 earnings Conference call.

At this time all participants are in a listen only mode.

Following remarks by the company, we will conduct a question and answer session.

He may answer the question and answer queue at any time during this call by pressing star one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue Press star two on your telephone keypad.

If you ever using speaker phone. Please lift the handset before asking your question and we ask you to refrain from typing and have yourself phone is turned off during the question and answer session.

Your host for today's conference call is Mr. Jason Reilley, Vice President of Investor Relations.

Jason Reilley: Mr. Riley you May begin your conference call.

Jason Reilley: Thank you, Diego, and welcome to AvalonBay Communities' first quarter 2024 earnings conference call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon's press release as well as in the company's Form 10-K and Form 10-Q filed with the SEC. As usual, the press release includes an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion.

Jason Reilley: Thank you Diego and welcome to Avalonbay communities first quarter 2024 earnings conference call before we begin. Please note that forward looking statements may be made during this discussion there are a variety of risks and uncertainties associated with forward looking statements and actual results may differ materially there is a discussion of these risks and uncertainties and.

Jason Reilley: Sturdy afternoon's press release as well as in the company's Form 10-K, and Form 10-Q filed with the SEC.

Jason Reilley: As usual the press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion. The attachment is also available on our website at www Dot Avalon Bay Dotcom forward Slash earnings and we encourage you to refer to this information during the review of her.

Jason Reilley: The attachment is also available on our website at www.avalonbay.com forward slash earnings, and we encourage you to refer to this information during the review of our operating results and financial performance. And with that, I will turn the call over to Ben Shaw, CEO and President of Avalon Bay Communities, for his remarks.

Jason Reilley: Our operating results and financial performance and with that I will turn the call over to Ben Shaw CEO and president of Avalonbay communities for his remarks.

Benjamin W. Schall: Thanks, Jason. And good morning, everyone. I'm joined by Sean Breslin, our Chief Operating Officer, Matt Birenbaum, our Chief Investment Officer, and Kevin O'Shea, our Chief Financial Officer. Sean will speak to our operating outperformance here today and our positive momentum as we enter the prime Leasing Season. Matt will discuss the continued outperformance of our developments in lease up and how we are strategically deploying capital to generate value. And Kevin is here for questions and is more than happy to speak to our preeminent balance sheet and liquidity profile. Utilizing our earnings presentation, slide four provides the highlights for the quarter and identifies key themes as we look ahead.

Benjamin W. Schall: Thanks, Jason and good morning, everyone I'm joined by Sean Breslin, Our Chief operating Officer, Matt Berenbaum, Our Chief investment Officer, and Kevin O'shea, Our Chief Financial Officer.

Benjamin W. Schall: John will speak to our operating outperformance year to date and our positive momentum as we enter the prime leasing season.

Matt will discuss the continued outperformance of our developments in lease up and how we are strategically deploying capital to generate value.

Kevin O'shea: And Kevin is here for questions and it was more than happy to speak to our pre M&A balance sheet and liquidity profile.

Kevin O'shea: Utilizing our earnings presentation slide four provides the highlights for the quarter and identified as key themes as we look ahead.

Benjamin W. Schall: First and foremost, we are off to a strong start to 2024 with first quarter results outpacing expectations. We were able to increase occupancy earlier than expected, and we also experienced meaningful improvements in bad debt in February and March. Second, we feel well positioned as we enter the peak leasing season, given low turnover, solid occupancy, and positive rental rate momentum. We also expect our suburban coastal footprint to continue to outperform given steady and improved demand drivers and the limited amount of new supply coming in our markets versus the rest of the country. Given our first quarter outperformance, expectations for Q2, and improvements in underlying trends, we have increased our full-year guidance. We also remain laser-focused on executing on our strategic initiatives, including our operating model transformation.

Kevin O'shea: First and foremost we are off to a strong start to 2024 with first quarter results outpacing expectations.

Kevin O'shea: We're able to build occupancy earlier than expected and we also experienced meaningful improvements in bad debt in February and March.

Kevin O'shea: Second we feel well positioned as we enter the peak leasing season, given low turnover solid occupancy and positive rental rate momentum.

Kevin O'shea: We also expect our suburban coastal footprint to continue to outperform given the steady and improved demand drivers and the limited amount of new supply delivering in our markets versus the rest of the country.

Kevin O'shea: Given our first quarter outperformance expectations for Q2 and improvements in underlying trends, we have increased our full year guidance.

Kevin O'shea: We also remain laser focused on executing on our strategic initiatives, including our operating model transformation.

Benjamin W. Schall: We remain on track here to deliver $80 million of incremental annual NOI uplift from our operating initiatives, a target we raised from $55 million at our Investor Day in November. And finally, with one of the strongest balance sheets in the sector, we are focused on growth opportunities where we can tap our strategic capabilities, from our operating prowess to our development strength, to drive outsized returns for shareholders. For that summary, let me go a layer deeper on our results, the wider supply and demand backdrop, and our increase to guidance.

Kevin O'shea: We remain on track here to deliver $80 million of incremental annual NOI uplift from our operating initiatives are target, we raised from $55 million at our Investor day in November.

Kevin O'shea: And finally with one of the strongest balance sheets in the sector. We are focused on growth opportunities in which we can tap our strategic capabilities from our operating prowess to our development strength will drive outsized returns for shareholders.

Kevin O'shea: With that summary, let me go a layer deeper on our results the wider supply and demand backdrop and our increased guidance.

Benjamin W. Schall: For the quarter, as shown on slide 5, we produced core FFO growth of 5.1%, which was 350 basis points above our prior outlook. Same store revenue growth increased 4.2% and was 90 basis points better than our prior outlook.

Kevin O'shea: For the quarter as shown on slide five we produced core <unk> growth of five 1%, which was 350 basis points above our prior outlook.

Kevin O'shea: Same store revenue growth increased four 2% and 90 basis points better than our prior outlook.

Benjamin W. Schall: And our developments in lease-up are seeing strong absorption and achieving rents and returns above performance. Slide 6 shows the components of the Q1 core FFO outperformance, with the bulk of the increase coming from higher same-store NOI. Revenues exceeded our prior outlook by 4 cents.

Kevin O'shea: And our developments in lease up are seeing strong absorption and achieving rents and returns above pro forma.

Kevin O'shea: Slide six shows the components of the Q1 core SSO outperformance with the bulk of the increase coming from higher same store NOI.

Kevin O'shea: Revenues exceeded our prior outlook by <unk> expenses in the first quarter were <unk> <unk> better than expected well. We note that two of the <unk> is estimated to be timing related or in other words expenses, we still expect to incur just later in the year than we had originally forecast.

Benjamin W. Schall: Expenses in the first quarter were $0.03 better than expected, but we note that $0.02 of this $0.03 is estimated to be timing-related, or in other words, expenses we still expect to incur just later in the year than we had originally forecast. Turning to slide 7, demand for our portfolio is benefiting from more job growth than originally forecast. For our job growth estimates, we look to the National Association of Business Economics, or NABE, which has now increased its estimate to 1.6 million new jobs in 2024, up from the prior estimate of 700,000 jobs.

Kevin O'shea: Turning to slide seven demand for our portfolio was benefiting from more job growth than originally forecasted.

Kevin O'shea: Our job growth estimates, we look to the National Association of business economics, or need which has now increased its estimate to $1 6 million new jobs in 2020 for upfront a prior estimate of 700000 jobs.

Benjamin W. Schall: This better job outlook provides an incremental lift to demand, but not necessarily on the same trajectory as it may have in the past, given that a disproportionate share of these additional jobs may be part-time and seem to be more concentrated in lower-paying sectors of the economy. As shown on the right-hand side of slide 7, demand for apartments also continues to benefit from the differential in the cost of owning a home versus renting. This is true across most of the country but particularly pronounced in our markets, given the level of home prices, resulting in it being more than $2,000 per month more expensive to own versus rent a home.

Kevin O'shea: This better job outlook provides an incremental lift to demand, but not necessarily on the same trajectory as it may have in the past given that a disproportionate share of these additional jobs, maybe part time and seem to be more concentrated in lower paying sectors of the economy.

Kevin O'shea: As shown on the right hand side of slide seven demand for apartments also continues to benefit from the differential in the cost of owning a home versus renting.

Kevin O'shea: This is true across most of the country, but particularly pronounced in our markets given the level of home prices, resulting in it being more than $2000 per month more expensive to own versus rent a home.

Benjamin W. Schall: And this differential translates into record low numbers of residents leaving us to buy a home. Turning to Supply on Slide 8, as we emphasize on Investor Day, our Suburban Coastal Portfolio, 71% suburban today and headed towards 80% suburban, faces significantly less new supply than many of our peers. In our established regions, deliveries will be 1.5% of stock this year and in line with historical averages. And in the Sunbelt, by contrast, deliveries will be 3.8% of stock in 2024, significantly above historical averages.

Kevin O'shea: And this differential translates into a record low numbers of residents, leaving us to buy a home.

Kevin O'shea: Turning to supply on slide eight as we emphasized at our Investor day, our suburban close to portfolio, 71% suburban today and headed towards 80% suburban.

Kevin O'shea: This is significantly less new supply in many of our peers and our established regions deliveries will be one 5% of stock this year and in line with historical averages in the Sunbelt by contrast deliveries will be three 8% of stock in 2024 significantly above historical averages and with the lease up of a typical <unk>.

Benjamin W. Schall: And with the lease-up of a typical project taking an additional 12 to 18 months, the pressure on rents and occupancy in the Sun Belt will last at least through the end of 2025, if not into 2026.

Kevin O'shea: Taking an additional 12 to 18 months the pressure on rents and occupancy in the Sunbelt will last at least through the end of 2025, if not into 2026.

Benjamin W. Schall: This weaker operating performance in the Sun Belt is, in turn, starting to weigh on asset values there, which provides a more attractive opportunity for us to acquire assets below replacement costs as we continue on our journey of growing our expansion market portfolio from 8% today to our 25% target. With this supply and demand backdrop and our outperformance year-to-date, we're increasing our full-year core FFO guidance estimate to $10.91 per share, for a 2.6% increase relative to 2023.

Kevin O'shea: This weaker operating performance in the Sunbelt has in turn starting to weigh on asset values, there, which provides a more attractive opportunity for us to acquire assets below replacement cost as we continue on our journey of growing our expansion market portfolio from 8% today to our 25% target.

Kevin O'shea: With the supply and demand backdrop, and our outperformance year to date, we are increasing our full year core <unk> guidance estimate to $10 91 per share for it to two 6% increase relative to 2023 with.

Benjamin W. Schall: The detail on slides 9 and 10, the bulk of the increase is in higher NOI, driven mainly by higher revenue, with same-store revenue growth now projected to be 3.1%, up from 2.6% in our original outlook. Before turning it to Sean, I'd also like to take a moment to thank the team and the wider Avalon Bay associate base who continue to execute at a high level and above plan. It is energizing to see the organization executing on the priorities that we detailed at our Investor Day, a collective set of initiatives that we are confident will deliver superior growth in the near term and in the years ahead. And with that, I'll turn it to Sean to go deeper and provide his perspective. Alright, thanks Ben.

Kevin O'shea: With the detail on slides nine and 10, the bulk of the increases in higher NOI driven mainly by higher revenue with same store revenue growth now projected to be three 1% up from 2% to 6% and our original outlook.

Speaker Change: Before turning it to Shawn I'd also like to take a moment to thank the team and the wider Avalon Bay Associate base, who continue to execute at a high level and above plan. It is energizing to see the organization executing on their priorities that we detailed at our Investor day, our collective set of initiatives that we're confident will deliver superior growth in the near.

Speaker Change: Term and in the years ahead, and with that I'll turn it to Shawn to go deeper and provide his perspectives.

Shawn: Alright, Thanks, Dan.

Sean J. Breslin: Turning to slide 11, the primary drivers of our 90 basis points of revenue growth outperformance in Q1 were economic occupancy, which accounted for roughly one-third of the total outperformance for the quarter, and underlying bad debt, which represented another roughly 20%. Occupancy was about 30 basis points higher than expected, an increase from the mid 95% range at the end of last year to the high 95s for the quarter. While we expected occupancy to grow during Q1, it increased more quickly than we anticipated, reflecting strength in underlying demand for our primarily coastal, suburban portfolio and very limited new supply.

Shawn: Turning to slide 11, the primary drivers of our 90 basis points of revenue growth outperformance in Q1.

Shawn: Economic occupancy, which accounted for roughly one third of the total outperformance for the quarter.

Shawn: Underlying bad debt, which represented another roughly 20%.

Shawn: Occupancy was about 30 basis points higher than expected increase from the mid 95% range at the end of last year.

Shawn: <unk> 95 for the quarter.

Shawn: We expected occupancy to grow during Q1, it increased more quickly than we anticipated reflecting strength in airlines demand for our primarily coastal suburban portfolio and very limited new supply.

Sean J. Breslin: In terms of underlying bad death rates from residents, we ended up about 25 basis points favorable to our original expectations for the quarter, with all the improvement being realized in February and March. January was in line with budget at roughly 2.2%, to 1.8% in February and again to 1.6% in March, which is roughly 60 basis points below our original budget.

Shawn: In terms of underlying bad debt from residents. We ended up about 25 basis points favorable to our original expectations for the quarter with all of the improvement being realized in February and March.

Shawn: January was in line with budget at roughly two 2%.

Shawn: It's been a declined materially to one 8% in February and again to one 6% in March which is roughly 60 basis points below our original budget.

Sean J. Breslin: We experienced a similar dip in May of last year, but bad debt then reverted to higher levels in June. Therefore, while we're encouraged by results in February and March, we need to see a few more months at these lower levels to feel confident that we'll experience consistently better performance moving forward. From a geographic perspective, the favorable variance to our initial expectations was most material in New England, New York, New Jersey, Seattle, and to a lesser degree in Northern and Southern California.

Shawn: We experienced a similar dip in may of last year.

Shawn: Bad debt, but bad debt, then reverted to higher levels and Jim Therefore, while we're encouraged by results in February and March we need to see a few more months. If he is lower levels to feel confident.

Shawn: We will experience consistently better performance moving forward.

Shawn: From a geographic perspective, the favorable variance to our initial expectations was most material in New England, New York New Jersey.

Shawn: And to a lesser degree in northern and Southern California.

Sean J. Breslin: Moving to slide 12, key portfolio indicators are very healthy in Q1, and our portfolio is well positioned for the prime Leasing Season. In Chart 1, turnover remains well below historical norms, in part due to a very low level of move-outs to purchase a home. During Q1, only 7% of our residents moved out of one of our communities to purchase a home.

Shawn: Moving to slide 12 key portfolio indicators are very healthy during Q1, and our portfolio is well positioned for the prime leasing season.

Shawn: In chart, one turnover remains well below historical norms.

Shawn: Due to a very low level of move outs to purchase a home during Q1, only 7% of our residents moved out of one of our communities to purchase a home.

Sean J. Breslin: It wasn't that long ago that we highlighted 12 to 13% of move-outs purchasing a home as being low. 7% is extremely low relative to the long-term average of 16 to 17% and certainly reflects the favorable rent versus own economics in our established regions that Ben referenced earlier. Given the low level of turnover, availability has been relatively stable and supportive of above average asking rent growth recently, which is reflected in chart 3, and accelerating rent change, which is reflected in chart 4.

Shawn: Wasn't that long ago that we highlighted 12% to 13% of move outs purchasing at home as being low 7% is extremely low relative to the long term average of 16% to 17%.

Shawn: And so certainly reflects the favorable rent versus own economics.

Shawn: Established regions had been referenced earlier.

Shawn: Given the low level of turnover availability has been relatively stable and supportive of above average asking rent growth recently, which is reflected in chart three in accelerating rent change, which is reflected in chart four.

Sean J. Breslin: As expected, our east coast regions delivered the strongest rent change in Q1, at 2.7%, with the east coast established regions trending in the 3% range, while Florida was under 1%. We experienced positive momentum in rent change throughout the quarter across the east coast markets, which was particularly notable in the Mid-Atlantic. While performance in the District of Columbia has been soft and volatile due to a number of issues, including the impact of new supply, the Northern Virginia and Maryland suburbs have demonstrated continued positive momentum. Brent change for the West Coast regions was 1.3% during the quarter, with the Seattle market leading at 2.8%, which further increased into the mid 4% range for April.

Shawn: As expected our east coast regions delivered the strongest rent change in Q1 of two 7% with the east coast established regions trending in the 3% range, while Florida was sub 1%.

Shawn: We experienced positive momentum and rent change throughout the quarter across the east coast markets, which was particularly notable in the mid Atlantic.

Shawn: Our performance in the district of Columbia has been soft and volatile due to a number of issues, including the impact of new supply.

Shawn: The Northern Virginia, and Maryland suburbs in Devon have demonstrated continued positive momentum.

Shawn: Rent change for the West Coast regions was one 3% during the quarter with the Seattle market, leading at two 8%, which further increase into the mid 4% range for April.

Sean J. Breslin: While urban Seattle is still soft due to a significant amount of new supply and weaker demand, performance across our primarily suburban portfolio improved meaningfully during the quarter. In Northern California, while the underpinnings of better performance are starting to appear, they're not yet having a meaningful impact on current performance. Rent change was flat for the quarter, with a positive rent change in San Jose being offset by a negative rent change in San Francisco and the East Bay.

Shawn: Urban Seattle is still soft due to a significant amount of new supply and weaker demand performance across our primarily suburban portfolio improved meaningfully during the quarter.

Shawn: In Northern California, while the underpinnings of better performance are starting to up here, it's not yet having a meaningful impact on current performance.

Shawn: Rent change was flat for the quarter with a positive rent change in San Jose is being offset by negative rent change in San Francisco and the East Bay.

Sean J. Breslin: Transitioning to slide 13 to address our updated revenue outlook for the year, we now expect same-serve revenue growth of 3.1% for 2024, an increase of 50 basis points from our original guidance. The increased outlook is primarily driven by stronger lease rates. Its higher occupancy to start the year has allowed us to begin to achieve higher rental rates than we originally anticipated as we move into the prime Leasing Season. We now expect like-term effective rent changes in the mid-2% range, about a 50 basis point increase from our original outlook. The second quarter should trend up into the low 3% range before decelerating in the back half of the year, consistent with seasonal norms.

Shawn: Transitioning to slide 13 to address our updated revenue outlook for the year. We now expect same store revenue growth of three 1% for 2024, an increase of 50 basis points from our original guidance.

Shawn: The increased outlook is primarily driven by stronger lease rates, it's higher occupancy to start the year has allowed us to begin to achieve higher rental rates than we originally anticipated.

Shawn: As we move into the prime leasing season.

Shawn: We now expect like term effective rent change in the mid 2% range about a 50 basis point increase from our original outlook.

Second quarter should trend up into the low 3% range before decelerating in the back half of the year consistent with seasonal norms.

Shawn: We expect renewals in the low to mid 4% range for the balance of the air.

Shawn: New move ins average roughly 50 basis points, which reflects the low 2% range for Q2 move ins before experiencing the normal seasonal decline in Q3 and Q4.

Sean J. Breslin: We expect renewals in the low to mid 4% range for the balance of the year, while new move-ins average roughly 50 basis points, which reflects the low 2% range for Q2 move-ins before experiencing the normal seasonal decline in Q3 and Q4. In addition, we're projecting a greater contribution from the improvement in underlying bad debt with a full-year rate of 1.7%, down from 2.4% last year and slightly more rent relief And finally, moving to slide 14, you can see where we're protecting stronger revenue performance relative to our original outlook. We're expecting the most significant improvement in Seattle and New England, which Ralph performed better than our expectations in Q1 and accelerated further into April, with both regions delivering greater than 4% rent change. It was followed by Metro New York.

Shawn: In addition, we're presenting a greater contribution from the improvement in underlying bad debt with a full year rate of one 7%.

Shawn: Down from two 4% last year and slightly more rent relief.

Shawn: And finally moving to slide 14, you can see where we're protecting stronger revenue performance relative to our original outlook.

Shawn: And the most significant improvement in Seattle, and New England, which outperformed our expectations in Q1 and accelerated further in April with both regions delivering greater than 4% rent change followed by Metro New York.

Shawn: The mid Atlantic is expected to modestly outperform our original expectations supported by stronger performance in Northern Virginia and suburban Maryland.

Shawn: Southern California is also expected to perform modestly better than our original outlook and we haven't changed our forecast for northern California. So I'll turn it over to Matt to address recent lease up performance in our capital allocation plan for 2020 for Matt Alright. Thank you Sean.

Matthew H. Birenbaum: Turning to our development communities Slide 15 details the continued impressive results being generated by our lease ups.

Sean J. Breslin: The Mid-Atlantic is expected to modestly outperform our original expectations, supported by stronger performance in northern Virginia and suburban Maryland. Southern California is also expected to perform modestly better than our original outlook, and we haven't changed our forecast for Northern California. So I'll turn it over to Matt to address recent lease up performance in our capital allocation plan for 2024. Matt

Matthew H. Birenbaum: The six development communities that had active leasing in Q1 are delivering rents $295 per month or 10% above our initial underwriting which is translating into a 40 basis point increase in yield.

Matthew H. Birenbaum: And this performance is being supported by strong traffic and leasing velocity with these assets, averaging 30 net leases per month in the seasonally slow first quarter, which grew throughout the quarter to nearly 40 per month in March.

Matthew H. Birenbaum: All right. Thank you, Sean. Turning to our development communities, slide 15 details the continued impressive results being generated by our lease up. The six development communities that had active leasing in Q1 are delivering rents of $295 per month, or 10% above our initial underwriting, which is translating into a 40 basis point increase in yield. And this performance is being supported by strong traffic and leasing velocity, with these assets averaging 30 net leases per month in the seasonally slow first quarter, which grew throughout the quarter to nearly 40 per month in March.

Matthew H. Birenbaum: This outperformance is driven by two primary factors first since we conservatively don't trend rents and report our development economics based on projected NOI at the time of construction start until the community center lease up Theres, usually rent growth during the construction period, which provides some incremental lift to our development yields by the time of their completion.

Matthew H. Birenbaum: And second while we are pretty good at predicting how the market will respond to our latest state of the art product offerings and new development, we do still frequently see some additional premium as the market responds to the unit and community features we incorporate into our designs.

Matthew H. Birenbaum: First, since we conservatively don't trend rents and report our development economics based on projected NOI at the time of construction start until the community's rents are leased up, there's usually rent growth during the construction period which provides some incremental lift to our development yields by the time of their completion. And second, while we are pretty good at predicting how the market will respond to our latest state-of-the-art product offerings and new developments, we do still frequently see some additional premium as the market responds to the unit and community features we incorporate into our design.

Matthew H. Birenbaum: Turning to slide 16, while it was a quiet quarter for investment activity with no closed transactions or development starts our investment plans for the year are still very much on track. We brought four assets in our established regions to the market in Q1 looking to take advantage of a potential lull in the investment sales market as many.

Matthew H. Birenbaum: We're waiting for interest rate cuts before getting going with their disposition plans.

Matthew H. Birenbaum: All four are now under agreement at pricing consistent with our initial expectations with a weighted average cap rate of five 1% we.

Matthew H. Birenbaum: We expect to redeploy some of the proceeds from these pending sales into acquisitions in our expansion regions in the coming months as we continue to make progress on our portfolio optimization objectives to increase our expansion market allocation to 25% over time.

Matthew H. Birenbaum: Turning to slide 16, while it was a quiet quarter for investment activity, with no closed transactions or development starts, our investment plans for the year are still very much on track. We brought four assets in our established regions to the market in Q1, looking to take advantage of a potential lull in the investment sales market, as many owners were waiting for interest rate cuts before getting going with their disposition plans. All four are now under agreement at prices consistent with our initial expectations with a weighted average cap rate of 5.1 percent.

Matthew H. Birenbaum: Planning for development starts is also proceeding as expected with our start activity. This year concentrated in Q2 and Q3.

Matthew H. Birenbaum: We are seeing some helpful. Construction buyout savings in certain regions, which will allow us to preserve our targeted spread of 100 to 150 basis points between development yields and prevailing cap rates.

Matthew H. Birenbaum: And in our site, but we continue to be conservative, but do you expect to grow that business line modestly through the course of the year Fortunately the $200 million in commitments in the program today were all originated in the last two years are geographically dispersed across our markets concentrated in sub markets with less new supply pressure and have.

Matthew H. Birenbaum: We expect to redeploy some of the proceeds from these pending sales into acquisitions in our expansion regions in the coming months as we continue to make progress on our portfolio optimization objectives to increase our expansion market allocation to 25% over time. Planning for development starts is also proceeding as expected, with our start activity this year concentrated in Q2 and Q3.

Matthew H. Birenbaum: Initial maturity dates that are still two plus years out. So we do not have any legacy overhang burdening our loan book.

Matthew H. Birenbaum: It's also been interesting to see some larger portfolio transactions start to gain traction just in the past few weeks. This illustrates the continued attractiveness of our sector to private capital and perhaps marks a shift in sentiment that might bring increased deal flow as the year progresses.

Matthew H. Birenbaum: We are seeing some helpful construction buyout savings in certain regions, which will allow us to preserve our targeted spread of 100 to 150 basis points between development yields and prevailing cap rates. And in our SIP book, we continue to be conservative but do expect to grow that business line modestly through the course of the year. Fortunately, the $200 million in commitments in the program to date were all originated in the last two years, are geographically dispersed across our markets, concentrated in submarkets with less new supply pressure, and have initial maturity dates that are still two-plus years out, so we do not have any legacy overhang burdening our loan book.

Matthew H. Birenbaum: We continue to preserve dry powder on our balance sheet. So that we will be in a position to take advantage of future opportunities that may emerge.

Matthew H. Birenbaum: They are aligned with our strategic priorities and our unique capabilities and with that I'll turn it over to Ben to wrap things up.

Benjamin W. Schall: Thanks, Matt our results to date have exceeded our expectations and we're excited for the momentum we have heading into the peak leasing season demand is stronger than originally expected in our suburban coastal portfolio faces meaningfully less supply than elsewhere in the country and we're confident that we will find opportunities to put our balance sheet and strategic capabilities to work.

Benjamin W. Schall: To generate shareholder value.

Speaker Change: I'll end, our prepared remarks, there and turn it to the operator to open the line for questions.

Speaker Change: Thank you.

Speaker Change: We'll now conduct a question and answer session.

Speaker Change: You would like to ask a question. Please press star one on your telephone keypad a.

Matthew H. Birenbaum: It's also been interesting to see some larger portfolio transactions start to gain traction just in the past few weeks. This illustrates the continued attractiveness of our sector to private capital and perhaps marks a shift in sentiment that might bring increased deal flows as the year progresses. We continue to preserve dry powder on our balance sheet so that we will be in a position to take advantage of future opportunities that may emerge if they are aligned with our strategic priorities and our unique capabilities. And with that, I'll turn it over to Ben to wrap things up. Thanks, Matt.

Speaker Change: A confirmation tone will indicate that your line is in the quarter.

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker Change: And our first question comes from Eric Wolfe with Citi. Please state your question.

Eric Wolfe: Thanks, It's Nick here with Eric maybe just on the capital allocation and a rotation into the Sunbelt you made a comment in the prepared remarks about.

Eric Wolfe: Seeing opportunities below replacement costs and so I was just curious if you can quantify kind of that obviously, it's probably a range, but kind of how far below replacement costs. You are seeing on average and then also the size of the opportunity youre seeing in terms of product coming on the market in those expansion markets.

Benjamin W. Schall: Our results to date have exceeded our expectations, and we're excited for the momentum we have heading into the peak leasing season. Demand is stronger than originally expected, and our suburban coastal portfolio faces meaningfully less supply than elsewhere in the country. And we're confident that we will find opportunities to put our balance sheet and strategic capabilities to work to generate shareholder value. I'll end our prepared remarks there and turn it over to the operator to open the line for questions.

Eric Wolfe: Yeah, sure Hey, Nick it's Matt.

Matthew H. Birenbaum: I would say the the discount to replacement cost is obviously going to vary to some extent based on the age of the asset I mean in theory assets that are 10 to 20 years old should be trading at below replacement cost because there is some depreciation there but.

Benjamin W. Schall: Thank you. We will now conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: Yes, we are.

Speaker Change: I'd say, we're seeing assets that are 10 years old that might be trading.

Speaker Change: 15% to 20% below current replacement cost, we havent seen kind of brand new assets coming out of lease up come to market yet at compelling prices I think people are getting extensions on their construction loans and there's a pretty active bridge lending space. So we would look at those as well so younger assets I would expect the discount to.

Unknown Executive: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. And our first question. Thanks. It's Nick here with Eric. Maybe just on the capital allocation and the rotation to the Sun Belt, you made a comment in the prepared remarks about, Yeah, sure. Hey, Nick, it's Matt.

Speaker Change: A little bit less than that but.

Speaker Change: Yeah, we haven't seen as much of that yet the volume has been light and Thats. One reason that supported cap rates honestly being lower than I would've thought that would've been a.

Speaker Change: But there is a little bit of a scarcity premium.

Speaker Change: And on one hand, we're taking advantage of that as a seller and that's one reason we brought some assets to market early because we anticipated that might happen by this as a buyer that's a little bit frustrating.

Speaker Change: Would you expect some of that product to start to come to market or do you think it's more you know owners right now will be more of a wait and hold.

Matthew H. Birenbaum: I would say the discounted replacement cost is obviously going to vary to some extent based on the age of the asset. I mean, in theory, assets that are, you know, 10, 20 years old should be trading below replacement cost because there is some depreciation there. But, you know, we are, I'd say we are seeing assets that are, you know, 10 years old that might be trading at 15% to 20% below current replacement costs.

You know I'm, just trying to understand how kind of the current supply and the rate uncertainty may impact.

Speaker Change: Kind of your acquisition strategy, and maybe urgency and to moving into these if we fast forward a year or two in the supply picture has started to improve.

Matthew H. Birenbaum: We haven't seen any kind of brand new assets coming out of lease up come to market yet at compelling prices. I think people are getting extensions on their construction loans, and there's a pretty active bridge lending space. So, we would look at those as well. For younger assets, I would expect the discount to be a little bit less than that. But, you know, we haven't seen as much of that yet. The volume has been light.

Speaker Change: Yeah.

Speaker Change: Who knows I would say that there is more volume coming.

And if you talk to the brokers. They will say they are pretty busy with <unk>. This is a seasonal time of year when you'd start to see an uptick in transaction volume Q1 volumes were down over below Q1, 'twenty, three which was down a lot from Q1 'twenty two.

Speaker Change: And transaction volumes are now below where they were kind of in 17 18 19.

Matthew H. Birenbaum: And that's one reason that's supported cap rates being lower than I would have thought they would have been. But there is a little bit of a scarcity premium. And, you know, on the one hand, we're taking advantage of that as a seller, and that's one reason we brought some assets to market early because we anticipated that might happen, but as a buyer, that's a little bit frustrating. Would you expect some of that product to start coming to market? Or do you think it's more, you know, owners right now will be more of a wait and hold?

Speaker Change: So I think you will start to see some pickup in <unk>.

Speaker Change: Might be available and certainly from our point of view.

Speaker Change: We're staying disciplined about it.

Speaker Change: We're hopeful that we might move into an environment, where we will be able to start to accelerate our asset trading activity a little bit we havent done that much in the last say four or five quarters.

Speaker Change: Nick I'll add a couple of comments.

Nick: So I'll put by Matt.

Nick: Generally see is our window of opportunity being open for a decent period of time in two primary reasons, one the supply dynamics that exist in the sunbelt.

Matthew H. Birenbaum: You know, I'm just trying to understand how the current supply and the rate uncertainty may impact your acquisition strategy and maybe urgency to move into these if Fast forward a year or two, and the supply picture has started to, I mean, you know, who knows? I would say that there is more volume coming. And if you talk to the brokers, they'll say they're pretty busy with BOVs. This is the seasonal time of year when you'd start to see an uptick in transaction volume. Q1 volumes were down over below Q1-23, which was down a lot from Q1-22.

Nick: Part of my prepared remarks, we expect to be with us for a period of time, so that softness on rate and occupancy in a weight on asset values. As we think will be here and then second parts on kind of the capital World, which.

Nick: <unk>.

Nick: We're really just at the front part of the wave of maturities of deals done two or three or four years ago.

I agree with <unk> not seen a time today would also not seeing a ton of dislocation, but it is still early and we think we're well prepared to take advantage of it for the right types of opportunities.

Matthew H. Birenbaum: And transaction volumes are now below where they were kind of in 17, 18, 19. So I think you will start to see some pickup in what might be available. And certainly, from our point of view, you know, we're staying disciplined about it, but we're hopeful that we might move into an environment where we'll be able to start to accelerate our asset trading activity a little bit. We haven't done that much in the last, say, four or five quarters. Nick, I'll add a couple of comments. I think it's well put together by Matt.

Speaker Change: Thank you very much.

Speaker Change: Thank you and our next question comes from Jamie Feldman with Wells Fargo. Please state your question.

James Colin Feldman: Great. Thanks, and thanks for taking the question so I'm.

James Colin Feldman: I wanted to go back to a comment you made on I.

James Colin Feldman: I think you said rents and occupancy in the sunbelt could last at least through 'twenty five the pressure on rents and occupancy and to send out good last at least through 'twenty, five and possibly into 26.

Benjamin W. Schall: I generally see our window of opportunity being open for a decent period of time and for two primary reasons. One, the supply dynamics that exist in the Sunbelt, which, as per my prepared remarks, we expect to be with us for a period of time. So that softness on rate and occupancy and a weight on asset values is what we think will be here. And the second part is on the kind of the capital world, which, you know.

Speaker Change: So first I want to make sure I heard that correctly and secondly can you just talk more about what gives you the confidence in saying that and if you think about it you've got spring leasing. This year then it slows down at the end of the year then you've got spring leasing next year I think a lot of people think things will get cleaned up by then but your comments kind of indicate they probably won't so just wanted to hear.

Benjamin W. Schall: We're really just at the front part of the wave of maturities of deals done, you know, two, three, four years ago. So I agree with Matt that not seeing a ton today would also not see a ton of dislocation, but it is still early. And we think we're well prepared to take advantage of it for the right types of opportunities. Thank you very much.

Speaker Change: Based on data youre seeing or what you're seeing on the ground and how you think that trajectory plays out.

Speaker Change: Yeah, Jamie I'll start with a couple of comments.

One is just the <unk>.

Speaker Change: The facts and the known dynamics that exist.

Speaker Change: Supply in the Sunbelt, yes, it is going to be peaking later this year, but it is going to remain elevated into 2025.

Unknown Attendee: Great, thanks. And thanks for taking the time to answer the question. So I want to go back to a comment you made. I think you said rents and occupancy in the Sun Belt could last at least through 25. The pressure on rents and occupancy in the Sun Belt could last at least through 25 and possibly into 26. So first, I want to make sure I heard that correctly. And secondly, can you just talk more about, you know, what gives you the confidence in saying that?

Speaker Change: Second known dynamic is we don't want projects or we know which projects are under construction and those projects are completing and you know that period of time associated with lease up so that inherently takes you out another 12 to 15 months, depending on the size of the project and the velocity.

Speaker Change: That lease up and then the third dynamic and this gets into the impact on <unk>.

Speaker Change: NOI as the rolling through of rent rolls over that period of time and so when you think about sort of the last dynamic in the last effective NOI impact that gets you into that early 2026 type of timeframe.

Speaker Change: It's the area, where you know in our minds, it's sort of it's one of those known industry dynamics and the extent of the economic scenario has gotten better but in a call. It a slower growth economic environment overlaid on high supply in certain Submarkets, we expect there to continue to be pressure.

Unknown Attendee: And if you think about it, we've got spring leasing this year, then it slows down at the end of the year. Then you've got spring leasing next year. I think a lot of people think things will get cleaned up by then, but your comments kind of indicate they probably won't.

Speaker Change: Okay. Thank you for that and then are there specific.

Speaker Change: Vic markets I mean, I know we've heard often then we were just there ourselves.

Speaker Change: Kind of the poster child of the weakness, but when you think about all of the Sunbelt markets I mean, you're painting, a pretty broad brush and theres some that really stand out.

Benjamin W. Schall: So just want to hear, you know, based on data you're seeing or what you're seeing on the ground, how you think that trajectory plays out. Hey, Jamie, I'll start with a couple of comments. So one is just the sort of the facts and the known dynamics that exist.

Speaker Change:

Speaker Change: That will that will be maintained for longer.

Speaker Change: Yes, Austin would also be at the top of that let's just look at percentage of stocks coming online that would be high on the list.

Benjamin W. Schall: Supply in the Sun Belt, yes, it is going to be peaking later this year, but it is going to remain elevated into 2025. The second known dynamic is that we know which projects are under construction, you know when those projects are completed, and you know the period of time associated with lease-up. So that inherently takes you out another 12 to 15 months, depending on the size of the project and the velocity of that lease-up.

Speaker Change: Yeah generally in the sunbelt markets the more urban oriented submarkets generally seeing the highest levels of supply coming online and that's one of the reasons. We've been conscious as we've been growing our son, our expansion market portfolio to really push ourselves out further into those marketplaces out of.

Sub market or two with lower density product lower price point that is competing less directly with new supply.

Benjamin W. Schall: And then the third dynamic, and this gets into the impact on NOI, is the rolling through of rent rolls over that period of time. And so when you then think about sort of the last dynamic and the last effect of NOI impact, that gets you into that early 2026 type of timeframe. It's an area where, you know, in our minds, it's sort of one of those known industry dynamics. And to the extent that the economic scenario has gotten better, but in what is called a slower growth economic environment, overlaid on high supply and certain sub markets, we expect there to continue to be pressure.

Speaker Change: Okay. So it sounds like Youre sunbelt expansion would still be mostly suburban if you could find asset.

Speaker Change: It is yes, that's been a very conscious choice of ours.

Speaker Change: And we also think about it is complementing what we're buying with what we're going to be building and so even to make the point further what we've been buying tends to be slightly older product lower price point lower density products, recognizing that our development, while it still will be suburban will tend to be mid rise and a little bit higher price point once it comes to mark.

Speaker Change: So we think about that is just our overall we talked about.

Speaker Change: At a portfolio level optimization, but we also are very much focused on it in terms of the market in a submarket perspective.

Speaker Change: Okay Alright, thank you for taking the question.

Thank you.

Benjamin W. Schall: Okay, thank you for that. And then are there specific markets? I mean, I know we've heard Austin, and we were just there ourselves as kind of the poster child for the weakness. But when you think about all the Sunbelt markets, I mean, you're painting a pretty broad brush. Are there some that really stand out?

Speaker Change: And our next question comes from Austin, <unk> with Keybanc capital markets. Please state your question.

Austin: Great. Thanks, good morning.

Austin: I just wanted to go back to the dispositions you kind of highlighted the scarcity premium, but I'm curious if there was any specific.

Austin: Factors related to the assets you sold sort of idiosyncratic factors that maybe benefited valuations you achieved or if you think that is reflective of valuation today and then can you just share how deep the buyer pool was and whether or not there is no financing contingencies.

Benjamin W. Schall: Yeah, Austin would also be at the top of that list. Just look at the percentage of stock coming online; that would be high up on the list. You know, I generally in the Sunbelt markets, the more urban-oriented submarkets are generally seeing the highest levels of supply coming online. And that's one of the reasons we've been conscious as we've been growing our expansion market portfolio to really push ourselves out further into those marketplaces out of a submarket or two with lower density product, lower price points that are competing less directly with new supply. Okay, so it sounds like your Sunbelt expansion would still be mostly suburban if you could find assets. It is, yeah, that's been a very conscious choice of ours.

Speaker Change: Sure well the first thing I would say, it's none of them have closed yet so.

Are you able to provide more detail.

Speaker Change: And on the second quarter call, but it's a pretty good mix.

Speaker Change: Three of the four assets are <unk>.

Speaker Change: So a little bit more urban than what we've been selling in the past.

Speaker Change: One in New Jersey, one in Seattle, one in Boston and one in southern California, So good mix of geographies.

Speaker Change: And it continues to be a little bit of a bifurcated market.

Speaker Change: The one is the smaller deals kind of less than 100 million.

Speaker Change: I tend to be either private buyers 10, 31 buyers syndicators little bit less institutional.

Benjamin W. Schall: And we also think about it, as you know, complementing what we're buying with what we're going to be building. And so even to make the point further, what we've been buying tends to be slightly older product, lower price point, lower density product, recognizing that our development, while it's still suburban, will tend to be mid-rise and a little bit higher price point once it comes to market. So we think about that as just our overall, we talk about, at a portfolio level optimization, but we also very much focus on it in terms of a market and a sub-market perspective. Okay. All right. Thank you for taking the time to answer the question. Thank you. Great, thanks. Good morning.

Speaker Change: And then when you get into a bigger assets, that's where probably those buyers are using less leverage and the cap rates are little bit lower if you can find if thats more of an institutional bid, but theres plenty of assets that are not getting that institutional bid. So.

Speaker Change: It does really vary based on kind of where you are.

Speaker Change: But one of the things that was a pleasant surprise is that even some of them, even though we have one large urban asset urban Boston, which is relatively in favorite market and the data is probably deeper there than than any of the others actually.

Speaker Change: No. That's helpful detail just switching over to operations just wanted to hit on sort of the Bay area commentary you mentioned I think that the underpinnings of positive momentum.

Speaker Change: We're there.

Matthew H. Birenbaum: Matt, just want to go back to the dispositions, you kind of highlighted the scarcity premium, but I'm curious if there were any specific factors related to the assets you sold, sort of idiosyncratic factors that maybe benefited the valuations you achieved, or if you think that is reflective of valuation today? And then can you just share how deep the buyer pool was and whether or not there was, you know, a financing contingency

Speaker Change: What's it going to take for that to translate into outperformance and sort of I guess, a little bit better than and maybe less volatile fundamental backdrop.

Speaker Change: The Bay area, and then any other west coast Submarkets as well.

Speaker Change: Yes, it's Sean good question.

Speaker Change: And the question I think on a lot of People's minds.

Sean J. Breslin: I think that's the way I would describe that as far as supply should not be an issue for an extended period of time, there in one or two assets in San Francisco as an example that are finishing and Lisa but given the nature of the product economics timelines that won't be an issue for a long period of time.

Matthew H. Birenbaum: Well, the first thing I'd say is none of them have closed yet. So, you know, I'll be able to provide more detail at the end of the second quarter call. But it's a pretty good mix.

Matthew H. Birenbaum: Three of the four assets are AVAs, so they're a little bit more urban than what we've been selling in the past. One in Jersey, one in Seattle, one in Boston, and one in Southern California.

Sean J. Breslin: It's really more on the demand side and making sure that I think for the most part what we're hearing on the ground is that we really just didn't need business leaders to be more confident in bringing people back to their respective offices and opening offices in San Francisco.

Matthew H. Birenbaum: So a good mix of geographies. And, you know, it continues to be a little bit of a bifurcated market. So the ones, the smaller deals, kind of less than $100 million, tend to be either private buyers, 1031 buyers, syndicators, a little bit less institutional. And then, you know, when you get into bigger assets, that's where, you know, probably those buyers are using less leverage. And, you know, the cap rates are a little bit lower.

Sean J. Breslin: Whats underneath that is making sure that the associate population for all of those various employers is comfortable being in that market kind of living and quality of life issues. Certainly the political dynamic has started to shift in a meaningful way and it seems to be some positive momentum there, but that takes time.

Sean J. Breslin: So.

Sean J. Breslin: That's why I would say that that is probably the most important thing obviously job growth matters and it's been a little bit choppy, but we're seeing some good signs of life, particularly given the.

Matthew H. Birenbaum: If you can find, if that's more of an institutional bid, but, you know, there are plenty of assets that are not getting that institutional bid. So it does really vary based on kind of where you are. And one of the things that was a pleasant surprise is that even some of our larger urban assets, Urban Boston, which is a relatively thriving market, and the bid was probably deeper there than any of the others actually. That's a helpful detail.

Sean J. Breslin: The generative AI boom, so to speak but it has not manifested itself into thousands of job showing up yet in these markets.

Sean J. Breslin: And so I think the broad view around technology and that being in the epicenter of sort of technology innovation is still present, while the confidence about bringing people back to work, particularly in San Francisco I would say, we're starting to see signs of life of that in San Jose. This is more short term demand and that there has been for the last couple of years, that's an initial.

Sean J. Breslin: Just switching over to operations, just wanted to hit on some sort of Bay Area commentary. And you mentioned that you think the underpinnings of positive momentum were there, but what is it going to take for that to translate into outperformance and sort of, I guess, a little bit better and maybe less volatile, fundamental backdrop for the Bay Area, and then, you know, any other West Coast submarkets, as well? Yeah, listen, it's Sean.

Sean J. Breslin: Indicators, it's positive.

Sean J. Breslin: But it's sort of a mixed bag as it relates to San Francisco in certain parts of the East Bay.

Speaker Change: So just one quick follow up there I mean is that sort of sequential improvement.

Speaker Change: It'll in Bay area are those given we Werent hearing you talk about this three to six months eight months ago. I guess is that year to date improvement in asking rents being driven by those west coast.

Sean J. Breslin: Good question. And the question, I think, on a lot of people's minds. I think the way I described it is first, you know, supply should not be an issue for an extended period of time. There are one or two assets in San Francisco, as an example, that are finishing lease up. But given the nature of the product, the economic timelines, you know, that won't be an issue for a long period of time.

Most markets specifically or is it just.

Speaker Change: More broad and related to the lower turnover et cetera that youre seeing.

Speaker Change: Yes, I mean as it relates to the trend that asking rents is primarily driven by the.

Speaker Change: The east coast markets.

Sean J. Breslin: It's really more on the demand side and making sure that, I think, for the most part, you know, what we're hearing on the ground is that we really just do need business leaders to be more confident in bringing people back to their respective offices and opening offices in San Francisco. What's underneath that is making sure that the associate population for all those various employers is comfortable being in that market, kind of living quality of life issues.

Speaker Change: And if you look at it on a year over year basis East coast markets are up 2% to 3% versus the west coast markets are up about 1% roughly.

Speaker Change: Yes, that's being supported by markets like San Diego Orange County parts of L. A certainly Seattle has had a nice recovery we've been surprised as I mentioned in my prepared remarks about Seattle.

Sean J. Breslin: Certainly, the political dynamic has started to shift meaningfully. There seems to be some positive momentum there, but that takes time. So that's why I'd say that that is probably the most important thing. Obviously, job growth matters, and it's been a little bit choppy. But we're seeing some good signs of life, particularly given the generative AI boom, so to speak.

Speaker Change: Trends in the firming in Seattle, certainly seems to have sort of a greater foundation to it than what we've seen in the bay area just yet.

Speaker Change: And part of what's driving the effective rent change in Seattle in Q1 and into April is a pretty significant reduction in concessions concession volume for US as an example from Q4 to Q1 was down about 70%.

Speaker Change: We incurred almost 900000 concessions in Q4 versus $2 75 in Q1 of 'twenty four.

Sean J. Breslin: But it has not manifested itself yet in thousands of jobs showing up in these markets. And so I think the broad view around technology and that it being the epicenter of sort of technological innovation is still present, and there is more confidence about bringing people back to work, particularly in San Francisco, I would say. We're starting to see signs of life for that in San Jose. There's more short-term demand than there has been for the last couple of years. That's an initial indicator that's positive.

Speaker Change: Versus in the Bay area was down about 20%. So you are seeing good trends, but I would say, it's not being broadly supported by northern California more of some of the southern California markets in Seattle as it relates to the West coast.

No that's very helpful. Thanks for the time.

Speaker Change: Yes.

Speaker Change: Our next question comes from Steve <unk> with Evercore ISI. Please state your question.

Sean J. Breslin: But it's sort of a mixed bag as it relates to San Francisco and certain parts of the East. So just one quick follow-up there. I mean, is that sort of sequential improvement, you know, Seattle and the Bay Area, are those, you know, given we weren't hearing you talk about this, you know, three to six months, months ago, I guess, is that year-to-date improvement and asking rents being driven by those West Coast markets specifically? Or is it just, you know, more broad and related to the lower turnover, etc.

Speaker Change: Hi.

Speaker Change: Sorry.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Sorry about that.

Speaker Change: Sorry.

Speaker Change: I guess on the slide 13, the economic occupancy for 'twenty 'twenty four is basically showing kind of no improvement. So I'm not sure what was it the initial outlook, but clearly you had a 30 basis point pick up in the first quarter and I think the comps actually get easier as as time goes.

Sean J. Breslin: Yeah, I mean, as it relates to the trend in asking rent, that's primarily driven by the East Coast markets. And if you look at it on a year over year basis, the East Coast markets are up two to 3% versus the West Coast markets, which are up about 1%, roughly. Yeah, that's being supported by markets like San Diego, Orange County, parts of LA, and certainly Seattle has had a nice recovery. We've been surprised, as I mentioned in my prepared remarks about Seattle.

So I'm just curious.

Speaker Change: Given the top of funnel demand that you talked about.

Speaker Change: Being reasonably strong I guess I'm, just curious why youre not assuming maybe improved occupancy or is there something youre doing on that.

Speaker Change: <unk> side that might keep our occupancy growth at Bay.

Speaker Change: Yes, David Sean It's really two factors one as you described.

Speaker Change: We are seeing.

David Sean: Sort of a faster improvement in occupancy experienced that in Q1.

Sean J. Breslin: The trends and the firming in Seattle certainly seem to have sort of a greater foundation to them than what we've seen in the Bay Area just yet. And part of what's driving the effective rent change in Seattle in Q1 and into April is a pretty significant reduction in concessions. Concession volume for us, as an example, from Q4 to Q1 was down about 70%. We incurred almost $900,000 in concessions in Q4 versus $275,000 in Q1 of 24%. Compared to the Bay Area, it was down about 20%.

David Sean: Just quickly translating to rate acceleration, which actually puts a little bit of pressure on occupancy and then other thing. If you think about it from a revenue standpoint with.

David Sean: With higher rates the dollar value of each bank of units is actually higher so it doesn't contribute as much to revenue as you might think when you look at it from that perspective anything that is vacant is worth more and so it does sort of way on the revenue side of it but those are the two primary reasons.

David Sean: In terms of physical occupancy, we expect it to be roughly about a push by the time to get to our year end realm.

David Sean: Relative to our original guidance and Thats why it shows up that way on the slide.

Speaker Change: Okay, and maybe as a follow up I think I heard.

Sean J. Breslin: So, you know, you're seeing good trends, but I would say it's not being broadly supported yet by Northern California, more some of the Southern California markets in Seattle as it relates to the West Coast. That's very helpful. Thanks for the time. Hi, um, sorry. [inaudible] I'm sorry about that. I'm sorry.

Speaker Change: I think you said that.

Speaker Change: You were expecting about 4% on renewal growth if I wasn't mistaken maybe for the balance of the year.

Speaker Change: I don't know if I heard you say, where you are sending out renewal notices for kind of the May June July period, but are those going out at substantially better than 4% and youre, assuming some discounting or you know could there may be some upside to that 4% number.

Sean J. Breslin: I guess on slide 13, the economic occupancy for 2024 is basically showing kind of no improvement. So I'm not sure what was in the initial outlook, but clearly, you had a 30 basis point pickup in the first quarter. And I think the comps actually get easier as time goes on.

Sean J. Breslin: So I'm just curious, and given the top of the funnel demand that you talked about, being reasonably strong, I guess I'm just curious why you're not assuming maybe improved Great Side that might keep occupancy growth at bay. Yes, David, Sean, it's really two factors. One is what you described, when we've seen a sort of faster improvement in occupancy, we experienced that in Q1. That is quickly translating to rate acceleration, which actually puts a little bit of pressure on occupancy.

Speaker Change: Yes.

Speaker Change: You are correct I did not say renewal offers renewal offers for May and June are out in the high 5% range.

Speaker Change: So we're expecting them to settle sort of and there's a little bit for us is reasonable based on historical norms.

Speaker Change: Got it and then just lastly on development, Matt you guys are starting a couple of new projects here I think in the second quarter.

Speaker Change: Just remind us what are you targeting on new projects today, I know that theres been some upside on the things you're delivering but you know what's kind of the new hurdle in light of today's new interest rate environment.

Sean J. Breslin: And the other thing, if you think about it from a revenue standpoint, with higher rates, the dollar value of each vacant unit is actually higher, so it doesn't contribute as much to revenue as you might think when you look at it from that perspective. Anything that is vacant is worth more, and so it does sort of weigh on the revenue side of things, but those are the two primary reasons. In terms of physical occupancy, we expect it to be roughly about a push by the time we get to year-end relative to our original guidance, and that's why it shows up that way on the slide.

Matthew H. Birenbaum: Yes, Steve I guess.

Matthew H. Birenbaum: Theres actually.

Matthew H. Birenbaum: It's not one number theyre different targeted yields for different markets and even down to different submarkets and also based on the risk profile of the deal, but we're generally looking for that 100 to 150 basis point spread to cap rates. So what that's translating into kind of on average is probably a mid mid to high fixes.

Matthew H. Birenbaum: Yield and then it's going to be lower in markets, where.

Yields that are less risky or markets, where we expect stronger growth because ultimately it's about the full investment return and the IRR and it's going to be higher in markets that have the inverse of that and so where you see where deals actually clearing those today.

Sean J. Breslin: Okay, and maybe as a follow-up, I think I heard you say that you were expecting about 4% for renewal growth, if I'm not mistaken, maybe for the balance of the year. I don't know if I heard you say where you were sending out renewal notices for kind of the May, June, July period. But you know, are those going out substantially better than 4%, and you're assuming some discounting, or could there maybe be some upside to that 4%? Yeah, you're correct.

Matthew H. Birenbaum: We expect to start a deal in suburban Boston and kind of the mid sixes, which maps well to where cap rates are in those markets.

Matthew H. Birenbaum: We expect to start a deal in suburban Jersey, which is.

Matthew H. Birenbaum: Around seven.

Matthew H. Birenbaum: Because cap rates are higher in that market.

Matthew H. Birenbaum: And then mid Atlantic would also be around to seven and then some of our expansion regions that might be a little lower than that closer to six.

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

Speaker Change: Thank you and our next question comes from Adam Kramer with Morgan Stanley. Please state your question.

Sean J. Breslin: I did not say renewal offers, but renewal offers for May and June are out in the high 5% range, so expecting them to settle sort of in the low to mid-4s is reasonable based on historical norms.

Adam Kramer: Hey, Thanks, guys for the question just wanted to ask about your expectations for West Coast markets.

Matthew H. Birenbaum: And then just lastly, on development, Matt, you guys are starting a couple new projects here, I think, in the second quarter. Just remind us, what are you targeting on, you know, new projects today? I know that there's been some upside on the things you're delivering. But you know, what's kind of the new hurdle in light of today's new interest? Hi.

Adam Kramer: I think these are markets that lagged a little bit if I just look at your kind of market by market I think the blended rate growth in the supplemental.

Adam Kramer: Also have pretty high expectations for same store revenue I'm looking at your presentation correctly. So just wanted to ask you about kind of what's what's the delta there are they're kind of.

Adam Kramer: Kind of outsized growth expected there.

Matthew H. Birenbaum: Yeah, Steve, I guess we're actually not looking for just one number; there are different target yields for different markets and even down to different sub-markets and also based on the risk profile of the deal. But, you know, we're generally looking for that 100 to 150 basis points spread on cap rates. So what that's translating into kind of on average is probably a mid to high fixed target yield. And then, you know, it's going to be lower in markets where deals that are less risky or markets where we expect strong, longer growth. Because ultimately, it's about the full investment return, the IRR, and it's going to be higher in markets that have the inverse of that.

Adam Kramer: The rest of the year, that's going to bring seems to revenue.

To be one of the best performing markets there if I'm looking at your slide deck.

Adam Kramer: Yes, Adam it's Sean Good question and one of the factors to keep in mind is what's changing in <unk>.

Adam Kramer: Your line bad debt across the markets.

Sean J. Breslin: If you think about it obviously rent change is one component, but changes in occupancy bad debt et cetera, and particularly for the southern California market I would say that as a meaningful contributor to total revenue growth in 2024.

Sean J. Breslin: To give you some sense in the first quarter I think southern California, roughly 40% of the revenue growth was related to just better underlying bad debt.

Sean J. Breslin: Yes.

Sean J. Breslin: Cell C and the churn.

Sean J. Breslin: And then re renting those units to people who are paying so that is the driver. There is a table in the back there are less attachment that gives you the change.

Matthew H. Birenbaum: And so where you see deals actually clearing those today, we expect to start a deal in suburban Boston in kind of the mid sixes, which maps well to where cap rates are in those markets. We expect to start a deal in suburban Jersey, which is around a seven, because, you know, cap rates are higher in that market. And then, you know, the mid-Atlantic, it would also be around a seven, and then some of our expansion regions, it might be a little lower than that, closer to six. Great, thanks. That's it.

Sean J. Breslin: Styrene over the last few quarters in bad debt and that May help you kind of map a little bit better.

Speaker Change: Great. Thanks, Sean just maybe as a follow up you guys provided really helpful.

Speaker Change: Really helpful kind of expectations for new and renewal growth for the whole year and apologies if you've if you've talked about this already today, but maybe just walk us through kind of what the updated expectations would be I think renewals prior were 4% new was roughly flat to 2% growth, maybe just walk us through what the update the expectations are.

Sean J. Breslin: Hey, thanks guys for the questions. So I wanted to ask about your expectations for West Coast markets. You know, I think these are markets that have lagged a little bit if I just look at your kind of market by market effective blended rent growth and supplemental, but they also have pretty high expectations for same store revenue if I'm looking at your presentation correctly. So I just wanted to ask about kind of what's the delta there? Are there kind of, you know, is there any kind of outsized growth expected there for the rest of the year? Hoops to run, https://www.youtube.com.au/watch?v=8ZZKjk. Adam, it's Sean.

Speaker Change: Assuming with the new guidance that those that those may be a little bit higher than they were previously.

Yes.

Speaker Change: I mentioned in my prepared remarks is that we have we.

Speaker Change: We expect like term effective rent change kind of in the mid 2% range.

Speaker Change: Which is about 50 basis points above our original outlook.

Speaker Change: What I indicated is that the second quarter it should trend probably in the low 3% range before decelerate in the back half of the year as it relates to renewals kind of low to mid 4% range.

Speaker Change: For the balance of the year, while new move ins average roughly 50 basis points.

Speaker Change: Which sort of reflect maybe the low 2% range for Q2 before experiencing kind of a normal seasonal decline in Q3 and Q4.

Sean J. Breslin: Good question. And one of the factors to keep in mind is what's changing in underlying bad debt across the market. If you think about it, obviously, rent changes are one component, but, you know, changes in occupancy, bad debt, et cetera, and particularly for the Southern California market, I would say that is a meaningful contributor to total revenue growth in 2024. To give you some sense, in the first quarter of this year in Southern California, roughly 40% of the revenue growth was related to just better underlying bad debt. We are working with those folks out, seeing the churn, and then we are renting those units to people who are paying. So that is the driver.

Speaker Change: So thats kind of how we're looking at it right now.

Speaker Change: That's really helpful. Thanks for the time.

Speaker Change: Yep.

Speaker Change: Our next question comes from John Kim with BMO capital markets. Please state your question.

John P. Kim: Thank you.

John P. Kim: Of your beat and guidance range due to better than expected capital markets activity and I was wondering what component of capital markets.

John P. Kim: Outperforming expectations last quarter, you gave a pretty good breakdown on that 29 cent headwind, which is which has improved slightly.

John P. Kim: Yes, John this is Kevin really that the <unk> from better than expected capital markets activity was primarily driven by.

Kevin O'shea: By a combination of favorable interest expense and interest income.

Kevin O'shea: As well as slightly higher budgeted higher than budgeted capitalized interest expense. So it was really in those categories, where most of the favorability was realized.

Sean J. Breslin: There's a table in the back, and there are lots of attachments that give you the change that we've seen over the last few quarters in bad debt, and that may help you kind of map a little bit better. Great, thanks, Sean. Just maybe as a follow-up, you guys provided really helpful, really helpful kind of expectations for new and renewal growth for the whole year. And apologies if you've talked about this already today, but maybe just walk us through kind of what the updated expectations would be.

Speaker Change: What about your cap rate expectations, either on sales or or investments.

John P. Kim: Well I was referring to Q1, we didn't have any transactions that closed in Q1, so transaction activity cap rates did not really have an impact as.

John P. Kim: As you look at the full year guidance, we expect basically due to adjustments in a range of things that fall within capital markets activity with such as buying and selling assets and then movement in interest rates on existing debt and additional debt activity that we had anticipated we anticipate getting one of the two back in being net favorable by a penny for the.

Sean J. Breslin: I think renewals prior were 4%, and new supply was roughly flat. https://www.youtube.com.uk Yeah, what I mentioned in my prepared remarks is that we expect life-term effective rent change kind of in the mid-2% range, which is about 50 basis points above our original outlook. What I indicated is that the second quarter should trend up probably in the low 3% range before decelerating in the back half of the year. As it relates to renewals, you know, kind of a low to mid-4% range for the balance of the year, while new move-ins average roughly 50 basis points, which sort of reflects maybe the low 2% range for Q2 before experiencing kind of the normal seasonal decline in Q3 and Q4. So that's kind of how we're looking at it right now. That's really helpful. Thanks for your time.

John P. Kim: Full year on capital markets in terms of our core <unk> relative to our initial outlook. So we're early in the year.

John P. Kim: In terms of what we will do broadly in terms of transaction activity in capital markets activity. So.

John P. Kim: Haven't made a lot of adjustments, but there's been some movement that caused that additional penny shortfall in the back half back three quarters of the year that will be the sort of getting one of the two pennies back later in the year on that line item.

Speaker Change: Okay. My second question is on the new program.

Sean J. Breslin: Thank you. Part of your beat and guidance raise was due to better than expected capital markets activity. And I was wondering what component of capital markets outperforms your expectations. Last quarter, you gave a pretty good breakdown on that 29 cent hedge, which is, which is proof that, Yeah, John, this is Kevin. The two cents from better than expected capital market activity was primarily driven by a combination of favorable interest expense and interest income, as well as slightly higher budgeted, higher than budgeted capitalized interest expense. So it was really in those categories where most of the favorability was realized.

Speaker Change: You mentioned that you had favorable vintage 'twenty two 'twenty three originations I was wondering when some of those 22 originations start to get paid off.

Speaker Change: And as you look forward.

Speaker Change: Reinvestment of the proceeds what metrics.

Speaker Change: Do you look at our monitor whether it's.

Speaker Change: Cap rate, a 10 year or maybe supply that would make you more cautious.

Speaker Change: On reinvesting in the program.

Matthew H. Birenbaum: Hey, John it's Matt.

Matthew H. Birenbaum: So the only deal that we the only deal that we have did matures next year and 25.

Matthew H. Birenbaum: It's a very small $13 million loan in northern New Jersey, very stable strong market. So.

Sean J. Breslin: What about your cap rate expectations, either on sales or investment? Well, I was referring to Q1, and we didn't have any transactions that closed in Q1, so transaction activity cap rates did not really have an impact. As you look at the four-year guidance, we expect to basically, due to adjustments in a range of things that fall within capital markets activity, such as buying and selling assets and then movement of interest rates on existing debt and additional debt activity that we have anticipated, we anticipate getting one of the two cents back and being net favorable by a penny for the full year on capital markets in terms of our core FFO relative to our initial outlook.

Matthew H. Birenbaum: All the other ones don't mature until 26 or later, so it wasn't necessarily kind of first in first out so to speak.

Matthew H. Birenbaum: So.

Matthew H. Birenbaum: It's still quite a ways out there and we're still building the book so.

Matthew H. Birenbaum: We haven't really focus too much on reinvesting and getting that money back we're still we're at $200 million in the program today I think our long term goal is for it to be around 445. So we are hoping to grow that.

Matthew H. Birenbaum: <unk> balance.

Matthew H. Birenbaum: Maybe $75 million this year.

Matthew H. Birenbaum: And then continue from there in 2000 and fixed at some point, yes, we'll have to we'll face that revolving door, where we start getting redemptions, but.

Sean J. Breslin: So, you know, we're early in the year in terms of what we will do broadly in terms of transaction activity and capital markets activity. So, we haven't made a lot of adjustments, but there's been some movement that, you know, caused that additional penny shortfall in the back half, back three-quarters of the year that will leave us sort of getting one of the two pennies back later in the year on that line item. Okay, my second question is on the SIP program, where you mentioned that you had a favorable vintage, 22 and 23 originations.

Matthew H. Birenbaum: We're still at least a couple of years away from that.

Speaker Change: Great. Thank you.

Thank you and our next question comes from Joshua Denver Lane with Bank of America. Please state your question.

Speaker Change: Yes, good morning, everyone.

Speaker Change: And I just wanted to explore a big picture topic. You mentioned you were talking about the differential between owning and renting in your markets is really wide rents are benefiting from that is there any historical time period, where we could kind of look back at where the Delta was this wide and if so just like how did it play out on the rent growth.

Matthew H. Birenbaum: I was wondering when some of those 22 originations start to get paid off. And as you look forward and reinvest some of the proceeds, what metrics do you look at or monitor, whether it's the exit cap rate or 10 year or maybe supply, that would make you more cautious about reinvesting the program? Hey, John, it's Matt.

I mean, the rent the rent versus own economics that we're seeing today are really unique not something that we've seen we've obviously over time seeing small variations in that but a combination of home price appreciation, particularly in our markets and.

Matthew H. Birenbaum: So the only deal that we the only deal that we have that matures next year at 25 is a very small $13 million loan in northern New Jersey, a very stable, strong market. So all the other ones don't mature until 26 or later. So it wasn't necessarily kind of first in, first out, so to speak. So we, you know, are still quite a ways out there. Still, we are at least a couple of years away from that. Great, thank you. Yeah, good morning, everyone.

Speaker Change: The rise in mortgage rates has led to all time levels right I mean, youre approaching where its some of our markets two times more expensive.

Speaker Change: Owned versus rent.

Speaker Change: And.

Speaker Change: As we think about kind of longer term and looking forward I would frame. It is that's an incremental cushion that we have that supporting our demand on <unk> rental economics. So it may not stay as peak. It is as today, obviously part of that is based on the trajectory on interest rates, but there is a nice cushion that should serve as a tailwind for us for that.

Benjamin W. Schall: Um, Ben, I just want to explore a big picture topic you mentioned. You were talking about the differential between owning and renting in your markets is really wide, and rents are benefiting from that. Is there any historical time period where we could kind of look back at when the delta was this wide?

Speaker Change: A number of years.

Speaker Change: What I'm, saying is there anything in your forecast like as far as rent growth goes or does your forecast assume any kind of life narrowing of that gap or would that be potential upside and it's not just a one year multiyear.

Benjamin W. Schall: And if so, just like how it played out on the, The rent versus own economics that we're seeing today is really unique, not something that we've seen before. We've obviously seen small variations in that, but the combination of home price appreciation, particularly in our markets, and the rise in mortgage rates has led to all-time highs. I mean, you're approaching where it's in some of our markets two times more expensive to own versus rent.

Speaker Change: Multi years.

Speaker Change: For potential upside from this.

Speaker Change: Yes, I mean, the forecast for this year reflects as being a relatively stable level, but obviously interest rates bounce around prices pass around but in terms of the current year outlook sort of reflects generally where we are at this point in time that remained relatively stable.

Speaker Change: Okay.

Speaker Change: At this time.

Speaker Change: Our next question comes from Ann Chan with Green Street. Please state your question.

Benjamin W. Schall: And if you think about it kind of longer term and looking forward, I would frame it as that's an incremental cushion that we have that's supporting our demand for rental economics. So it may not stay as peak as it is today.

Ann Chan: Hi, Thanks.

Ann Chan: Thanks, Larry.

Ann Chan: I'm just wondering have you seen any examples of things beginning to get more aggressive with that.

Ann Chan: Property tax assessments of apartments.

Benjamin W. Schall: Obviously, part of that's based on the trajectory of interest rates, but there's a nice cushion that should serve as a tailwind for us for a number of years. Is there anything in your forecast, like, as far as rent growth goes, or does your forecast assume any kind of, like, narrowing of that gap, or would that... I mean, the forecast for this year shows it as being a relatively stable level. Obviously, interest rates bounce around, prices bounce around, but in terms of the current year outlook, it sort of reflects generally where we are at this point in time and remains relatively stable. Okay, thank you guys. We should be done. Hi, thanks for your time.

Ann Chan: Fill the hole and budgets left side, plus commercial real estate values in other sectors.

Sean J. Breslin: Yeah. This is Sean.

Sean J. Breslin: It's early in the calendar year for some of the assessment cycles that really are more heavily weighted towards kind of midyear in the back half of the year.

Sean J. Breslin: What we have seen thus far is a little bit of an uptick in Washington State.

Sean J. Breslin: And Virginia.

Speaker Change: Don't have insight into all jurisdictions just yet.

Speaker Change: In terms of our portfolio, that's what we're aware of.

Speaker Change: Theres a lag as it relates to property tax assessor values. So our expectation would be they'll probably be more pressure on the sunbelt based off of runoff that occurred sort of through Covid, there's still working its way through the system before you see it in the next couple of years, maybe we start to move the other direction. So we haven't seen clear evidence.

Unknown Attendee: I'm just wondering, have you seen any examples of cities beginning to get more aggressive with property tax assessments on apartments to help fill the hole in budgets left by depressed commercial real estate values and others? Yeah, and this is Sean.

Speaker Change: So that for 2024, just yet, but thats kind of at a high level view.

Speaker Change: Alright, Thanks, I appreciate that.

Sean J. Breslin: I mean, it's early in the calendar year for some of the assessment cycles that really are more heavily weighted towards kind of mid-year in the back half of the year. You know, what we have seen thus far is a little bit of an uptick in Washington State and Virginia. We don't have insight into all jurisdictions just yet, but...

Speaker Change: Yes, I'm just curious what level of Capex per unit should we expect in the next few years combined between NOI enhancing and asset preservation.

Hey, Ana it's Matt.

Matthew H. Birenbaum: So our asset preservation Capex has been pretty consistent over the last well at least between 23 and 'twenty four around $16 seven $800 a unit.

Sean J. Breslin: In terms of our portfolio, that's what we're aware of, you know, there's a lag as it relates to property tax assessed values. So our expectation would be there'll probably be more pressure. On the Sunbelt, based on the run-up that occurred sort of through COVID that's still working its way through the system before you see it in the next couple of years, maybe start to move the other direction. So we haven't seen clear evidence of that for 2024 just yet, but that's kind of the high-level view. Thanks, I appreciate that, and I'm just curious, what level of top X per unit should we expect in the next few years combined between NOI Enhancing and Acid Preservation? Hey Ann, it's Matt.

Matthew H. Birenbaum: Which is I.

Matthew H. Birenbaum: I guess, roughly six or 7% of NOI, 7%.

Matthew H. Birenbaum: The NOI enhancing capex, that's where we've really increased our investment where we're looking to increase our investment volume quite a bit I think we invested about $75 million to $80 million last year across the whole portfolio most of which I guess was same store we were looking to double that this year a lot of that is driven by expanded sold.

Matthew H. Birenbaum: Production and by expanded the opportunity for these accessory dwelling units in California that we talked about a bit at Investor day.

Matthew H. Birenbaum: We think that's an opportunity that's out there for the next couple of years. So we're excited about that and I would think that there will be the opportunity to continue to have those increased opportunities at least for the next couple of years.

Matthew H. Birenbaum: So our asset preservation CapEx has been pretty consistent over the last, well between 23 and 24, around $1,600, $1,700 a unit, which is I guess roughly 6 or 7% of NOI. The NOI enhancing CapEx, that's where we really increase our investment, or we're looking to increase our investment volume quite a bit. I think we invested about $75-$80 million last year across the whole portfolio, most of which I guess we're staying in store. We're looking to double that this year.

Speaker Change: Okay. Thank you.

Speaker Change: Hey, Matt.

Speaker Change: Our next question comes from Brad Heffern with RBC capital markets. Please state your question.

Bradley Barrett Heffern: Yes, Thanks, Cyber Bay on the blended rate assumptions, the low 3% for the second quarter, maybe it seems a little conservative given you would normally expect those funds to pick up further from here and you're already at three 3% in April. So is your assumed seasonality more muted the normal for the second quarter and for the rest of the year or my preceding that wrong.

Matthew H. Birenbaum: A lot of that is driven by expanded solar production and by the opportunity for these accessory dwelling units in California that we talked about a bit on investor day. And we think that's an opportunity that's out there for the next couple of years, so we're excited about that, and I would think that there will be an opportunity to continue to have those increased opportunities at least for the next couple of years. Great Thank you. I appreciate that commentary. Yeah, thanks. Hi everybody.

Speaker Change: No not really Brad.

Speaker Change: Low, 3% 3233 somewhere in that ballpark and when we've seen asking rent growth kind of five 5% or so.

Through yesterday.

Speaker Change: That's played through in terms of renewal offers that have already been made.

Sean J. Breslin: On the blended rate assumptions, the low 3% for the second quarter maybe seems a little conservative, given you would normally expect those blends to pick up further from here, and you're already at 3.3% in April. So is your assumed seasonality more muted than normal for the second quarter and for the rest of the year? Or am I perceiving that, No, not really, Brad.

Speaker Change: In terms of what our expectation is for rate growth. So it seems like somewhere in that in that range for the second quarter is reasonable.

Speaker Change: And then you have a lot to see how asking rent growth continues as we move through the second quarter.

Sean J. Breslin: I mean, low 3%, 3.2%, 3.3%, somewhere in that ballpark. I mean, we've seen asking rent growth of kind of 5.5% or so through yesterday. Yeah, that's playing through in terms of renewal offers that have already been made. In terms of what our expectation is for rate growth, so it seems like, you know, somewhere in that, in that range for the second quarter is reasonable. And then you'll have to see how asking rank growth continues as we move through the second quarter.

Speaker Change: Okay.

Speaker Change: And then on concessions you talked a little bit about the bay area and Seattle, but can you go through any of the other regions and have concessions and how those have trended and I'm, particularly thinking about the expansion regions, but anywhere else as well.

Speaker Change: Yes, what I would say.

Speaker Change: In terms of the expansion regions as we have relatively small portfolios.

Sean J. Breslin: Okay, and then on concessions, you talked a little bit about the Bay Area and Seattle, but can you go through any of the other regions and show how those have trended? And I'm particularly thinking about the expansion regions, but anywhere else?

Same store basket in those regions.

Speaker Change: So as you think of the expansion markets in Texas. For example, we don't have anything can all turn to slide two assets in Dallas.

Speaker Change: We have seen at least in Q1, we saw a year over year increase in concession volume in Dallas.

Sean J. Breslin: Yeah, what I would say first in terms of the expansion regions is, you know, we have relatively small portfolios in our same store basket in those regions. So as you think of the expansion markets in Texas, for example, we don't have anything in Austin. There are only two assets in Dallas.

Speaker Change: In the previous year. It was about a third of all leases is roughly about half.

Speaker Change: In Q1.

Speaker Change: So Dallas Dallas is really a market very large geography broadly diversified really depends on where you are there are some submarkets, whereas well over our bonds for almost every lease there are other submarkets, where it's half above four.

Sean J. Breslin: We have seen, at least in Q1, a year-over-year increase in concession volume in Dallas. In the previous year, it was about a third of all leases. It was roughly about half in Q1.

Speaker Change: Some level of volume so it really depends on where you are.

Speaker Change: If you move to the Denver market, it's really a story of urban versus suburban I think Ben referred to earlier, if you're in the urban Submarkets, where we have one operating asset.

Sean J. Breslin: Dallas is really a market, a very large geography, broadly diversified, and it really depends on where you are. There are some submarkets where it's well over a month for almost every lease. There are other submarkets where it's, you know, half a month for, you know, some level of volume. So it really depends on where you are.

Speaker Change: Sessions are much more rapid as compared to the suburbs, where we have most of our assets and then in terms of our other expansion regions in Charlotte, It's a similar story as Denver.

We have some assets in the south than concessions or more pronounced there average closer to half of bumps for probably 50%, 60% leases versus you've moved to sort of the northern suburbs its quite a bit loss.

Sean J. Breslin: If you move to the Denver market, it's really a story of urban versus suburban, as I think Ben referred to earlier. If you're in the urban submarkets where we have one operating asset, concessions are much more rampant as compared to the suburbs where we have most of our assets. And then in terms of our other expansion regions. In Charlotte, it's a similar story in Denver.

Speaker Change: And then in Florida, Florida is a little more of an effective rent kind of market where people tend to price based on absolute rent then isn't any concessions for existing assets lease up assets are different but existing assets. It tends to be a little more of a.

Sean J. Breslin: We have some assets in the south end. Concessions are more pronounced there, average closer to half a month for probably 50, 60% of the leases, whereas if you move to sort of the northern suburbs, it's quite a bit less. And then in Florida, Florida is a little more of an effective rent kind of market where people tend to price based on absolute rent rather than as many concessions for existing assets. Leased up assets are different, but existing assets, it tends to be a little more of a, "what am I writing a check for?".

Speaker Change: One of my writing a check for and so they're most concerned about the lease rent concessions. So that's a little bit more volatile, but we haven't seen a huge amount of concession volume again, I think thats more representative of the.

Speaker Change: This sort of market behavior is that sort of pricing dynamics.

Speaker Change: Okay. Thank you.

Yes.

Speaker Change: Our next question comes from Handel St Juice with Mizuho Securities. Please state your question.

Sean J. Breslin: And so they're most concerned about the lease rent than the concession. So that's a little bit more volatile, but we haven't seen a huge amount of concession volume. Again, I think that's more representative of the sort of market behavior than it is about pricing that answer. Okay, thank you. Hi, this is Amy.

Speaker Change: And the St. Jude's Your line is open please limit yourself.

Speaker Change: Okay, we'll move on to the next question.

Speaker Change: Our next question comes from Michael Goldsmith with UBS. Please state your question.

Speaker Change: Hi, This is Amy <unk> with Michael <unk>.

Matthew H. Birenbaum: I'm with Michael. Looking back, there have been periodic supply cycles in the South, so clearly, we're seeing supply starting to slow heading into 26. But as rents recover, how fast can development start to pick back up in the Sunbelt? And is that concerning to you as you look to increase your exposure there? Yeah, Amy. It's Matt.

Michael Goldsmith: Back there have been periodic supply cycles in the south so clearly we're seeing supply starting slow heading into 'twenty six but as rents recover how fast Ken development starts to pick back up in the Sunbelt and is that concerning to you as you look to increase your exposure there.

Matthew H. Birenbaum: Yes, Jamie it's Matt.

Matthew H. Birenbaum: It is certainly true that there are fewer barriers, there are fewer regulatory barriers to entry in the southern markets. And so supply is able to respond to demand much more quickly. And some of the supply kind of excesses you're seeing now are we're relatively quick market responses to tremendous demand. You know, a couple of years ago, that really started with COVID in some of those southern or Sunbelt markets.

It is certainly true that.

Matthew H. Birenbaum: There is less barriers theres less regulatory barriers to entry in the southern markets and so supply is able to respond to demand much more quickly.

Matthew H. Birenbaum: Some of the supply excesses Youre seeing now are we're relatively quick market response to tremendous demand.

Matthew H. Birenbaum: Years ago, It really started with Covid and some of those.

Matthew H. Birenbaum: Southern or sunbelt market. So it is I would say.

Matthew H. Birenbaum: So it is, I'd say, a shorter cycle, a more attenuated cycle; demand comes, and supply can respond quickly. But having said that, there is a lot of demand there. And you know, the interplay between those two factors into our view on, you know, kind of our long-term portfolio allocation and trying to get to 25% there. The other thing I would say is, you know, sub markets matter a lot. And there are even within some of these geographies, and particularly the, www.youtube.com.au Yeah, I'll add to that.

Matthew H. Birenbaum: Short cycle of more attenuated cycle demand comms supply can respond quickly.

Matthew H. Birenbaum: But having said that there is a lot of demand there and that the interplay between those two factors into our view on kind of our long term portfolio allocation and trying to get to 25% there.

Matthew H. Birenbaum: The other thing I would say is sub markets matter a lot and there are even within some of these geographies and particularly the <unk>.

Matthew H. Birenbaum: The expansion markets that we selected there are submarkets do you have some meaningful supply barriers and those are certainly the submarkets that are more attractive to us both for acquisitions and we're pretty good at unlocking those constraints on the development side. So.

Matthew H. Birenbaum: Youll see that inform our portfolio strategy within each region.

Benjamin W. Schall: And as we're thinking about the opportunity set in the Sun Belt, we've got the ability in the near term to buy below replacement costs and be at a good basis and find that attractive from a long-term hold perspective. We are increasingly also focused on bringing our strategic capabilities and, particularly, our operating model initiatives to new assets that we bring into the fold. And as we get more and more density in the Sun Belt and our expansion markets, we expect that flywheel to accelerate.

Speaker Change: I'll add to that and as we're thinking about the opportunity set in the sunbelt got it in the near term the ability to buy below replacement cost and we had a good basis.

Speaker Change: Find that attractive from a long term hold perspective.

Speaker Change: We are increasingly also focused on bringing our strategic capabilities and particularly our operating model initiatives.

Speaker Change: That's been driving a lot on growth for our existing assets, but we're increasingly bringing that to new assets that we bring into the fold as we get more and more density in the sunbelt and our expansion markets, we expect that flywheel to accelerate.

Benjamin W. Schall: There is the land side and, you know, the opportunity with less competition in these markets to be finding attractive land, structured appropriately, some of which will make sense to start more immediately, and some of which could position us longer term to generate value.

Speaker Change: There is the land side and the opportunity with less competition in these markets to be finding attractive land structured appropriately.

Speaker Change: Some of which will make sense to start more immediately and some of which could position us longer term to generate value and then kind of a fourth <unk>.

Matthew H. Birenbaum: And then kind of a fourth driver of value for us is, in a world where capital is less abundant, our ability to provide capital to other developers. And we've used that as a tool for growth in our expansion regions, and for sure, in today's environment, we are seeing a better quality sponsor, better quality real estate, and a better return profile there. So it's that combination of opportunities that we will tap into to drive our longer-term expansion of those markets. Great.

Speaker Change: Driver of value for us is in a world where capital is less abundant our ability to provide capital to other developers and we've used that as a tool for growth in our in our expansion regions and for sure in today's environment are seeing a better quality sponsor of better quality real estate better return profile. There. So it's the combination of opera.

Speaker Change: <unk> that will tap into to drive our longer term expansion to those markets.

Matthew H. Birenbaum: And then just a quick follow-up on that. What are you seeing in terms of land cost currently? Right to acquire land if you are if you were going to buy? Yeah, so it varies, obviously, a lot by region.

Speaker Change: Great and then just a quick follow up on that what are you seeing in terms of land cost.

Speaker Change: Land cost.

Speaker Change: Yes.

Speaker Change: Right.

Speaker Change: If you were if you were going to buy.

Yeah. So.

Speaker Change: So it varies obviously a lot by region.

Matthew H. Birenbaum: In some regions, we have seen, particularly in some of our established regions, land prices come down significantly for motivated sellers. There are plenty of sellers, kind of like the assets we're talking about, you know, who are not particularly, there's no time sensitivity, and they're holding out. But, you know, one of the deals we actually highlighted at our investor day was a deal in suburban Boston and Quincy, that's the deal we're looking to start in Q2 in suburban Boston, where that land, we were able to buy that land at probably 40% less than where it had been under contract before saying, you know, 21 or 22.

Speaker Change: In some regions, we have seen particularly in some of our established regions. We have seen land prices come down significantly for motivated sellers, there's plenty of sellers kind of like the assets, we were talking about who are not particularly.

Speaker Change: There's no time sensitivity and theyre holding out but one of the deals we actually highlighted at our Investor day was a deal in suburban Boston in Quincy Quincy. That's the deal that we're looking to start in Q2 in suburban Boston, where that land, we were able to buy that land that probably 40% less than where it had been under contract before saying 'twenty, one or 'twenty two.

Matthew H. Birenbaum: So we are seeing that, to some extent, in the expansion regions, land pricing has probably come off a little bit in Florida where it had gotten incredibly aggressive, but we haven't necessarily seen significant moves down in land costs. Partially, I would say that's because in many of the expansion regions, land is a much smaller percentage of the total deal cap than it is, say, you know, in California or New York, where land might be 30, 40% of your total deal cap. It moves a lot.

Speaker Change: So we are seeing that to some extent in the expansion regions.

Speaker Change: Land pricing has probably come off a little bit in Florida, where it had gotten incredibly aggressive, but we haven't necessarily seen.

Speaker Change: Significant moves down in land costs, partially.

Speaker Change: Partially I would say that's because in many of the expansion regions land is a much smaller percentage of the total deal cap than it is say in California, or New York, where land might be 30%, 40% of your total deal cap. It moves a lot its very high beta if youre doing a garden deal and in Charlotte land might only be 10% a year.

Matthew H. Birenbaum: It's very high beta. You know, if you're doing a garden deal in Charlotte, land might only be 10% of your total deal cap, so it's not going to, you know, move the needle as much, and it's not going to be as sensitive, really, in either direction. All right, thank you. Our next question comes from Alex Goldfarb. Hey, good morning, and thank you.

Speaker Change: Total <unk>, so it's not going to move the needle as much and it's not going to be a sensitive really in either direction.

It's been land prices tend to be sticky in general they've probably been stickier in those markets, where they honestly they were cheaper to begin with.

Speaker Change: Alright, thank you.

Speaker Change: Our next question comes from Alex Goldfarb with Piper Sandler. Please state your question.

Alexander David Goldfarb: Hey, good morning, and thank you so two questions here.

Matthew H. Birenbaum: So two questions here. First, just going to New York with the recent rent law updates, the office to resi conversions actually look to be quite lucrative. Not expecting you guys to take down an office building, but for your development capital program, does this represent a new opportunity for you, given that there's sort of a two-year shot clock where the landlords have to apply for a permit. So it seems like a lot of existing office landlords who may be contemplating this have, you know, a short window to act, and your capital may be attractive to them. Hey Alex, it's Matt.

First just going to New York with the recent rent law updates.

Alexander David Goldfarb: Office to <unk> conversions actually looks to be quite lucrative not expecting you guys could take down an office building, but for your development capital program does this represent a new opportunity for you given that there's sort of a two year shot clock, where the landlords have to apply for permits. So it seems like a lot of existing.

Alexander David Goldfarb: <unk> office landlord, who maybe contemplating this half.

Alexander David Goldfarb: Window to act in your capital may be attractive to them.

Alexander David Goldfarb: Yeah, Hey, Alex it's Matt.

Matthew H. Birenbaum: And I would say no, our developer funding program is really focused on expanding our market, and our growth in our expansion region. So we're not looking to grow our capital investment in Okay, and then the second question is, your overall outlook is just, you know, impressive, certainly ahead of expectations that you guys provided a few months ago. There's a broader debate out there about, you know, a soft landing, a hard landing, you know, what's going to happen to the economy, but none of the comments that you guys spoke about suggest that there's any sort of weakness out there.

Matthew H. Birenbaum: Say no our developer funding program is really focused on expanding our market our growth in our expansion regions, we're not looking to grow our capital investment in New York.

Speaker Change: Okay and then the second question is.

Speaker Change: Your overall outlook just yes. It was impressive certainly ahead of expectations.

Speaker Change: That you guys provided a few months ago. There is a broader debate out there about soft landing hard landing, what's going to happen to the economy, but none of the comments that you guys spoke about suggest that there is any sort of weakness out there across all the markets. It seems like things are healthy is that a.

Matthew H. Birenbaum: I mean, across all the markets, it seems like, you know, things are healthy. Is that a fair takeaway? Or is there anything that your colleagues from the different markets are seeing that would give caution towards later this year, or what all the different regions are seeing, suggests actually an improving environment? Yeah, Alex. This is Sean.

Speaker Change: Fair takeaway or are there is there anything that your field from the different markets. We're seeing that would give caution towards later this year or what all the different regions, we're seeing suggest actually almost an improving environment.

Speaker Change: Yeah. Alex This is Sean I think the broad brush is relatively consistent with what you stated, but certainly real.

Sean J. Breslin: I think the broad brush is, relatively consistent with what you stated, but certainly, you know, real estate's a local business here, and there are some markets that are challenged for either demand or supply reasons or both. As I've mentioned a little bit in my prepared remarks, you know, while the Mid-Atlantic is generally doing pretty well, that is driven by our suburban portfolio. The District of Columbia is still quite..., expensive for both demand and supply reasons. The same thing can be said about urban Seattle, downtown LA, you know. We have one asset there as an example.

Sean J. Breslin: Real estate is a local business here.

Sean J. Breslin: And there are submarkets that are challenged for either demand or supply reasons or both.

Sean J. Breslin: And as I mentioned, a little bit in my prepared remarks.

Sean J. Breslin: The mid Atlantic is generally doing pretty well that is driven by our suburban portfolio. The district of Columbia is still quite solid.

Sean J. Breslin: Soft for both demand and supply reasons.

Sean J. Breslin: It can be said about urban Seattle.

Sean J. Breslin: Downtown La we have one asset there as an example, so I would say broadly speaking what you're indicating is correct.

Sean J. Breslin: So I would say, you know, broadly speaking, what you're indicating is correct. For this type of portfolio, we would have coastal, suburban, primary customer-based healthy, but obviously, there are exceptions where you are, and I would say some of these urban submarkets with plentiful supply, some still have quality of life conditions that are challenging, have a little more churn, and then there are certain markets still, some in the Bay Area where there are signs of some job growth, but then there are still signs of some layoffs here Alex, I'll just add briefly. We've highlighted the improved job picture, right, given the change in expectations from the beginning of the year. But there are crosswinds. Sean touched on a couple of them.

Sean J. Breslin: For the portfolio we have.

Sean J. Breslin: Coastal suburban primary customer base is healthy.

Sean J. Breslin: Obviously, there are exceptions.

Sean J. Breslin: And I would point to some of these urban submarkets with plentiful supply so still a quality of life conditions that are challenging.

As a little more choppy.

Sean J. Breslin: And then there are certain markets. So some of the Bay area, where there are signs of some job growth. But then there are some signs of some layoffs here and there that you're hearing about the median so.

Sean J. Breslin: I wouldn't say everything is rosy, but broad brush as it looks pretty good right now.

Speaker Change: Okay. Thank you.

Speaker Change: Yeah, So I'll just add briefly.

Speaker Change: You highlighted the improved job picture right given the change in expectations from the beginning of the year, but there are cross winds Sean touched on a couple.

Benjamin W. Schall: And I would highlight the inflationary impacts on our consumer and their wallets. I mean, those are very much there and true. You think about car loans coming up for renewal. You think about the beginning of student loan repayment. So the outlook is improved, but I would still describe it generally as sort of our consumer facing a series of crosswinds. Thank you, Ben. Hi Anthony Powell here.

Speaker Change: I would highlight the inflationary impacts on our consumer and their wallet I mean, those are very much there and true you think about car loans I'm coming up for renewal when you think about the.

Speaker Change: Beginning of student loan repayments. So the outlook has improved but I would still describe it generally is sort of our consumer facing a series of cross wins.

Speaker Change: Thank you Ben.

Speaker Change: Thank you and our next question comes from Anthony <unk> with Barclays. Please state your question.

Speaker Change: Okay.

Anthony: Hi, Anthony Paul Here, just a question on the bad debt improvement you saw in the quarter.

Sean J. Breslin: Just a question on the bad debt improvement you saw in the quarter. What drove that improvement? Was it the courts kind of improving their process, getting quicker, residents coming back in current? Maybe more detail will be, I'm sure Anthony and Sean, sort of a combination of all those factors that you just laid out.

Anthony Franklin Powell: What drove that improvement wasn't core kind of improving their process getting quicker redfin, Scott coming back and current maybe more detail will be great. There.

Anthony Franklin Powell: Sure Anthony it's Sean sort of a combination of all those factors that you just laid out.

Sean J. Breslin: And what I'd point out geographically, which might be a little bit of a surprise for people, is that most of the improvement was actually not in, you know, places like LA, which had been sort of the poster child for this, but we saw very good improvement in the broader sort of New York metro area, underlying bad debt in Q4, and that, you know, Boston was 3.1 percent in Q1, and it declined to 2.4. Boston was 120 basis points in Q4, but it declined to 60 basis points.

Sean J. Breslin: And what I'd point to geographically, which might be a little bit of a surprise for people as you know most of the improvement was actually not in places like L. A which have been sort of the poster child for this but.

Sean J. Breslin: We saw very good improvement in the broader sort of New York Metro area.

Sean J. Breslin: Area underlying bad debt in Q4 in that.

Sean J. Breslin: Region was three 1% in Q1 it declined to $2 four Boston was the 120 basis points in Q4 declined 60 basis points. It was about 20 basis point of improvement in Seattle.

Sean J. Breslin: There's about 20 basis points of improvement in Seattle. So for all the reasons you mentioned, you know, some residents catching up on payments, as well as the skip and evict process, or a combination of all those factors drove the improvement. Thanks.

Sean J. Breslin: For all the reasons you mentioned some residents touching up on payments.

Sean J. Breslin: As well as the skip at the next process sort of a combination of all those factors drove the improvement.

Matthew H. Birenbaum: And maybe going back to the New York law that was just passed, I guess you don't want to increase more capital in New York. But was that a comment on the office to resi or just a broader comment? I wanted to, Please close your views on both issues. Yeah, I mean, this is Matt.

Speaker Change: Thanks, So maybe going back to the New York Law that was just passed.

Speaker Change: You don't want to increase more casualty New York, what was that a comment on the opposite to the revenue or just a broader comment I wanted to see if you can maybe just close your views on both the wrinkles per visit and also will be development provisions.

Matthew H. Birenbaum: It was really just a broader comment. When you look at our portfolio allocation, you know, our portfolio allocation to the New York metro area is, I think, roughly 20% today. It has been, and we've been on a journey to reduce that over time. That's one of the regions we're rotating capital out of as we redeploy capital into our expansion regions. So, first and foremost, we're just overweighting that region relative to our long-term goal.

Speaker Change: On the wall.

Speaker Change: Yes.

Speaker Change: Matt It was really just a broader comment when you look at our portfolio allocation.

Matthew H. Birenbaum: Our portfolio allocation to the New York Metro area, I think is roughly 20% today. It has been and we've been on a journey to reduce that over time. That's one of the reasons, we're rotating capital out of as we redeploy capital into our expansion regions.

Matthew H. Birenbaum: So first and foremost.

Matthew H. Birenbaum: We're just over weight that region relative to our long term goal.

Matthew H. Birenbaum: And then you know, when you talk about New York specifically, more of our investment in the New York region is going into New Jersey these days. We're finding very strong development yields, pretty good operating performance. And, you know, and there is a regulatory overlay there, which can be challenging, but it is not as challenging as New York State and New York City.

Matthew H. Birenbaum: And then there are.

Matthew H. Birenbaum: When you talk about New York, specifically more of our investment in the New York region is going into New Jersey. These days, we're finding very strong development yields pretty good operating performance.

Matthew H. Birenbaum: And.

Matthew H. Birenbaum: And there is a regulatory overlay there which.

Matthew H. Birenbaum: It can be challenging, but it is not as challenging as New York State and New York City and that does factor into our long term view as well.

Matthew H. Birenbaum: And that does factor into our long-term view as well. Great, thank you. Yes, hi, good afternoon. In terms of the 7% moving out to buy a home, along those lines, wondering if you've seen any demographic shifts in the composition of your residents over the past year or so? Linda, it's Sean.

Speaker Change: Great. Thank you.

Speaker Change: Thank you and our next question comes from Linda Tsai with Jefferies. Please state your question.

Linda Tsai: Yes, hi, good afternoon.

Linda Tsai: Of the 7% moving out to buy a house along those lines wondering if you've seen any demographic composition of your residents over the past year or so.

Sean J. Breslin: Yes, Linda it's Sean.

Sean J. Breslin: I wouldn't say anything terribly significant. The only thing that I could point to a little bit is, as you might imagine, as we went through COVID, the roommates, the volume of roommates across the portfolio has certainly declined. That's kind of come back up to some more normal levels, roughly, I would say. That'd be the only data point that I really could point to for you.

Sean J. Breslin: I would say anything terribly significant the only thing that I can point to a little bit is.

Sean J. Breslin: As you might imagine as went through Covid roommate vitamin room rates across the portfolio certainly decline.

Sean J. Breslin: Kind of to come back up to some more normal levels of roughly I would say.

The only data point that I could point to for it.

Sean J. Breslin: And then on the better job growth being concentrated in lower-income residents, is there any kind of read through for Avalon Bay in terms of resident demand? Yeah, Sean, again, not at this point that we've seen other than certainly our lower price point assets in some of the markets, you know, particularly on the West Coast, where we have a greater share of those assets, are performing quite well. I think to Ben's point, there certainly are consumers that are feeling a little bit pinched from what's happened with inflation, you know, student loans, car leases expiring, etc, etc.

Sean J. Breslin: And then on the better job growth being concentrated in lower income residents is there any kind of read through for Avalon Bay in terms of resident demand.

Sean J. Breslin: Okay.

Sean J. Breslin: Yes, Sean again.

Speaker Change: Not at this point that we've seen other than certainly our lower price point assets and some of the markets.

Sean J. Breslin: On the West Coast, where we have a greater share of those assets are performing quite well.

Sean J. Breslin: I think to Ben's point and certainly there are consumers that are feeling a little bit hedged from what's happening with inflation.

Sean J. Breslin: Student loans car leases expire et cetera, et cetera, and so certainly as those lower price point assets are performing quite well.

Sean J. Breslin: And certainly, those lower price point assets are performing quite well, in many cases, better than some of the higher price point assets in some of those submarkets. So it's really a market by market question. But overall, we have healthy demand, and in some cases, maybe for the reasons you just described, maybe even stronger demand for some of the lower price points. Thank you, and a notice to the audience. So, to ask a question at this time, press the star.

Sean J. Breslin: In many cases better than some of the higher price point assets and some of those submarkets. So it's really a market by market question, but overall.

Sean J. Breslin: Healthy demand and in some cases, maybe for the reasons you just described maybe even stronger demand for some of the lower price points.

Speaker Change: Thank you.

Speaker Change: Thank you and I noticed that it to the audience. This is the last chance to answer the question queue. So to ask a question at this time press star one on your telephone keypad.

Unknown Attendee: Great, thanks for taking the follow-up. Just quickly, I just wanted to get your thoughts on your debt maturities in 2024 and 2025. Obviously, a much larger maturity pipeline in 25 with 825 million, although unsecured.

Speaker Change: Our next question comes from Jamie Feldman with Wells Fargo. Please state your question.

James Colin Feldman: Great. Thanks for taking the follow up just quickly I just wanted to get your thoughts on your debt maturities in 'twenty four and 'twenty five.

James Colin Feldman: Are you seeing much larger.

James Colin Feldman: Maturity pipeline and twenty-five with $825 million.

Sean J. Breslin: But, you know, what are your thoughts? Like, maybe you could talk to us about, you know, what's in your guidance in terms of refinancing, and is there any chance you'd pull forward the 25 maturities and might that have any impact on your outlook if you did that? Just kind of what are you thinking about the markets in general? Yes, sure, Jamie. This is Kevin.

James Colin Feldman: Our unsecured but what are your thoughts like maybe can you talk us talk to us about what's in your guidance in terms of.

James Colin Feldman: The refinancing and is there any chance you would pull forward the 20.

<unk> 25 maturities and might that have any impact on your outlook. If you did that just kind of what are you thinking about the markets in general.

James Colin Feldman: Yes sure Jamie this is Kevin.

Sean J. Breslin: Maybe just to kind of provide some context, we'll just start with our capital plan for the year. It hasn't changed significantly from our initial outlook. And as you'll recall, what we identified then, and it's still true today, is that for 2024, we have $1.4 billion in uses, which consists of $1.1 billion of investment spend, and then a $300 million debt maturity later this year in November, which has a 3.7% interest rate. So that's the uses we've got for this year. Our sources are pretty straightforward and have kind of three broad parts.

Kevin O'shea: Maybe just to kind of provide some context I'll just start with our capital plan for the year.

Kevin O'shea: It has not changed significantly from our initial outlook and as you'll recall, we identified then and it's still true today is that for 2024, we have $1 $4 billion in uses which consist of $1 $1 billion of investment spend and then a $300 million debt maturity later this year in November.

Kevin O'shea: Which has a three 7% interest rate. So thats. The use is we've got for this year our sources.

Kevin O'shea: A pretty straightforward have kind of three broad parts $400 million of free cash flow.

We anticipate drawing down by $175 million of unrestricted cash that he has the beginning of the year and ending the year with $2 25.

Kevin O'shea: Cash at the end of the year and then our initial outlook contemplated about $850 million or so of external capital, which at the time, we contemplated would be sourced to the combination of two debt offerings.

Sean J. Breslin: With $400 million of free cash flow, we anticipate drawing down about $175 million of unrestricted cash that we had at the beginning of the year and ending the year with $225 million in cash. As we did our Q1 re-forecast, we assumed that we'd do only about $700 million of incremental debt this year and probably use about $100 million or so of net disposition proceeds from the acquisition disposition activity that's underway.

Kevin O'shea: We're early in the year a lot can change and we'll see what will happen as we did our Q1, we forecast we assume that we to only about $700 million of incremental debt this year, and probably use about $100 million or so net disposition proceeds from the acquisition disposition activity that's underway so not a lot of change.

Kevin O'shea: So to that deals we have $250 million of hedges in place.

Kevin O'shea: That we intend to apply to our first debt deal those $250 million or basically effectively strike out of three 7% 10 year right. So.

Kevin O'shea: If we were to do a small debt deal, we probably would be looking at the cost of debt today somewhere in the low 5% range versus.

Kevin O'shea: And unhedged 10 year debt deal that would be more like $506 seven.

Sean J. Breslin: So not a lot of change on two debt deals. We have $250 million of hedges in place that we intend to apply to our first debt deal. So we're in great shape. I mean, it kind of goes back to Ben's initial comments.

Kevin O'shea: So we're in great shape, I mean, it kind of goes back to Ben's initial comments, we have a terrifically strong balance sheet lots of free cash flow low leverage at four three times and well latter debt maturities that typically range from $500 million a year to 800 million or so year next year is a little bit more elevated but it's still.

Sean J. Breslin: We have a terrifically strong balance sheet, lots of free cash flow, low leverage at 4.3 times, and well-ladder debt maturities that typically range from $500 million a year to $800 million or so a year. Next year is a little bit more elevated, but it's still just over two points of our capitalization. So relative to the broader REIT industry, even that maturity is a modest one. We do not currently anticipate prepaying them, and certainly with debt rates where they are today, which are relatively unattractive compared to the expiring rate, it's unlikely we would pull that forward to retire them early.

Kevin O'shea: Just over two points of our capitalization so relative to the broader REIT industry, even that maturity is a modest one.

Kevin O'shea: That $825 million breaks down into a June maturity in 2025 at around three 6% and then there is another $300 million in November 2025 also at around three 6% so.

Kevin O'shea: Our maturities are spaced at roughly six months apart the relatively light level across the spectrum and so we're well positioned to kind of roll those debt maturities as they come due we do not currently anticipate prepaying them and certainly with debt rates, where they are today, which is relatively unattractive compared to the expiring.

Kevin O'shea: Right.

Kevin O'shea: Unlikely, we would pull that forward to retire them early.

Sean J. Breslin: So we'll probably address those as they come due, and again, this is a pretty light year for capital markets activity, including debt, and we'll take things as they come. Great, that's very helpful. And then for the next years, would you put a hedge on early? When would you want to do that?

Kevin O'shea: So, we'll probably address those as they come due and again this is a pretty light year for for capital markets activity, including debt and.

Kevin O'shea: We'll take things as they come.

Speaker Change: Great. That's very helpful. And then for next year would you put a hedge on early.

Sean J. Breslin: Yes, you know, Jamie, it's sort of one of those hedging things we do continually over the course of the year; we don't have rigid fixed plans to hedge x percent of a debt maturity in advance of its maturity. It's really a function of what do we anticipate doing in the current year and the following year. And how do we think about our evolving sense of the capital plan that we'll have for each of those years and and what the opportunity set looks like in the Treasury market for hedging? All right, thanks for the color.

Speaker Change: And when would you want to do that.

Speaker Change: Yes, Jamie it's sort of one of the hedging is something we do we evaluate continually over the course of the year. We don't have rigid fixed plans to hedge X percent of a debt maturity in advance of its maturity. It's really a function of what do we anticipate doing in the current year and the following year and how do we think about the evolve our evolving sense of the capital plan that.

Speaker Change: We'll have for each of those years in and what the opportunity set looks like in the treasury market for hedging.

Speaker Change: Okay, alright, thanks for the color.

Speaker Change: Okay.

Speaker Change: Our next question comes from Michael Lewis with True Securities. Please state your question.

Unknown Attendee: Thank you. I know we're already going on a long time, but I have just one question. And it relates to a topic you talked a lot about, which is the Sun Belt versus the established region. What are 2025 and 2026 going to look like? When I look at your slide 8, 1.3% growth. Unique Growth in Your Established Regions in 25 vs. 2.5% in the Sun Belt, it's not really clear to me, you know, where the advantage lies there, right? In other words, what should that spread be?

Michael Lewis: Thank you I know, we're already going along but I have just one question.

And it relates to a topic you've talked a lot about which is the sun belt versus the established regions and with 2025 and 2026, we're going to look like when I look at your slide eight.

One 3% growth.

Michael Lewis: Yeah.

Michael Lewis: Unit growth in your established regions in 25 versus two 5% in the sunbelt.

Speaker Change: It's not really clear to me.

Speaker Change: Where the advantage lies right in other words, what should that spread be because once you layer demand onto it.

Benjamin W. Schall: Because once you layer demand on top of it, you know, if I'm just looking at households created versus units added, it looks to me like maybe your expansion regions are going to have better fundamentals than your established ones in 25 and, more likely, 26. So I'm just wondering, you know, what you think is an equilibrium for that difference in supply? It's just not clear to me, you know, that there's a big advantage. Yeah, Michael. I'll make a couple of comments.

Speaker Change: If I'm just looking at households created versus the units added.

Speaker Change: It looks to me like maybe your expansion regions are going to have better fundamentals than you establish 1% to 25.

Speaker Change: More likely 'twenty six.

Speaker Change: So I'm just wondering what do you think is an equilibrium for that difference in supply.

Speaker Change: It's just not clear to me.

Speaker Change: There's a big advantage there.

Speaker Change: Yes, Michael I'll make a couple of comments so.

Benjamin W. Schall: So, starts in the Sun Belt are expected to peak at some point kind of mid-year this year, stay elevated, you know, as you get through kind of the middle of next year, and then given the reduction in start volume, start to come down back towards more historical levels as you get towards the end of 2025. So I think that was sort of part of part of your comment there. Now, the impacts on markets as deals deliver on my comments earlier will be more extended. And then, as you look further out, you're exactly right.

Speaker Change: Starts in the Sunbelt are expected to peak at some point kind of mid this year stay elevated as you get through kind of the middle of next year, and then given the reduction and start volume starts to come down back towards more historical levels as you get towards the end of 2025, So I think.

That was sort of part of part of your comment there now the impacts on markets as deals deliver to my comments earlier will be more extended and then as you look further out.

Benjamin W. Schall: It is obviously a demand and supply story. And for us, it very much leads into how we think about our overall portfolio optimization. And broadly, that's the reason we're headed towards 25% in the expansion markets. We think that's a nice addition. But we also continue to feel very strongly about the performance opportunity in our established region. So there's more to that.

Speaker Change: You are right. It is both obviously the demand and supply.

Story and for US it very much leads into how do we think about our overall portfolio optimization and broadly that's the reason we're headed towards 25% in the expansion markets. We think that's a nice addition, also continued to fill.

Speaker Change: Very strongly about the performance opportunity and our established region. So there's more into that we went into the investor day, but that is as we get into a more normalized environment, leading to how do we think about our longer term optimization goals.

Benjamin W. Schall: We went into investor day, but that is as we get into a more normalized environment leading to how we think about our longer-term optimization goals. Okay, so if 2.5% supply growth in the Sun Belt next year, is that, you know, is that, I mean, it sounds like you think things are going to kind of gradually get better, but I mean, is that a concerning number versus the 1.3% in the established regions, or are those pretty similar? You think fundamentals in those two parts of your portfolio might start to look pretty similar next year?

Okay. So it's two 5% supply growth in the Sunbelt next year is that.

Speaker Change: Is that I mean, it sounds like you think things are going to kind of gradually get better, but I mean is that a concerning number versus the one 3% in established regions or are those pretty.

Speaker Change: You think fundamentals in those two parts of your portfolio might start to look pretty similar next year.

Benjamin W. Schall: I think they start to approach closer to historical norms for a period of time. Matt made the comment earlier about the barriers to starting deals in the Sunbelt and the shortness of those market cycles. So that does factor into how we think about our overall portfolio optimization.

Speaker Change: I think they start to they start to approach closer to historical norms.

Speaker Change: For a period of time.

I made the comment earlier about the barriers to starting deals in the sunbelt and the shortness of those market cycles. So.

Speaker Change: That does factor into how do we think about our overall portfolio optimization.

Benjamin W. Schall: Michael, one thing I think to keep in mind here is to be a little careful about isolating years as being very unique in terms of the delivery cycle and the impact on fundamentals. As I was aluding to earlier, what you see on that chart in terms of deliveries for 2024, where it does peak in the back half of this year, people will be leasing up, putting those units into the market 12 to 13 months beyond the initial delivery dates in terms of how they're leasing them up.

Michael One thing I think to keep in mind here is.

Speaker Change: I'd be a little careful about isolating years as being very unique.

Speaker Change: In terms of delivery cycle and the impact on fundamentals as Ken was alluding to earlier.

Speaker Change: You see on that chart in terms of deliveries for.

Speaker Change: 2024, where it does peak in the back half of this year people will be leasing up.

Speaker Change: All three of those units into the market.

Speaker Change: 12 to 13 months beyond sort of the initial delivery dates in terms of how they are leasing them up Andy.

Benjamin W. Schall: And if you think about the impact on pricing, you've got those deliveries coming in, plus you have new deliveries that are beginning in 2025. So the units coming into the market take a long period of time for them to lease up. The impact on stabilized assets takes time as rents are reset to a new sort of market clearing price. As those leases expire, it has to roll through the rent rolls. So when you sort of take the compounded effect, I think that's why we're saying that for 2025, we feel much better about our performance in the established regions relative to the Sunbelt. And that should carry into 2026, given the time it takes to lease up the assets and those new prices to be reflected in stabilized asset rent rolls. N23 was the high supply year.

Speaker Change: And if you think of the impact on pricing you've got those deliveries coming in Flushing, new deliveries that are beginning in 2025, so the units coming into the market. It takes a long period of time for them to lease up and the impact on stabilized assets. It takes time as rents are reset to a new sort of market clearing price.

Speaker Change: As those leases expire has to roll through the rent roll. So when you sort of take the compounds that effect I think that's why we're saying that for 2025, we feel much better about our performance in the established regions relative to the Sun belt and that should carry into 2026, given the time it takes to lease up the assets in there.

Speaker Change: <unk> will be reflected in stabilized asset rent rolls.

Speaker Change: If that makes sense.

Yeah, and 'twenty three with the Isa player to it understood. Thank you.

Speaker Change: Thank you and there are no further questions at this time I'll hand, the floor back to Ben Shaw for closing remarks.

Sean J. Breslin: Okay. Thank you all for joining us today. We appreciate your engagement and support, and we'll talk with you soon. That concludes our call.

Benjamin W. Schall: Alright. Thank you all for joining US today, we appreciate your engagement in store and support and we'll talk with you soon.

Speaker Change #100: Thank you that concludes our call for today all parties may disconnect.